NewAge, Inc.
Q1 2018 Earnings Call Transcript

Published: 17 May 2018

[Operator:]

Ladies and gentlemen greetings, and welcome to the New Age Beverages Corporation First Quarter Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host Cody Slach from Liolios Group. Thank you. You may begin.

[Cody Slach:]

Good afternoon and thank you for joining New Age Beverage Corporation's first quarter 2018 investor conference call. I am Cody Slach with Liolios, the investor relations counsel for New Age. I'd like to welcome you all to the call today and to thank you all for joining. On today's call we will have Brent Willis, Chief Executive Officer of New Age Beverages, and Chuck Ence, Chief Financial and Administrative Officer, Michael Cunningham, Senior Vice President of the U.S. Division and Josh Hillegass, President of the DSD Division. I'd like to remind everyone that this conference call may contain certain forward-looking statements reflecting management's current expectations regarding future results of operations, economic performance, financial condition and achievements of the Company. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties. The transcript of today's conference call will be available on the Company's website, within the investor section at www.newagebev.com. I'd now like to turn the call over to Chuck.

[Chuck Ence:]

Thanks, Cody. For the three months March 31, 2018 the company delivered consolidated gross revenue of $12.8 million versus the $11.4 million in 2017 up 12%. Subtracting discounts and bill backs at the net revenue level the company generated $11.6 million versus $10.8 million in the prior year first quarter. The company started off particularly strong in the first part of the year with double digit growth in the first six weeks. The sales were negatively impacted by approximately $3.5 million due to working capital constraints which severely constrained inventory levels. Within our segments most of the impact was felt in the U.S. division. The U.S. Division is where we are launching all of our new products at close to 50% gross margin so this revenue impact also flow through to our overall company blended gross margin. The DSD division was up versus prior year through February but also felt the effect. This division was up 9 percentage in January and was up 6% in February but then went down 5% in March. Our international division that is becoming a much more significant contributor overall was up 337% in January, 1375% in February but only 19% in March and the U.S. division was also up in revenue in January by over 60% before the inventory impact. Despite the constraints the international division, the e-commerce division and the food service division were all up triple digits in the quarter versus prior year albeit off of a smaller base. Within our portfolio of brands the Búcha brand continues to lead all brand growth. Our new initiatives, Marley Mate, Shelf-Stable Búcha, and Coco-Libre Sparkling, that importantly are all above 40% gross margin are all showing tremendous growth and are all rolling out nationally in new distribution. As an example, one of our largest natural distributors was averaging one layer per week of Búcha sales in January. That's 1/6th of one pallet. Three months later, that same distributor is now ordering 12 pallets a week. In gross profit, the firm delivered $3.1 million for the year versus $2.9 million in the prior year, up 7%. Gross profit as a percent of sales, excluding shipping, was 26% versus 26% also in the prior year. Digging into what's behind this topline aggregate number however, its deceiving as January gross margin was 33%. With all of the shipping and incremental costs of goods sold experienced in the quarter as we were moving product around to cover inventory needs, this impact in the latter part of the quarter brought down the gross margin for the full quarter to 26.4%, in line with 2017. Total operating expenses for Q1 were $5.1 million vs. $2.9 million in the prior year. This increase was driven by a number of non-cash items including increased amortization on the almost $20 million dollars of intangible assets added to the balance sheet, stock option and stock expense associated with the acquisitions, and rent