Q2 2020 Newage Inc Earnings Call
Good morning, and welcome to the New age Inc. second quarter 2020 earnings Conference call.
All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions.
Please note today's event is being recorded.
I would now like to turn the conference over to rightly tumor. Please go ahead Sir.
Good morning, and thank you for joined a new age Inc. second quarter 2020 for natural results Investor Conference call.
Right like Jim or the new global head of Investor Relations and I'm joining barack.
It's actually one of the founding partners and I'm excited to be part of the new combined company.
And do you with you all today.
Today's call, we have that well.
Chief Executive Officer, Julie Garlic, Cob, Chief marketing Officer.
Mark Wilson President of Arc, and the New group President of the combined company and Greg Gould, Our Chief Financial Officer.
I'd like to remind everyone that just 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 <unk>.
Forward looking statements specifically those concerning future performance are subject to certain risks and uncertainties.
Factors that could cause these results could differ materially are set forth in our annual report on form 10-K, and tempt you filed with the FCC.
Any forward looking statements that we make on 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 events.
During this call we <unk>, we may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in todays earnings release, which is available on our website at new age Dot com.
A transcript of today's conference call will be available on the company's website within your Investor section also at new age Dot Com I'll now turn the call over to Brent Wallace.
Yep.
Thank you rightly we appreciate everyone, taking the time to join us to discuss our second quarter 2020 result, we hope that you are all staying healthy and safe during this challenging period.
On today's call. We will briefly talk about Q2, but frankly as of July 20th It is a totally different company. So we think it is much more germane to give you inside and numbers.
And to what the real company will look like post closing.
We want to be cautious.
Because we want to under promise and over deliver but the reality is we have a very different company more profitable.
Longer and infinitely more valuable unclaimed, just better company for shareholders than we did a few weeks ago [laughter] could talk about the new company from and organic growth standpoint, we have asked you weaker telecom who's been named the CMO for the New company.
To discuss branded portfolio evolution.
And longtime industry veteran Mark Wilson, who will be the firm's new group President <unk>, all the regions reporting to him to discuss our actions and plans in the markets over the next few quarters.
I'd like to start a first with how things are going on the old Standalone, New age business and also touched on the integration and how it's going so far and what to expect in the coming 90 to 120 days.
First off on new age.
Year to date to the first six months of the year, we are up 1.3% to net revenue.
That's okay, and if we're not for the impact of Covidien, our largest markets and our highest growth markets. I believe we would they would have been up more than 20% organically.
But the disruptions are right a reality like everyone in CPG is seen but year to date.
Okay, Oh, I think is down more than 30% Pepsi was down in the direct selling peer group, we know that for the top five companies in direct selling were also down yet we are still up and showing organic growth versus prior year, which we believe puts us in the.
In the top tier performance amongst all CPG companies and the first half of the year.
At the end of Q1, we were up almost 10% globally and in Japan, Our largest market. For example, we had a great April but then they locked down Tokyo and many that major cities in Japan in May and most the June when we get impacted same in China that had significant.
Impacts in Q2, and still is almost right inline with prior year.
Overall, however, historically, we have not had enough scale offset in other markets.
To balance out these two region.
Something that significantly changes with the combination.
Where we collectively gain a bigger business in the Americas and in Europe. In addition to strengthening into core regions, China and Japan.
So.
What should investors really need to know across the markets on the new age side.
Well.
Japan, our biggest market.
That suffered the most covidien net revenue impact in Q2 actually looks pretty good.
Pandemic hurt our supply chain with our tomorrow to shape and no anyplace CBD shaft inventory. In addition to the market Lockdowns in May and June but our trends there are looking quite positive we have more than 51000 independent reps there.
And that number is increasing versus prior year.
Monthly E Commerce subscribers were 28561 also up versus prior year end. The average order size was 23500 yen per month also up slightly 2.6% versus last year.
Motivation is very high amongst key leaders and more people are joining our system and now they were back in inventory in the key new products our trends are encouraging.
Switching to China.
We are bit north of 120 million, an annualized revenue on a combined company basis.
Our new partners, our AR I would say.
Fanatical to get their hands on our direct selling license there, which the Chinese government is no longer issuing it's a pretty new one thing to explain but Rx grew their business in China to more than 60 million with a lot of obstacles and limitations.
Now that those obstacles are eliminated we're quite optimistic about what the combination represents for our integrated business in the PRC.
The U.S. Europe, and Latin America are all growing regions driven by the positive response to our immunity focused products and the influx of new people in need of extra income that had been joining the for.
And maybe most proud of our DSD division in the quarter.
These guys had a huge portion of their foodservice business wiped out and traffic to overall convenience outlets has been down by more than 30% in Q2.
Which had a negative annual impact on this division of around four to 5 million.
Yet in the month in June for example, they had their best month ever with more than 30% growth versus prior year I know, it's anecdotal, but it is a testament to the leadership and perseverance and that team and frankly all of our associates around the world.
