ForeverGreen Worldwide Corp (OTCPK:FVRG) Q4 2015 Earnings Conference Call April 14, 2016 4:15 PM ET
Craig Smith - General Manager for ForeverGreen
Jack Eldridge - CFO
Ron Williams - CEO & Founder
Unidentified Company Representative
Again I would like to welcome everyone to the ForeverGreen Conference Call. This Cary [indiscernible] with the Chesapeake Group [ph]. I'm going to get started by reading our forward looking statement and then I'm going to turn the time over to Craig from ForeverGreen. So this call contain certain forward looking statements, investors are cautioned that certain statements in this call are forward-looking statements and involve both known and unknown risks, uncertainties and other factors. Such uncertainties include among other certain risks associated with the operations the Company described above. The Company’s actual results could differ materially from expected results.
Okay. And with that I'm going to turn the time over to Craig Smith for ForeverGreen,
Thank you very much Cary. Thanks Chesapeake for hosting this today. We got a wild and a rainy day here in corporate headquarters in Lindon, Utah. We appreciate all those who have joined us from around the country. I'm seeing people joining us from Maryland, from Illinois, New Jersey, Florida, Texas, Minneapolis, Utah etcetera. So it's great to see such a diverse group of people that believe in the ForeverGreen mission and vision. I'm joined here today by Jack Eldridge, our CFO and also our CEO and Founder, Mr. Ron Williams. They will be making some statements today and sharing and giving updates for the year 2015 as well as addressing questions and a bit of vision as well for 2016 with this great world we live in and the technology we have and the really involved schedule that we have, we have Ron Williams joining us remotely. He is doing quite a bit of travel at this time. In fact he might even mention a tour he is going to be on next week in Australia. So we appreciate Ron joining us remotely.
And with that before we turn the time over to our CEO Ron Williams we want to do a general overview statement by our CFO, Jack Eldridge. Thanks Jack.
Good afternoon everyone, appreciates everyone's time. We want to just review our fourth quarter from last year and then the full year financial highlights. As we look at 2015 fourth quarter the total revenues decreased 3.1% to 17.2 million when compared with the 17.8 million in Q4 of last year. Compared with Q3 of 2015 our total revenues increased 3.8%. Gross profit for the quarter decreased 11.7 million compared with - decrease to 11.7 million compared with the 14.1 million with margins down from 79.6% to 67.9%. Selling and marketing expenses declined from 51.0% to 36.8%. Our operating loss was 1.1 million compared with 685,000 during 2014.
Net loss totaled 1.1 million or $0.05 per share loss compared with an 189,000 or $0.01 per share. Full year financial highlights sales increased to 67.1 million for the full year from 58.3 million in 2014 that's a 15% increase. Our gross profit increase from 45.9 million to 49.5 million, a 7.9% increased. I think I got that backwards there, 45.9 to 49.5. Gross profit margins decreased to 73.7% compared to the 78.6% last year. Our total operating expenses increased from 51.6 million compared to 44.2 million last year. Total assets remain leveled at 7.8 million compared with the 7.7 million at the end of 2014.
Total liabilities increased to 9.2 million compared with the 8.1 million at the end of last year. Net cash decreased in 2015 was 85,000 compared with a net increase in 2014 of 296,000. The actually express product mot product line was eighty one percent of FG Xpress product line was 81% of the 2015 revenues compared with 89.6% of the 2014 revenues while the farmer's market product line increased from 10.4% in 2014 to 19% in 2015. While the financial performance for the year was significantly less than expected. We can identify four major factors which impacted 2015 which will not be part of our ongoing business in 2016 or forward from a high level perspective those four big events were number one a company rebranding and image revision. Number two, global launch event in Las Vegas, Bellagio. Number three, a credit card fraud scheme just as a side note I've been informed that the DSA Convention next week the primary theme at that convention is credit card fraud so it's a major issue in our industry overall. And number four, the supply chain challenges that the company experienced after the Ketopia product launch.
The first two factors are a normal part of our business model. The company that has been around for more than 10 years and we spend some time to rebrand and revisit our image as we prepared for the global launch that was planted in May of Las Vegas and then of course that launch event was a major sales event for the company that we invested a significant amount of resources in preparing and putting on that show and that launch as a company launched on a global basis the FG Xpress business model. The other two items were unexpected factors which ended up being a significant part of our business, the credit card fraud was identified with two major areas of the world that kind of we’re attacking the company. One being based in Malaysia and another in Europe. This was a significant impact on the company and we spent a number of resources in addressing this issue and we have put increased controls in place which have curbed this issue and since July of last year this has been significantly less than the fourth item was the launch of Ketopia product.