expense following our sale lease back executed last year. We still expect 25% of net sales OpEx expenditure as a good working model assumption for 2018 versus our internal budget, our OPEX was actually right in line, but the impact to top line revenue from the working cap deficit, hurt us both in percent of revenue, and overall fixed expense absorption. Adjusted EBITDA for the quarter ending March 31, 2018 was minus $1.3 million, stemming from the inventory shortfall to fulfill demand. I'd like to now switch our discussion to financing and working capital. Given the planned growth in the business we knew we had an incremental working capital requirement of between $3 million and $4 million in the beginning of the year. We started work on this six months ago, and had the commitment for it to be in place no later than the end of January. It didn't happen, and we simply did not expect a delay in execution, but it happened nonetheless. So, why has it been a challenge for the Company to put in place a simple line of credit, when we have a significant amount of current inventory and receivables over current liabilities? Let me try and explain it as directly and succinctly as I can. Overall, we are swinging for the fences with the lowest cost of capital, as we always have. You obtain this from the largest banks but this has a cost in time, in their processes, and their very big company ways of working. New Age had in the smallest quarter of the year, the first quarter, a borrowing base of between $8 million and $9 million, of what is deemed by the banks as available inventory and receivables. Banks loan on about 70% of this - so that equates to around $6 million. Take from that $2 million for U.S. bank and $1.5 million that we owe 12/31/18 this year to the Coco- Libre noteholders, that's the total debt we have on the firm. But, then the major banks want $2.5 million to be held in “unaccessed availability,” leaving you with very little left for working capital. We may likely get there with PNC, as we are moving into our bigger inventory and receivables quarters and our borrowing base increases, but we have already had significant delays with them. We do have another option with a traditional ABL group, and a commitment already, based on their due diligence of our most recent financials through April. Also with respect to financing on the confidentially marketed offering that we did in April, we have almost caught up with our inventory needs, but with production schedules that are on average 30 days out from order and more inventory requirements to keep up with increased demand, we still have a good problem to solve. The good news is, the new Marley Cold Brew is in production in the next few weeks, as is more Marley Mate, more Marley Mellow Mood, more Xing, and more Búcha. We also have 33 containers of Coco-Libre on the water right now as we speak, and the new Xing Craft collection - all in committed distribution is also in production. Currently, we have enough liquidity to meet demand, but we are in growth mode, and will continue to be tight until the new financing facility is in place. In summary for the quarter, 95% of our shortfall to internal plan was due to lack of inventory from working capital constraints. Notwithstanding those challenges, we still had our highest first quarter in history. Let me repeat that, our highest first quarter in history, led by international that was up more than 300%. The brands, especially our newest ones, Coco-libre Sparkling, Marley Mate, and Búcha Live Kombucha are selling extremely well and growing - and this is why we remain confident in our guidance for the year, albeit at the low end of the range given our Q1 liquidity constraints. We do not have the luxury of a big cash balance to fund opportunities, (our company never has). Unfortunately we see tremendous organic growth opportunities right now that we could accelerate– and frankly see some attractive external growth opportunities also. We just are not in a position to address them. Our focus is on continuing to fund the organic growth in the short term, spot the new ABL in place, with one party or the other, and just execute the business plan. And with that, I'd like to pass the call over to Brent.

