New Age Beverages Corporation (OTCPK:NBEV) 2016 Annual Investor Conference Call April 5, 2017 10:00 AM ET
Scott Biddick - IR Counsel, Amato & Partners
Brent Willis - CEO
Chuck Ence - CFO
Candace Crawford - CEO of Coco-Libre
Dan Epstein - CFO and Interim CEO of Marley Beverage Company.
Good morning, and thank you for joining New Age Beverage Corporation’s 2016 annual results investor conference call for the period ending December 31, 2016. I am Scott Biddick with Amato and Partners, the investor relation’s counsel for New Age. I’d like to welcome you all to the call today and to thank you all for joining.
On today’s call we will have Brent Willis, Chief Executive Officer of New Age Beverages, Chuck Ence, Chief Financial Officer, Candace Crawford CEO of Coco-Libre, and Dan Epstein CFO and Interim CEO of the Marley Beverage Company.
On our call, Brent will provide some opening comments. Chuck will provide an overview of our full year 2016 results and then turn it back to Brent, Dan and Candace who will discuss operating performance in the year, the recent Marley and Coco-Libre acquisitions and progress among major priorities. We will then open the call to questions.
We remind you that this conference call contains certain forward-looking statements reflecting management’s current expectations regarding future results of operations, economic performance, financial condition and achievements of the Company. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties.
The transcript of today’s conference call will be available on the Company's website, within the investor section at www.newagebe.us I’d now like to turn the call over to Brent.
In 2016 we established the business foundation, financial foundation, brands, and leadership team to put New Age in a position…and give us the legitimacy to become the world’s largest healthy functional beverage company. Our new Board of Directors however challenged us…. to not worry about being the biggest – just be the best. So we succumbed to their guidance of now being the best.
We are still defining best, but we know it means at least 3 things: 1) Best execution (superior differentiated brands, only competing in growth industries, and delivering superior return across the value chain (i.e. for Retailers, distributors, and New Age); 2) As a result of the above - Best operating performance in EBITDA growth and EBITDA margin growth in the industry over time; and 3) as a result of the above two, Best return on investment for shareholders.
So best actually translates to one thing – best execution and doing what we have to do organizational capability-wise to ensure superior performance against a very simple and clear strategy.
Let’s review 2016, starting off with the highlights and lowlights of the year. First, on the positive side of the ledger, here are the top 10 accomplishments in my view:
One, We are now more than 30 times (almost 40 times) the size we were in revenue 9 months ago … and delivered excellent growth across operational financial metrics no matter how you look at them, in total, ….organically ….whatever, division by division, brand by brand, market by market, across revenue, gross profit or EBITDA.
Two, We developed an incredibly clean balance sheet with 0 warrants, and now a grand total of $0 dollars in debt. Zero
Three, We gained an accordion line of credit with US Bank at an interest rate of about 3.7%. This is what we mean by having a strong financial platform.
Four, We leveraged our R&D expertise to develop the first shelf stable Kombucha with 9 months of shelf life, and gained more than 5,000 new accounts, and developed Aspen Pure Probiotic, the worlds first shelf stable probiotic water.
Five, We delivered on $2.8 million of planned cost synergies out of a total $4.1 planned over 18 months, and in revenue synergies we are also ahead of our target after only 9 months
Six, We are holding opex and all costs tight. Although it is just one line item, shipping for example, it is indicative, with reduced shipping costs to 4.3% of net sales vs. more than 11% for Bucha Inc. as a standalone company last year.
Seven, We began early penetration of close in international markets in Chile, the Caribbean, and Canada, whereby international now represents about 8% of our total business, and we have made some important investments in world class leaders of Craig Thibodeau, President of Canada, and Bernard Rubin our VP international that recently joined the firm.
Eight, We rebased our web presence, social media foundation, and if you haven’t seen it yet, we have a total new website at www.newagebev.us, and are expanding influencers and social presence across all our brands. Just the starting point, but the starting point for real brand building nonetheless.
