Youngevity International's (YGYI) CEO Steve Wallach on Q4 2015 Results - Earnings Call Transcript

Youngevity International, Inc. (OTCQX:YGYI) Q4 2015 Results Earnings Conference Call March 30, 2016 4:15 PM ET

Executives

Steve Wallach - Chairman and CEO

Dave Briskie - President and CFO

Scott Bell - VP of Analytics and Promotions

David Rutz - VP of Global Services

Analysts

Operator

Welcome to the Youngevity Shareholder Call. During this call we will be making forward-looking statements regarding Youngevity's current expectations and projections about future events.

Generally the forward-looking statements can be identified by terminology such as may, should, expects, anticipates, intends, plans, believes, estimates or estimates and similar expressions. These statements are based on current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties including those set forth in Youngevity's filings with the SEC many of which are difficult to predict.

No forward-looking statements can be guaranteed and actual results may differ materially from such statements. The information on this call is provided only as of the date of this call, and Youngevity undertakes no obligation to update any forward-looking statements contained on this conference call on account of new information, future events, or otherwise, except as required by law.

I now proudly turn this call over to our CEO Steve Wallach.

Steve Wallach

Thank you, Alex. Hello everyone. I want to welcome everyone to the Youngevity International shareholders call. Speakers on the call today are myself and our President and CFO Dave Briskie; Vice President of Analytics and Promotions, Scott Bell; Vice President of Global Services, David Rutz, and we will cover the following topics and we will highlight 2015 performance.

We will discuss our unique business model, we will discuss coffee operations, we will hear from our VP of Analytics who will discuss how he will impact benefit and impact our business. We will hear from our VP of Global Services as well.

I want to turn the call over to Dave Briskie now.

Dave Briskie

Thank you, Steve. And hello all shareholders, we appreciate you jumping on the call today. We're pleased to deliver another record year of revenue here at Youngevity International.

Gross profit increased approximately 21.8% in 2015, $92,969,000 as compared to $76,232,000 for the year ended December 31, 2014. That was on total topline revenue of $156 million this year versus $134 million last year. Gross profit as a percentage of revenues increased 2.5% to 59.4% compared to 56.9% in the prior year.

Operating expenses increased approximately 20% in 2015 to $87.5 million as compared to $72.9 million for the year ended December 31, 2014. Included in operating expenses is distributor compensation paid to our independent distributors in the direct selling segment.

For the year ended December 31, 2015 distributor compensation increased 20.2% to $63,276,000 from $52,646,000 just a year ago. Obviously this increase in compensation shows we are growing the primary increase - is revenue growth and obviously this makes our distributors pleased.

General and administrative expenses increased 24.2% in 2015 to $16 million from $12.9 million for the year ended 2014. Primarily the increases were in consulting fees related to international expansion, travel expenses, computer connectivity cost, setting up the international offices, insurance fees, bank fees, employee compensation cost, charitable contributions to the Youngevity, Be The Change foundation, Be The Sales Increases on those items was also up significantly, as well as accounting fees.

Operating income increased 60.5% to $5.4 million compared to the prior year ultimately which yielded a net loss of $1.7 million. This was largely due - the net loss was largely due to $7.5 million in non-cash expenses and a $1,384,000 expense due to income taxes.

I want to take a minute to talk about non-cash items as it relates to GAAP and how that affected the bottom line here at Youngevity. Its extinguishment cost related to loan extensions, warrant derivative liabilities, depreciation and amortization costs are all defined as non-cash cost, as well as stock based compensation.

The definition of a non-cash expense is an expense that is not paid for in cash. In other words it reduces your bottom line but money is actually not spent. In other words, it’s an accounting entry only pursuant to GAAP.

The SEC which is the government entity that oversees accounting practices for public companies requires all financials to be in accordance to GAAP and of course we follow these same GAAP guidelines.

It is designed GAAP to protect the investors, so it takes the most conservative view in the reporting of financial information. So we had a $7.5 million of non-cash expenses impact our bottom line against the loss of $1.7 million which is included in the calculation of the $7.5 million of non-cash expenses and this is applied before we get to the $1.7 million loss.

What’s interesting to note is what also is included in this $1.7 million number is $1,384,000 in income taxes. Youngevity was required to pay these taxes as the IRS looks at things different with a different set of rules and criteria that which of the SEC views things which of course touches on more conservative view.

