NewAge, Inc. (NBEV) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to the NewAge Inc.'s First Quarter 2021 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to Riley Timmer. Thank you. You may begin.
Riley Timmer: Thank you. Good morning and thank you for joining New Age Inc.'s first quarter financial results investor conference call. I'm Riley Timmer, the Global Head of Investor Relations of NewAge and I'm pleased to be with you all today. On today's call, we have Brent Willis, our Chief Executive Officer; and Mark Wilson, our Group President. Now I 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. Factors that could cause these results to differ materially are set forth in our annual report on Form 10-K and 10-Q filed with the SEC. Any forward-looking statements that we may make in this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future event.
Brent Willis: Thanks Riley. We completed our first full quarter as a newly combined company following the merger between RX, Morinda, Zennoa, LIMU, MaVie, and NewAge in the end of the year. And the results were better than expected. It's great to get a fast start to the year and we have with $125 million in revenue for the quarter. And importantly, our second profitable quarter in a row in EBITDA in what is still our smallest seasonal quarter of the year. Now driving organic growth integrating major organizations, building new common cultures, capturing synergies to drive further accretive value for shareholders, while continuing to bring in additional accretive acquisitions is actually not that easy to all get right. But we have some experience with acquisition integration, we focus on what matters we drive sales, and we have our model and processes down and it is working quite well. Getting double digit growth in the first quarter of the year and us being together has exceeded our internal expectations. Now that we've reached our initial scale, and now that our convergence and synergy capture is well underway, both the top and bottom lines are beginning to produce the intended results. Honestly, we are in the strongest position we have been in our short 4.5 year history since I've had the honor of being part of our company. Sometimes things may not be always as clear to those that are not in the trenches with us every day. But those patient investors that have stayed with us from a short time ago where we were frankly trading at $0.19 on the OTC -- actually not trading on the OTC pink, those and what patient investors that have stayed with us have done quite well. But of all the things that we're going to share with investors today, I hope you take away these three things that we believe are the keys to success, and why we believe NewAge is so attractive going forward. Number one, we are building differentiated brands, and we have the science and pipeline of IP to win with them in the future. We have an on trend direct-to-consumer route to market that every CPG company is looking how to do and we're the ones that have the system. The number three, we have the social selling network of over 400,000 exclusive brand partners and customers. This team of influencers is our fundamental source of competitive advantage because what investors may not realize is that friends and family records in your social feed are the largest drivers of purchase these days. It is not TV advertising or merchandising at the point of sale, like virtually all legacy CPG companies are structured to do, and are still doing, because that's what they know. But believe me, they are all trying to figure out how to become more direct, and do what we do and get what we have today.
Mark Wilson: Hey, thanks Brent. As our Group President at NewAge, my focus continues to be on directing our global sales strategy and developing the leadership of our markets, both the employees and hundreds of thousands brand partners and our customers around the globe. This quarter, as a combined company, we experienced some strong sales and growth and actually incremental margin capture as we were strategically integrating and converge the two large organizations and the other companies that we've been integrating this last year. This is a huge deal. And we're pleased with this growth and the trends that we are currently seeing with double digit organic growth that is significantly outpacing the CPG industry. In addition to leading our global sales team, I also have been overseeing the convergence and integration of our companies. From the outset of working with brands, we both knew it was critical that we delivered the committed cost synergies that we committed to our shareholders. We knew it was critical for there to be as little disruption as possible to our Brand Partners businesses. And we also knew that it was critical that our core values remain unchanged, and that it was critical we further strengthened our partnership with the field throughout the integration and convergence. We had a few things going for us to come to merger that really helped. First, we were completely aligned at the top; I think second, we had a compensation plan at RX that is very unique with multiple patents pending that allowed us for a successful integration without changing our Brand Partners business structure. And third, we had a pretty robust system that enabled and our important compliance with the NewAge side, adding to that finally, fourth, were very strong foundational public company structure. And the upside that everybody wants to be part of.
Brent Willis: Mark, thank you so much. And thanks to all the brand partners and our teams around the world. You are all doing just an amazing job. Our financial performance of the quarter is fairly detailedly laid our press release and our 10-Q filing. So let me just hit a few of the highlights. Hitting $125 million in revenue in our smallest quarter of the year is a good start. 70% gross margin is also okay. And we are confident we can improve on this over time. We grew our gross margin by five full points versus Q1 last year whilst virtually doubling our sales. And we see even more improvement in both improved gross margin and lower SG&A going forward. Positive EBITDA of $2.9 million is also okay and frankly, would have been even better without the one time severance charges of $1.4 million. But still our second quarter of positive EBITDA. I'm sure investors know. But for abundant clarity, the derivative impact on net income is a technical calculation and non cash entry. All associated with valuation of the RX acquisition, stock consideration value that goes away once final consideration is provided.
