Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2019-Q3

[Operator]

Good afternoon, everyone. Welcome to the Jamieson Wellness conference call to discuss the financial results for the third quarter of 2019. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without the written authorization from the company. As a reminder, today's call is being recorded. On the call today from management are Mark Hornick, President and Chief Executive Officer; and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Hornick, please note that a press release covering the company's third quarter 2019 financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section of the company's website. Please note that the prepared remarks, which will follow, contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in the Jamieson press release issued this afternoon and in filings with the Canadian securities administrators for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Financially, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this teleconference. A reconciliation of these non-IFRS financial measures was included in the -- with the company's press release issued earlier today. Also please note unless otherwise stated, all figures discussed today are in Canadian dollars and are occasionally rounded to the nearest million. I will now turn the conference over to Mr. Hornick to get started. Please go ahead.

[Mark Hornick, President, CEO & Director]

All right. Thanks, Chantal, and good afternoon, everyone. We had a strong third quarter. We generated 11% revenue growth, 9% growth in adjusted EBITDA and 7% adjusted net income growth. Importantly, our gross -- our growth was broad-based with each of our branded business segments reporting year-over-year growth. Momentum across each of our segments gives us confidence with our outlook. And as a result, we are narrowing our 2019 guidance while raising the midpoint of our adjusted EBITDA and adjusted EPS outlook. Let me begin with an overview of our third quarter and our business highlights. First, our Jamieson Brands segment grew by 14% year-on-year, led by a 15% increase in domestic Jamieson Brands sales driven by the timing of promotions, strong consumer demand and expanded distribution. We continue to see robust point-of-sale trends for the Jamieson domestic brand. And as Chris will discuss in further detail, we saw a favorable timing of shipments ahead of promotional activity that contributed incrementally to our third quarter sales. Our international sales increased 24% this quarter led by strong growth in China. We began initial shipments of our registered products for domestic channels in China to both our in-country distributor partner as well as a large global retailer during the third quarter and expect further acceleration of international sales growth during the fourth quarter. Now with 15 products for sale in the domestic Chinese retail market, we're now on track for 5 additional products by year-end. Additionally, we continue to see strong demand in our cross-border e-commerce segment in China. Specialty Brands revenue increased 4% during the third quarter, a product of our initiatives to improve sales execution as well as the initial rollout of innovation and improved promotional activity. We're pleased with the year-over-year turnaround in Specialty Brands, and we anticipate further growth in the fourth quarter, and we're confident with the new renewed momentum that we've produced. In our Strategic Partners segment, the business continues to perform in line with our expectations, where volumes more heavily weighted to the first half of 2019, given the timing of new programs with existing customers. During the third quarter, we produced 3% year-on-year growth, including the impact from a change in invoicing practices with a Strategic Partners customer. Excluding that impact, the change was as expected, a change in revenue lower by 10% during the third quarter. That's something that's completely in line with our forecast. In summary, our business continues to experience great momentum. We have generated growth across our branded and Strategic Partners segments with improved margins, and we're off to a strong start in China. We anticipate a strong finish to 2019 and have a great pipeline for future opportunities in 2020. With that, let me turn the call over to Chris, and he's going to discuss third quarter financial results and our updated guidance in greater detail. So over to you, Mr. Snowden.

[Christopher Snowden, CFO & Corporate Secretary]