So I would say those are the most relevant headlines in the quarter for new age good growth in several markets.
Offset in the short term by cobot impacts in Japan, and China, but quite encouraging on the recent trends, we're seeing especially in Japan.
I'll come back and share the status of the acquisition integration, but before I do that let me pass it over to Greg to provide the financial detail on Q2, Greg.
Thanks, Brett.
Overall, we ended the second quarter in a stronger financial position than the first quarter with an increase cash balance improve working capital.
In a relative lower SGN a expense.
We absorb numerous negative impacts from cobot disruptions.
And to still be up year to date operationally in net revenue.
And to finish with an improved balance sheet and more cash is.
Well quite remarkable.
For the second quarter ended June 30, 2020, net revenue was 62.6 million compared to 66.3 million in the second quarter of 2019.
Japan, and China that were particularly heavily impacted by Copel 19 in the quarter.
Were mostly offset by growth in the United States of 13%.
As well as growth in Western Europe, and Latin America.
Hope it had a negative impact on revenue in the quarter from market operation disruption supply chain disruption.
Customer shut down challenges and distribution issues year to date through the first six months of 2020, we are still.
Up in net revenue by more than 1% versus prior year. Despite the impact of the pandemic in both the first and second quarters.
Gross profit was 38.1 million or 61% of net sales compared to 41.6 million or 63% of net sales in the same quarter of the prior year.
The decline in gross margin was due to geographic mix, reflecting the cobot impacts in some of our most profitable Asia Pacific markets.
Stephen a in the second quarter toy 20 decreased 7% compared to the second quarter of 2019.
As a result of a number of initiatives put in place early in the second quarter, including headcount optimization.
Which has an ongoing benefit of around $6 million annually, but in the quarter was offset by severance cost.
Net loss decreased to 9.6 million or 10 cents per share during the second quarter 2020, compared to a net loss of $11.7 million.15 per share in the second quarter of 2019.
Adjusted EBITDA was a loss of 5.4 million for the second quarter 2020.
Sequential improvement of 1.7 million compared to adjusted EBITDA in the first quarter of 2020.
Adjusted EBITDA in the second quarter of 2019 was a positive $83000, which included the gain.
On the change in fair value of the Miranda earn out obligations of $6.7 million.
On the balance sheet, we continue to be in a strong financial position.
And we believe one of the.
Cleanest capital structures amongst all small cap companies.
New ages cash balances increased 48% to 40.7 million at June 30, 2020 from 27.5 million at March 31 2020.
New age also holds and additional restricted cash balance of 18.4 million in the United States, China in other markets for total up 59 million in cash as of June 30, 2020.
Total current assets increased 19% to 93.4 million at June 32020 versus 78.8 million at March 31 2020.
The current liabilities were 3% lower finishing at 59.8 million at June 32020, compared to 61.8 million at March 31 2020.
Working capital also improved 98% at June 32020, as compared to March 31 2020.
33.6 million compared to 17 million respectively.
And we have already met all of the financial covenants and obligations of our credit facility with East West Bank until December 30, Onest 2020.
That's the summary for Q2.
But we'd like to spend the bulk of our time talking about the newly announced merger as it completely changes the company.
We did the merger with Rx and the four other partners.
For obvious financial reasons, but also for strategic reasons.
Financially with all of the current.
And expected cobot impacts and unknowns.
A strong balance sheet guarded cash more scale and lower relative expenses is the right thing to do for shareholders.
We see a litany of external growth opportunities.
And a number of companies approaching us given the current.
Financial environment.
Strategically the increased scale resources and market access to go with a significantly strengthened team and execution capabilities gives us a very positive outlook for long term future organic growth.
We hope to see revenue growth in the high single digits to low teens going forward after the closing of the transaction.
Which could be negatively impacted by cobot disruptions.
But positively impacted by a range of new initiatives.
Within known anybody new age and across all the portfolio companies that Julie in Mark will talk about.
Julie let me pass it over to you to share these drivers of growth.
Thanks, Greg.
So our strategy is to drive healthy functional brand right Omni channel route to market and we expect to beat is first and only Omnichannel company redefining how to build brands with our direct relationship with consumers. We haven't major head start in there and we expect to widen the gap versus other CPG.
Any before they figured out and recognize their need for fundamental change in approach.
We focused our brand portfolio within three platforms.
Health and wellness healthy appearance or inner and outer beauty and nutritional performed.
We build our brands utilizing social and digital communication tool and word of mouth and personal selling from our more than 280000 independent product consultant that will grow to be more than 400000 with the combination of all the new company.
In the first half of the year, we've assembled and marketing team that we unapologetically belief is the best in the industry, we launched our Nnone CBD product in Japan, and our team Moniz shake product in 15 markets.
Which we had to allocate based on availability, because it's kind of it related supply chain disruptions.
And now we are back in stock and these products are really working with consumers demand is outstanding.