Operator: Our first question is from Aaron Grey with Alliance Global Partners.
AndrewBond: Good morning. This is Andrew Bond on the line for Aaron Grey. Thank you for taking our questions. First question is on China. Can you provide some additional color on China and how do you feel growth trends are preparing over the next 12 to 18 months given we've seen a little bit of volatility in the market over the past year and a half?
BrentWillis: Yes, I'll give you a quick headline. But the first thing I'd say is for we've just got outstanding leadership at the region and the market level there. And we're bringing the companies together. And that's always complicated from a compensation system. But we've got outstanding management and outstanding Brand Partners. And that is a key to success. It's complicated in China, in an environment and industry that is rapidly shifting towards new channels, live streaming, ecommerce, in other ways of doing business shifting from the traditional kind of belly to belly and relationship sales based approach to much more social and with the endemic, these be called a pandemic, but with the endemic Boy, that really makes it difficult for us to be over there and interact with our key leaders that, frankly, we need, and we're used to, but it limits our progress, but it is a very rapidly changing market. And overall I think our China business when you add the two together is up 74%. But organically, we're not. We haven't yet seen the growth, even though we got -- we started good sequential growth, Q4 to Q1, that's real progress in the right direction. But we do see it as a growth region for us this year. But it's really, really complicated. Mark is on it on a day to day basis. As one of our future CEO candidates, Ian Chandler is on there is on like crazy. He's a region President there. So Mark, what other insight would you provide beside from my top line summary?
MarkWilson: Yes, I think it's great. I think the other thing I would add to it is, as we see China evolving and changing with the pandemic, they will one that was hit very hard with this, because of their traditional face to face kind of selling approach. Ian has been working on a plan and that will be rolled out, it's already in process right now in this quarter, but throughout the rest of the year. And that's why I said that I think we'll see some good things throughout the year, as we start to roll out a more acceptable social selling platform, live streaming from other, we have some other things in play as far as social selling to introduce them through WeChat and other opportunities, the way they're used to doing business, but give them a new platform, so to speak, to be able to do business, and our leaders are responding to that well, as well as some of the new technology and product development that we've been working on, geared around pushing some of these markets a little further, with some exciting new launches as that I'd say next six to 12 months. So we're pretty excited about China. But we don't have the growth that we've been having in Europe right now, which is great to be a stable company throughout the world. But we'll -- you'll see that go up.
BrentWillis: Yes, like I said, Andrew technically, we're up 74% that's reported in the Q, but it doesn't really tell the full story, organically, you were up quarter-to-quarter sequentially. That's very good results, but still down, if you really looked on a pro forma basis, versus prior year, and that's in part because of all of the transitions. And as Mark said, offset by Europe, the Americas pretty stable business in Japan. So that is the benefit of the global business. Sometimes some regions are up, sometimes regions are down, and you see China as a big growth, opportunity.
MarkWilson: And Brent even traditional business as they're coming out of the pandemic. I think you're going to see a strengthening just naturally with that as well. Because as things open up more to the market opened up more to people traveling in and visiting, those will all be factors that help us grow that market.
AndrewBond: Great, that's great color. Thank you Brent and Mark for that. Maybe just speaking to EBITDA margin expansion now with two quarters of profitability. How should we think about the EBITDA margin profile in the near term? And where do you believe you could reach over the next few years? Thank you.
BrentWillis: Yes, it'll be a target and I am personally focused on that as a specific metric to the Board of Directors and to shareholders. And we think that's important for driving value in the equity is driving the EBITDA margin and as we expand out our social selling tools and become the kind of social selling enterprise, we want to be -- we will get the multiples too on that to reflect the global trends and the position that we have to address those global trends in where, how, and what consumers buy. So long term, as we get more scale, within our strategic plan period, we are confident that we can get to above a 15% EBITDA margin. And the key to that is having that incremental scale and reducing SG&A as a percentage of total sales. That's where the real leverage on the P&L is. I also think that we can progress our gross margin from 70% to closer to 75%, within our strategic plan period, and that will also drop directly to the bottom line. But I think the key is we've tried to intimate what we have, we've got the infrastructure, we've got the people, we have the systems and the processes and the dashboards we get to see sales on an hourly basis, in every single market, in which we operate around the world that is just unheard of, and gives us the visibility and flexibility to really maneuver the business like we talked about. So I think we have everything we already need, and frankly, maybe even a little bit too over invested in certain functions, or certain markets like Mark talked about that we want to optimize. But those are more tweaking, I would say, as we further bring this together and add in new companies that frankly, really want to join the fold. But the key is driving EBITDA margin is what we're focused on. And going forward driving cash flow and net income margin. So you'll start to see improving progress on that for us going forward, not just EBITDA or adjusted EBITDA. So I'd say the long term target is above 15%. We will not get there this year. But we will, you can see we expect quarter-to-quarter or every six months and on a four year basis for sure significant EBITDA margin improvement.