Once the Ketopia product was launched we had experienced several issues with our supply chain and we were initially unable to keep up with the demand and the company incurred a significant number of additional costs as we addressed that issue and overcame it. The Ketopia product line was a project that the company have been working on for more than two years. We developed some relationships in an intellectual property which was impacted by a competitor after the product launched, the situation led to the company needing to file a lawsuit to protect our product and intellectual property. As part of this process the company incurred costs in excess of 750,000 while they pursued this action.
In March, this year the company reached a settlement with the parties involved. Through this settlement the company will be recouping most of the costs incurred and we're happy to report that the issue is now past us and we are moving forward. The company in the past has been very good at drawing the top line revenues over the last few years and at the end of 2015 the executive team committed to be more focused on expense management and profitability in 2016.
As a result plans were put in place to review and modify the expense structure supporting the various markets around the world. The result were a number of initiatives which were designed to reduce the overall company breakeven point in excess of a $1 million per month. The 2016 primary company focus is on being profitability. The initiatives that were planned and put into place were started to be implemented in the first quarter of 2016 as a result of these initiatives and the restructuring the company is expecting to report some reduced revenues in quarter one as well as some of the costs associated with implementing those restructuring such as severance payments and lease renegotiations.
Again the company breakeven point has been managed to reduce at least a 1 million to a 1.5 million per month compared with 2015 levels. Quarter two, we will see the benefits of these cost cuts and reorganizations and we project break results in quarter two with increasing profitability in Q3 and Q4. Last year the company spent money in areas where revenues did not develop as expected and each of these areas has been and has continually been evaluated and changes to how the company services these areas are being modified so the company can remain profitable.
This does not necessarily mean the areas are being closed, we are simply modifying how we service our members and customers in these various areas with the primary focus of management in 2016 on been profitability. In 2015 our active members declined slightly from a 139,000 to approximate 133,000. As you've noticed our top line revenue did grow over the same period. This simply means the company also grew its base of customers during 2015. During 2016 we expect that there may be another slight decline in the active member base resulting from how some of the areas of the world will be serviced in a more cost effective manner. At the same time with our farmer's market product offerings we do expect our customer base to remain stable if not grow slightly. To recap 2015 was tremendously challenging but the major issues from last year have been addressed and the company is in a much better position moving forward and the executive team is very focused on producing revenues which will add increasing profits for our bottom line.
Again we're grateful for your time and support this afternoon and I will turn the time back over to Craig.
Jack, thanks a lot. It's great to give such an overview and the detail that we shared. I think everyone on this call truly appreciated and with that as mentioned. We've got our CEO and Founder Ron Williams joining. Ron are you there?
I'm here can you hear me?
Excellent. Can hear you loud and clear. Ron we invite you to address the group and give us a general statement about what Jack shared and what you're seeing for 2016?
Thanks Craig. Jack thanks for covering what was probably the challenging year that we just added and I think sometimes when you break the barrier from you know small, medium to going to large there are things you break and sometimes it could be credit card which is unfortunately not unique to ForeverGreen, it's happening industry wide and I just feel bad that we weathered it. We fixed it. We've modified it down to next to nothing and then sometimes you know when you're breaking that chasm as well or crossing that barrier you might get in a fight for two or legal battle if you will and we did I can't go to the details of it, I can only tell you we're very happy we did and that we kind of weather that and nobody could see the way those last four months of the year was going to go but we never flinched, we just continually fought and embrace whatever it was as A, what can we do to modify and we find our model moving forward, where's our model working, where's it not, on what personnel are working, or which personnel are not and just make all the adjustments to go on to the next level because the old shoes don't really fit anymore and we've pretty much equipped with our new set of serious right now.
So a little bit of humble pie, you know just taking all this out at one time but you know the company is a very resilient company, remember this is a company that's been around and has endured certain things along the way to get to this point and I don't think our feathers are going to change just because we had some challenge. Certainly our model will be refined and things will be improved upon that the Intel that we have to learn from but we're going to really press forward to continue growing this company. The best news for this and learning is that you know our leaders are really in a good place, our member leaders, the full time networkers that are out there building this company.