Since we have many non-cash expenses totaling $7.5 million, internal revenue service deals that since these funds actually were not expanded by the company but rather just an accounting entry that the company would need to pay taxes on those non-cash items.

So our tax liability on a $1.7 million loss was actually $1.384 million. I hope this helps clarify non-cash and more importantly why we have consistently maintained that the best measuring tool to evaluate Youngevity's financial performance is adjusted EBITDA which takes out all of those non-cash items.

EBITDA means earnings before interest, income taxes, depreciation and amortization as adjusted to remove the effect of stock based compensation expense and non-cash or extinguishment of debt and the change in fair value of warrant and derivative which comes out to equal what adjusted EBITDA is. And our adjusted EBITDA in 2015 increased 39.9% and $9,215,000 for the year end December 31, 2015 compared to just $6,589,000 in the same period for the prior year. So that's why we are pleased with the performance of the business.

Total cash and cash equivalents as of December 31 increased to $3.9 million compared to just $3 million in December 31, 2014 and our total assets now at the end of December 31, 2015 are $62.8 million compared to $55.7 million just last year.

As always I encourage all shareholders to review our financial numbers posted on virtually all financial sites today, as well as the ygyi.com corporate site. Do you have any questions please email the Investor Relations tab and will be happy to answer those questions.

On a couple of other points on the numbers, acquisitions in 2015 contributed $10.3 million in the revenue to the direct selling segment which grew by the way at 19.4% over last year. So, acquisitions accounted for 47% of the revenue growth, while organic growth accounted for 53% of the revenue growth for the direct selling segment.

It's very important to note that we continue to invest heavily in Nicaragua and our direct selling segment international markets and expect those expenses which have a drag on the profitability of our business to contribute significantly to the profitability in the future which is obviously why we continue to make those types of investments.

I’d like to hand the call back to our CEO, Steve Wallach and he will touch on some additional points particularly related to the Youngevity business model. Steve?

Steve Wallach

Thanks Dave.

See I want to touch on the Youngevity business model again and kind of reiterate some things and go over some new items as well. In direct selling the channel or the profession no one does what we do or how we do it. Obviously we merry high touch with hi-tech and we’re going to talk more about that on today's call as well and we talked about that on previous calls also.

But I'm really excited about what’s coming together in that area of coupling hi-tech with high touch because I think it’s an opportunity that not only our profession has but Youngevity has a unique opportunity to do that more so than I think any other company in the direct selling channel.

Again just to reiterate, the strongest part of direct selling is person to person - we've all heard person to person advertising as the strongest form of advertising and that really is the core of the direct selling channel or direct selling business. And again I think Youngevity has more opportunities and more aspects and avenues to do this than any other company in the direct selling world.

Youngevity is transforming the space and again with that hi-tech, high touch aspect, what that allows us to do is through proven technology, we help our distributors to certainly not only the attributes of our business, the attributes of our various products and product verticals but it allows them to capitalize on their opportunity and really do well while doing good and I think that really is the core of Youngevity and of direct sales.

Because our distributors have been provided the power of e-commerce solutions through our technology initiatives making benefit from a multiple vertical, so whether we're bringing on a new acquisition starting something completely organic which we’ve done many times and we’ll do many times into the future.

Our distributor force, our customer base can not only capitalize the benefit from that and so that cost beneficial aspect of various not only products to product verticals, benefits our distributor base and our customers as well and it really amplifies and magnifies as we add that international expansion to what we are doing.

We operate in verticals with giant revenue potential, several of our verticals are in billion dollar sale categories. So, any one of a number of our verticals really could build an entire billion dollar in the direct selling world and we operate with multiples of those and will continue to add where we see opportunities as well.

Obviously we operate in vertical such as health and wellness's our core, complete line of supplements and nutritional products including our flagship 90 for Life product line encompassing our ability to provide the 90 essential nutrients that my father has talked about for more than 40 years to everybody, every man, women and child around the world.

We obviously operate with products and verticals in the beauty and personal care areas such as mineral makeup, hair care, personal care, skin care products, food and beverage with line of energy drinks, healthy chocolate, wholesome foods, coffee products.

On top of that, we’re adding products on a regular basis, we have our distributor summit coming up in mid-April. We’re going to be introducing new products there that I’m very excited about as well. So I’ll be excited to tell you more about that on a follow up call.

Obviously we have home and family oriented verticals with fantastic photo booking, memory booking lines of products that we’re really excited about with lot of new initiatives, we’ve been hard at work on to introduce to people those new initiatives as well.