In addition to continuing to roll out these product. This oh, we're gearing up to the largest initiative. The company had seen in 20 plus years since the original launch County.
Since that time, Archie Haitian Nnone has become one of the world's largest selling nutritional supplement.
More than $8 billion in revenue, let me repeat that education known Ngs nutritional supplement has sold more than $8 billion in revenue since inception.
Over the past 18 months, we've expanded extended the brand with no college and shot and recently the Nnone CBD shot.
Now we are revitalizing the flagship it really hasn't been touched this materially since its launch over 20 years ago.
This evolution in rebrand includes new packaging, a totally new visual identity.
New clean and a whole host of assets and social media content power, our global sales force to sell in our E Commerce network.
We have included our key leaders and consumers around the world as part of the evolution.
Already have significant visibility and confidence in it and pending impact.
And the other means your organic growth initiative is our new line of Nnone shot.
These portable nutrition powerhouse.
Each targeted to a major consumer need states, including wellness.
Okay and immunity they contain natural clinically proven ingredient along with our teaching them you mean easy to use format growing in popularity worldwide.
Our field has helped that this innovation and we're very excited by the upcoming launch.
That weren't enough to execute what we already had in the queue at new age now we are integrating with the five other companies and creating one integrated marketing organization. That's one major work stream to build that team in of itself, but on top of that we now have 400000 spot independent representative.
Elliot and consultant and they all want access to the full portfolio for each of the six companies coming together as part of this merger.
Eric brings a very robust line of health and wellness product interest by is the largest brand for Eric making up approximately 51% their products out and significantly strengthened our nutritional performance platform as we integrate aren't launched a major new products. We just got we'll have three overwriting principle.
First we want to be margin enhancing everything we do.
We have a blended margin of around 70%, but not all of our products are at that level yet.
Second we want to bring standardization energy behind global scale brand through the three category platforms. We discussed earlier, we intend to build hundred million dollar scale brands or larger we have to right now introducing many nutra side and we intend to build more and third we want it.
Continues to optimize the portfolio in inventory behind winning products.
Aggressive SKU rationalization that also has the benefit overall improved profitability.
So we have the portfolio, we have the people and team we have the distribution system and route to market and we have the resources to drive profitable organic growth I'm very happy to be partnering with Mark and the rest of the team to make that happen and with that I will pass it over to him Mark.
Thanks Julie.
Many of you know that I agree nearly 30 years of experience in the industry and was one of the founding members of Rx, where I served as president.
Prior to that I was a section 16 officer as head of global sales for USANA, where I worked for almost 15 years in just over nine years in Rx, we became the most disruptive force in the industry and one of the fastest growing companies with a reputation as the most successful in our peers.
We bring that into combination and believe me. The announcement has led to other leaders and companies to say why don't I joined that group. They are winners and I want to be part of them.
I took over I took over the group president for the combined companies when we announced the merger and I'm very much looking forward to that opportunity in my new role I will oversee all the markets execute all our plans and programs through a field force of more than 400000 and drive superior organic growth together with Julien.
Most of our leadership team.
Im also passed with the integration of this merger as well as that may occur in the future. It is a great opportunity and I see limited runway in front of us.
One of the primary reasons why we had so much success at Rx was our ability to operate and run our international business, no matter, which region or market with a very skilled approach that means we would hire manage and invest according to our sales level. So these regions for the most part.
Oh function. This profit generating segments that philosophy is what we will be depletion in the combined company on a global basis.
So even one focusing on driving sales and organic growth in each of our markets as part of my work on the convergence Committee, Greg and I will lead the work streams to capture savings in people and offices. So I can drive profitable sales in growth.
We will also see significant advantages in regions, where nobody by new each business was strong and Rx didn't have much of a presence and regions where the opposite is also true.
We see our most significant opportunities for sales growth in greater China, Japan, and Europe, and even emerging opportunities in many of our other developing markets around the world.
Let's talk about some of those markets first [laughter], China combine for US now it is about $120 million and both new age in our exit that challenge as previously mentioned in 2019 and 20 for the same reason everyone else in the industry has had challenge.
But it is but its region with significant sales growth opportunity and it's a combined basis, we're going to be so much stronger.
Ian Chandler from Rx leads the greater China region for Us and is implementing strategies and new exciting sales promotions to increase sales of the combined entity not only what we have access to new age is direct selling license in China, which will be a huge boost but the expansion of products leaders channels are perfect combination to capture.
Even most of the untapped potential in this market.
Japan has been new leases largest region and our second largest regions. So now on a combined basis also together with no we're around 140 million in scale.
We have a high degree of confidence in our leadership in that market and in fact, many of the leaders and exist in our different companies just happened to be trends. So it makes our combination just that much easier like China, we have a wealth of global opportunities in front of us and we are putting the pieces in place to get all the partner companies access to new ages.
No need plus CVD shop products, which are thousands of representatives. There are very excited to get their hands.