MarkWilson: Brent could I add also, the convergence of that we're in the middle of I still see huge opportunity is being in charge of that we have many opportunities as if you think about we have not completely converged our IT, our financials, all of these things as those come together, we're going to get additional leverage through this convergence. And that is going to add some beautiful numbers there, as well as we're addressing markets that have not been profitable. And I have a whole team working on that to make sure that throughout the year that they either become profitable, or we eliminate those areas that are not unless it is a strategic growth market for us. So that in itself will help. And then, quite frankly, if it's not accretive to sales and profitability, we won't do it. We're just -- we're disciplining ourselves and our teams to make sure that we are focused on improving that number every quarter.
Operator: Our next question is from Mike Grondahl with Northland Securities.
MikeGrondahl: Hey, thanks, guys. My first question and maybe it's for Mark. Mark could you maybe describe some of the key features of your social media tools? And sort of secondly, I'm kind of curious, how penetrated are those maybe by country? Like, are you a third of the way there, two thirds of the way there? It would be kind of -- I would appreciate knowing a little bit more. Thank you.
MarkWilson: Sure. Yes, so great question. We are in my opinion, still just in the infancy of where we're at. I would say Europe is much more developed. We have tools where we have smart links and the smart link allows someone to sell or position a specific product or brand right to their consumer through social selling. So this allows them to target maybe one of our Lucim products with the skin care or one of our nutritional products through Nutrifii or through Morinda. And so that that element is one of the reasons Europe is growing at the pace they are because our Brand Partners there really understand how to effectively integrate and use the social selling tools to get the results, we just launched some support tools there where we've got apps that are launching and rolling out that give them not only information, give them feedback on what's working what's not allowed them to access a digital asset management tool, which basically shows them different social tools, videos, photos, etcetera. What is more effective, what is not working? And in fact, we've just started rolling out some data with them that will give them more real time information as to what's working. So throughout this year, we're going to continue to evolve that we've been rolling that out in phases, that piece will continue to add elements to their effectiveness so that they get not only real time feedback, but they can see what's working and what's not working in their campaigns. Now, these are probably more serious, experienced social sellers that have come love our brands, and say, this is an incredible opportunity, because they have the expertise. Our goal and objective this year is to teach everyone how to do this all of our Brand Partners making it simple for them to have access to these tools, but not only have access, to know what's working, what's not so they can start so to speak with phase one of how to get involved in social selling, because we see this as our Brand Partners, each have hundreds of contacts and ways of influences they can impact as well. So I would say we're just getting started. That's what I was commenting about with China, I think they're a little behind it. And that's why Ian has been working to bring that up to pace. And I think you're going to see some exciting things there. We're also -- we'll be announcing some strategic partnerships with others tools that will continue to make it even easier in the social selling aspects that are quite unique to and actually quite exciting to not only our brands, but to allow us to expand that portfolio for our customer base very easily. So I would give us throughout the year that would be something I would stay tuned on. Once we hit the convergence, we're planned on July 3 to converge both groups together with the exception of Japan and China, which were taken a little longer time on. But the Americas, Europe, Latin America will all be converged here coming up in July, when that happens, you'll see a whole new array of simpler, easy to use access what I call one hand ordering one hand enrollment type activity tools to make it even easier for them to do business with us. And that's probably been a part where we've not been as competitive. So we've invested a lot of time and effort, as Brent said, and we've talked about previously on IT making sure that we're up to speed on this as well.
MikeGrondahl: And Mark, are you able to quantify for an average rep, what this can do for their business? Or even extrapolate that for NewAge?
MarkWilson: Yes, as moving forward some of these tools, we teamed up with a company called Verb, V E R B. That is an access tool in the industry that allows them the real time information, so they can start to see what's transitioning to sales versus what's being unsuccessful. And I think by adding those tools and helping them with this that will even be just better, right? It will just improve their results. They'll say, oh, this campaigns working more effectively, this one's not working, I need to make some changes, as well as we're actually introducing this next quarter, some trainings, where we're getting these experts on to train others in their teams and others in other teams on how to make them an impactful social selling campaign, because there's an art to this as well. And we want to simplify that process.
BrentWillis: So to jump in Mike, I will tell you too I mean as I think you know we're very performance-oriented metric driven, every single person in the company has their own target setting worksheet. And each one of our regions has 20% of their bonus target for the year, the rollout of these new social selling tools. So we are, have everybody focused on it because their bonus depends on it. But the translation of rolling out this leading social selling tech and increasing our abilities is consistent organic growth from the top line. And frankly, it's very attractive financially from a margin standpoint, delivery to the bottom line also, right. So that's how it translates to the P&L.