Home and garden, we even have a complete line of great pet care products for everybody’s pets. The biggest question we get from the investment community is when will we move to a higher exchange and how does that fit into what we’re doing with all these brand verticals and we really feel that based on how we’re positioned for growth, we believe we need to get serious about moving to higher exchange with all that we have going on, all the initiatives Dave mentioned international expansion and we will talk more about that on this call a little bit later as well.

We’re really excited about what is coming together there, as well as the technology initiatives. So what we’re committing to is after we file our Q1 numbers which will be in mid-May, we will begin the uplist process and we will wind up on the New York Stock Exchange in all probability.

So we are committed to undertaking that forward as I said after we file our Q1 numbers. We expect to hear - I can expect to provide more information to you after we file our Q1 numbers in mid-May as well.

So what I want to do now is hand this back to Dave.

Dave Briskie

Thank you, Steve.

And to clarify, what we will do is right after we file Q1, we will have the most current numbers, we will begin the S-1 filing process which will then put us in a position to make the necessary moves. So that is the step one and then that puts us in a position to make an uplisting move. So that process will begin mid-May. So we'll talk more about that on the next call as Mr. Wallach advised.

I want to talk a little bit about something that Steve touched on which is our IT investment and it’s a significant investment and it really ties into and is one of the core ingredients to our model that really is changing things, it’s really a transformation model, one that is transforming if not creating its own space. And I really love to create our own space in a place that no one really has ventured and that marriage of hi-tech and high touch only can pick place if you got strong commitment to hi-tech.

And although we've opened an office on the lease - and started making expenditures, it's very difficult to see any return on that investment just yet and in fact until you get the forward basing sites many may think while maybe nothing is going on.

While one of the first things we did because our model is quite ambitious and the verticals that we are in is also significant, we had to make sure that we were going to build our front basing sites and our IT strategy and our ecommerce strategy on an architecture in an infrastructure that could support all that we expect to bring on.

And keep in mind we expect that to need to support a very, very global strategy of ecommerce, so certainly not just for one country but for multiple countries and multiple regions and multiple offices around the world.

So to make sure that system functions properly and can scale to the level that we expect, we’ve made a very, very significant investment initially into this infrastructure and you can't see that investments just yet but I want to tell you a little bit about it.

First of all, we’ve implemented an agile hybrid development methodology with our two new application design and development teams. This is the most up-to-date, the most revolutionary if you will technology that you can build on.

We started migrating our current IT infrastructure which supports our customer facing websites already and that has been migrated over to a major cloud provider which offers PCI and SoC compliance features.

We've completed already the design phase of the new youngevity.com, Our Memories For Life and the snap to finish websites in our memory booking area and these sites are under development as we speak and we’re going to be very excited to preview them at our upcoming – in coming distributor leadership summit in Anaheim, California which will take place the middle of April.

At that time we will start to release some of this forward facing information embedded to the field and expect full scale launch in September of this technology.

We’ve already initiated the web design of the remaining business verticals which Steve discussed and went over. These include services like, service division to spa and beauty, household items along with fashion and accessories. These business verticals will be accessible from the main youngevity.com website where you will enter through a portal. So, everyone that visits youngevity.com will start that be able to see the full scope of what we offer as a business. This is going to be a supported, completely with a new robust architecture that I’ve just discussed.

We’ve implemented a new round the clock monitoring and notification system as part of our new scalable cloud based infrastructure so, that we can see how our sites are running around the world in real time to make sure that we maximize the uptime in our IT and ecommerce initiative.

We've also already implemented a global content delivery network to improve website response for those accessing Youngevity content from wherever they may live in the world. Another words people in our Singapore office are people that are the customers in Singapore that live there instead of entering a website and going all the way across the ponds of U.S. file server and come all the way back which creates a long time.

They will hit servers in their country and that goes for every country we build. So, every country we're active with the website we already have a web system and a support network available in their country which makes for very, very responsive web experience and that’s super important for the initiative that we are taking on.

We’ve also implemented a program management governor's process along with the PMO dashboard that tracks progress in the budgets of our IT, all the backlogs and this is important when you realize the size of this initiative.

We currently have 40 projects ongoing concurrently to deliver this IT initiative. We are talking about a $1.5 million budget expand between the beginning of this year through Q1 of next year to bring this whole system online. So, we truly are becoming a technology company and of course we have all the support pieces and all the programming pieces and all the data managing pieces and the content teams that will support this IT initiative. So Youngevity will look like a very, very different company in just 12 months.

