NewAge, Inc.
Q1 2017 Earnings Call Transcript

Published: 16 May 2017

[Operator:]

Good day and welcome to New Age Beverage Corporation's First Quarter 2017 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I'd now like to turn the conference call over to Mr. Scott Biddick, Investor Relations with Amato & Partners. Mr. Biddick, the floor is yours sir.

[Scott Biddick:]

Good morning and thank you for joining New Age Beverage Corporation's first quarter 2017 results investor conference call for the period ending March 31, 2017. I am Scott Biddick with Amato & Partners, the Investor Relations 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 will have Brent Willis, Chief Executive Officer of New Age Beverages, Chuck Ence, Chief Financial Officer, Jay Barrow, Head of Marketing and Julie Schroeder, Vice President of Integration. On our call, Brent will provide some opening comments. Chuck will provide an overview of our first quarter 2017 results and then turn it back to Brent, Jay and Julie who will discuss operating performance in the year, the recent Marley and Coco-Libre acquisitions integrations in progress among major priorities. We will then open the call to questions. We remind you that this conference call contains 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 Web site, within the investor section at www.newagebe.us. I'd now like to turn the call over to Brent.

[Brent Willis:]

In Q1 2017, we had another quarter of exceeding expectations. The company is on an excellent track of profitable run rate of north of $80 million and a wealth of growth prospects in front of it. Three things are emerging from New Age Beverages as competitive advantages, source of real differentiation versus other beverage companies. We are beginning to prove that we can number one drive superior profitable organic growth, number two, we can acquire and integrate the companies that substantially accelerate our top and bottom line and number three, we can develop breakthrough new products leveraging our R&D capabilities frankly in a way that no other beverage company of any scale as yet to be able to demonstrate. So what's the proof? What's the evidence of these claims? Number our ability to drive organic growth. In Q1 2017, we drove organic growth of 7.2%, Q4 last year 6.9% and Q3 last year 11%. There are not many consumer goods companies or beverage companies growing top-line at that pace. And in deed many of the traditional leaders are flat to declining in both the alcoholic side and non-alcoholic side of the business. I believe in organic growth, we are just getting started. We now have a national sales force to leverage. We now have a national DST footprint to leverage. We now have a full portfolio, excellent retail relationships and a competitive brand in the top-five fastest growing segments of the beverage industry to leverage and nothing in the bottom five. A stop shop strategy is really beginning to resonate both with retailers and distributors. A couple of examples, first on XingTea, in one of the major divisions of Kroger over the past quarter, Xing is up 26% and one of the largest distributors in the country. Xing is up 24% and Sprouts, one of the major national natural channel retailer is up 89% and in a convenience store where we did a private label partnership, it's up 35% and the retailers blended margin is up 40%. All anecdotal examples honestly, but actual examples nonetheless and as we have tested these marketing promotional mixes in certain areas with excellent results, it gives us the visibility and confidence of impending results as we begin to roll them out nationally. Proof two that we are emerging as different, our ability to profitably acquire and then to integrate new companies. First with Xing, Bucha, Inc., in Q3 last year then with Marley in Q4 and Coco-Libre in Q1 that is one a quarter and trends that would be reasonable expect to continue. Since the acquisition of Xing, Bucha, we have reduced Bucha packaging cost by 46% increased gross margin 10 points and as of today eliminated 100% of their previous OpEx and grown the top-line by more than 40% gaining more than 5000 new points of distribution and launching a new shelf stable version, the first of its kind in the country. With Marley, although we don't even officially own it yet because we have announced the acquisition but still have not yet closed. We have already fully integrated our sales, marketing and distribution and using many of their team and their organization created a national sales force. Since taking it over operationally, we had gained multiple new distributors and multiple new key accounts in both the U.S. and Canada, so we also have the visibility of what is coming on Marley in terms of growth that is very encouraging. On Coco-Libre, I want to answer two questions, number one, why did we acquire it, number two, what are we doing with it? So, why do we acquire it? Well, number one, it added significant revenue to post the cost synergy catch and integration, it immediately add significant EBITDA. Number three, it gave us one of the top give brands in the second fastest growing category in beverages and the number one multi-served category in the segment. Number four, it rounded out our portfolio healthy function of beverages i.e., a good strategic fit. And number five, it gave us a source for coconut water for some of the new products we have in development. Second question is, what are we doing with it? Well, we have already eliminated 100% of their OpEx 30 days in, with the exception of a few super A players in sales that had already been integrated and are already selling the entire New Age Beverages portfolio. The OpEx cost savings less investment back into those sales resources and some brand investment enable us to drop more than $3 million net to the bottom line, if we chose to do so