NewAge, Inc.
Q2 2019 Earnings Call Transcript

Published: 8 Aug 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the New Age Beverages Corporation Q2 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to your host, Mr. Cody Slach, Investor Relations for New Age Beverages. Thank you. You may begin.

[Cody Slach:]

Thanks and good morning. Thank you for joining New Age Beverage Corporation's 2019second quarter financial results investor call. I'm Cody Slach with Gateway, the IR counsel for New Age. I'd like to welcome you all to the call today and thank you all for joining. On today's call, we have Brent Willis, CEO of New Age Beverages; Greg Gould, CFO and Olivier Sonnois, President of North America and the Founder of the Brands Within Reach Group that New Age recently acquired just after the close of the second quarter.I'd like to remind everyone this 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 risks and uncertainties. The transcript of today's call will be available on the company's website within the Investors section at newagebev.com.I'd now like to turn the call over to Greg Gould, Chief Financial Officer. Greg?

[Gregory Gould:]

Thanks, Cody. For the second quarter of 2019 we delivered net revenue of 66.3 million, an increase of 397% versus the second quarter of 2018.The second quarter results were also up sequentially 14% versus Q1, particularly important given the seasonality in our Morinda business is very limited.Within our segments, our New Age group was up 7% organically in Q2 versus the second quarter of 2018.All brands performed reasonably, equally with Búcha, continuing to be our best performer both during the quarter and year-to-date. Our direct-to-store distribution continues to expand and we have added a number of new brands to the group, in addition to expanding the breadth and depth of the division.Morinda also performed extremely well across most markets. Our largest market Japan was up 2% in the quarter versus prior year, and in the month of June was up 9% versus prior year. China had a difficult quarter due to the government restrictions on the industry that were only recently lifted. In all other markets, including Latin America, South East Asia and Europe, Morinda was up 40% organically in the quarter versus prior year.Gross profit, the firm delivered $41.7 million for the quarter ended June 30, 2019 versus $1.8 million in the second quarter of the prior year, an increase of 2,268%.As a percentage of sales, this equated to a 63% gross margin versus 13% in the prior year. This reflects a shift in the mix of our business.Total operating expenses were $44.6 million, down $2.5 million versus the first quarter of 2019 but up versus the second quarter of 2018, due to the increase SG&A associated with the Morinda acquisition that closed on December 21, 2018.Also included in this amount was an unrealized gain of $6.7 million from the change in fair value of the Morinda earnout obligation, which was partially offset by$ 3.1 million in non-cash expenses and a $1.5 million impairment charge.We had a net loss of $11.7 million or $0.15 per share in the second quarter of 2019 versus a net loss of $3.4 million or $0.09 per share in the second quarter of 2018. Adjusted EBITDA for the second quarter of 2019 was positive $14,000 versus a loss of $2.2 million in the second quarter of the prior year.Reviewing the balance sheet, as of June 30, 2019 we had $86.6 million in cash and $57.8 million in working capital as compared to $42.5 million in cash and $40.9 million in working capital at December 31, 2018. At the end of June, we had $331.7 million in total assets compared to $286.9 million at the end of December 2018, an increase of 16%.Beyond the improved financial results for the business, we expanded our brands with the Marley family, completed the Brands Within Reach acquisition and amended our East West Bank loan agreement affixing our interest rate at 5.39% for the remainder of the term.Also this quarter, we continued to strengthen our team and enhance our public company, corporate governance and financial reporting, which will lay a foundation for future organic growth and potential acquisition integration.And with that I'd like to pass the call back to Brent.