So I look forward to bringing these to everyone. It's going to take the friction out of the buying experience for all of our customers and distributors and really it is the future of what Youngevity is all about. It's going to be the systems that allow us to its scale and enhance the company's ability to onboard acquisitions, customers and of course more and more distributors around the world.

With that I’d like to hand the call off to our new VP of Analytics. Gentlemen's name is Scott Bell. Scott comes with an amazing background. One of the things that Steve and I have been working on over the last 90 days to build a second to non-executive team.

Scott Bell is certainly one of those people that are in the highest level of capability in the space and in the industry and especially in the area of analytics. And I'll let Scott come out of the call now tells a little bit about himself and all the stuff that he has been working on.

Scott Bell, welcome to the call.

Scott Bell

Thanks Dave and Steve, and special thanks to our shareholders that have joined us today. As Dave said my name is Scott Bell. I'm the Vice President of Analytics and Promotions. Lot of people ask me what does that mean? What that means is that I’m the guy who takes to look at all the data, figures out what’s going on, how we can change it. Figure out the stories that data tells and then change – see what we can do to change the story to make it do what we wanted to.

So I have just over 20 years experience in the industry, 16 of those years were at Herbalife. During my time I focused on building business intelligent systems, doing sales profile and predicted analytics and then promotion design to influence sales behavior.

So, when I first introduced to Youngevity, in my mind I had a few check boxes and my head to had to be checked off and I like to share some of those with you today. The first thing I look at is the employees, I think that’s the bedrock for the future growth of the company. And when I first walked around the Chula Vista office, I met quite a few employees that were here five years, 10 years, some of them 15 years, so for me people don’t stick with a company for 15 years unless the company is doing something very internally.

So for me that was a big positive aspect and I believe that the company has the right culture for long-term success. And then I met the executive team and for me this executive team had the experience it needs to take the company to the level that it needs to get to.

And so I first met Steve and Michelle, they have 20 years experience in the industry, both as distributors and as corporate executives, so that experience is there. Dave Briskie, he not only has direct selling experience but he has several decades of experience in building small companies and turning them to big companies examples like Javalution and Drew Pearson.

So after meeting the executive team and talking over the company strategy with them, I believe that it’s focused on the long-term success of the industry and Youngevity in particular and its distributors.

And then I just mentioned company strategy, I would like to share some of my thoughts on that because I’m an analytics guy, I’m going to throw some numbers off. And for your information the numbers I’m going to throw out from the world Federation and Direct Selling Association, I encourage anyone who wants more information on the direct selling industry as a whole to go to their website. If I do mention any Youngevity numbers, there are going to be 2014 numbers because the numbers I’m using from the DSA are going to be 2014 and I wanted to be sure to compare apples-to-apples.

So earlier in the call Steve spoke about the verticals in building each one can stand on its own as its own billion dollar industry and vertical. To put that into perspective, the direct selling business as a whole worldwide was $183 billion industry in 2014. Of that $62 billion was personal care and cosmetics, $53 billion is health and wellness, household goods $31 billion, clothing $12 billion, services $11 billion, food and beverage almost $2 billion.

So for me when I look at Youngevity whose significant portion of revenue comes from health and wellness because that's where I started with the story with Dr. Wallach and that's where they focused on in the first decade even half, there is an enormous opportunity to expand into other product verticals and that excites me.

And how do companies usually do that. If it makes sense companies spend a lot of time and resources developing their own products, formulating, they go to the process of registering it, testing it consumer focus but the huge upfront cost about selling anything before the product even hits the market.

But during acquisition, we gain instant access to the market. Our speed to market is almost instantaneous. We have the product already registered. All the products are there, the formulations are done and we already have a built-in custom base, people that have already been buying the product.

And so for me when they explain this to me, for me that's a game changer. There is no one else that I know in the industry is doing this and Youngevity is truly trivializing in this space and industry through the strategy.

So then international, so for perspective on international of the $183 billion in 2014, $36 billion was North America, so that's only 20% and Youngevity is really an North American company right now and we set the foundations with Canada, Mexico, Australia, New Zealand and Russia and with that strategy, I believe that Youngevity can start to address the other $140 billion that’s outside of North America.