in 2017. As an example, how well the integration has gone so far? In the first month with us, we delivered 1.2 million in sales as this is in a seasonally low month for the brand, so we are excited about its current distribution to the firm that will be fully consolidated beginning with the second quarter. So we are not following around on every acquisition we are buying it less than one-times sales and given we trade at north of two-time sales, there is the instant accretive financial gain for shareholders and that is even before synergy capture which is how we operate to deliver even greater return. Our third proof of emerging competitive advantage and real fundamental difference versus others. Their ability to in-house develop game changing new products leveraging our R&D expertise. Our first new product we developed with shelf stable man refrigerated Kombucha. We are still more than $2 billion Live Probiotic and nine months of shelf live and no vinegar after taste like most other Kombucha's. First shipments of the new product started end of April, it is just hitting the shelves now. The second product is Aspen Pure Probiotic, the world's first Probiotic water with more than 10 billion live CFUs. Retail response has been unprecedented and many are changing their reset cycles to find a home for it now. The product is that different. And don't forget, we have a unique and unfair advantage because we have our own DST in Colorado, we know how it works and doesn't work ahead of time, so with Aspen Pure we have already gained more than 500 new accounts in just Colorado alone in the first 30 days and already see the moment in consumer takeaway. So we have a good indication of the success as we rollout nationally. Now, we have three more major new products coming out in the next three months on which we have encouraging early retailer feedback, so we are excited about the pipeline. I think you have to ask yourself, we ask ourselves how can we, New Age Beverages develop all of these breakthroughs and our competitors are doing things like Gatorade Flow with improved drinkability Pepsi with Cinnamon or Coca-Cola Life with Stevia after five years of research. The answer is, we have taken very different approach to innovation. It is built into our DNA, it's an absolute focus and honestly we have to do it to win against competition and in some cases are -- there are couple of billion dollars bigger than us. Frankly, in our development process, we do not look to the future, we simply look around and opportunities and unmet needs that are right there in front of us. We have the ideas because we are nimble because are unencumbered and because we are unparadigm, we can execute in months not years. So what is emerging from the company are three components of real, powerful capabilities differentiation versus others and sources of competitive advantage. We are number one driving organic growth, we are buying well and integrating well, new enterprises and number three we are developing breakthrough new products for the future and basically none of the above, none of the above has hit our numbers yet. So we have a lot of optimism as we look at the strategic prospects of the business. Before I pass it off to Chuck, I would like to talk about our top ten operational progress and results for the quarter. Number one, we purchased Coco-Libre and Marley beverage company both for less than one-time sales adding substantial revenue and profit to the firm. Number two, we grew organically 7.2% on top of good growth also in the previous two quarters, are we an organic growth machine yet, not at all. But, we are getting there. Number three, we expand the portfolio with 20 major distributors throughout the Untied States capturing an important revenue synergy of kind of cross pollination of all of our brands in major existing DST partner operations. Number four, we expanded a major private label program together with XingTea with a major convenient store chain that resulted in a virtual elimination of the major competitor gained significant growth in XingTea for us and significant category growth and blended margin improvement for our retailer partner. This is a great result. Number five, we developed and launched shelf stable Kombucha with nine months to shelf life and gain more than 5000 new accounts and developed and launched Aspen Pure Probiotic, the world's first shelf stable Probiotic water leveraging our R&D expertise. Number six, we started with international and began to expand to Chile, the Caribbean and Canada whereby international now represents almost 8% of our total business and hired Bernard Rubin as our VP of International. Number seven, we aligned with our social cost, the water is life foundation, the fifth largest water charity in the world and significantly increased our social media efforts behind all of our brands and launched new websites, Aspen Pure, New Age Beverages and the New Age Health Sciences site that you can all go look at www.newagehealth.com. Number eight, we installed an amazing new Board of Directors that are already bringing tremendous value and further discipline as well as strategic and governance levels of the company. Number nine, we sold a major office building for $8.9 million, which technically closed just after the quarter end, but with that we eliminated the final piece of debt on the company. And number 10, we have listed under the NASDAQ Exchange and raised more than $17 million in offering together with Axis and Ages and Maxim. I think one have to step back from these top ten operational accomplishments, coupled with the emerging capabilities on the big three strategic rocks and we are reasonably satisfied. Are we? No, of course not, never. But, we are moving in the right direction. And with that let me please pass it over to Chuck to review the financials? Chuck?