The Rx strippers reps are generally a younger generation and have been asking for months for this type of product to help grow cells. This merger now provides that product they were hoping for.
With the combination we have just significantly strengthened our to focus regions, but beyond that we have some new pillars emerging.
Rx is bringing scale and you just.
Geographies, where new age had smaller presence Europe is now quite is important as a region with combined revenue close to $80 million new each grew there in Q2 as reported and Rx had weeks was almost triple digits. So we expect to eclipsed 100 million in the very near future.
New age was strongest in Germany, and Rx brought scale growth in leadership in France, Spain, and Italy, we see significant opportunities for operational savings through better logistics transportation and combined warehouses, along with overall scale and continued growth.
Worldwide, we have a force of independent product consultants Representatives and affiliate that totaled more than 400000 and that number is growing Bailey. We are the lifeblood any direct selling business. They are the likelihood or did he drilling business sorry, hence why we simply provide them with more opportunities and customer building tools and.
Resources, we pride ourselves on the relationship and the trust, we build with our leaders and it's one of the easiest things in this merger because Brent had been instilling the same philosophy on the Navy side of the business.
I'm excited to take on his new role as our.
Group President.
New age and frankly have a lot of competence that we're going to be able to do the combined company just as we've been do the Rx in the past nine years with that I'm not going to turn the call back over to Greg.
Thanks Mark.
I think when you hear from industry leaders Love Julie in Mark you see why we're so optimistic in our future and confident in our potential.
Let's talk briefly about the financial impacts of the combination with Rx.
For modeling purposes, we expect net revenue on a pro forma basis, once we close to be greater than 500 million on annualized basis.
You should also expect a blended gross margin in the 70% range and positive EBITDA of more than $30 million on an annualized basis.
Two things are material that will impact our positive net income and EBITDA in the future.
The first is the in pending sale of some of the retail brands.
That has all investors know, we invested more than $15 million at the EBITDA level in 2019.
All that negative impact will go away.
We communicated that we were considering the strategic alternatives given many of these brands.
We're just too small for the scale of the business, we now have.
And were lower profitability relative to other parts of the portfolio.
To be clear.
We like the brands, we just have better opportunities.
We have received a number of expressions of interest for these brands.
We are in the final discussions with a few parties.
And consistent with our previous commitment.
Back to have final resolution by the ended the quarter.
But to be honest it might take just a little longer depending on the negotiations.
The second material impact will be the capture of the $20 million in cost savings in fiscal 2021.
That we committed to.
And we will achieve in the combination with with Rx.
Those savings remain on track as we continue to work towards closing the transaction.
Closing appears to be on track to happen prior to the end of the third quarter.
And we are already doing to audit together with Deloitte of the Rx financials.
That will help us as they are our external auditors as well.
With that I will pass the call back over to brick.
Thanks, Greg and thanks, Mark and Julie hopefully our investors can see.
What a strong team and organization, we're building and the people in team is behind them are also outstanding.
Because of very similar performance oriented cultures and alignment to a common goal, we are well underway with integration and are all 100% together already in a combined corporate office.
Julie is running marketing. So Lewis is running operations, great leads finance administration Deanna lapse and also one of the stars in the combined company is running R&D and innovation and Mark rent the field regions and sales, it's a powerful capable and committed group.
In addition to quality people. It's also made easier by the fact that we both have experienced in acquisition integration me personally at AB Inbev and with the Threeg guys, where we did a fair bit of it Rx whereby Fred Cooper Red integration of a number of companies.
And new age, where we have successfully integrated brenda over the past year.
On that I give the organization are pretty good great not just because miranda with profitable on a standalone basis, not just because the acquisition ranks as one of the lowest considerations paid.
All precedent transactions in CPG over the past two and a half years, but importantly, because we evolved from a founder wed culture to a field and rep focused one.
Converted a number of markets to growth following long term declines reduce costs and began transformation of the portfolio and use the scale in market access to transform our previously subscale small us retail business.
So we both have the experience to capture the value in the combination and Thats why I am extremely confident that we will capture at least $20 million some cost savings.
The merger with Eric.
No my the Shannon and limo.
Is transformational both strategically and financially.
Greg laid out the financial model for you, which is simple and we think attractive.
More scale will only strengthen that model, which has the effect of further reduced SGN a as a percent of net sales.
Correlating to a higher EBITDA.
We believe that scale what come both from the organic initiatives that are now picking up steam and potential external growth as more and more companies are unsettled with the rising and increasingly choppy Cove and water.
We will have the profitability the resources the scale the unique one of a kind differentiated business model with our Omnichannel platform and let me tell you we are creating ripples in the industry and competitors are taking note.
They can look all they want they just better realize that were coming but with that I'd like to pass it over to the operator and open it up to questions operator.
Thank you at this time will be conducting a question answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in question Q.
You mean prestart too if you like to remove your question from the Q.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line of and Great well lines Global Partners. Please proceed with your question.