And then lastly the thing that I look for in the company is the technology as Steve mentioned before and Dave it’s really the foundation that's going to support vertical expansions and international expansions, and for me it’s important that the infrastructure is in place before the expansion in order to mitigate any of the growing pains every company has when they do this type of expansion.

And I’m going to lease office a lot and I can tell you that the new systems and the new infrastructure that's being put in place are going to be the cornerstones for the future of the company and I’m very excited about that.

So, in closing I just like to say, I believe Youngevity is the right company at the right place at the right time. I have been fortunate enough to be part of company that gone from $700 million to $5 billion based on whatever in there and what I see here I believe that Youngevity is at a pre-inflection point, what do I mean by that?

In this industries when company's get to a certain level of sales and certain number of distributors and customers, they hit a trigger point that's start to phase an exponential growth and momentum. And I don’t believe that Youngevity has hit that yet, that’s in our future. But I believe if we execute the product vertical, acquisition strategy, if we execute the international strategy and if we get our systems in place, I believe that we are in a position to trigger that inflection point and accelerate our growth to $1 billion and that’s why I’m here, I’m excited about that. And then my job is help the company to get to that point.

And if you do the math on the product verticals, if you go to the sites I mentioned and the international expansion, you will also see why I’m excited to be here. So, I want to thank everyone for taking time during busy schedule to attend the call.

I’m going to turn the call back over to CEO Mr. Steve Wallach.

Steve Wallach

Thank you, Scott. Great information, appreciate all you're doing and very excited about where we are going and your part and then doing all of that thank you. Definitely appreciate having you part of the team.

As you mentioned the power of globalize briefly said earlier that we would talk about that, you and Dave has touched on it. I thought you’ll go ahead and provide that update now on our international strategy as well.

I'd like to grab and update everybody on the global expansion. As you know we have focused really on five global geographic regions. We’re starting to see traction with our global strategy which is exciting obviously and as you mentioned and we've talked about on this calls before really much more of the direct selling revenue industry wide, channel wide, professional wide is outside of North America. North America is the largest single market but it's not the overall largest market, and so we have been diligently working on international and laying that foundation to really capitalize on those international markets.

So based on the revenue numbers delivered in February, we are seeing the following annualized results based on this February sales. Global markets based on the most current months revenue is tracking at approximately $17 million annualized with Canada, Australia, New Zealand and Mexico is the top three market and obviously we are still scratching the surface on that additional. I think you said $143 billion of annual revenue based on 2014 numbers.

So, that’s obviously a huge and very exciting opportunity just ahead of us. As you know we have been focused in the last two years on opening three new regions which are Latin America, the European, Eastern Europe and Asia as well.

This year we intend on expanding into two additional countries. We’re going to open an office in Colombia in our Latin America region. In Asia will be adding an office in the Philippines as well, a lot of exciting things going on throughout these regions but Asia and particular as well as Latin America.

And Europe we're evaluating opening hub in the U.K. which is. A exciting lot of people have gotten to know through this business and through excelling throughout the U.K. So, I’m excited to see that progress as well.

We’re excited this year to have all three of these regions that I have mentioned beginning to contribute to our overall revenue significantly and again we see that as a huge growth opportunity coupled with these additional verticals, coupled with the technology initiatives and certainly having the analytics that you are providing really make a huge difference in our forward strategies for planning our ability to really implement our plan with the high degree of analytical intelligence. So again thank you for all of that.

What I want to do now is introduce David Rutz on to the call. David is our VP of Global Services and as many of you know we have been excited here at Youngevity to add services to our product and vertical offerings for years and we are really excited about taking this to the next level.

I’ve known David for a long time. David has an amazing background in direct sales as well. He is very experienced in direct sales overall. So he is a great addition to the team also but he has just an amazing background in developing, implementing and marketing these services.

So David I want to introduce you and bring you on to the call.

David Rutz

Thank you. Its pleasure to be here and it's an exciting call. We’ve talked about the business strategy, the acquisition strategy of Youngevity. I’m excited to be a part of that. The services vertical obviously as Scott just mentioned we’re at $11 billion in direct sales alone we spent last year.

So from a business case wide services, well we have a large consumer base already and a large distributor base and we can easily transfer a savings to them and services they’re already using. So through internal consumption alone, that makes sense for us to expand to the services vertical.

Also from a business case, there is over $11 billion being sold through direct marketing companies on services right now and we can now enter into that space. We can now compete in that space and that allows us to attract the whole new set of distributors to the Youngevity business opportunity, that’s what I’m excited about spearheading that.