Thank you very much, Mr. Hornick. And good afternoon, everyone. As Mark mentioned, we are pleased to report another quarter of strong performance and continue this year's momentum. In the third quarter, revenue increased 11.2% to $88.6 million driven by growth across both reporting segments and each of our branded channels. By segment, Jamieson Brands revenue increased 13.6% to $70.2 million consisting of 14.8% growth in domestic Jamieson revenue, 23.9% growth internationally and 4% increase in our Specialty Brands volume. Revenue in our Strategic Partners segment increased 2.8% including incremental revenue related to the change in billing practices. In exchange for a multiyear contract extension and at the request of a key strategic partner, we transitioned the program from tolling to turnkey, whereby the cost of customer-supplied raw material and the cost of tolling services provided are combined to determine invoice pricing under a turnkey program. Under a tolling program, we only charge for production costs, while raw materials are passed through as they're provided by the customer on a consignment basis. The financial impact of the change will result in higher recorded revenue, consistent gross profit dollars resulting in lower gross profit margin and operating margins. Adjusting for this change, Strategic Partners revenue decreased by 10.3% in the quarter. Gross profit increased by 19.7% to $33.4 million, and gross profit margin increased 260 basis points to 73 -- sorry, 37.7%. The increase in gross margin percentage was due to margin improvements in both segments. In Jamieson Brands segment, we generated 130 basis point margin improvement driven by higher volumes, increasing facility utilization and production efficiencies gained from additional production in packaging capacity. In the Strategic Partners segment, gross margin grew by 520 basis points year-over-year primarily due to volume-related operating efficiencies, while considering the offsetting impact of the change from tolling to turnkey and onetime costs that impacted gross profit in the prior year period. Selling, general and administrative expenses increased by 32.4% to $18.9 million. This increase included higher business integration, international expansion and other nonrecurring costs of $1 million compared to the prior year. Excluding these costs, normalized SG&A expense increased by $3.6 million in the quarter due to higher costs related to the timing of marketing programs, variable compensation in the prior year, plus resource investments for our e-commerce international growth priorities. Operating income increased 4.7% to $13.3 million, and operating margin decreased by 90 basis points to 15%. Adjusted EBITDA increased 8.6% to $19.4 million, and adjusted EBITDA margin decreased 50 basis points to 21.9%. The decline in adjusted EBITDA margin was driven by the timing of SG&A costs, including a variable compensation adjustment recorded in the prior year period and marketing activity, offsetting improved margins in both reported segments during the quarter. In the third quarter, interest expense and financing costs were $2.5 million compared to $2 million in the prior year. The difference was primarily due to prior year increases in benchmark interest rates and the impact of our adoption of IFRS 16, which includes the recognition of interest expense in our lease liabilities. Our reported net income was $4.9 million in the third quarter compared to $7.2 million in the prior year. This included $3.4 million of costs related to our amended and extended credit facility. And on an adjusted basis, net income increased 7.2% year-over-year to $9.5 million or $0.24 for diluted EPS. All of the adjustments to net income are described in today's press release and included an adjusted net income reconciliation table at the end of the release.Turning to the balance sheet and cash flow. We generated $6.7 million of cash from operations during the third quarter compared to $2.2 million in the prior year. The improvement in cash from operations reflects the reduction in working capital investment of $3.7 million and an increase in cash generated from operating activities before working capital considerations of $0.6 million. Capital expenditures during the third quarter were $1.7 million, and we paid $3.9 million in dividends. We ended the quarter with $4.2 million in cash and equivalents and total debt of $174.1 million. On September 27, we entered into an amended and restated credit agreement with existing and new lenders, which improved our borrowing rates, increased our available capacity and eliminated quarterly debt payments. The prior term in the revolving facilities totaling $198 million were replaced by one committed revolving facility with availability up to $275 million. In addition to the revolving facility, the company has $200 million of additional funds available through an accordion feature. Now let me turn to guidance. We are narrowing our 2019 outlook, which we initially provided on February 27, 2019. The company now anticipates net revenue in the range of $339 million to $345 million, representing top line growth of 6% to 8%. This compares to prior guidance of $336 million to $348 million. The adjusted EBITDA range of $74.5 million to $76 million or 10% to 12% growth over fiscal 2018 compared to our prior guidance of $73 million to $76 million. Adjusted earnings per fully diluted common share of $0.74 to $0.76 (sic) [ $0.94 to $0.96 ] or 11% to 13% growth over fiscal 2018 compared to our prior guidance of $0.90 to $0.95. Additionally, I would like to note some assumptions to assist you in modeling. We anticipate Jamieson Brands segment growth of 6.5% to 8% in fiscal 2019, including 5% to 7% growth of the Jamieson Brands domestically, approximately 30% international growth, and growth in our Specialty Brands of 1% to 3%. During the fourth quarter, we anticipate domestic Jamieson Brands revenue to be between flat and 3% growth. This reflects higher-than-expected shipments during the fourth -- sorry, during the third quarter and our year-to-date sell-through to consumers. Not included in our guidance is the transition of a major customer's move from a third-party distribution model to a self-managed distribution model. This change may impact the timing of shipments between the fourth quarter 2019 and the first quarter of 2020. For international, we expect fourth quarter growth between 40% and 50% reflecting the timing of shipments and growth in new and existing markets, including the initial shipments of registered products into the domestic Chinese retail channel. For Specialty Brands, we anticipate continued growth of 4% to 8% during the fourth quarter, reflecting our ongoing positive results through execution of our 2019 strategic priorities. We expect Strategic Partners revenue to decline by approximately 15% in the fourth quarter, taking into account the timing of customer programs launched earlier in the year and have been reflected in higher year-to-date growth and the change in billing practices noted previously. But we continue to expect normalized SG&A increases of 12% to 14% to support our international market growth and e-commerce initiatives. This includes increases in head count and higher marketing investment primarily for Specialty Brands and the normalization of variable compensation and commission. Based on timing of our marketing initiatives and variable compensation realized in 2018, we expect SG&A to increase approximately 12% to 17% during the fourth quarter. We have seen increased depreciation expense reflecting capital expenditure rates in 2018 and 2019 to support growth and efficiency objectives, including the capitalization of operating lease with the implementation of IFRS 16. We are assuming interest expense of approximately $9.5 million based on borrowings to date plus deferred financing fees. Additionally, our guidance reflects an assumption of CAD 1.33 versus U.S. dollar exchange rate on an annual basis and an effective tax rate of 28%. Our estimate for fully diluted common shares is approximately $40 million (sic) [ 40 million ]. A complete discussion of our outlook and factors impacting our expected performance in 2019 is included in the outlook section of our MD&A. With that, I would like to turn the call back to our operator for Q&A.