[Chuck Ence:]

Thanks Brent. As Brent said, we have lots of great accomplishments that would be fantastic for any company over any period of time let alone just the past three months. And just one the list with the up list and successful offering that was 4x over subscribed. I can't tell you how much work that was culminating in the roadshow which was also a tremendous amount of work that I would never wish on anyone and I hope to never do again. I'm happy it's over. But, even more happy that with all that effort, it was so successful for the company and for other shareholders. Let me now take you into the details of the first quarter of 2017 financial results. These results included XingTea, Aspen and Bucha, but do not yet include Coco-Libre or Marley P&Ls although both will be consolidated in our Q2 numbers. For the first quarter 2017, consolidated gross revenue achieved $11,437,638 versus $620,658 in the prior year, a 1,842% growth, subtracting discounts and bill backs at the net revenue level, the group achieved $10,787,801 versus $588,800 in the prior year. The significant growth reflects the small scale of the business in 2016. On an apples-to-apples comparison basis pro forma organic revenue was up 7.2% inline with New Ages organic growth model. All divisions and brands contributed well with the DST division leading the way up 9% organically versus prior year. The division added NSP brand following its split with Coca-Cola in the quarter and Essentia, one of the fastest growing brands in the premium water segment. In March the DST had its fourth best month in history, only surpassed by June, July, August of last year which are seasonally our largest month. So, one of the great science to have such good results so early in the year. In the North American division, all the brands are beginning to trend especially Aspen Pure that was 11% benefiting from the launch of Aspen Pure Probiotic, which just began rolling out in the end of March. In gross profit, the firm delivered $2,854,508 versus $144,319 in the prior year reflecting some of the initial impacts of COGS and shipping improvement. To be comparative versus our peer group, we have stripped out shipping expense which was 3.8% of net sales for the quarter versus the prior quarter of 4.3% and prior year of 9.4%. That then leads to a gross profit as a percent of net revenue of 26.5% versus 24.5% in the prior year and inline with the prior quarter. In OpEx we have held totaling cost extremely tight. Total operating expenses were down to 26.7% of net sales versus 59% last year for the Bucha standalone company. EBITDA for the quarter was a negative $391,511 reflective of the fact that we have built the company an infrastructure and how that benefit and how the benefit of that without the corresponding benefit of consolidation of the new acquisitions on the P&L. One time expenses were just over $231,000 for the quarter relating to the acquisition cost of Coco-Libre, which should have cost wise and cash wise in the quarter, but did not yet hit us on the positive side on the P&L. Adjusted EBITDA although we appreciate this is a non-GAAP measure follow some of that with the negative $159,000 for the quarter inline with our internal planning and improvement versus prior of 33.1%. In summary, looking at the financial performance for the quarter, there are a few important takeaways. Number one, organically the company is growing well and as we head into Q2 with the additions of Coco-Libre and Marley and the recent organic growth that we expect to continue and frankly accelerate, we have a lot of forward positive visibility on both the top and bottom-line. Number two, we continue to generate good positive cash flow and now that the uplift and most of the one-time expenses are behind us, it should be even more healthy. Number three, with the organic growth of the core brand, now the additions of Marley and Coco-Libre, we have significantly more scale and resources and relevant with retailers and distributors. We do not need more infrastructure or people. So, these two businesses should have excellent flow through to the bottom-line profit. Number four gross margin and costs are moving in the right direction, lots more to do, but lots already in progress. Number five, we are well funded to invest in building our brands, both the newly acquired ones and the existing ones in the New Age portfolio. The impact of the sale of the building -- a net positive of almost $4 million provides what we believe all we need to further invest in the business. Coupled with the cash the business is generating, unless we make a major, major acquisition that might require some cash, we feel we are well funded through our strategic plan period. And with that I'd like to pass it back over to Brent and the team to give you some of the additional business highlights.