So the service vertical allows us entry into several hundred billion dollar industries just this year. In fact we’ve already got slated to introduce this year between three and five services that accumulated have over $400 billion being spent in those industries.

Today we already have one company, one service that we've launched through an acquisition of David Allen Capital. David Allen Capital is a small business lending broker which is bringing alternative loans to the business marketplace. This industry is a very large and fast growing industry over $100 billion last year. This allows our distributors an avenue to earn significant upfront money by helping a business gain access to a quick, simple loans where the loans are approved in under a couple of days and funded within a week and significant commissions got out to the distributor.

Again this allows the distributor earn significant upfront money while they are building the residual income with us. On top of this, there is no product carrying cost. So as we scale and grow, it doesn’t have any infrastructure needs, it’s very profitable to the bottom line of our company.

That service is already live today. We have other financial services slated to launch including merchant processing which is $100 billion plus industry and that brings us a nice residual revenue, that slated the launch this year.

We have a handful of other services that I mentioned, many of them consumers use everyday already. We’re just going to bring a saving on those services. One of the things about Youngevity's acquisition model that has us very excited is as Scott said, when we acquire these companies, we already have ease of entry into the marketplace, we’ve got a built in group of distributors marketing these products, distributors are - the products are already formulated et cetera.

The service industry allows us very much the same. I’m excited and I’m sure many of our distributors are excited that they can recruit now because of all these verticals and all because of the service vertical being added, they can recruit a whole different type of distributor. Our company is made up of distributors, they want to make money for themselves, marketing products that they're passionate about, well now that includes products and services that they are passionate about.

So there is many different gateways or entryways into the Youngevity business. All of them allows a person to have the freedom to go build their own business in an industry that they are passionate about producing in or building in.

The services industry all of them have zero product carrying costs and have generally a residual revenue stream with the high rate of retention. So we’re very excited about what this is going to do to our bottom line. We’re very excited about what this is going to do to our recruiting and we’re extremely excited about what this is going to do for internal consumption in our existing rep base.

So with that, I’m going to turn the call back over to our leader, the CEO Mr. Steve Wallach.

Steve Wallach

Thanks David. Obviously, you can see why we’re excited about services and what services can do for the growth of Youngevity and so we’re excited to introduce some specifics at again the distributor summit coming up in Anaheim, mid-April. So with that I want to bring Dave Briskie back on the call. Dave?

Dave Briskie

Yes, thanks Steve. I want to talk a little bit about the coffee division. Obviously those that have been long-time shareholders understand that we operate in a completely different sector there in coffee and the coffee business continues to do well.

And most importantly scale of that business continues to be the message in the story. If you're going to be in the coffee business, I have said it from the beginning and I tell anyone that asks it, it's go bigger go home is the strategy and obviously we are going big with our strategy.

And let me give you an update on where we are and let’s start off by our operations in Nicaragua. Many of you know that we acquired the plantations in Nicaragua over just about two years ago now. So we’re just finishing our second harvest. We were just recertified our plantations as Fair Trade, Organic, Rainforest Alliance, Bird friendly certifications and also a new certification called UTG. So now there is a five separate certifications on those plantations.

We are very, very proud to say that we've entered a rare category of one of four plantations in Central and Latin America that has all of those certifications. So on a very, very interesting position as a business and we get to take that benefit through the entire vertical operation of our coffee business through our processing plant all the way down into our roasting operations and leverage that competitive advantage that is obviously very unique being one of our four plantations in a region, coffee region in particular that large.

From a social point of view through our Fair Trade revenues, we've really become the most moderate and self sufficient plantation in all of Nicaragua. We built a three storied building for living conditions that now can accommodate 600 people so not only the people live on the plantation but our Nicaragua workers doing the harvest period and this is all had been built at 1500 meters and we’ve opened a fully functional hydroelectric plant right there in the heart of the rainforest and we did this with our Fair Trade purchases. Many of those purchases were made by Youngevity customers and distributors and many of our large significant customers that are very interested in Fair Trade coffee.

The exciting thing for me is being in the coffee business for a while. We always acquired CLR roasters prior to the acquisition of the plantation. We always bought Fair Trade coffee but we never really got the see what, where that Fair Trade premium that we had to pay on a coffee where that premium actually went.