[Brent Willis:]

As Chuck mentioned, we still feel confident in outlook for the year at the lower end and continue to hold our team accountable to the plan. The reason for the belief system is all in the revenue. To discuss that, I thought it would be most valuable for our shareholders to hear from the two leaders managing the largest parts of our revenue, Mike Cunningham who leads the US Division, and Josh Hillegass who manages our DSD Division. Let me pass it over to Mike who can give you the facts of what is happening in the market. Mike?

[Mike Cunningham:]

Thanks, Brent. A few you may know that I have been in CPG sales business for a very long time, including working with companies such as PepsiCo and Cadbury. Those have been great experiences, but I am very excited to be at New Age, especially right now. I want to address two points. First our brands and then distribution and how it works. On the brands - we know we have to build our brands or a few key brands with consumers. What's happening, what are the facts? Well on the new brands, Marley Mate, Coco Sparkling, and Búcha we can barely keep them in stock, and the minute we think we're caught up, sales keep growing. It's like what Brent does to us all the time, the minute we think we are caught up, he moves the goal post and asks for more. It's the same way here, trying to keep up with growth. Where the Brands are in distribution, Búcha is leading its category in sales growth, Marley Mate is leading its category in sales growth, and Coco-Libre Sparkling is actually the first of its kind in its category. On our core brands last year in 2017 we integrated them all into one system, one company. I hope everyone understands how much work this actually takes with all our distributors, with all our retailers, with all the systems, and it is incredibly difficult and time consuming. And mind you, we did it while we were transitioning to a lower cost and more effective hybrid route to market, and we did it bringing together five different companies and, on top of that, we have had to reconstruct these brands. We have created new packaging, new formulas, new products, and innovation within the core brands, and frankly, it was done at the same time as all the other things. It's a lot of stuff, but at the end result that I see is increased sales, increased retailer and consumer demand and increased sell through. That's what I see. I see it working. It would have been great if we would have been able to hold on to all the volume from the core brands in 2017. But that was just not realistic at all, given when New Age acquired them, they were all declining over a long period of time when they were part of stand-alone, unfunded companies with no resources and very capabilities. This is why we were able to acquire them and bring them in to New Age at about a 75% discount to the market average. Since that time, we've done the hard work, we strengthened the brands, and gained the distribution, and now, we are growing the core again, and gaining new distribution, in addition to driving new innovations. So I believe the brands are now really getting there. Please don't forget, April is the start of New Age's, first ever sales cycle as a Company. Our first one, and it's going great irrespective of the obstacles and growing pains. We have not been a company for more than 10 years like many of our peers. New Age is less than one year old as an integrated Company. This portfolio strategy is working, and the sales per point of distribution is increasing. This one stop shop strategy is unique, and really resonating with both retailers and distributors. This is why we picked up the Military business worldwide, Dot Foods on the Foodservice side, and a number of new retailers across the country. And I will give an example, one of our major natural distributors for example, expects to do more than $12 million of sales with us this year versus around just over a $1 million a year ago. Now that leads me to my second point, distribution. It is a fact that we had gained right at about 85,000 points of sales. That accomplishment well, I can't think of any CPG company that has even come anywhere close that number. I thought everyone would want to know how distribution works, and when will it show up in the numbers? Here's the process we have to go through. First, we get a retailer to say yes to authorize one of our brands. That cycle that takes almost 12 months. In this industry that is just how it works. Now, please recognize that our new brands and innovation were just finished in Q4 of last year so the fact that we got all this new distribution in Q1 and Q2 means we are actually about six months ahead of schedule. Converting the authorization to distribution also takes some time, but here is how it is working in New Age's particular case. Of our 85,000 new points of distribution, 20,000 are coming on the Marley family of brands, Mate, Cold Brew, Mellow and Coffee at a blended 48% gross margin. 25,000 are coming on the Xing Family, including the new Craft Brew Collection at a blended 35% margin 15,000 are coming on Coco-Libre and the new Coco-Libre Sparkling at a blended 52% margin. 20,000 is coming on Búcha, the Búcha brand at a 43% gross margin and 5000 new points are coming from other brands that are just getting started in traditional and alternative channels at a 59% blended margin That's the breakdown by brand. Timing wise, we got lucky as most of the distribution was coming in April, May, and June consistent with retailer reset calendars. Had it come in sooner, we would have alienated many of our retail partners. Of the 85,000 new points, 15,000 were set and in full distribution by end April, another 30,000 will be done by the end of this month May, and by the end of June the remaining 40,000 points will be executed. This equates to, based on our current rate of sales by brand, to monthly revenue of more than $2 million more a month versus our current levels today. We just need the product, we need inventory. So our new challenge is not our brands and sales, it is actually keeping them in stock and keeping our customers happy. In Q1 we had a lot of explaining to do - and I basically told the retailers, that because the brands are growing so well, we are having a tough time keeping up with demand. If they weren't selling, they'd still be on the shelves. It is 100% accurate, and as Chuck mentioned, sort of a good problem to have. Our challenge is we have growing brands, more coming this quarter with Marley Cold Brew, the new Xing Craft Collection, and we have doubled distribution. Our brands with traditional retailers are taking hold we have 3-4 major big box, convenience or grocery channel upsides that we expect to close in the coming quarter, and we are just getting started with Foodservice. Now I'll turn the call back to Brent.