[Brent Willis:]

Thanks Chuck. Basically, my summary is we are on track strategically, on track operationally, on track culturally, and on track financially. Kind of boring I know, but slow and steady although we are not that slow, wins the race. For the remainder of today's call we are going to talk about Coco-Libre integration and provide a little but of a forward look on some of our new products. To lead the discussion on Coco-Libre convergence, I'd like to ask Julia Schroeder, our newly appointed VP of Integration to lead the discussion. Julia is one of our new young guns that is transforming our culture, bringing new operating and process discipline and in this role, she is accountable for everything that happens or fails to happen with Coco-Libre. Congrats Julia and thank you for volunteering. Julia?

[Julia Schroeder:]

Thanks Brent. I think and I want you to know I really appreciate that military style of me volunteering. Coco-Libre. My overall assessment is great brand, great retail key account penetration, and a great fit with the New Age system. Operationally and financially -- lots of opportunity for improvement which we are actioning. Fortunately for us, we have always had superior product quality and consistency -- issues unfortunately currently plaguing some of our major competitors. From a convergence standpoint overall we had a great first month on the top-line with sales of $1.2 million in April. Some of this revenue may slip into May because of invoicing and shipments, but regardless an excellent first month overall. In a perfect world we would have kept some of the operational resources at Coco-Libre, unfortunately there was just no one to take that fit into our culture and quality standards. That put some strain on integration, but we have worked through it. Sourcing wise, we have secured the supply chain, and have a number of opportunities being actioned to evolve both the preferred product taste profile and improve cost of goods sold. Major line items on our 100 day plan? AR/AP integration, done. Supply Chain integration, ordering, production, et cetera, done. Sales force Integration, done. Sales force training, done. Two-year financial audit, in progress. New Channel penetration, in progress. Systems integration, well, not started as we need to close on the Marley transaction first, to bring in Microsoft Dynamics, to then integrate all the brands into it. We do convergence meetings with the team weekly and so far so good on almost all the action items. Most important is keeping the sales momentum and improving service with our major retailers and customers and we have made excellent strides in the two areas in the first month of owning the business. Anything else you want me to talk about, Brent?

[Brent Willis:]

No. That's great, Julie thanks. Let me do one question, what would you say is your biggest hurdle or issue that you are overcoming or working to overcome?

[Julia Schroeder:]

I think honestly, I think it's volume of work and keeping everyone focused on the big priorities. We are on track, but the fact is we do our convergence meetings consistently, and keep everyone focused on operational execution -- we expect to stay on track.

[Brent Willis:]

Awesome. Thank you. The next area I want to dive into is the organic growth driven by some of our new brands and products. I mentioned in our last investor call, that I thought we had a pretty tight, burgeoning marketing team with a plan and ideas on each of our brands. Leading the team is our Head of Marketing, Jay Barrow, another workhorse frankly and model of the culture we are intending to embody. Jay?

[Jay Barrow:]