And now we get to drive in or fly in to our own plantations and see housing being built and hydroelectric plants being built all on those funds that we used to pay that would go somewhere but we never could really see the results and now we get to see our Youngevity families in Nicaragua benefiting from this Fair Trade premium. So it’s a really gratifying and its really, really exciting to see the Fair Trade systems that work.

Let's talk a little bit about the coffee roaster in Miami for a minute. We have been unbelievably focused in 2016 to grow our company brands and we acquired our K-Cup machine a while back as well. And one of the things we feel to maximize our return and to overcome one of the challenges that are prevalent in the coffee business being its size is to make sure that you can improve margins and one way you can get better margins is to grow your own brands.

So, we really, really shifted even more so our focus on our Cafe La Rica brand and our Josie's Java House brands and we made that shipped across all categories including food service, office coffee service and even at retail K-Cup program which I’ll get to some numbers on that in a moment.

We've added eight new items to our already large Josie's Java House line or baseline of coffees putting fractional packages for coffees 1.25 ounces to 2.25 ounces. We’ve got a two pound bag of whole beans on the Josie's Java House. We’re servicing conventional and specialty coffee from our farms that are Fair Trade, Organic and Rainforest certified having those three certification our own brand is a very, very unique value proposition because we benefit from the premiums all the way back through the plantation, where as our competition are paying those premiums and someone else is benefiting from it. Many times it happens to be us as we sell our green coffee to similar type operations.

We've added five major distributors that we released press releases on to market our branded products and it’s no small undertaking to get distributors to understand your program and by into it. These distributor is the first one that we announced was the company called KeHE and they opened up our 283 public stores for Cafe La Rica Espresso brick and we are now working to introduce Josie's Java House in single served cups as well through the entire chain of publics which has 1300 public locations and KeHE has the distribution throughout the chain. So, we are finally linking the pieces together which will provide significant growth.

We just launched a shipper program to increase unit sales to grow our sales in public and KeHE is distributing this shipper program and it’s important to know that KeHE is one of the largest food and beverage distributors in North America with sales in the billions.

So our partners now that are picking up our brands are significant and like I said in coffee it’s all about scale and you need to partner with the right people and the right partners like the partner with people that have operations that have competitive advantages and we’ve got that now and it’s working for us.

JC Foods is a new distributor for us in Tampa, Orlando, Florida, Jacksonville territories basically throughout the states particularly the west side of the State of Florida and they’re focused on sales of Cafe La Rica in the food service area, as well as Cafe La Rica's Bricks all the Josie's Java House retail bags and all the single served retail outlets, they have already purchased just in their opening order $40,000 of - in the first month of operation just setting out their test samples. So they’re often running on the west coast of Florida.

Sarnow Food Group is a New York based master distributor serving the Northeast since 1935. They currently have over 300 large office coffee and vending operations in New York, New Jersey and Connecticut and their opening order is already in house, they’ve already created their sample orders and they’re already distributing our product throughout the Northeast.

As an example, Perkaroma Coffee one of the largest office coffee service in Western New York is leading the way with our brand, an early indicator show that Josie's brand is gaining distribution points throughout the Northeast market. A very, very significant market in coffee particularly office coffee anyone that has ever spend any time in New York and looks around at the skyscrapers that are everywhere understand the amount of coffee that must be consumed in office coffee in that part of the world.

Vendor Supply is another distributor we’ve added. They are serving over 2,000 OCS and vending operators with five distribution centers in the Carolinas, Georgia, Virginia and Ohio. Vendor Supply footprint reaches a total of 14 states. Multiple Vendor Supply company have begun distributing Josie's Java House and in particular Capital Coffee in North Carolina who immediately will began selling Josie’s triple certified Whole Bean from our company owned farms to SAS Institute in Cary, North Carolina.

SAS has been voted the top eight workplace by Fortune 100. It’s been number one at number of times as the number one company to work for in America, just recently following when Google took over the number one spot. So we are talking about a very, very significant business with a large campus that has added Josie's Java House throughout the entire campus of operations. So it’s exciting to see our coffee landing in some of the best businesses and largest businesses in the United States.

We’ve also added BC Coffee & Supplies which is the largest office coffee provider in the State of Florida, they have been carrying our products for four months now and we’re seeing regular increases up from them.

In the K-Cup world I would like to maybe summarize, what’s going on in the K-Cup category because a lot of changes have happened since Keurig has patent expired. So what is the category look like today? And obviously we entered that category just last year.