They are in a good place right now and the reason why there are in a good place is because all these things that we mentioned has only made the company I think a little stronger, a little more focused, a little more aware of certain things and probably just putting all the right tags in the right holes and so as a result we've got the Ketopia model really dialed in so much so that they'll be a ground game next month and not a flamboyant one but one where our three top presenters get in cars and we've got roughly 50 cities already booked for the month of May and that’s North America, that's U.S. and Canada. I will be one of those three cars traveling. And so we are taking you know we're taking game thought he marketplace, we're going to go talk to 98% new people.
We had our arguably our largest webinar a week ago where we have had all of our people on and we said here is the game plan and I can only tell you that the field and the morale is very high right now after enduring you know some challenges and so you know sometimes delusion is a devil in business and it's important to know what's working as much as it is important to know what's not working and I can play as a team we've looked at both and however we will always lean towards bottom line, top line growth and while we're cleaning up and fixing them in the back room.
So far I feel very confident, I'm excited, I wish [indiscernible] now so we could be on the road but there's little things that we’re keying up to up to perfection and excellence but hope that - in fact we're hoping to include some of these co - some of the people that we have involved in our shareholder base could attend any of these meetings along the way and Craig maybe you can give them information as to when the calendar will be posted so they can see our ground game and kind of how we refine the company and just really taken the Ketopia brand to a world class opportunity in our industry. So we've always believed in this. We didn't expect to be in a legal battle. We didn’t expect to be in a legal battle, we didn’t expect fraud but whenever you cross the chasm from small, medium and headed towards large I think there's just things that show up whether it's a legal battle, whether it's addressing the fraud issue. Next week I think a couple of our members will be attending the BSMA [ph] Conference where the main theme is credit card fraud around the world these are sophisticated groups that know exactly what they're doing and how to do it and it takes extreme measures to protect the company. So I just want to do a shout out to Jack and our IT team for going above and beyond to protect the company in the way that they did. It's a hard lesson to learn for all of us but we embrace it only so we can move forward as a company.
So with that I will turn the time back over to Craig and just tell you that I'm really looking forward to next 90 day run, there is kind of six lanes again and we're going to use all six of them. So thanks Craig.
Ron, absolutely and sure appreciate your overview, your vision, your leadership and we'll make sure that not only Chesapeake but others here that are on this call will be able to see a copy of that calendar. In fact the first draft is going to be posted on Monday. So look forward to that and it will continue growing every single day I imagine and we're really looking forward to the growth in May, June, July etcetera all the way into the fourth quarter. So again want to thank everybody for being on the call. We appreciate hearing from Jack, a very thorough overview. We appreciate Ron and sharing his thoughts, his heartfelt thoughts about the company and the challenges we've experienced in 2015 and the vision we have going forward for 2016.
We appreciate all of you for joining us on this call and now we would like to open it up and receive questions from you and I'm going to go ahead and unmute the lines now. So just give me just a minute and we'll make that happen. I do want to invite everybody though please, if you've got some background noise if you're driving in a car with your windows open or you’ve got kids in the background or colleagues or whatever I'd like to invite you to please star six and that will mute your phone and we will do our best to go through this because as we unmute sometimes there are some challenges. So give me a second, we will open the lines.
My name is Clark Johnston, and I'm Investor and I just had a couple questions for Jack Eldridge please. Number one is in reference to litigation of use, have any pending litigation any more that you have to solve or upcoming that you anticipate? And number two would be, do you anticipate any additional need for finances to raise in the private market? Thank you.
With regards to litigation the major issue that we had last year that has been resolved. Companies are - seems like there's always small things. So right now there's nothing major on our calendar on the horizon. So we were very excited on the legal front. With regards to financing and funding the company is always in discussions with financial partners. We are fairly selective in who we partner with and if we find a good fit we are open to and try to pursue those discussions.
My name is Phil Baugh [ph] and I had a couple of questions. Earlier this year the company had a press release regards to its opening up the Chinese market and I wondered if you could speak to any upcoming China strategy that we could expect as well as the power strips. I'm wondering how much of the total sales to power strips still represent where power strips in relationship to where they were a year ago. And what the company sees for the future with [indiscernible]?