Hi, good morning, and thanks for the questions.
Okay.
Good morning first one for me is just on some of the color you gave in terms of the pro forma company and the topline growth rate to expect something high single digits plus.
I know you said some of that is going to be dependent on covidien those impacts, but just also want to know.
Terms of whats you have embedded on the revenue synergies because it seems like Thats really where a lot of opportunity is in terms of having the products that are available it's both Rx and the current.
New age portfolio, how much of that is embedded because and I was a lot of timing uncertainty in terms of registration and what have you. So how much of that is kind of.
Dependent on you get the high end or low end of those topline growth rate you expect to have.
Yeah, Erinn, it's a it's a great question and.
In terms of a model, we have zero of the revenue synergies baked in and retreating at all as upside.
And it can be a very significant upside.
So we were calculating the high single digits, just based off of the organic growth initiatives that we already had in the Q.
The the Nnone shots that are coming the expansion of came on a shape the nnone plus CBD and as Julie mentioned this revitalization of what is our largest brand in the entire portfolio. Our core nnone brands. So all of those things get us too.
That.
That high single digit growth and if you look at Eric there actually are already in double digit growth. If you look at all of their business worldwide.
Similar to us.
You know kind of mixed performance in China in Japan, depending on what's going on the market, sometimes up sometimes down pets huge growth in Europe and other markets.
That is now scale for us so the real upside to get us to to double digit growth.
As I mentioned Rx is experiencing today is those revenue synergies.
The and zero is built into the model today.
The excitement I just can't tell you is palpable across the system where.
Everybody wants access to everybody else's product.
And in Japan, everybody really wants that know any plus CVD, which is really doing quite well. So it does some of these things we already have registered like that that in Japan. For example is just a matter of getting it over and making sure the compensation system work.
To to the other side.
China, we've already got so many things established in both products registered and then it's just a matter of fact registering and some of those new market. So yeah I would say by the closing is going to be we expect in the third quarter and then in the fourth quarter, you'll start to see some of that revenue impact.
On the upside to push us into the double digit level.
It may push a little bit longer than that but frankly, all the markets and all the leaders that we serve really want it yesterday. So we're working on the on those registrations and everything as we speak now so I guess the short answer would be fourth quarter you'd start to see more of that.
Topline benefit, but right now we're treating all of the revenue synergies as complete upside to the model.
Thanks.
Super helpful and great to hear that revenue synergies represents upside to those growth rates.
Another question for me is just kind of round co vid, obviously still a lot of uncertainty you guys with the direct selling business. You know have had some optionality in terms of do the virtual consultation, but you also mentioned something around supply chain, just wondering kind of get some update in terms of where you are right now in terms of have the cobot playbook, because we don't know where Mike outcome.
Paul do you guys feel more confident in terms of like we are virtual comp.
The versus the virtual.
For patients and then supply chain getting fixed up and then what potential impact that could have in terms of the timing of the synergies being realized on the pro forma company.
We do still should that being impact come fall. Thanks, yeah. So on the on the overall cost synergies, we expect many of them to come through in Twentytwenty, especially from a headcount and office consolidation reduction and where do you saw that because Rx no longer.
Your has the office cost because we're all now combined from a corporate office standpoint, and we're looking at that in many of the markets before we look at the headcount optimization pieces, which we expect to happen in the fourth quarter of this year.
The supply chain side look everybody's supply chain get slowed down right. So we have to is slightly increase inventory levels and some things, but just some suppliers just don't have film or they have significantly slower.
Production times, and those things and and that impacted us, especially on our Nnone plus CBD product in Q2, and our came on a shape products. So the timeline just get extended significantly.
But what we have now with our new overall operations leader fill Lewis is just a machine out all of those things that Rx it has fewer.
SK use fewer less inventory overall is is really running those pieces of the company. So we expect to see more savings.
And and better overall management from an inventory control standpoint, and from a supply chain standpoint.
On the.
On the leaders and the model and the virtual nature of the model and evolution that kinda ask like Mark and Julie to comment on it.
Because they see that evolution in that shift towards all the social selling and the use of.
Virtual meeting tools that we've been doing market. What you want to talk about always caused that you and I do every single night throughout the day.
Thanks.
Sure sure. Thank you and you know this has been a huge change in our industry that used to be a.
And then that would have thousands of individuals all gathered together and you try to get them all excited to the recognition and send them on their way now we've we've completely transitioned everything to do meetings and events, where quite frankly, we're doing a really really well we have tens of thousands of individuals joining on.
On a weekly basis on various different events, where we have continued and in some ways you actually get better reach because individuals were sequestered in their homes and had nothing else better to do them to sit down and work on a home base business Europe has been one of those examples where we've seen significant growth.
And the ability to do social selling using the social media tools that are out there.
It took a little longer for China to start figuring this out because they weren't.
Doing the social selling like.