[Brent Willis:]

Thanks Mike, well done. By the end of the year, we expect our U.S. Division not including Foodservice to be more than 40% of our business at a blended margin north of 45%, being less than 30% of the business a little more than 12 months ago and that's the real testament to the work that Mike and his outstanding sales team and his network, has really delivered. The other very big party of business is our DSD Division and Josh Hillegass is also joining the call to day. Josh manages what historically is the largest part of our company, our DSD Division. As I have imparted before, this Division is highly strategic for New Age as it provides the business foundation, the scale, the resources to enable us to drive our entire business and invest in organic growth. On a standalone basis, Josh's Division delivers positive cash flow and efficient cash conversion, and under his leadership just performs, kind of delivers it performs, day in and day out. Josh can you give us a quick update on what you're seeing in your division??

[Josh Hillegass:]

I have had the fortune of leading this Division for the past nine years, and in those past nine years, we have had nine years of consecutive growth. It's all due to a great sales team, merchandising team, driver team, warehousing, shipping, and loading team, and a great team in every other aspect of the business. It has taken years to get this organization and our group in place and I am so proud of them, and the dedication they bring every day to growing New Age and our partner brands. This year will be the 10th consecutive year of growth, and anything else is just not going to happen on our watch. Similarly to how New Age built the foundation in 2017 in the US Division, we also strengthened our DSD division last year. For more than 10 years, we structured our routes based on experience and experience alone. Last year we emplaced our first ever routing software, added a number of new routes to increase our distribution universe. We also added a number of Hispanic specific routes given the changing demographics within our local market. We strengthened our inventory management and our supply chain processes across the board, and promoted key leaders internally to positions of increasing responsibility. So, we are much stronger as a Division now than we have ever been before and are in a position to further scale up. We felt the same crunch on inventory as Mike did in the US Division. We had a fast start in January and February, on top of an outstanding first quarter in 2017, but felt the impact in March. What sustains us however, and really supports our consistent results is the quality of our brands and brand partners, and the distribution universe we enjoy that encompasses more than 6,000 outlets. We have more than 600 SKU's across more than 60 different brand partners with great brands including Nestea, Sparkling Ice, Arrowhead, Jones, Arizona, Essentia Water, Perrier, Bimbo and Takis, Jarritos, New York Seltzer, and too many others to mention. These are all great brands that are entrusted to us, and together with our own New Age portfolio, we treat our partner brands as our own. We are in these stores every day, increasing presence for them in both depth and breadth, and building these brands at the point of sale where for more than 75% of brand choice is made. We see plenty of growth in front of us in 2018. Driving that is expansion of our routes within existing territory, expanding our distribution reach beyond our current territories, and our new cash and carry business. We are also expanding our channel reach and breadth, to new on-premise outlets and alternative outlets, and within our existing channels and customers, are expanding our depth, with incremental merchandising, displays, and secondary and tertiary points of distribution. All of this sounds like basic execution and blocking and tackling which it is, but we do it well, and that's why we have grown consecutively over the past nine years and will again for an even 10, in 2018. With that, I'll pass it back to Brent.

[Brent Willis:]

Thanks Josh. Both Josh and Mike I believe are singularly outstanding leaders and embodiments of our culture, and there is a direct correlation from their leadership to the superior performance of their Divisions. New Age is lucky to have them and all 169 associates in our Company admire them. So to summarize, we thought it was important to address the inventory challenge in the first four months of the year and its result and impact. This situation was extremely frustrating not just because of the commitments that major institutions that made to us on which we counted and then didn't come through but more so because of the lost opportunity and profitable growth that we know is really right there in our grasp. We also thought it was important to share, the facts in the market and what's happening with our brands and sales, from the key leaders directly responsible. To reemphasize the point Mike made, in the U.S. division this is our first ever sales cycle for New Age as an integrated Company, our first warrant and as both Mike and Josh mentioned, sales and distribution growth are not our problem and they actually see upside I their plans. With retailers and distributors New Age's one stop shop strategy is working. With consumers, our brands and especially new products are connecting. But unfortunately and perversely - this exacerbates our inventory and short term working capital issue, because our products are selling at increasing rates. Think about it, that is a very different and interesting situation to be in, and one that not many, if any others that I know of are encountering. We never envisioned our path to achievement of our objectives, as a path that was going to be linear never. We believe all good things come to those - who absolutely never take no for an answer, and do whatever they have to do to achieve success. That's what we have at New Age and that's why we are all here. And with that I would like to pass it back to Adam and open it up to questions.