Thanks Brent. So far in marketing, we are executing in Social, Web and Digital Media, must dos, executing in trade marketing, must do's, we are executing in consumer and trade promotions, also must dos. But the break there is only so far, and the innovative new products we have already launched in the Shelf Stable Bucha Live Kombucha and Aspen Pure Probioticl; the worlds first probiotic water. Marketing at New Age is not an investment, it is a requirement to drive top line growth. So, every activity we do, is required to correlate to top line impact and we take a total integrated sales and marketing commercial approach. With that discipline in mind, we have made excellent progress in expansion of XingEnergy. What was initially supposed to be a small niche, is turning into a much bigger niche, with retailers and consumers resonating around a healthier alternative to the other hyped market leaders. With Coco-Libre, although we are just getting our arms around the brand, our Liberate Your Thirst positioning, our early penetration into alternative channels, and our impending penetration with DST has us envisioning a chance to really crush some coconuts. Aspen Pure is also now crushing it, and just getting started, though for the past three quarters it has consistently one more than 11% top-line. The new graphic and brand identity on Aspen Pure PH, a perfectly balanced PH water and the Aspen Pure Probiotics brands are really catching on with consumers. Where's your Aspen campaign, had enough to break through the category quarter and also build awareness. And now this week, we are happy to announce the launch of PediaAde, our newest brand developed in partnership with our team of esteemed physicians from our Health Sciences division. It is yet another breakthrough with PediaAde being the world's first rehydration beverage made with an all organic coconut water base, with the most electrolytes available and better quality carbohydrates. Why did we do develop and launch it? It's pretty simple, its about a billion dollar segment, with essentially one competitor. That competitor is a drug company, their product -- while the only thing similar to ours is the amount of calories at only 25 per serving. We are made with coconut water. The competitor, tap water. Theirs has Red Dye number 4 and the Yellow 6, sucralose in other non-natural ingredients. Seriously, in a product for kids in 2017 New Age's brand PediaAde has no bad stuff, no sucralose and only natural and organic ingredients. It is loaded with essential vitamins, amino acids, and enzyme co factors. In summary, we just know its better because our kids deserve better. And every retailer we have previewed it to, wants it. But just on an allocation while we ramp up more production. The next up, new products in the Marley portfolio, new products in the XingTea portfolio, and new products from the Health Sciences division. The products are frankly ready to go and we believe they all represent further break throughs. We are just developing the marketing and sales tool kits to go with them and timing their launch with our execution capabilities. Just as in new company integration with Julia, we have our share of workload, but the excitement and the opportunities in front of us are definitely highly motivated.

[Brent Willis:]

Great job, Jay. In summary for today's call, I believe we are continuing to move in the right direction, and are executing well. Hopefully all of our shareholders and investment partners see that we are being good stewards, consistently doing what we said we were going to do. And with the quality of people we are bringing into the company in leadership roles, we are also strengthening the team and building for the future. I never like talking about the stock, we rather focus on driving the operational performance that over time will fundamentally deliver the stock to a very different level. In the short term however, I appreciate that we are in some respects a show me story because we are so new of a firm, and people don't yet see all $80 million of our current run rate, and they don't yet give us credit for the brands and products and abilities that we are building. That's ok -- that lag with some investors, creates short term opportunities for others, but long term over our strat plan horizon, I believe we are on track to achieve our objectives, ahead of plan actually, with nothing in our way from achieving, becoming a superior sustainable profitable enterprise and we have to come the largest healthy functional beverage company in the world. And with that I'd like to turn it over to questions.

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have will come from David Bain of Aegis. Please go ahead.

[David Bain:]

Great. Thank you. Brent and I guess Julie as well, you gave us a sense as to the performance of Coco-Libre post acquisition, I know it's partially now on your DST network and you didn't mention you have several initiatives there to continue with, but I'm trying to get an idea as to how that 1.2 million looks versus last year with [Maverick] [ph] when there are more of an independent brand.

[Brent Willis:]

Great question, David. It is significantly above prior year and that was the biggest I guess positive surprise for us and get some pretty good sales people in the company that even with this transition even without a lot of investments. I've give them a lot of credit for keeping their eye on the ball and focusing. And I give Dan Epstein and Julia Schroeder who were both involved in leading convergence in different aspects of it to keep everyone's focus on driving sales. For the sales were indeed above prior year and I would say the sales were driven mostly from sales per point of distribution growth versus new distribution expansion growth. It's also a good sign because it shows the consumer takeaway in resonance of the brand. So, the brand looks healthy and now frankly with the investment that we can put behind it, the DST system we can put behind it. The focus we can put behind it. We have a lot of confidence in what we can do with the brand and think it's really going to be a jewel in our portfolio. Anything else you want to answer that Julia, is that?

[JuliaSchroeder:]

Well, said.

[Brent Willis:]

Okay.

[David Bain:]

Great. And just two more if I could, one was the OpEx, the actions look very strong, some of the questions on cost of goods, I know it was down 800 basis points year-over-year, I don't want to takeaway from that. But looking quarter-over-quarter, it was up until a little bit as a percentage of net revenue and I'm wondering on 2Q if we look at 1Q is that sort of a flat sequential line item. And then, kind of you're working in integration procedures, policies what have you from there. I'm just trying to understand the cadence of COGS. I know that you were focused on bringing that line item down.