[Operator]

[Operator Instructions] We will now take our first question from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, Analyst]

Can you maybe provide a little bit more color on the potential timing shift you might see with that customer from Q4 to Q1? I'm just trying to understand the magnitude and the likelihood of that shift, if it happens.

[Christopher Snowden, CFO & Corporate Secretary]

We really don't know, Saba. It's one of our largest customers. They're going from a third-party managed distribution. We expect that to the draw down at the existing third-party and the build direct to the customer to happen in a seamless manner. But there is the risk that, that could effectively affect shipments in the fourth or first quarter. Right now, we can't not quantify because the orders have yet to come in.

[Sabahat Khan, Analyst]

Okay. And then on the Specialty Brands side, can you maybe talk a little bit about like the progress that you're making there? Is it across all of your brands within that platform? Maybe what are you seeing in the different channels? And what kind of the outlook is as you head into next year in terms of the progress that you're expecting to make?

[Mark Hornick, President, CEO & Director]

Yes. Sure, Saba. So we -- we've -- we're very encouraged by the results that we see in Specialty Brands. When you look at whether it's key accounts, the food, drug, mass business that we have or the traditional health food accounts, we're seeing good progress across all of the channels and across all of the brands. The changes that the leadership for specialty brands have put in place under Mike Pilato and his leadership team have been really well received by our customers. We've had a lot of renewed interest in partnerships with our marketing programs, our promotions are -- seem to be much more effective than they have been in the past. Our innovation was extremely well received. We didn't see a large impact financially of that because most of it shipped at the end of Q3, but it's setting us up for some good momentum in Q4 and then into 2020. So it was really good levels of positive momentum across the nature of the business. So we're pleased overall with how that's going.

[Sabahat Khan, Analyst]

And then just on the Jamieson domestic brand growth of 15% that you called out, can you maybe talk about maybe just this quarter and over the course of the year, which I guess types of products are you seeing that growth? And is it in the letter vitamins? Is that in your new launches or some of the more higher-end Jamieson products? Just trying to understand the drivers of that, the domestic growth.

[Mark Hornick, President, CEO & Director]

Well, again, you're seeing pretty good overall brand growth across the vast majority of our segments. I think you could -- we definitely are optimistic that the new advertising that we've put in place, which kind of carries on from that very favorable Jamieson Essentials message that we had excellent success with over the past couple of years, we -- it would appear that we're seeing an uptick from that in terms of POS, which is encouraging. That affects the entire brand, and that's what we're seeing from a segment standpoint. Our innovation is performing very much in line with our expectations, which were fairly robust. And the entire business uniformly is seeing very good momentum and is very healthy across the board.

[Sabahat Khan, Analyst]

Okay. And then without getting into I guess maybe the specifics, but just looking directionally at 2020 and the branded segment specifically, how should we think about the growth from maybe the legacy SKUs versus how much of the growth do you think over the next 12 months would come from new launches or innovation? Is it kind of in line with your traditional breakout? Or would that be more or less heading into next year?

[Mark Hornick, President, CEO & Director]

That's what we're seeing so far. So -- and you recall, kind of half of our growth was based on market growth, our marketing programs and continued consumer interest driven by consumer trends in our categories. And then the other half of our growth profile is due to innovation. Our model is shaping up to be very close to that for 2020. And of course, you guys will get much more detail when we give our 2020 guidance. But we're seeing things very much consistent with the normal pattern of our business, and all of that underpinned by some pretty robust point-of-sale trends that we're encouraged by.