I will address the power strip issue Like I had mentioned the. FG Xpress product line in 2015 actually declined as a percent of our total revenues. So in 2015 it was 81% of 2015 revenues compared with 89.6% of the 2014 revenues and the major factor driving that was the success of the Ketopia product launch which is part of our farmer's market product line. So our farmers' market products increased from just over 10% to just under 20% in 2015. Still continue to see strong demand for the stripped products, the power strips, the beauty strips and the solar strips those are products that are unique to our company and our industry. It gives our members the opportunity to expand their business into countries where ForeverGreen doesn’t have a physical presence. I've had several calls with investors that maybe there's a little bit of confusion out there. As far as how the ForeverGreen business model works I think a few thought we’re under the impression that the company had warehouses and facilities in over 200 countries and territories around the world. We don't, but we're able to service our customers in that many countries because we have these envelope products something that’s very easy to put into on an envelope the size of a [indiscernible] greeting card. We put a stamp on it and it's very simple to deliver throughout the world. So it's a fantastic business growth and marketing tool for us that we're very pleased with.
This is Craig, just on that note Phil regarding China. We appreciate you’re following our press releases and we hope to communicate with you and the rest of our important shareholders more regularly and weekly and we have a commitment to do that. On your note on China, again you noticed it wasn't the headline of the release but it was a sub-note we had a quote from Ron there to the important point that for quite a while we've been experimenting and exploring China primarily through Hong Kong and as of recent like I said because this is a very important market for us for some out there in the world in the industry that said is the most important market as of recent we have established as we mentioned in the release some really impressive and important relationships directly inside of China and we do look forward to sharing more I wish I could get more detail but you would understand that we would want to do that in a very methodical way which is our intention and so please stay tuned to future releases here in the short while for more information on China. We are very enthused about the activity and the efforts there so far. So thank you Phil.
This is Richard Chaffer [ph], [Technical Difficulty] competitor and where that leads us with exclusivity or product that markets existence [indiscernible].
So because - you know in this settlement we agreed that we wouldn't give too much detail. We were asked in these meetings to not and we agreed to that but what we can say is that we're very, very happy and we look forward to - I mean just what always has been fact is that we have the worldwide global exclusivities to this patented technology, that's never been in question. What's been in question is U.S. and Canada exclusivity or not we've always had a license here but what's in question is that. So without going into more detail than that, I will just say that we are extraordinarily happy. It was a fight worth fighting we wish the other company well and we're going to go about our business moving forward.
Ron, thank you. Appreciate the clarification and just to the listeners when more can be said you can be assured that through a release or through a call just like this that we will be able to give you more details but thank you for the question. We just want to be - we want to be wise. Who else would like a question?
This is Ron at William Blair in Chicago. Gentlemen if you could, Jack I’ve probably two. Going forward what are you forecasting for 2016 net revenue margins and how would you achieve? Secondly, can you give more insight into what cash flows are with the company at this point and why and how you might need to move more [Technical Difficulty]. Thank you.
Yes, absolutely. The company has published a fact sheet which gives our estimates are anticipated guidelines for 2016. Those guidelines right now are I think somewhat conservative, that the company will for the year. In the 55 million to 60 million range, you'll note that that is slightly less than the 67 million that we reported in 2015 but the focus for 2016 is going to be on expense management and profitability. So with those earnings we're projecting that we're going to report a $0.04 to $0.07 per share earnings in 2016. And with regards to the financing, there's several new products that are in development and on the verge of being launched and marketed that the company would use additional funding and financing for inventory acquisition primarily and that will help continue to help the company to fuel the growth that we’re expecting to have happen. And as we anticipate as was referenced earlier that the growth in to the Chinese market.
And just to note for those listening for those of you wondering, hey where can I see that fact sheet you can simply go to the ForeeverGreen.org/investor/information. If you just go to ForeverGreen.org you will see along the top navigation on the far right a click that says investors and that will keep you up to date with all the latest this press releases and the fact sheet and our filings and some more information. Anybody else like to ask a question before we close the call?
All right, we appreciate the participation. Cary I would love to turn it back to you and again thank Chesapeake for being our partner on this call. I want to take our CEO and Founder, Ron Williams, our CFO, Jack Eldridge and all of you that are following ForeverGreen closely, we look forward to a great 2016 and we look forward to talking with you again on the next call and please stay tuned for the press release updated. Thanks everyone.
Thank you, Craig and if anyone else has any additional question please contact the Chesapeake Group or ForeverGreen. Thank you everyone for your time.