[Brent Willis:]

Thank you, Greg.Overall, I would say we performed to expectations in the quarter. There are a lot of very good things happening in some continual challenges both of which I'd like to discuss on the call today.First, let's address some of the negatives. Number one, we only did $66.3 million in revenue. Yes, it is up dramatically versus prior year and yes, it’s up sequentially versus the prior quarter of 14% and yes, it’s above the consensus estimate. But I feel we could have done better.We had a number of markets where we just did not get shipments out before the end of the quarter ,so that revenue gets pushed into Q3 and overall, a few of that we just missed out and too many of the opportunities for growth.Number two, the brand, New Age was up 7% organically but only 7%, and again I feel we could have done better. Yes, we began our first ever national brand sales with Walmart. Yes ,we began our first ever national brand sales with 7-Eleven. But there is a big difference between getting authorization and beginning shipments which we did and ultimately getting on all of the store shelves and getting all of the franchise owners and individual stores at 7-Eleven for example to comply. It just did not happened yet and as a result total revenue from these two changes, honestly way under where we expected them to be. It will happen, it's just slower than anticipated.Number three, CBD, yes, we did launch CBD in the U.S. and in Hong Kong, China. Yes, it’s already contributing revenue but our CBD infused beverages are not out yet. When we were first planning on this, already had our samples and already had commitments from major retailers, in Q4 of last year, we expected to be able to execute shortly after the passing of the Farm Bill.What we did not proceed with the FDA completely making navigation as murky as The Strait’s of Hormuz, and to add [indiscernible] they are allowing thousands of other small companies to get out there first, not public enterprises that are compelled to comply with federal law ,so it slows it down the U.S. it would already been a much more substantial impact and allows all these literally thousands of other smaller competitors to get out there first in the U.S. and beverages.And number four, China. Yes, New Age still has a great and super high potential operation there but the impact of the government restrictions on the industry in the first half of the year were draconian and we too were affected and to make matters worse, given the U.S. such a I would say, globally integrated economy with China, the whole Paris stances also had a negative effect on our business.Not only these are our aluminum and our glass prices go up significantly, but especially recently the highly charged negative rhetoric I would say against the U.S. going on now within Mainland China, also puts a significant short-term damper on our business.Notwithstanding those opportunities for improvement, there also a number of positives. The Japan growth and momentum with all our independent product distributors has taken six months but they are doing very well. Mind you are Japan business has not grown for almost 10 years so turning this around as we have in the first half after 10 years of decline is a major accomplishment and credit to our Japanese team.Number two, in U.S. we just started shipping are keys in a brand product partnership with Circle K and they are indeed getting it out to the stores and it is having the expected impact so far. And in addition because we did they added Bucha in two of their largest regions for us into their assortment. And while we are talking about the New Age brands we have just completed the registration of the first wave of our brand in 33 countries and shipments have already begun to these market and the Health Sciences products also are now contributing both revenue and profit.The next positive acquisition integration and synergy capture, we are now six months but really only six months into the acquisition of Morinda and its integration and the impact of the human resources on New Age overall I would say has been profound. We are ahead of our projected costs in revenue synergy expectations and in the quarter. We completed a major transportation and logistics optimization initiatives that capture just over $1 million in annual savings.We also just completed the installation of Oracle enterprise business system throughout New Age and to frame a reference the last time I put it in the ERP system like this it cost me more than $1 million in implementation fees and took two years. Here we did at no cost 100% with internal resources and it went live July 1, the two quicker sides on the Morinda acquisition and acquisitions overall.Number one, integration and synergy capture is actually not that easy, but we at New Age I think we have it down. And number two something I just don't understand for example when I was at AB InBev in helping to build that company. No one ever talk to us about what percentage of my growth was coming from organic versus external growth they just wanted to grow. And here at this derivation of InBev I get asked that question all the time.And I think - the point that I'd like to articulate is we will continue to both execute organically and selectively maybe very - selectively pursue external growth as long as the initiatives are accretive for shareholders and support the platform we are looking to build ultimately gain competitive advantage. And this takes me to the last positive that I want to talk about on today's call.The BWR acquisition, this acquisition was incredibly accretive and a great value for the New Age shareholders with the shortest created fear and doubt and the stock went down as a result. Look, we just added some of the world’s best beverage brands to New Age. The Nestea license is the exact one we used to have at Coke and now we New Age we have the brand and relative to other brands as much as it’s difficult for me to say comparing the New Age brands to Nestea, Illy Coffee, Volvic, which is the world second largest water Evian well, honestly this is just not a legitimate comparison. So that’s Olivier Sonnois, the founder of the brands within Reach Group to join New Age’s as part of the acquisition to provide some insight into how he is framing the opportunity. Olivier?