So in 2015, the category was $3.7 billion of Keurig or K-Cup I should say businesses was generated versus $3.2 billion in 2014. So the category still continues to grow up 14% and 14% growth on a multibillion dollar number is obviously significant.

In 2015, the Keurig Green Mountain brands, licensed brands accounted for 77% of the category. Private label accounted for 12% and the remaining 11% went to others basically other brands. We think there is a big opportunity in not only the private label piece which we certainly continue to bid out and fill out RFP on but more importantly that 11% of other brands which 11% of this categories number north of $350 million in 2015.

So we look at that category and we go after that category with our Josie's Java House brand presence and with the competitive advantages that we have with our plantation, we believe we can gain a 5% market share on that other category. 5% alone on that category represents a $15 million in annual revenue at a very, very significant margin. So we’re excited to be able to focus on that particular category and the 12% category for private label.

Interestingly what we’re seeing is keeping in mind that since Green Mountain used to have 100% of the category and now we have identified that it’s fallen to 77%, it just stands the reason that they can't control that much market shares, it’s difficult.

So we expect to see continued growth regardless of what happens in the overall category but continued growth to happen in the private label category and the other branded category which is why we’re going to go after it so strong and we feel like our competitive advantage is really better than anyone we’re competing with even the likes of Green Mountain, who does not have the vertical presence that we have and the certifications that we have from a total vertical play all the way from field to processing to cup. That's one of the reasons why we’re so bullish on this part of the business.

When we look at CLR last year, we were just getting our feet wet in the K-Cup business. We sold 526,000 cups essentially just really getting started a lot of test orders, a lot of people trying what we can do.

As we opened this year, we already had 482,000 K-Cups booked into the first quarter and based on these bookings and the uptakes of sales that we’re experiencing and the fact that coffee builds through consumption, so it’s not a one off business, we expect our K-Cup business to increase over 400% in 2016.

Opportunities that we feel like we will have a real shot at are with Ross Stores, all six divisions of TJ Maxx already shipping to Tuesday Morning were already looking at shipping to Big Rocks and Michaels and Amazon just to name some of the major players. So it’s very, very exciting to see our own brand in K-Cups starting to enter the largest retailers in the United States.

I want to make a quick switch to food service. I’m very excited about this business because it builds the brand and that brand was building through preferred service in Miami is our Cafe La Rica Espresso brand. And we talked about the Pilon and Bustelo brand in South Florida that they cater that market through the acquisition of Pilon and Bustelo from Smucker's for some $360 million for their brand.

There has been a void in the market and Cafe La Rica has stepped in to fill that void marketing its brand to food service locations within South Florida and we're really starting to gain some traction there. We have put a plan together to do $1 million in 2016 in food service and based on the recent openings of several different chains, we are very confident that our sales target of $1 million for year one will be exceeded and what's great about this category of business is that the margins in the 60% range which is a very, very significant margin in the coffee business.

And we believe we can continue to grow at the same rate at a 50% rate in this category for the next several years as we take over this category in South Florida.

So real quick before I close I want to talk a little bit about Green Coffee. On the Green Coffee division you will see that our purchases if you read our press release already exceed out £20 million that will be shipped through this year. You're going to see these increases starting to affect our sales numbers in this second quarter right through December.

The business model for Green Coffee we have in place will not only drive topline revenue which will lead to a record yield revenue for CEO I know – I'm the CFO, I never say we’re going to break a record but in coffee based on what we have on the books it will very easily be a record year for CLR.

What's most exciting to me is that our margins have been improved greatly. We have been focusing on this all of these certifications at plantation level is contributing to this improvement at margin. We continue to have wide consumption from major players including Dunkin Donuts, McDonalds, 7-Eleven, Tim Horton just to name of the few are major players in the business.

So it's an exciting time as you can see Steve Wallach and myself we talk about our strategy. Our strategy in direct selling is multi consumption, multi vertical, many different revenue areas, it's no different in the coffee business we embark on the same strategy and we believe this is the best way to build the healthy stable business over the long term, certainly one that we expect will be here to stand the test of time.

With that, I’d like to turn the call back to Steve Wallach so he can close out the call and add any summary points to you all. Thank you.

Steve Wallach

Well, again thank you everybody for being on the call. Again I look forward to delivering the Q1 numbers to you in mid-May. Thank you again everybody for being on today's shareholder call.

Question-and-Answer Session

Q -

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!