[Sabahat Khan, Analyst]

And then just one last accounting one for me just in the buildup to the adjusted EBITDA. Can you maybe detail what the other adjustment relates to, the $4.6 million amount?

[Christopher Snowden, CFO & Corporate Secretary]

That's primarily the deferred financing or the financing fees incurred to refinance the existing agreement, and also the deferred financing fees written off that existed from the old agreement.

[Sabahat Khan, Analyst]

Okay. So these are just, I guess, onetime things, and we shouldn't expect more of that in Q4 is the assumption?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. Yes, it was connected with the restatement -- or the restated and amended credit agreement.

[Operator]

We'll now take our next question from Peter Sklar with BMO Capital Markets.

[Chang Ding, Associate]

This is Chang filling in for Peter. First question is, can you give us some more color in regards to how Jamieson is doing in China and how, in particular, how Jamieson is doing in the e-commerce channel and as well as the retail channel?

[Mark Hornick, President, CEO & Director]

So definitely, I will say that in general, of course, we get a lot of curiosity about China because of just the upside that, that represents long term for our business. Just as you are curious about our progress in China, our competitors are extremely curious about our progress in China and trying to understand in more detail what we're doing. So in the interest of the business, we will not be able to go into the detail that you probably would love to hear. But at the same time, we'll try to give you a sense for where we are because, in an overall perspective, things are going very much according to our expectations. Our licensees are coming in equal or faster than we anticipated, which is very encouraging. Our distribution is rolling out into traditional Chinese channels as we speak, that were formerly not accessible to us without licensed products. So that's very encouraging. There's a very large global customer who has launched in China and we have a very strong presence with them. As you go to Shanghai and see it yourself, that would become very evident quickly. And that is also rolling out in line with our expectations, all of which is very positive. So for us now the focus is continuing to generate more licensed products, continuing to roll them out into broader and broader channels of distribution, particularly in Tier 1 and Tier 2 cities which have the bulk of the consumer base with the income and education levels needed to support the purchase of premium brands. So all in all, very positive, great momentum and in line with our expectations, which gives us a lot of confidence and anticipation going into 2020. So if that's not specific enough, but we have a little bit of audience to balance here. So that's what we got, Chang.

[Chang Ding, Associate]

No problem. And also can you give us an update on your U.S. online launch?

[Mark Hornick, President, CEO & Director]

Yes. So it's going to be a test, of course. And we are going to be either very end of Q4 or beginning of Q1, we will roll that into the market. We will do that in an online way only. We do not anticipate in the first few quarters anything significant in terms of volume. We'll be building consumer awareness, introducing the brand to consumers. As it's an online launch, you don't have a large pipeline of inventory going into the channel, so you won't see like a material impact. From a sales standpoint, sales will get recorded as we get consumer uptake. And then once we get a sense for how well that test is going, we'll be making decisions then in terms of how much to invest behind that, how broad to make the assortment and how -- what the cadence should be in terms of business expansion. But we've done -- right now, we're in the stages of finalizing all of our pre-work for that in terms of developing all of the labels, formulation, SKUs, finalizing all of our distribution arrangements. Everything is going on track, and it will be very exciting to see how our brand is going to be received south of the border.

[Chang Ding, Associate]

And these are all new SKUs that you're introducing in the test market of the online launch?

[Mark Hornick, President, CEO & Director]

They are based -- they're going to be based on the best products that we have in the Jamieson portfolio in 1 or 2 specific categories. But they will be formulated or -- I guess you could call it optimized based on what we do here in Canada, but for the U.S. market. And that will become more apparent when we launch. And we can get into more detail around that, but also for competitive reasons, we kind of have to keep it at that level for now. But we're setting ourselves up with products that have unique selling propositions, are the best of our portfolio, carry the quality and the consumer insight of the Jamieson Brands here in Canada, but are tailored at the needs of U.S. consumers. And are geared to be very competitive versus the counterparts that we have in the United States.

[Operator]

We'll now take our next question from Endri Leno with National Bank.

[Endri Leno, Associate]

Just a couple for me. First, I mean you mentioned in the domestic channel, Jamieson domestic, there was expanded distribution. I was wondering if you can talk a little bit about that. I mean what does it mean in terms of -- was it geographies? Was it in your partners? Or...