America, or Europe, and other places in regions, even Mexico has been a great growth one for US recently with this and so it's just a whole new dynamic with our business, but it's allowed us actually.
Quicker response times, and it'd be ability to reach and touch many many more people that we in the past weren't able to do because it was you had to go to a live event to really see people or get the feeling in the excitement and energy. So I think it's an exciting time for us because the transition has allowed us that far greater reach.
Hey, Julie can I ask you also to comment on errands question in terms of some of the social selling tools.
And digital activities and our global.
Kind of virtual business summit that your organize a in the fact that instead of having thousands of there. We can now have tens of thousands of these things at a much lower costs. So can you talk about some of the social selling tools that were empowering the field with now.
Yes, absolutely and building on what Markwest sharing we it has been a process with different market getting used to and adjusting to about how that social and digital E. Commerce differing rate what I am encouraged by is the kinds of numbers that were seeing coming to our event. So for instance.
Recently, we held an event for our team on a sheet product, where we invited new customers to learn from an expert and instead of having a live event, where we might have 100 or 200 people at Colorado offense in Japan likely get in the path. We had thousands of people attend that evening getting super exciting and learning how to use the product.
In understanding science behind that so theres, a real power to social commerce once people embrace it and our field isn't really adopting it across the board and Colin has really.
Add up there adaptation to all think digital and social so it wouldn't be maybe only positive benefits kogut has been people are embracing digital tools more quickly and they might have in the past. So when we launch our big Nnone innovation that I was speaking about we'll be doing so virtual launch format and now.
Well allow us incentive reaching over 100 people at a lightning in Europe Thats plans to reach almost our entire field single handedly with a deeper impactful multimedia event that allowed sharing information and chatting and engagement and gamification away to learn and get it.
Right and the momentum that we can have on a launch now including adding on Rx team members to that Rebroadcasting. Perhaps team member is just so much faster and so much higher impact and getting the entire field organization up to speed and excited to start selling a product than we were able to deal with lack of that.
Our in person events in the past.
Thank you Julie.
No that's great. Thanks for all the color really appreciate now go and jump back in the Q.
Thanks, Aaron Thanks, Sir.
Thank you. Our next question comes from line of David Bain with Roth Capital Partners. Please proceed with your question.
Great. Thanks for all the transparency guys.
First question, you know something we get from investors, just the cooling impact or potential cooling impacts.
You asked China relations or it's really.
So we'd be looking at the major brands is being recognized on the ground, but a couple of trying to know Julie mentioned like.
Is it should G $8 billion sold over time, so how do we look at that how do you how do you view it.
Hey, Mark could I ask you to talk about what you see on the ground in the in China, and any negative impact or potential negative impacting see on the on the business because.
We are quote a U.S. company.
Sure. Yes. That's also holds a sensitive piece there and I think you need to navigate that carefully blood. The good news is the representatives that are selling.
And introducing individuals are Chinese nationals right. So they are building the business locally with their teams and regardless of some of the government strains I would say the the relationship to a quality product coming from the United States or one that has been sourced through that is still a very.
Strong approach for Chinese as we work with our leaders our reps and even our customers. They they still demand excellence they want incredible products product worked.
So that the way they would expect and that quality, it's still coming I think primarily from the United States in Europe, and so I think having said that.
I'm not too concerned about that we certainly need to watch that it would probably be more supply chain and concerns that we would have to make sure. We're careful about but we're managing that and watching as well and trying to do our best to keep our relations there in China strong with the government.
I would just okay. Great went up we just added data what Mark said one of our benefits is we're shipping at it to Haiti.
Into China, and then locally.
Feeling.
In our manufacturing facility in in a in Chongqing, So that's kind of an additional piece.
That that insulate us because in our company there is actually even called Haitian Nnone. So it doesn't even say America and then as Mark said.
You know our business leaders there are all Chinese in Chinese nationals, we have offices in 10 major cities.
Our 10 major provinces in China and operations in more than 300 cities, where we sell and commercialize our portfolio. So we're completely embedded from an infrastructure standpoint into the country with so many people that depend on this and depend on this.
Income for their livelihood and now we're at least doubling the size of the business.
With the combination with Rx.
And I got to tell you. The Rx reps are just crazy to get their hands on the license and just get rid of all the obstacles that they've had to that had to encounter and building the business without a license now that the habit, it's kind of like unobstructed growth for them on double the scale of the business.
Analyzing our infrastructure and offices and.
And reputation we already had there.
Okay Fantastic I was up two more quick ones that I could one was the beverage brand divestment.
Are we gonna see any changes to the U.S. DST or BW are those no cash flow positive growers for you and your view and they hope to strategic value at this point.
Well on the DSD business I mean, the fact that they were up more than 30% in just the month of Jordan and continue to grow and we continue to see that growth I mean, we like that growth.
It's not a hugely profitable business, but.
They are pushing and 50 million in revenue and I know when when we when we first acquired that part of the business.