MikeGrondahl: Great. Any thoughts on timing for the Aliven acquisition? And then maybe any new products to call out that can kind of move the needle in the next year or two?
BrentWillis: Yes, we kind don't -- go ahead, Mark.
MarkWilson: You are right; go ahead, I'll follow up.
BrentWillis: I kind of don't want to answer the second question on the new products because we think that we've got, and we've just uncovered new science over the past months that we think is not just going to move the needle, but really the kind of three standard deviation step function change for the industry. We just, it's so big, we think some of the science, we're not sure what to do with it, and who we should partner with to get even more credibility on the efficacy of what we've uncovered. That's the second answer to the question. Aliven, we think is going to be any day. But frankly, we have to be disciplined as a public company, to do the due diligence. Golden Week had slowed us down a little bit there in Japan translations and those kinds of things in -- from their contractually to Japanese, all those things take time. So we have been measured in terms of our timing to bring this in, but we believe it to be imminent. But we thought it was imminent before and it still is, but we don't see any issues at this point in terms of that coming into the fold. And we think it's very attractive for shareholders. Mark, I know you're on both of these things also, and above that share your perspective on both Aliven and what's going to move the needle for us going forward.
MarkWilson: Yes. I would agree with Brent, they do take time. If you look back on the RX acquisition is we came together with the merger, it took time and it just does and Aliven, we're still very excited about and we still believe that's a great opportunity for us as we come together on that piece. And there's still some work to be done. But I think that can happen fairly quickly. And there are a lot of opportunities. That's the exciting thing as you heard Brent talk about there are some really exciting opportunities, where people were wondering, well, why are you guys building cash? Why are you doing these things, we have some really exciting opportunities throughout the year that are going to come forward as we pick and choose the very best of these. And so I would say stay tuned, that one's coming. The second piece, wow, yes, we have some pretty exciting things we've launched our probiotics system integrating well some other products, but the innovation and the ability to our research and development team. Now that we've come together and the --when get into scale, this is one of those advantages. Deanna Latson and her team have done an amazing job of really looking at some innovation that our leaders were seeking and looking for. And some of those will happen this year. And some will happen probably I would anticipate early next year. But they are all great, great additions to our brand portfolio that will not just be me-two products, but will actually be great additions to our competitive advantages moving forward.
MikeGrondahl: Yes. I was asking, guys, I was asking a little bit more about the children's multivitamin or the sunscreen product that you guys announced recently, any comment on how those have been received.
MarkWilson: Very well. In fact, both of those were, we're trying to get to regulatory on the sunscreen because obviously it's highly regulated as an industry out there. And so with a unique formula that we came together with, so we're still working on that, also a timing issue of when it's best time to launch a sunscreen in a market. So but that's been well received. And the children's vitamins has been something we had in China for several years here, but now have just started to launch that throughout some of our other markets. And we allow our leaders to kind of help us decide what the priorities are. So this is one of those products that they've been seeking and wanting, especially here in North American and Europe, several of our markets. And so we're excited about that as well. That's a nice addition to our products and services. Because it complements the nutrition lines that already have for an age demographic we didn't have or for a specific thing like the sunscreen. But what Brent's referring to also when we talked about new technology, there's some exciting new things that I think will move the needle.
Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.
BrentWillis: Thank you very much. And Mike and Aaron thank you very much for the outstanding questions. As usual, we really appreciate you guys and you do a superb job. I would say, look, we were happy with the quarter, we're happy with the top and bottom line performance, it's only going to get better from here as we capture more synergies and continue to focus on what matters. And going forward, we've tried to give you the roadmap of what is going to deliver even more performance, new products. And the science behind those new products is potentially very, very breakthrough. The new social selling tools. First, the stuff that we're doing, we call that our Italy model, rolling out those things and some other new things that it will just put us on kind of nuclear overdrive, the finance and the debt things that we're doing that will give us even more room to do bigger things that we think will be virtually instantly accretive for shareholders. The changes on the management side and strengthening at the CFO level, which we also think to be imminent and new acquisition opportunities not just closing Aliven which is coming around the corner. But other opportunities that would give us the scale that have the end result of increased scale, increased numbers of Brand Partners, increased social selling capabilities, and increased free cash flow, and increased EBITDA margin as you can reduce your SG&A as a percentage of net sales. All progress on all five of those things is what you can expect from us going forward. While we are consistently delivering increasing EBITDA margin, and frankly, going forward, providing investors more visibility on our metrics, so they can get even more insight into the company both in terms of our direct route to market metrics, our numbers of Brand Partners, our ecommerce conversion rates and trends there. And our numbers of subscribers and trends and subscribers seeing a typical ecommerce and social selling metrics that we think it's important to give investors going forward. So more visibility, I would say, in addition to driving progress on those five fronts. And with that, I want to thank everybody for joining us today and hope everybody has a great week. Thank you.
Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.