[Mark Hornick, President, CEO & Director]

It's new retail channels of business that are -- where our consumers are now looking for health and wellness solutions that are broader than what you would have -- what you would have found in the past. So a great example would be Dollarama. So if you go into any Dollarama story in Canada, now you will see a very large section of Jamieson with an assortment and a sizing and pricing program tailored to consumers of that business channel who are looking for health and wellness solutions in Dollarama. So that's new distribution for us that we initiated in 2019, and let's say that's off to a very good start. You can also see as you go through other retail channels, especially sports and health and wellness retail outlets that are cater to -- had traditionally catered to more sports equipment and maybe potentially protein, but not with a big focus on supplements. Now you can see that they're very interested in getting into health and wellness. They've chosen our brands to lead that, and we are off to some very successful testing in many of those outlets. So that's exciting. As well as there are some traditional grocery banners which haven't carried vitamins in the past that have seen the, I guess, the power of our brand and our product offering to generate traffic for their store. As well as consumers looking to fulfill their health and wellness needs as conveniently as they can where they shop, and they are now expanding their distribution set to carry Jamieson as well. All of that is new distribution for the brand, which has been very helpful in terms of generating positive sales.

[Endri Leno, Associate]

Great. Sorry, the other question on the international channel, I mean we have great growth in China. I was wondering if you can talk a little bit about the other markets that you are in. I mean how did they grow? And if it's possible to kind of quantify how much was China and how much were the other markets.

[Mark Hornick, President, CEO & Director]

So the great thing is that the markets that we've chosen, most of which are emerging in nature, have got those consumer trends as a groundswell in terms of aging population, rising disposable income and access to information driving year-on-year vitamin growth ahead of what you would see in Canada. And for the vast majority of the countries in which we're operating, we are seeing positive growth across the board, which is a great position to be in. From a breakout standpoint, as you know we're not in a position right now to be disclosing the breakdown of our international sales. But we did say that at some point early in 2020 when we get some more color around the brand performance in China and we get our own sense of what that could yield in terms of potential, we'll be able to shed some additional light on what we see as the future for international expansion. But as it stands now, what we could say is we have fairly uniform growth across our portfolio. China, in particular, has much higher growth than the other countries, but we are not going to be able to split that out at this time unfortunately, Endri.

[Endri Leno, Associate]

Okay. No, it's okay. I appreciate that. A couple more for me, first on the M&A front. You have mentioned you're potentially looking if something is interesting, but hand's full with other projects and expensive multiples have been underway. I was wondering like what you're seeing on the M&A in terms of multiples and whether is there anything interesting out there?

[Christopher Snowden, CFO & Corporate Secretary]

There's been a lot of activity actually in Q3 and coming in Q4. So we're going to continue to participate where it makes sense. I think earlier in the year, it looks like multiples were becoming more reasonable based on what we've seen transact in the past 3 months. That's a reversed trend and they're now kind of at that upper end of what we would consider to be reasonable. So we're going to continue to take a cautious and very pragmatic approach to M&A.

[Mark Hornick, President, CEO & Director]

We're in a great position now where we're not at this moment dependent on M&A in any way to continue a really exciting growth trend for the company. And as you can see, between U.S., e-commerce, China, we have so many exciting organic growth opportunities to tackle that for us, that are immediate priorities to continue working those.

[Endri Leno, Associate]

Great. The last one for me on the EPS, I mean it also looks like you've raised guidance and -- versus tightening for at least EBITDA. So I was wondering what is driving that higher EPS range and midpoint.

[Christopher Snowden, CFO & Corporate Secretary]

Well, I think it's just -- it's the -- it's where the effect of the higher earning expectation as well as a little bit of interest benefit in Q4 falling to the bottom line. So it -- there's no real magic there. It's just [ not ] reconciling EBITDA through to reported net income.

[Operator]

We will now take our next question from George Doumet with Scotiabank.

[George Doumet, Analyst]

Just 2 quick ones, first on China. I'm not sure you would want to answer this, but I'll ask. Just looking at the channel mix, like the percentage of sales that you would expect from e-commerce versus domestic and like, call it, over 2 years, what would be the breakdown there? And would you expect to be margin-agnostic for either of those channels?