In the middle of 2016, it was kind of mid Thirtys. So you know they've continued to grow for.
10 years consecutively, so under just very good leadership.
And strategically for us Dave in terms of embodying our Omnichannel system, we really like that business. Because you can test market all sorts of things there are limited basis, and see what works and what does it work very quickly before making the investments to roll stuff out.
On the BW our side of the question. The problem is all of those brands and all of the other brands. You know now there were 500 million in revenue and growing.
There are just too small and if you're up against billion dollar competitors.
And see if confusion and 40 linear feet of carbonated soft drinks in traditional retail is nobody nobody has the money or resources or salesforce or anything could compete against that so we think it makes sense to work on our businesses that are 70% gross margin and our businesses.
We have a 400000 plus salesforce.
And our ecommerce business and building the relationship directly with consumers. So we see all CPG moving direct we even see Pepsi trying to become direct and this is when Julie said look you know these traditional competitors are gonna have to recognize they need to change their busy.
This model to because traditional retail and convenience, it's down 30% in traffic as they as a channel I mean, those things are really really going to struggle going forward. So.
We want to be omni channel.
We expect to keep our DSD business, but really only scale brands on the traditional retail side and moving more and more towards direct which is where the money is where the cash what weeded out where the margin is.
Going forward so.
I'd say, that's how we were thinking about it.
That's perfect I promised last question I'm, just you know Julian marked at a really good job talking about kind of the strategic vision relative to other direct selling companies, but I have somebody knows I'm wondering if you could maybe sum it up or break it down into kind of the three or four largest oh, let's kind of what separates.
You now from other direct selling companies the profitable acquisition potential with the comp structure. The healthy product line up the younger demographic I know, it's kind of quality of but what's the secret sauce in your view relative to what you see out there from competitors.
Well I want to ask Mark. This question because Merck is probably one of the top one two or three most respected leaders in this industry, but.
Any only has 30 years more experienced in the industry than I do.
Same with Julie but I'll tell you I'll tell you. This because this is what I hear taking a fresh approach.
I hear we have the best compensation system. So this is what is relevant for leaders wanting to join the system where companies that are just knocking down our door number one we have the best compensation system number two with access to as many markets is as the biggest one is on the planet number.
For three we have what is becoming the best and brightest and one of the most respected brand and product portfolios.
Number four we have access.
To all channels. This omni channel idea is really relevant for all of the reps because it is more than just a direct selling earning stream and when they can get our earnings stream, whether its affiliate revenue or anything from E Commerce.
They really like it and number five access to stock and access to stock ownership through performance I mean, those [laughter] five reasons why.
We're seeing.
Such growth relative to peers in direct selling that really differentiate us, but you know that's based on a unencumbered kind of an paradigm new perspective coming into the industry that I bring that marks got 30 years of experience in a Julie too so mark.
What would you say.
That makes what's our secret sauce, what is what makes us different.
Thanks, Brent I would agree 100% with what Brent brought to you one thing I would add is we also have what we called the representative Bill of rights, we have changed the industry in how we treat and our relationships with our field the beautiful thing coming together with Brent and the new age group.
They had the same exact philosophy and by strengthening that we will position ourselves to help representatives really feel and understand that they own a business and they're not lower but salespeople. The rest of the industry. If you really look at it your glorified salesperson and you don't have business rights, you really don't own your own.
Independent business the way most people perceive they do when they start and we give them the ownership to the business, adding the stock the brand strategy that we have arts will always had this house of brands mentality, adding to what new age is put together with no knee and the pieces. This I think is is it correct.
And the leaders are really really fired up and as Brent mentioned the ability to acquire companies no. One in our industry has been really successful. If you really look at that they've struggled struggled with the acquisition model. We've spent the last nine years working on and improving I won't quite say were perfect yet but were good.
Do you read the really good what we're doing which allows us smaller company to come into the now new age family and become part of something that they have access to markets around the world. They have access to more brands more opportunity in the stability that we're going to provide for these smaller companies to come.
Going to be part of our I mean part of new age sorry. Thank you in that but to be part of this is is going to be a key differentiator for us.
And how thats very helpful. Thank you guys.
Thank you. Our next question comes from line Pathmark Rone dollar.
On Securities. Please proceed with your question.
Hi, good morning, guys.
First one for Greg.
Greg any sense of the range of cash you might be able to get for the brands.
You know.
It's pretty difficult to itself, we are fairly good conversations right now with three different groups.
[music].
We are.
Walking through some different scenarios with with each one of them.
But but at this point I don't think it would be in our best interest to really talk about.
Different ranges of cash that we want to see what Andrew negotiations, Mike, but I would tell you forget about the cash on that piece because frankly, we have enough scale overall on the topline the real benefit there is eliminating that $15 million to $18 million negative EBITDA drag and all of that will go away.
Way, so even with those three potential external parties that are.
Right at the finish line.
So we also still are evaluating what do we want to keep and what can we keep or what should we keep.