Nine, We strengthened our financial operations to eliminate all material control weaknesses. This sometimes can go unnoticed – isn’t talked about that much – but being in financial control, having confidence, and doing what you have to do across all aspects of the business to be …in control …is a massive amount of work, and maybe the best of all the top ten highlights, and
Ten, We were profitable, after absorbing more than $2.5 million in loss from the standalone Bucha Company, and we generated $975 thousand in cash on top of all that…and oh by the way, we acquired the assets of the Marley beverage company. We acquired Coco-Libre. We uplisted onto the Nasdaq, and had a 4 times oversubscribed raise netting $17.5 Million, and sold an asset for $8.9 million, and Installed an amazing new Board of Directors that is already bringing tremendous value and further discipline.
It’s not all perfect though, by any stretch of the imagination and it is a tremendous amount of work, but most things worthwhile and transformative – well, frankly are. You have to be unreasonable – to make progress in a relatively reasonable and orderly business environment, and we are, if nothing else, unreasonable, and demanding.
We believe we still have a long way to go in the level of metrics across all areas of the business, the performance orientation, the culture, and frankly in our sales, and brand, and distribution, and retail, and cost execution. If we are in growth categories of the beverage industry – we ought to be outpacing those categories which means around 10% annual organic revenue growth. If you look at SPINS, IRI, or Nielsen, we have pockets where we are executing at that level, pockets where we are executing above that level, but overall we are kind of running at about 70% of the rate of growth we expect.
I also think we have a tremendous amount of work to do on our core brands. Put another way – we have the best functionally differentiated, all-natural, or organic brands – great, but consumer’s don't know about our differentiating points (probably because we have never communicated them in any sort of compelling way), and we have never really built the emotional brand connections that are equally or even more important in the beverage industry. Sorry to be so jaundiced on our own company and brands, but I’d rather be real and transparent.
In the area of costs (value engineering of the portfolio, leveraging scale, or harmonizing the manufacturing network) this has never been a focus, and we have huge opportunity I think to really double our Gross Profit as a percent of sales in our strategic plan period.
So we have big opportunities with our brands, both in consumer execution and in retail execution at the point of sale, big opportunity in COGS, and the third big opportunity area is in our processes, systems, dashboards and metrics. What get’s measured…is what matters, and what gets inspected…correlates directly to what results are expected.
We have some good progress against our strategic priorities, but before we get into it, I’d like to ask Chuck Ence, our Chief Financial Officer to review the year’s financial results.
Thanks Brent. From someone that worked in the previous company for 13 years, to this one, I can attest that things are definitely different. We are funded unlike we have ever been before, we are focused unlike we have ever been before, and we are working our tails off like we have never done before. Our pace is unbelievable, and we still think we can accelerate. As Brent said, we have lots of great accomplishments that would be fantastic for any company over any period of time – let alone just the last nine months we have been in operation. But, we also are clear in our areas for improvement, and that is what we are focusing on vs. getting any pats on the back.
Let me now take you into the details of the 2016 full year financial results. These results are full year for the Bucha, Inc. Company, and half year for Xing as the acquisition happened on the last day of Q2. They do not include any Coco-Libre results and do not include any Marley Beverage Company results. Organic comparisons are very difficult to decipher – but where possible we have shared those comparisons versus prior year.
For the full year 2016, Consolidated gross revenue achieved $27,278,606 versus $2,686,658 in the prior year, a 915% growth. Subtracting discounts and billbacks, at the net revenue level, the group achieved $25,301,806 vs. $2,421,752 in the prior year. In Q4, the company did just over $12 million in revenue, reflective of the normal seasonality but still up organically, just shy of 7% for the quarter and year.
All Divisions contributed in a fairly balanced way, and all brands contributing to the results and growth of the firm. Within the brands, Búcha Live Kombucha performed the strongest for the year benefiting from category growth, and internally from the planned revenue synergies, gaining incremental distribution through the New Age national DSD network gaining over 5,000 new accounts over the past nine months. In 2016 Bucha led all our growth up 43.2%, actually outpacing the category. Since developing and launching shelf stable/non refrigerated Bucha, retailer demand has taken off, and we have had to add in two new production operations which both come on stream in Q2. Aspen Pure also grew well in 2016, up 12.6% organically for the year, and now with its new Identity, and extension with Aspen Pure Probiotic in the Q1 2017 – we expect this business to more than double in 2017 as it rolls out nationally.
In gross profit, the firm delivered $6,893,056 vs. $642,009 in the prior year. To be comparative vs. our peer group, we have stripped out shipping expense. This results in a percent of net sales of 27.2% vs. 26.5% in the prior year… and 26.7% in the prior quarter – this, the most transparent organic comparison, showing the benefits of the first initial cost synergies coming through.
Going forward on gross margin, we have three specific upcoming impacts. 1) The 46% reduction in Bucha packaging cost improves total company margin mix by 2 points; 2), The inclusion of higher margin Marley and Coco-Libre businesses which we expect will have more than a 4 point improvement on margin, 3) The expansion of Aspen Pure Probiotic – which depending on its scale could have up to a 10 pt. improvement on overall margin for the firm.
These are three specific initiatives already in progress, but there is a list of over 50 other projects on costs to be actioned that will all have measureable impact. In shipping for the year, we reduced costs as a percent of net sales to 4.3%, down from 4.8% in the prior quarter apples to apples and down from 9.4% in the prior year. Together with COGS, that then equates to contribution margin overall up 1,302% vs. revenue only up 915% - showing the good overall gross margin improvement.
In Opex, we have held personnel costs as a percent of sales extremely tight, as headcount is always the biggest impact and area of savings. Total personnel expenses were down to 11.8% of net sales from 12.2% on a proforma basis in the prior year, and down percentage-se vs. a significant amount on the búcha standalone company in 2015.
One time expenses were just over $3 million for the year, relating to the acquisition costs of Xing in Q2 2016, contractual bonuses and payments relating to the same. Adjusted EBITDA (although we appreciate this is a non GAAP measure), follows from that with a positive $262,117, also with positive cash flow generated form operations of $975,176 – results we are extremely proud of as we absorbed more than $2.5 million of losses from the previous Bucha standalone company. Now that we have eliminated 80% of their opex, the benefits of their revenue, now increased in the new age system will start to flow though to the bottom line.
In summary, looking at the financial performance for the full year 2016, there are a few important takeaways:
1) Operating Financial Performance across any metric, overall or organic, revenue, gross profit, costs, or EBITDA is well, unlike anything I have ever been a part of.
2) We continue to generate good positive cash flow, and now that the uplist and most of the one-time expenses are behind us, it should be even more healthy
3) With the organic growth of the core brands, and now the additions of Marley and Coco-Libre, we have significantly more scale and resources and relevance with retailers and distributors. We don't need more infrastructure or people, so these new business should have excellent flow through to bottom line profit.
4) Gross margin and costs are moving in the right direction. Lots more to do, but lots already in progress.
5) We are well funded to invest in building our brands, both the newly acquired ones and the existing ones in the New Age portfolio. We don't believe we need more in the portfolio, now we are just focused on driving it and building the intangible assets and brand values in the firm.
We are reaffirming our organic business model of 7-10% revenue growth, 10-12% gross profit growth, less than 5% operating expense growth, and 1-2 points of EBITDA margin improvement year over year. With that organic model, and the recent external growth contributions, the firm is moving in the right direction. And with that I’d like to pass it over to Brent to give you some of the progress on our major strategies.
Thanks Chuck, and congrats again on the successful audit, eliminating all material weaknesses, the numbers, the uplist, the financial raise, the cash flow management. Good job – really.
When we started this journey, we laid out a very simple and abundantly clear mission, and single-minded goal of making a difference with consumers by providing healthier alternatives. Coupled with that aligning purpose, was a one page roadmap on how we were going to achieve it. On the roadmap, so far we are right on track – we are just about 11 months ahead of schedule. Strategically, the roadmap translates into simple execution of the key strategies that govern the company and all our action plans:
1) Drive pervasive availability on an expanded brand portfolio via a key account, multi-channel, hybrid route-to-market approach
2) Begin penetration of close-in international markets to capitalize on global health and wellness trends;
3) Broaden New Age DSD operations with expanded portfolio, deeper penetration by channel, and improved systems;
4) Build brand platforms with leading next gen healthy functional beverages, in-store activation and consumer connecting activities
5) Improve margins through overhauling COGS and installing ZBB on all OPEX;
6) Upgrade infrastructure, systems and processes with enterprise resource planning systems, improved financial reporting, and strengthened key metrics and accountabilities
7) Strengthen our financial foundation via accessing the capital markets, solidifying long-term banking partners and facilities
8) Pursue transformative organic and external growth
For today’s call we are going to build on two of those – external growth and our brands. To kick off the discussion on external growth, I’d like to ask Candace, CEO of Coco-Libre to provide you little background.
Thanks Brent. This is a good week for Coco-Libre, a good week for New Age, and even better week for Coco-Libre and New Age shareholders. Why did we do this, what lead to the decision to partner with New Age?
Well, Brent and I actually started working on this more than six months ago. In that meeting we actually took to the white board and laid out the overall growth drivers of new age, both the organic and external growth ones. So its exciting to see what Brent and his team have done and will do in executing it.
When Brent and I met, we agreed that a Coconut water company made sense for New Age in its strategy to differentiate their portfolio and be a one stop shop that was solely healthy functional beverages. And Coco-Libre is a great under-leveraged and under-resourced brand. Since I joined in 2015, we led the category in innovation with the first sparkling coconut water, refreshed of our award winning protein and coconut water line, and expanded distribution in the conventional channels and as a result became one of the top 5 brands in the category and the number 1 multi-serve brand. New age with their system and infrastructure, and DSD distribution, can really take advantage of all that investment, all that innovation, and take this great brand to the next level.
The transaction made a lot of sense for Coco-Libre investors too, because they got to become shareholders in New Age and they really believe in what is being created. Like many small stand-alone beverage companies, and Coco-Libre was not different, so much investment has to be utilized for infrastructure and organizational expenses vs. brand investment. Now with New Age, all the investment can go toward brand building to really build on what we started.
Brent and I have discussed me remaining actively involved, and I am excited about the New Age journey, and look forward to contributing in any way I can going forward.
The partnership and the New Age model just makes sense.
It is a very good fit for us, right on strategy, and in addition to being a great brand that we believe we can really motor through our distribution network, they are also bringing an outstanding organic coconut water source as a base for some of our intended new products.
This week we completed our building sale for $8.9 million, issued our 10K, completed the Coco-Libre acquisition and completed the Marley Beverage Company acquisition, so… it was a pretty busy week.
We are able to manage it…. because through some of the acquisitions we have already done, we have gained some world-class people that can do more for the broader integrated company. One of those folks is Dan Epstein, the CFO and interim CEO of Marley Beverage Company, who is taking over as the Corporate Controller of New Age, and Chief Financial Officer of the operating company subsidiary. Dan and I did the convergence with New Age and Marley back in Q4 virtually without hiccup, and using that same model, Dan is now leading the convergence team with Coco-Libre. He is actually in California right now with Candace and the rest of the convergence team.
I wanted to ask Dan to comment on the acquisition of the assets of the Marley Beverage Company, and how its integration has materialized over the past 4 months. Dan
Thanks Brent. Any one of these integrations of companies is a lot of detailed work. The key is to have a detailed plan, affix responsibilities and ownership for each task, and key your eye on the prize… which is the value - the cost and revenue synergies.
On October 24th 2016 we entered into the management agreement with New Age and simultaneously executed a major headcount reduction to eliminate redundancies. The very next week we had the entire sales force in, training them all on the whole portfolio, integrating them into one national salesforce, defining new job descriptions, implementing a new performance based salary structure, and starting the development of one culture.
We then changed the compensation structure to a performance based plan and realigned the compensation structure of Marley sales force to align it with New Age’s model….based on lower base salary, with higher levels of at risk performance based bonuses. Despite those changes …we retained the team, and I have to tell you speaking on behalf of all the legacy Marley associates, it has been pretty darn good. The brands and team are much better off merged with New Age than as a standalone company, and since integrating the Marley brands, we are gaining sales, gaining new distribution, and the upcoming expanded product portfolio and marketing plans look really exciting.
Personally as part of the integrated enterprise with Xing, Bucha, Marley, Aspen Pure, Coco-Libre and New Age, I am able to leverage some of my strengths in business integration, metrics, systems, dashboards and processes and enhance these within the organization. Brent and I think alike on how to bring superior, sustainable and consistent performance in these enterprises …..and it doesn't come from charismatic leadership. It comes from being dedicated to building organization capabilities - the people, processes, systems, information and metrics and culture to put business results in statistical control.