[Mark Hornick, President, CEO & Director]

Well, we can answer your second question. So broadly speaking, we are margin-agnostic, which is very positive. From the channel split, we're going to get a lot of really good initial information once our SKUs get into much broader distribution. We see some consumer repeat and we see kind of which SKUs are -- consumers are gravitating to. So we'll see a lot of that happening in, ideally, in the first quarter, and into the second quarter we'll be able to have a better sense ourselves. But at this point in time, what we're really focused on is just getting the distribution into the market, building some initial success with some customers that are already selling the new products. And then from there, we'll have a better sense for ourselves. But at this point in time, we wouldn't have enough information to be able to answer that question with a high degree of accuracy. It all looks very positive. The split will get determined over time when consumers have more experience with the product.

[George Doumet, Analyst]

That's helpful. And just shifting gears to the input costs environment, I guess, for some of the stuff we source from China, are you seeing any tightness in supply? Or are you seeing inflation out there? I'm just wondering if we expect to take price on to offset some of that in the next 12 months.

[Christopher Snowden, CFO & Corporate Secretary]

We're in the process of contracting our needs out right now. And we do not believe there is a need for any price escalation to be passed along. On a macro basis, there may be some specific stocks that we will take, but no significant price increase for [ premium ] line in Canada.

[Operator]

We will now take our last question from Matt Bank with CIBC.

[Matt Bank, Associate]

I guess first, I just wanted to ask, inventory was up quite a bit again in the quarter, but largely offset by accounts payable here. How should we think about the inventory increases and working capital overall?

[Christopher Snowden, CFO & Corporate Secretary]

So long term, we expect working capital to increase in line with revenue growth. We have been expanding our safety stocks in 2019 to provide better service to both our domestic, international and specialty partners. So there is a onetime adjustment that we'll have realized in 2019. That puts our inventory in a better position going forward. And then there's also just the impact of the specific SKUs related to certain new markets to Blue Hats for China, the specific SKUs for the U.S. that will also have an impact in inventory as well as that change from tolling to turnkey for Strategic Partner business where we're now buying the raw material from our customer and selling that back. All those will have little impacts in working capital and then particularly in inventory that we'll see an outsized increase in 2019 compared to prior years. That will normalize back in 2020. And you'll see cash from working capital in Q4. Q4 is typically our highest cash flow quarter where we generate anywhere between 1/3 and 50% of the company's cash flow in the fourth quarter each year.

[Matt Bank, Associate]

Okay. Also, in light of the expanded credit facility, could you update us on how large of an acquisition, if the pricing was right, you would do and leverage levels that you're comfortable with?

[Christopher Snowden, CFO & Corporate Secretary]

That's a loaded question. It really depends on the value and the synergy and the location of the opportunity. Ultimately, we put a facility in place that would maximize our ability to transact in the market. That said, if the size of the opportunity exceeded our available credit, we would consider equity as a source of capital to continue to fund a transaction. But as we talked earlier on, we -- right now, we are focused on organic growth opportunities particularly while multiples are still very high from an industry perspective.

[Mark Hornick, President, CEO & Director]

Yes, I think we have a pretty good internal guideline as to what we would look for in terms of the payback of an acquisition as well as making sure that from a funding standpoint that we do not -- we would never put ourselves in a position where we'd bite off more than we can chew, so to speak. So it's difficult, as Chris says, to put any hard and fast rules around something because until you have something in front of you and you can really evaluate it, it's difficult to say. But our overriding principle is that we have a very robust organic growth opportunity ahead of us that will create significant shareholder value. So any acquisition that we do would stack up against that. And obviously, it would have to be right for the company in terms of our ability to execute, value created for our shareholders and then our ability to fund it comfortably within the means that we have.

[Matt Bank, Associate]

Got it. And then the last one for me is can you comment on your latest thoughts on the India opportunity?

[Mark Hornick, President, CEO & Director]

Yes. So we're -- we are off to a good initial start in India as time -- as timely as this is, Chris and I will both be in the Indian market next week. We are going to meet with our strategic partner, overview their progress to date, talk about what they've seen and the opportunities then for future expansion, and looking specifically at our business plans with them for 2020. It will be a very insightful trip, I'm sure, and we're very much looking forward to it.

[Operator]

And it appears we have no further questions. Mr. Hornick, I'd like to turn it back to you for any additional or closing remarks.

[Mark Hornick, President, CEO & Director]

All right. Thanks again, Chantal. So everyone, thank you very much for joining us to discuss our third quarter results. We're very pleased with the business momentum that we've established throughout 2019. We remain very confident in our position in the Canadian and global vitamin industry. And we thank you for joining us and look forward to speaking with you again on our next call. Take care, and have a good night.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.