[Operator:]

[Operator Instructions]. Our first question comes from the line of John Harold, Private Investor. Please go ahead.

[John Harold:]

I have got a question, it's actually a two part question, Brent is there a problem with closing on the $15 million line of credit with PNC and if so is there a Plan B going forward such as what we recently experienced with the surprise capital raise. Secondly, I would like to know at what point gross margins on all the new products exceed your CapEx as that obviously seems to be the point in time where the company really starts to take off and run. Thanks.

[Brent Willis:]

Yes, I'm going to just going to pass that question over on the PNC loan which we tried to describe in the call that I will ask Chuck describe again, why if not in place yet how we have gone around with then and what the next steps are to putting in place a banking facility for the firm.

[Chuck Ence:]

Hey. John thanks for the question, as we have talked about in the call we are still working with PNC Bank we still are providing due diligence requests as we pointed out in the first quarter it is our lowest quarter from a accounts receivable and inventory current asset standpoint so that's where our availability comes from. So as we've progressed with PNC Bank we also have a Plan B as you pointed out in the question. We will not put all of our eggs in one basket we do have a another ABL firm looking at our results through April, they have given us a commitment and this is an ABL company as opposed to a bank there will be higher way to associated with that however the unassessed availability required it will not be there with normal ABL company. So we are pursuing a Plan B but we also are still pursuing our Plan A with PNC.

[Brent Willis:]

And that's real the benefit of non-traditional banks as they don't need the [indiscernible] this unaccessed availability that limits the amount of working capital that would be available to us and that's why we're putting this one in place to get incremental working capital to meet the needs of one and way to get incremental working capital to meet the needs of a growing business. On the margin question, that's pretty insightful question John because as these new products get out there and there are all in the U.S. division at north of 40% margin and many of them more than 50%, the more we sell of those it's offsets and increases the overall blended men to above 35% which is our target for the year and we saw that we hit that in January as we are getting those new products out there we hit 33% gross margin but as we have been limited inventory on all of these new products and some of our existing products in our U.S. division our blended margin for the quarter end up being 26%. So we see the math that is we get those new products with higher margins out there and we get more scale in that so goes the blended margin of the firm and if we can stay disciplined with keeping OpEx at less than 25% of net sales that's where you see the P&L gears and we start to drop that positive cash flow to the bottom line and a very positive EBITDA margin which is in our plan for the remainder of the year. But thank you for those questions.

[Operator:]

Thank you. Our next question comes from the line of [indiscernible] from Aegis. Please go ahead.

[Unidentified Analyst:]

You mentioned how important the relationships with new are and obviously cause you to make some decisions here in the quarter, could you give us an update in terms of the strength of those relationships if you feel any of the new distributors or existing ones were not alienated in any way. I wonder if you could just give us your view on that and thanks.

[Brent Willis:]

Great question and frankly given our hybrid route to market then includes both some very good DSD distributor, natural distributors or direct to customers we basically are guided by you know what the retailer wants and how the retailer wants to receive the products and many of these international retailers they dictate those terms, but I think we saw you know that point being we have a varied and evolving route to market that is intending to be in lowest cost to get product from Point A to Point B. From a relationship standpoint, I think I'll ask Mike to describe both let's say the relationship with you know the unified, the DSD distributors and even the Dot Food and some of the food service distributors in terms of how they're feeling about it, Mike and what's some of the dialogue is with them.

[Mike Cunningham:]

I appreciate you giving the opportunity to comment on that because what's happened is we do have a very good relationship with our distributor partners and one of the thing that's happened over the last month is we've depleted the pipeline. So we have flushed out all the unified inventory which they use and carry 50, 60 days or so a product and with the relationships we have with our distributor partners they also move product internally around through the warehouses. So [indiscernible] for example they have 22 warehouses across the country, if they had excess inventory in [indiscernible] and they needed in New York, Pennsylvania they actually move product internally to meet the needs that we didn't have on supply. So one of the things that's happening now is the pipeline empty and as we produce product and as it comes in it is going out the door right away. So you know I know we have said it a couple times already the problem we have is supply and we can't make it back enough as it's gone through that pipeline, it's still got to be filled and get to the retailer. So that's exactly what's happening.