My assessment is that we have a long way to go across all of these elements, but we have the basics in place, and as we strengthen over time – we are only going to get better and drive more efficiency and bottom line profit across the entire business.
Thanks Dan. The final thing I want to talk about on today’s call is our brands. We now have a broader portfolio, all competing in the growth segments of the beverage industry. We now have a great brand in each of the top 5 growth segments of beverages including Kombucha, Coconut water, Ready to Drink Tea, Ready to Drink Coffee, and functional waters. It really is a great position to be in, swimming with the tide, and no legacy or traditional categories that we need to try and sustain.
The other thing we have is a pretty tight Marketing team that historically we have never had. The final thing we have, is a plan --- and ideas on each brand, whereby we are first overhauling our brand positionings, our consumer portraits, and clarity on what persuasive functional and emotional benefits we want to own in consumer’s minds. That thinking and research and brand building discipline are all things that have never done before in our Company.
From here – we are first getting our social and digital platforms right. Step one is an updated consumer facing web presence, and if you have never seen it, I would encourage you all to go to www.newagebev.us to see the overall encapsulating company website. Populating within the site, and as standalone sites, are compelling new sites for each of our brands. The first one completed is Aspen Pure. All others are in progress, and I expect them all completed in April. In social and digital… it’s all about content and relevant engagement. What you probably don't know yet, is we are issuing about 5 new pieces of engaging content on each of our brands, each week, for the moment through the Facebook and Instagram mediums. We are just getting started on all of these efforts, including our ecommerce direct sales efforts, and throughout this quarter I expect us to be much more aggressive and connecting using millennial influencers in the space with whom we have a lot of personal relationships.
On the traditional media side (TV, print, sponsorships, outdoor) – for these brands, - we don't believe in them - as an effective medium to persuade our target audiences. Good thing – because they are very expensive, are hard to get right, and have lower ROI than what we are currently doing to connect with consumers.
Beyond the social and digital, we are also connecting with consumers experientially and in local events. This can be a very expensive proposition also – but many of our distributor partners are major Budweiser houses – so they are doing huge events basically each month already, so we intend to just piggyback on those – essentially for the cost of product.
Another high ROI marketing activity underway is activation at the POS. With our national DSD distribution network, our guys are in the stores everyday, and we are doing a range of trade, display, price, and consumer promotions across all the brands. It is kind of mundane beverage industry blocking and tackling, but you have to do it, and via our DSD distribution network, if we don't leverage it – it is a big missed opportunity.
Lastly - new products are a big part of our brand development and marketing plan. In Q1 2107 we launched AspenPure Probiotic, the world’s first shelf stable probiotic water. Concurrent with the launch, we refreshed the identity of the brand with all new packaging, including on our core Aspen Pure PH Balanced. We launched the búcha live kombucha shelf stable non refrigerated product also and have gained tremendous new distribution since making that change that will begin to impact in Q2.
XingEnergy which is a niche healthier energy drink, expanded distribution to a major retailer on the East Coast, new XingTea packaging identity is rolling out now, and it is a big improvement… but across all the brands, Marley, Xing, and Coco-Libre we have some incredibly exciting new products coming in Q2 and Q3, on which we know, we know, their potential to be transformative for our organic growth.
In summary for today’s call, I believe we are moving in the right direction. Post the uplist to the NASDAQ, we have the financial platform, we have the business platform and execution machine, and we have a leadership team that has been there and done it, supported by a world class board of directors. With that in place, it all comes down to execution, which our entire company is focused on. It is the only thing that matters, and fortunately the incentives and compensation system for the company is all geared toward that. I am very excited about the new companies we are integrating, our brands, and the team we are building to execute against it all.
2016 financially and structurally, was a transformative year for the Company, and the stock responded going from a low of 19 cents to above $4.00. 2017 has started off frankly even better, and we have a lot of enthusiasm about how the year is shaping up.
With that, let me send it back to the operator and open it up to questions.
[No Q&A coverage for this event]
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