[Olivier Sonnois:]

Thank Brent, good morning everybody.As a main of introduction I have spent the past 25 years in the beverage industry at Danone for many years, the [indiscernible] organic food company which was sold to [indiscernible]. And then I founded and sell funded BWR more than 12 years ago. And here is a simple perspective I have on the beverage industry. There are only about 50 companies over $100 million in revenue in the sector. And there are more than 10,000 which are under 10 million.Why? Well it is just very challenging to scale and even more challenging to scale in a profitable manner. So I thought it would be good to share with you why I chose to do the deal with New Age. First and foremost I really like the people and I really liked the culture it is a perfect match. We have the same committed culture at BWR dedicated to bringing something different to the category and providing healthy products for consumers.The cultural and team integration has been so easy really effortless as we had been operating together all along since day one. Number two it solves my scale and resources challenges, there is only so much you can do on your own and New Age with Morinda could bring the size and resources to build this fantastic globally iconic brands bigger, better, broader and faster. And number three I think we also solve the challenge the fall for New Age.They have great brands in their portfolio, but not any like Nestea for example which has almost 90% consumer awareness and that is a great and important segment for New Age. They most likely needed us at this stage. Number four is they needed us not just for the brand but also for the very well orchestrated infrastructure and sales teams, our systems, our processes we've been putting in place for the past 12 years.The New Age team was just getting started on people and processes just because they were so new and we had been out there for 12 years. They could have done it, but we acted as a huge infrastructure and an organizational capability segment for them. It is those processes that enabled us to be breakeven on our own even as a very small beverage company one of the very few in sight and if not the only profitable one which under 100 million in revenue and now New Age has all.And lastly, I would say selfishly we also wanted the New Age stocks because we believe and rather we know it has huge potential even greater now with the addition of the BWR global branch in their system. So essentially that's why I did it. Now what I have seen so far well it’s still early days 30 days since the close, but I'm very optimistic and I see huge upside potential and lots of low hanging fruits.There so many key accounts and distribution of window across all channels added to the support of a wealth management and marketing opportunities for the New Age brands. Similarly there are equal upside and maybe even more for the BWR brands to New Age key accounts through their e-commerce system which is very impressive and through their Colorado DSD system which is near instant impact from brands and probably one of the best managed I have seen.Our brand partners are just very excited and I am now very excited to build even more competitive advantage with our unique Omnichannel system which the Board and Brent have asked me to lead as a new President for North America. As part of my own boarding I had the chance to be with the Board of Directors at the last board meeting in Japan.Well I have to say they're not just strategic like any Board should be, but they're very involved, they are engaged, they are now faced, and they're very demanding but above all they are amazing. I was very impressed as you can tell as we have exceptional strength in our Board of Directors. I also expect us to build competitive advantage with CBD across all channels and in a number of product forms.Like Brent said would I have like to have our CBD beverages out already of course, but having the option to prepare our launch more strategically and build a range a product forms across a range of channels might in fact an even greater opportunity. Because that is something we can uniquely do at New Age because we have this Omnichannel capabilities which opens up even more opportunities for us that I'm not sure everyone comprehend yet and the future will tell.So like I said it's still early days that I'm very excited for BWR the company I created to have join forces with New Age. And we are indeed going to build a force to be reckoned with under my leadership and with our merge teams and I really think we're just getting started.Brent, back to you.

[Brent Willis:]

Thank you, Olivier.I might ask you just one question while we have you on the phone before your flight actually. What we just say your framing is your biggest opportunity and maybe your biggest challenge.

[Olivier Sonnois:]

The biggest opportunity we have ahead of that is really to organize our table of brands and to position them in every category that we’re competing in and we’re taking serious steps into that already Category Management being one of them, education of our retailer partners on upcoming trends and certain researching even deeper consumer insights is clearly opportunities that we have.Our challenges we have right now is to move as quickly as the world expect us to do so and to execute results so quickly. The results will come, and they will come almost a certainty, we just have to accelerate things and hiring right now the best talents is something we've been doing even more recently and I think we're building a team of champions out there. And I think this is what’s going to help us the timing challenge that were faced.

[Brent Willis:]

Awesome. Thank you very much Olivier. I think North America represents one of the biggest upsides in our plan in both 2019 and in 2020 and I'm excited to see the team succeed going forward under Olivier's leadership. And to that end at the close of the second quarter we put out an 8K that Randy Smith, President of Morinda was retiring for some serious health issues effective almost immediately.Randy contributed 15 years of outstanding leadership to Morinda and to New Age as part of the merger. And frankly without him the transaction wouldn't have been possible and without him we would not have enjoyed the level of success we have had since the merger. He will be missed.With that catalysts however and with the evolution of our strategy at New Age, it challenged us to revisit our organizational structure and determine if its followed directly enough and flowed from our strategy. The answer, with Morinda as a standalone division was not as much as it could.And given our focus and our opportunities in key regions, especially Asia-Pacific, China, North America and given the portfolio of products, not just beverages, we want to drive primarily in those regions embodying our omnichannel approach and we felt that moving to a regional structure with incremental resources in those regions and bringing our business and our leaders closer to consumers was the right path to take.So as Olivier just mentioned, he's been named our President for all of North America. Josh Hillegass will continue to run our distribution operations, a new president for Asia-Pacific is forthcoming and Shon Whitney, former VP of Sales and Marketing at Morinda is now President of the rest of world region.Shon did a great job in marketing at Morinda, and his work is cutout for them with Latin America, Scandinavia, Russia and the Baltics, Europe and new markets reporting to him, especially since in Q2 his area was up 40% versus prior year and his targets are substantially greater than that. So that’s just a quick update on the positives and negatives.But let me ask Greg to comment on where it will lead us financially versus our outlook.

[Gregory Gould:]

Thanks Brent.As we move forward into the third quarter of 2019, we believe that revenues should be in the $70 million range and most likely will be in the high $200 million range for the entire year of 2019.We believe that there could be some upside this guidance, such as how quickly China can rebound the amount of lift we can get from the BWR acquisition and integration with our brands products and if we are able to sell CBD in the United States in the second half of 2019, which is currently being restricted by the FDA.In addition to revenue, we expect to continue to be positive on the adjusted EBITDA line for the third quarter and the entire year as we make necessary investments in our brands, distribution, market expansion and people consistent with the new regional structure that Brent mentioned earlier in the call to enhance our future revenue growth.Brent, with that I'll hand it back to you.

[Brent Willis:]

Thanks Greg.So let’s see if we can surprise to the upside again. Look, even at these levels we still only trade about one multiple of revenue which is four to five times less than the average of our peer group, so we see substantial incremental value and upside for our shareholders going forward, but better to be conservative than the opposite, especially with our new firm and our new recent addition.As I mentioned, we have some components of our company that I am not happy with, and frankly the addition of the BWR team addresses one of those most important elements of dissatisfaction. Even with those pluses and minuses, however, as I mentioned on our last call, I believe we have the discipline and the Board and management team characteristic of a much larger and robust company above the bracket ones.But on top of that, we have all of the growth and prospects of the small cap. We’ve been planning the seeds and we expect that they will begin to bear fruit for all our shareholders, as we begin our and build our components of competitive advantage, play our game on our terms and action emerging growth opportunities faster and better than anyone in the industry and frankly, just build this great company. The legacy leaders with their legacy soft drink portfolios have had their time. Now it’s our time and now it's time for New Age.And with that, I'd like to open it up to questions.

[Operator:]

[Operator Instructions] Our first question comes from Aaron Grey with Alliance Global Partners. You may proceed with your question.

[Aaron Grey:]

First question is going to be on the updated guidance. So 70 million for next quarter but just digging into the full year, when you say high 200 million, we just noted that down a little bit. Would it be about 290 million, just wanted to try and get better sense of how much of a ramp up you would expect in 4Q versus 3Q, so some color there and what will kind of drive that ramp up in the fourth quarter versus 3Q which seems to be would be pretty significant would be helpful. Thanks.

[Gregory Gould:]

Yes, at first, let me jump in on this real quick. So that when we look at the entire year we've said somewhere within the high 200 millions, could it be 290?Yes.I mean, there's lots of things we see that could really affect us here and the biggest thing China, and just how quickly that that really rebounds and really what happens to CBD during the second half of this year.As we currently have CBD topicals out within the U.S. but we really see that there's a big market here for infused beverages and we’re just looking for more guidance there from the FDA and once we get that, we think and hope that the floodgates can really open up. Brent do you have more on that.

[Brent Willis:]

Yes, I’d just add. I think that's right. I mean, we want to be conservative but the truth is given where new and given we have a number of moving parts. There is sensitivity in the business, so that's why we want to guide to what we think is the lower end of our spectrum. And if those initiatives as Greg mentioned, materialize, great.But it’s just not 95% sure that those things will materialize. And as you mentioned, there is CBD in beverages in North America. There's further expansion of our topicals. There's the whole impact of BWR and better short-term impact on all of our brands in North America and frankly a number of CBD initiatives outside the United States that could positively impact but that with all then implies with those four or five different variables is variability and sensitivity, so we’d rather be conservative and just as we did this quarter exceed to the upside versus the opposite.

[Aaron Grey:]

And then just digging a little bit deeper on China I know you mentioned some of those restrictions being lifted. Can you give some color in terms of the timing of when those were lifted and then if you give any color in terms of how sales kind if trended monthly if there was kind of some ramp up there and what you expect going forward. It sounds like now you have another overhang in terms of what you saw - with the tariffs and the broader kind of U.S. view in China. So some kind of color on China on what you kind of seeing more granular in terms of sales that you have seen and kind of improvement or but still just something you're looking for going forward that would helpful? Thanks.

[Brent Willis:]

Yes, great question Aaron. Yes, like I said and we all feel we have fantastic potential and a fantastic organization in China and it’s a big growth and focus areas for us. So all these things that we’re talking about our short-term impact, the biggest short-term impact again had nothing to do with us with industry-wide that emanated with the SAIC and Mafcom - some actions that happened with some local Chinese companies.And then they just put the restrictions on the entire industry and that was ultimately lifted and really the end of July beginning of August right so that really affected us through there. But those restrictions for the most part are listed although we’re still having to be very, very careful and we’re operating very delicately but the actual an absolute restrictions were lifted in the beginning of August.When we were there and we were there with the Board in the end of July, we had just day a fantastic month in terms of performance and throughput, but as I mentioned we didn't get all the shipments out of the door. So that affects us for the quarter, but what it says is for you really had a lot of good upside and good momentum as soon as these restrictions and like the kid gloves are taken off in China.So we do see it as short-term, we do see it as getting back to our run rate that we were last year going forward for the end of the year, but the impact in the beginning of the year means that's lost for us. The tariffs and other stuff I mean yes the tariffs effect suppose from cost of goods sold standpoint in North America although we’re looking at different locations for supply from glass and aluminum, but that's one piece.But there is this undercurrent now throughout the environment there in China coming from the media and the Chinese government that is rhetoric against U.S. companies and all U.S. companies and a big driver of our business is new distributors and new independent product distributors coming on into our system. And if there's a lot of, negative rhetoric about interacting or working or overall with the U.S. or U.S. companies that has, a negative impact of people wanting to be associated with or partner with U.S. companies.So I just start to see the undercurrent of that and it's accelerating and the minute we can start to make progress in the tariffs which will happen again it's a short-term issue. But as soon as that starts to happen some of that rhetoric will start to ease and will get back to normalize opportunities. That being said our overall place China is these are short-term impact we do not see any whatsoever structural or long-term impact on our business in China.And in fact we see significant upside potential and we’re taken the actions both on a product standpoint, both in terms of business model which we chat e-commerce and our expansion beyond 10 provinces we’ve taken those actions to significantly grow our business going forward and not just beat the mercy of some short-term fluctuations.

[Operator:]

[Operator Instructions] Our next question comes from Mike Grondahl with Northland Securities. You may proceed with your question.

[Mike Grondahl:]

Just a couple follow-ups on Morinda you gave some numbers out, but what did China do year-over-year. And what did total revenues do year-over-year?