[Unidentified Analyst:]

Mike, let me just ask you how would you characterize the relationship good, bad, strained, growing, why are the unifies of the world - there is a major retailers that are going direct with us or the [indiscernible] or why are these guys want to work with New Age versus more established traditional companies that have been out there for like 10 years, why do they want to work with us and how would you characterize the quality of the relationship in a couple of words?

[Brent Willis:]

Yes, no I think the relationship is very good and I think a lot of the desire to work together is our common goal and vision of natural, healthy products of the consumers and they see us as a one stop shop and somebody that can provide a lot of need that their customers are asking for and we're the perfect fit for that. So we haven't got to a point where there's been any disruption with any buyers or any issues but we have had the ability to move product around internally through our distributor. So we've just got to keep getting that product and building that inventory so that doesn't happen but I will say that we have a common vision with most retailers out there which is driving that relationship.

[Operator:]

Thank you. Our next question comes from the line of Kevin Bart [ph] from BOE. Please go ahead.

[Unidentified Analyst:]

Hey, Brent I just had one question for you today but before that I did want to say congrats on kind of eking out another quarter of record growth record growth despite the cash crunch you guys have had and when you look at your filings over the last year or so you know it's easy to see you guys really haven't had a lot of cash you know for about a year or so you know to continue to deliver in those situations certainly is impressive so congrats on that. Now you did not talk about the Health Sciences division in the call and you know the potential, there is a key reason that a lot of us have invested in the company including myself. So is there anything going on you know with that division kind of any recent kind of updates you can give us with what's going on?

[Brent Willis:]

Well first thanks for the words of encouragement on despite those obstacles still achieving record sales. We are never satisfied, we will never be satisfied we are always moving the goal post and asking for me and everybody like Mike should not have said in the call but I can talk about that later. But you know I give a lot of credit to Josh and his team and Mike and his team, [indiscernible] everybody in the company for despite those obstacle, just not just never take a no for an answer and this is a team just delivers even though we haven't had real cash for investment like many of our peers that have been around for a long time period of time. So I appreciate you recognizing and doing the homework on the balance sheet over the past year of the company and the performance despite some of those obstacles. I didn't talk about the health science and division today just because I felt there is too much and I know really just wanted to hear about the financing which we're fixing. We're getting that in place is just I would love to have it in time for this call but it just doesn't like doesn't work like that so we're going to get the financing in place and we have to have it in place to continue to drive our growth and meet the needs. We also need the financing for production of our enhanced recovery after surgery beverage which I'm happy to say has just received its first purchase orders and for three different groups, one is a major national OBGYN group, one is a major health care provider based out of the Midwest and one is Hospital Corporation of America that has more than 200 hospitals across the country evaluated a number of potential choices for their ERASP which is Enhanced Recovery After Surgery Protocol and based on that assessment has chosen enhanced recovery or enhanced brand or enhanced recovery branded as their ERASP beverage of choice for pre-operative care before surgery. So we and that brand has fantastic margin for us. So we're particularly excited about that brand and business. If you ask anything in our company which brand has the most potential you will get 10 different answers from 10 different people because we have a kind of so many opportunities that all look contractive but if you ask me I think our enhanced recovery given we have first mover advantage, the margins are fantastic truly limited competitive intensity in that segment and we have a competitive advantage product that is probably out with more than 300 different hospital groups evaluating right now major ones across the country. I'm pretty excited about that and I'm excited to see the first parts of their revenue come in from that division, there's other things in the queue but enhanced recovery after surgery was our first effort and now we expect to build on that base through our nurse network that really is a big gate keeper for many of those hospital buying decisions and are major hospital systems that we're partnering with or beginning to do evaluations with. So I'm excited about that division too and it's a key reason why I really believe in the big future of our firm.