And but what we will not keep is that $15 million to $18 million negative EBITDA drag one way or another that goes away for that gets added back to the piano on a go forward basis.
Got it got it okay and one for Julie.
Julie what new products are you most excited about.
Over the next 12 months.
Well, if I mentioned on the call what I'm most excited about actually this revitalization.
Flagship and the reason I say that is because between the brand revitalization as well as and new product format.
I think we have the ability to expand its always rates expand on your biggest and the successful and we need to be able to reach new audiences and you can seamlessly hot. So the addition of all these new represented Dan Heyler Super excited and younger and digitally savvy are huge powerhouse brand.
Put that together I mean, how excited by the momentum that we can have there we have many other things work and many other things that we'll be working at launching between combined portfolios, but this one is one of the larger that we're working on I think has been that's positive momentum going forward into 2021.
It really I'm going to bill.
Oh, My Mike can I believe on your question, though because look new age has got the or nobody by new age has got the largest network in the group with 291000 reps and independent product consultants and that number compares to a little bit north of 270000 that we had last year, So we're getting more and more.
Reps, Julie what would you say of the other pieces of the portfolio coming from lean move or Shannon, there's no or Rx.
Our field would be most excited about from a cross pollinization standpoint of.
Portfolio product portfolio through that network of 291000 people that they want to get their hands on in addition to all the revitalization that frankly never happened in this network. So.
All that revitalization of the existing products, coupled with new stuff coming with what do you. What do you think our field is most excited about on other elements of the portfolio.
Well, we have things happening basically every pieces and parts of our portfolio. So we have the came on the shape line being reinvigorated and added to later this year that will add a lot of options or intermittent bouncing and weight loss I'll turn it is coming into the new year, and then or new year.
And that is a big opportunity across our platform, we have the opportunity to bring an interest by.
Supplement nutrition portfolio, while at the MELA product across our system. There are few products and as I know that portfolio that we're all super excited about because they fit really well we now need that we know can have great impact in our market as well as of course than any CBD shot at with already spoken about.
Across.
Japan across all the fields in Japan I look at it. There's also a big skincare launch that's coming out on the Rx side and I think has a lot of synergy potential and complimentary to the skin care lines across our portfolio. So in every one of our three segments in wellness and inner and outer beauty and in nutrition exports.
And we have keep product and our brand that we intend to put together or share with our respective field in the upcoming 12 to 18 months.
Got it that's really helpful.
Hey, Greg.
One more for you just.
Could you just update us on on the ATM into Q, how many how much dollars was raised in shares and then maybe go forward.
What kind of the plan is for the back half of the year.
Yes basically.
Where we sit right now is that we raised about a little bit over 25, almost $26 million on the ATM during the first half of this year.
Which was about 18 million shares or little bit less than that.
No.
Going forward, all we'd need to raise for the.
East West Bank, if we wanted to do that would be another.
About 4 million dollar so fairly minimal and.
Right now we are really just focused on getting this deal close because we think that we will create significant more value for shareholders by once it gets us close and people can really go out and see that our actual run rate gets up about 500 million.
And and basically bring down positive EBITDA profit and as can be what do we think really grows the stock.
And to really start doing that on a consistent basis and showing consistent growth and.
What to do that that's when it would be better for our shareholders.
If we use the ATM, but.
Right now our biggest focuses on closing this transaction as quickly as possible and I would just to add to that like we had zero plans to be precise zero plans to use the ATM between now and the rest of the year.
And when you think about.
Bind free cash flow of the group the combined positive net income of.
You know, if you're throwing off 30 or 40.
Or more million of free cash here, you really should have no.
Reason or need to access that ATM. So that's why I would say.
You never say never but right now there is zero plans between now and they ended the year to access the ATM.
Got it.
Got it okay. Thanks, guys.
Thank you Mike.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Willis for any final comments.
Well once again, thank you everybody for joining us on the call.
To be up here today.
Is.
Still we think I'm pretty damn good results in this kind of context.
And with even better with that is look we now have more scale. We now have more resources on the combination were positive at the net income level positive at the EBITDA level.
And as we add more scale for that that is just going to increase Rx is got.
Really the best reputation in direct selling for a reason there and efficient machine and the people. There are very very very good. So we love the combination and.
And you know every time, we get to our next milestone we kind of feel like we're in the first anyway, we still feel equity in the first ending of the opportunities in front of us.
Both organic growth as Julian Mark talked about and external growth I mean.
There are lot of companies that are unsettled out there and we've got a very very.
Stable solid and growing platform that people would just love to have accepted so we're being very choiceful about what we do when when we do it but we see a tremendous both topline and bottom line growth coming as as we look forward towards the next.
Orders. Thank you very much for joining us on the call today and and please feel free to keep following up with us and a and Riley our new great head of Investor Relations. If you have any further questions. Thanks, everybody. Thanks, Mike.
Thank you. This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation.