New Age Beverages Corporation (NASDAQ:NBEV)
Q3 2017 Earnings Conference Call
November 14, 2017, 12:00 PM ET
Executives
Chuck Ence – Chief Financial Officer
Brent Willis – Chief Executive Officer
Terry Sperstad – Senior Vice President, Key Accounts
Analysts
David Bain – ROTH Capital
Rommel Dionisio – Aegis Capital
John Harrod – Harrod & Associates
Anthony Vendetti – Maxim Group
Operator
Good morning. Welcome to the New Age Beverages’ Third Quarter 2017 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]
Please note this event is being recorded. I would now like to turn the conference over to Chuck Ence. Please go ahead.
Chuck Ence
Thanks, Brian. Welcome everyone to our third quarter results conference call. I would like to remind everyone that this conference call may contain 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.
I would like to get right into our results for the third quarter and for the nine months ending September 30, 2017. The transcript of which will be available on the company’s website, within the Investor Section at www.newagebev.us.
For the third quarter the company delivered consolidated gross revenue of $16.8 million versus $15.8 in the prior year. Subtracting discounts and billbacks, at the net revenue level, the company achieved $15.1 million versus $13.5 million in the prior year, and increase of 12%.
Net Sales as a percent of gross, was significantly better than prior year, and we expect net sales to be around 90% of gross sales for the foreseeable future. For the nine months ending September, consolidated gross revenue was $44.3 million versus $16.3 million in the prior year and consolidated net sales were $40.9 million versus $14.8 million, increases over prior year of over 1,700%.
Within our operating units, The DSD Division had another outstanding quarter delivering 731,000 cases. Through the first nine months of the year, this Division has had record performance in eight of those nine months, and is up 6% organically versus a very strong prior year.
In addition to being a test bed for all New Age’s internal innovative products and a source of visibility for anything new or new emerging trends in beverages, this Division is a positive cash generator as a standalone entity to fund New Age’s growth and diversification.
The International Division also contributed well in the quarter and is quietly becoming a more important part of the company. Expansions of core brands in major grocery and convenience retailers in Canada, and Marley brand expansions in Latin America both significantly contributed. Búcha for example was up 108% in Canada, and outside of Canada, XingTea was up 115%, more than double in the third quarter versus prior year.
The US Division is also now starting to pick up steam and added more than 15,000 points of sale in the latter part of the quarter, and is in the process of a number of new brand roll-outs with major — mostly new customers that are envisioned to have a material impact on the business.
Under the leadership of Mike Cunningham, the new Senior Vice President of Sales, the core brands, have now stabilized and established a new basis for growth with profitable customer relationships committed to building these brands together with New Age.
In gross profit, the firm delivered $4.8 million for the third quarter ended September versus $3.6 million in the same period in the prior year, or up 33%. This equates, in gross margin percent to 31.9% of net sales versus 28.4% in the prior quarter and versus 26.7% in the prior year. The 3.5 points of continued gross margin improvement is a result of concerted efforts on mix enhancement and overall cost of goods sold reduction.
Importantly, however, the increase in gross margin is before any of the impact of the shift in Coco-Libre sourcing, which will impact primarily starting in Q1 of 2018 and represents a more than 30% improvement in cost of goods sold on this important component of the New Age business.
Gross profit as a percent of net revenues on a year-to-date basis was 28.8% versus 26.9% for the nine months ended September 2016, reflective of the same impacts and focus as previously mentioned.
Total operating expenses for the third quarter were $4.4 million or 28.9% of net sales versus $2.7 million or 19.7% in the same quarter last year. The increase of $1.7 million versus prior year resulted from investments in people and systems on the commercial and operations sides of the business, and a significant increase in sales and marketing expenditure.
Those investments are already delivering with more than 15,000 new points of distribution achieved in the latter part of Q3, and another more than 15,000 already achieved in the month of October. While the expenditure curve has impacted us in Q3, the revenue curve does not impact the income statement until Q4, but we do not manage the business on a quarter-to-quarter basis, and frankly, never will.
Year-to-date OpEx expenditures were $10.9 million or 26.6% versus $5.1 million or 34.5% for the nine months ended September 2016, a 7.9 point improvement versus prior year. As a result of the organization moves and sales and marketing investments, net loss for the quarter was $479.8 thousand or minus $0.02 per share versus a small gain in the three months of the prior year. Net income for year-to-date is $1.31 million, a reversal versus a loss of $2.1 million for the nine months ended September 2016.
EBITDA for the third quarter was minus $186,000 and adjusted EBITDA was minus $131,000 when taking out the one-time non-recurring expenses associated with acquisitions and acquisition integration.
Year-to-date EBITDA was $2.2 million and adjusted EBITDA reached $2.7 million. There have been a number of other one-time expenses associated with the acquisitions, transitions, integrations, legal fees and other impacts associated with the uplist onto the NASDAQ and the acquisitions and absorptions of Coco-Libre, Marley and Premier Micronutrient Corporation throughout the year that are all non-recurring, we have just absorbed these in overall OpEx versus breaking them out separately.
Shifting to the balance sheet, we now have current assets of $18.3 million versus liabilities of $7.0 million, not including the $1.2 million Marley contingent liability that has no corresponding current assets entry.
From a total assets standpoint, we now have $69.2 million in assets versus total liabilities of $13.2 million, again excluding the Marley contingent liability, leading to a total of $55 million of shareholders’ equity. We have not yet completed the valuations of the Coco-Libre acquisition and intangibles, the Marley acquisition and intangibles, and importantly, the PMC acquisition with its 13 patents and related studies and trials. When completed we expect this to have a significant positive impact on the total assets of New Age.
From the cash flow statement, we generated positive net income for the first nine months of $1.3 million. Our working capital ratio of 2.7 when dividing current assets of $18.3 million by our current liabilities of $6.9 is respectable and the overall adjusted EBITDA of positive $1.7 million year-to-date still makes us the only public small-cap beverage company to show a profit of any sort.
Yes, we unapologetically had a one-time gain earlier in the year from an asset sale, and we expect to continue to occasionally have these benefits to support the overall health of the Company. We are using our free cash, we think intelligently to increase our inventories consistent with increased demand, and investing in the infrastructure and organic growth activities including new brands coming on stream now to take the business to the next level.
So, summarizing the most germane points of our financial results; number one, topline continues to grow up 12% for the quarter in net sales and up more than 1,700% year-to-date.
Number two, gross margin is increasing rapidly and methodically, gross margin increased to 31.9% for the quarter and now — and is now up 4 points in the past two quarters.
Number three, investments of $1.5 million incremental in the quarter in operations, sales and marketing, to expand distribution, and support the larger scale business with more sophisticated and demanding customers.
Number four, adjusted EBITDA of minus $131,000 for the quarter, reflective of the investments, but up $2.7 million year-to-date, the only public small-cap that is profitable.
And number five, the balance sheet $69.2 million assets versus just $13.2 million of liabilities, with the working capital ratio of 2.7 of current assets over current liabilities.
And with that, I would like to pass it over to Brent and the team to give you an update on performance versus our strategic initiatives.
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