[Brent Willis:]

We don't breakout China specifically but you know - some of the companies there are down significantly you 50%/60% of their previous business were nowhere near in that kind of round. But we don't breakout and we don't communicate China specifically and we like to maintain flexibility without communicating performance in individual countries. Overall Japan is still our largest market and so that was up and especially up in June.And as I mentioned, from a pure volume throughputs standpoint China was up in June sorry yeah in June as we did our big meetings - like 4,500 people that were there as part of our most business - our business summit that we most recently had there. So a lot of the other markets, Latin America especially, Southeast Asia especially are really expanding for us and starting to be significant contributors. U.S. was up slightly up. The big drivers were all these new markets emerging markets Southeast Asia and Japan in Q2.

[Mike Grondahl:]

Got it.

[Gregory Gould:]

When you look at Morinda standalone.

[Mike Grondahl:]

Yes overall.

[Gregory Gould:]

Yes for year-to-date 2019 we’re just over $100 million in sales.

[Mike Grondahl:]

I get a 100 million but is it up or down what is it year-over-year?

[Brent Willis:]

Overall it’s all up so if you look at a waterfall Mike it’s all up, but all of that upside has essentially been offset by China. So everyplace is up except for China and so had we been just on track or continuing or been flat in China boy we would have had - a just tremendous year this year. But if you look at where we were and what we expected at the beginning of the year versus kind of our revise more conservative guidance, when we look at it it’s a 100% China.And we’re up its actually kind of 200% China in terms of negative impact offset by the improvement in New Age, the improvements in all of these other markets. So that's the one impact but everyplace else we’re up.

[Mike Grondahl:]

And then Morinda you have an earnout with Morinda and I think the likelihood of you paying that earnout went down because of the $6.7 million kind of gain that you took. So how was Morinda’s EBITDA trending because I think there is like a waterfall if they do 20 million of EBITDA they earn it. If they don't I think it all to zero could you just remind us kind of how that works and how it's trending?

[Gregory Gould:]

Yes with that there is definitely a waterfall, they need to hit a $20 million EBITDA number and if they hit that they would get a $15 million payout in the actually the first quarter of 2020. And then with that for every dollar that the short of that 20 million it goes down by a multiple of five so if they hit 15 million they get zero basically.

[Brent Willis:]

Yes, so then we did make an adjustment this quarter bringing that down pretty substantially. We had accrued on our books as of December 31 that it would be a little bit more than 13 million of payout and now we still have about 6.5 million and 7 million accrued on the books as of June 30 and we’re going to continue to evaluate that during second half of this year.

[Gregory Gould:]

And just think about it Mike some of the markets and on average Morinda is like 80% margin or a high 70% gross margin. So if you have China round numbers of China is down 20 million and you got an 80% margin in there that’s a $15 million, $16 million negative EBITDA impact. So that gets wiped out and then you offset that with all the growth in the other markets. So that's why we said look we’re going to continue to make investments in the business.We’re making investments in people, we’re making investments in the brand, we’re making investments in the launch and expansion of new products whether it’s Health Sciences, CBD or the other things in North America and around the rest of the world.So that’s why we said look we’re just going to pair bills we’re going maintain positive EBITDA but because of Morinda in size and scale for overall business and because of what happened in China this year, that wiped out a big piece and then again, a simple way to look at the business is with really doing well at New Age, Rest of World, Japan, even in the U.S., offset by the negative impact from China, which again we believe a short-term.

[Mike Grondahl:]

Shifting over to Walmart and 7-Eleven, you kind of said those were under your expectations. Is it a distribution issue? Is it a demand issue? Why are those under?

[Brent Willis:]

It's all distribution. So the way these systems work, especially 7-Eleven is that puts you in the national planogram and they authorize you and they make initial orders, so that has happened with 7-Eleven and Walmart. So we went in these planogram.But then with 7-Eleven, not all of the store owners and franchise owners in all of these regions across the world and even in some of the corporate owned stores, they don't put it on the shelf, they don't set it, they don't comply with what corporate wants to do and if you look at within the 7-Eleven system, there is always massive lawsuit going on between the franchisees and corporate, so it’s a very difficult system to operate with.So we don't have a demand issue or we don't know if we have a demand issue frankly because we're just getting on the shelves now. So getting it on the shelves is been really challenging and we’re having to do additional things because we just can’t rely on the change, especially indicates 7-Eleven to get it out on the shelves. So it’s not a demand issue, it’s a distribution execution issue within their own systems that because they have those issues in their systems, we’re having take it on to address the problem ourselves.