[Operator:]

[Operator Instructions]. Our next question comes from the line of Alexander Scharf from Maxim Group. Please go ahead.

[Alexander Scharf:]

So you've talked about the $3.5 million net revenue impact due to the inventory shortfall. Can you quantify or break down that 3.5 million between the brands and the DSD division?

[Brent Willis:]

Yes. I would say we don't have all the specifics, we do have all the specifics Alex, but we don't really want to break it down but in truth most of that impact was in the U.S. division. So I would say because a lot of it was on core brands and our new brands going into frankly North America that's where we've frankly had to hold back. You know when you got existing distribution with Nestle and Arizona and all the kinds of things you just you have no choice you've got to fill the pipeline you get to keep the shelves stocked. You have no option whatsoever so I would say of the 3.5 million, 85% to 90% was in the U.S. and international divisions and then the remaining 10% to 15% would be in the DSD Division, would you agree with that Chuck or do you think the numbers are a little bit different?

[Chuck Ence:]

No I actually I do agree with that Alex because the question - the other thing too is in the division as Brent pointed out you have the commitments, you've the relationship you have to fulfil those nut in the brands division in the U.S. division there's also production involved, there's raw material involved, there's more significant logistics involved been in classic country and those kinds of things so yes the impact was felt more severely in our U.S. for sure.

[Alexander Scharf:]

And then given your current working capital how long can you wait to add a line of credit before you run into this similar disruption again and how confident are you that you can get financing tied up by then?

[Brent Willis:]

Well we have the current liquidity we need to meet current demand however with the ramp up and the seasonality we are 100% confident we'll be able to get a line of credit in place where we let's say we have both the Plan B and Plan B, we have commitments from our Plan B. So we're 100% confident about getting in the line and for short term we can't from a liquidity standpoint we can't meet our short term obligations but in order to meet our future increase demand, increased production we will need the line of credit and it is imminent that we will put in place.

[Alexander Scharf:]

And then lastly can you talk a little bit about the radiation rank, I believe you are planning to launch it in Japan and South Korea, can you just talk a little bit about the progress there?

[Brent Willis:]

We could I would rather hold that news until I see it in real distribution. We have received some starting financial benefits from the radiation protection product which people don't see it on day to day basis but over there radiation protection especially in Japan and around Fukushima you're starting to see the effects of the fallout of the accident that happened recently which we knew and we predicted and our Chief Medical Officer had actually worked with some of the officials in the government over there to tell him what was going to happen so what is happening now is exactly what our team had communicated to them. So we're working with sales groups in both of those countries that stand probably more than 10,000 associates with very big groups but until the numbers are really on the board until it's really in the market I'd like to just be a little bit more cautious but we do have high expectations for both that product first in those markets and China and thereafter in the United States for not just all X-rays, all 320 million surgeries that also you know all the impact that you get from ironizing radiation for every single flight on the planet which people just don't realize every time you go up into the atmosphere. So that's one of the next things in the queue and how science division which we have a robust patent, robust protection and we think a very differentiated advantage in terms of you know where beverages are going not just in that but coming on the heels of that is neural protection, diabetes and cardiovascular house. So we're excited about the future but honestly Alex in the short term we get basic blocking and tackling to do basic financing of the firm and get that in place, run the basic beverage business and get down to distribution which is good this all of this other stuff on how science division, e-commerce, food service that's really the transformative stuff for us that clearly is not based into the value of the stock today but you have to both execute the basic business and build for the future and not lose any focus on the core basic business and getting our new products out there because that could get into your margin while we are carefully building that stuff that could be transformative for us.

[Alexander Scharf:]

All right. Thanks for taking the questions.

[Brent Willis:]

Thanks, Alex. Operator, I think we are at an hour there in terms of time, so I think we will stop there. As everybody knows our management team is very accessible so please feel free to reach out to the company directly and we will do everything we can to get back to you and answer any specific questions you have. As I mean this team is I think fantastic. Our brands are really working, our distribution is really working and we appreciate everybody's confidence and trusting us to drive returns as we are in the exact same boat and committed to driving real value for everybody. So thanks everybody.