[Mike Grondahl:]

That helps with 7-Eleven. Is Walmart similar or how would you characterize that?

[Brent Willis:]

Walmart is similar and less so from an execution standpoint versus 7-Elevenand very much less over versus Circle K, which we never really communicated and we didn't communicate at all but the Circle K expansion is gone really well, but that's not a franchise model and they are really hitting on all cylinders that really just shift in the very end of the quarter, so that’s going particularly well for us.But Walmart same kind of issue in terms of getting it out and getting it out of all the stores and then driving the traffic and awareness, remind you, one of the reasons we love our omnichannel system is because when you shop a traditional retail category, it’s such a c of confusion in the beverage industry with thousands of products and 40, 50 linear feet of shelf space of carbonated soft drinks to sort through until you get and you get to find a healthy products and healthy beverages.So it’s just a matter of time and we're doing some things now directly with Walmart in terms of rollbacks and promotional incentives inside the store to build awareness of the availability of the Marley brand now at Walmart.

[Mike Grondahl:]

And then just lastly on CBD, besides topicals would you say you're just waiting for the FDA framework, so you're in a holding pattern until you get more insight or they say, how to proceed?

[Brent Willis:]

Well, we are proceeding outside the United States, and I've always said, this is a global opportunity for us. So one of our big variability is - our sensitivities to the upside is, how quickly and broadly can we get CBD outside the United States in all these markets.So their regulatory barriers and hurdles and all these other international markets that been we've been working to overcome and we have some - had some very good success on overcoming some of those regulatory barriers in those other markets that gives us a lot of optimism for CBD outside the United States in the second half of the year. So it’s just a matter of how quick and how fast and how broad that gets and in what channels we go.Within the United States, as I said, it's as murky as The Strait’s of Hormuz, that's a pretty difficult place to navigate these days and it's been murky for us too just in terms of unclear rules that apply for sure to public companies and apply to public companies that have to comply with federal law like ourselves but they are not being policed in terms of some of these other smaller companies that are getting out there.There may be some things that we can do where we can indeed comply with federal law - comply with our requirements as the NASDAQ listed company and still be able to execute on the beverage side but we’re making sure that we can do that from a legal standpoint and making sure we can do that with the FDA and so we’re in constant dialogue with our lawyers that are in dialogue with all of these different entities to be able to make the navigation a lot more clear that it is. But CBD in the United States is another potential upside to how we’re seeing the year, but it's just - it's just too many unknowns at this point.

[Mike Grondahl:]

Any update on the Docklight partnership?

[Brent Willis:]

Because we have that partnership that is one potential way that we can navigate the waters, I'd rather have the market and consumers and or investors see that delicate navigation that ultimately results in effectuation and our Marley brand on shelves in beverages. So I expect to have positive news for our shareholders and consumers frankly with this great brand in that area and because of that unique relationship with Docklight it may be a way to be able to execute and execute it in a very significant way this year.

[Operator:]

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Brent Willis for any further remarks.

[Brent Willis:]

Hi. Thanks, everybody. Appreciate the time on the call. Again, we were pleased with a lot of things happening. We’ve got improvement opportunities just like everybody does but simple way to look at the business is China has had a negative impact on the first half offset by frankly a number of good things happening in a lot of different places that we expect to continue to effectuate inaction for the rest of the year.We love the business and we love the potential that our business represents and you know like I said, even at high 200swhere Greg said, we are calling the business right now even still at that level, that means we’re trading at one times revenue or about 75% below that of our peer group. So we think there's a lot of upside for our shareholders going forward as we continue to execute the business. Thanks very much for joining the call.

[Cody Slach:]

Thanks everybody.

[Operator:]

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.