[Brent Willis:]

It's a little bit of a hard question, David, like all your questions are -- but I'm trying to calculate real-time when all of these different actions that the team is doing will start to hit. You did a bit of a significant impact because the margins for Marley and Coco-Libre were significantly higher than that of the XingTea and Bucha business historically. So just for a mix shift standpoint, you will get a significant impact in Q2. But that's not -- yes, it's fair, yes, it's actual, yes, it's real, but it's not really anything that's accruing from all of our cost reduction activity. You will get a significant benefit I think from the packaging cost reduction activities and some of the things that we have done from a production standpoint on the Bucha business in Q2 also and we'll start to see more benefits from a shipping standpoint as we really integrate and look at our entire national manufacturing footprint that really covers kind of nine manufacturing plants across the country. When we see the real benefits of scale here, the real benefits of value engineering the portfolio, honestly, I think across the portfolio that will more come in Q3 and Q4. Our target is to reach a 40% gross margin overall in our strategic plan period. Can we hit that, yes, can we hit it in one year, well, that's the target, we've established for the firm. I don't know if we can hit it in one year, but we're working towards that, but the target is 40% gross margin including shipping costs. So, we're making progress in the right direction. But, we'll get significant mix impact in Q2 and the benefits of the value engineering scale and other activities that we're doing and a little bit in Q2, in Q3, and Q4.

[David Bain:]

That's great. Okay. And then, just final one -- did you want to cut it off with two?

[Brent Willis:]

No, not at all, go ahead.

[David Bain:]

Okay. It seems like the largest growth drivers early -- something that we're excited by are Aspen and the Pedia, can you give us a general sense as to milestone sounds like the DST rollout one last and we fully funneled out, any kind of numbers on how big this can get or if you can like in it to maybe where Marley is -- as an opportunity for 2017 relative to where Marley is now or something like that to give us a sense? And then, when you rollout the Pedia, does that require a new distribution need because it seems like it goes to an entirely different demographic like a lot of -- I mean, I know your products are all very segmented and different from one another, but that seems to be quite different and in different isles of the supermarkets and other outlets. Does that require a new distribution need?

[Brent Willis:]

More good questions, let me handle the last one that I remember first. On PediaAde, it does go through the exact same distribution system, goes to the exact same customers, but it goes primarily to the pharmacy areas of major grocery retailers and it goes to the major pharmacy change that historically was a big strength for us. And it is a different buyer. What's good about that is, honestly, we can compete against Coke and Pepsi and Dr Pepper and 7Up, all day along as they try to use cooperative marketing agreements to hold on to carbonated soft drink space as it significantly accelerates this decline. Or we can compete whether or not and the fact that it is a buyer that is different in a category with significantly less competitive intensity and typically just one competitor, that is a drug company as Jay mentioned we are very excited about those competitive odds especially since we know we had a superior product on virtually every single aspect. So, it may also go to the medical channel which will be a different distribution system that we're currently in conversation actually today with MBC, [McCaffine] [ph] and a few other major distributors in the medical side that will open up new growth avenues for the company. Your fifth or six question, David on Aspen Pure.

[David Bain:]

I guess what I'm looking for there is really just a rollout how fast I can -- because we're trying to sort of capsulate within our model and just any kind of milestones as to how fast that can rollout to the full DST platform or any kind of information there could be helpful.

[Brent Willis:]

I would be conservative to be quite honest because typically move with the retailer last week, I said they loved it and they said they wanted us to produce a private label. And this is a retailer with more than 2,500 stores across the country. And they said -- I said this for -- think like March or April 2018 likely you're kidding me, this is such a unique product but that is their schedule and these companies they have these reset schedules. Some of the retailers are breaking it and some of the retailers are willing to put in off shelf and have us put in displays adjacent to their water sets, but it takes time to break through those sets. And I think aside from the independent DST business that we can get breaking through the major key national accounts that are kind of $10 million at a pop in terms of revenue will take sometime to breakthrough. So from a model standpoint, personally I will never communicated this externally. I think it could be our biggest brand if not one of our biggest brands in our portfolio and it is just that different in unique and we're one of one in the world in that product. But, we need to execute it that from a model standpoint. I would be conservative this year at $5 million to $10 million for that brand and it could -- when we could get lucky but that's -- it's not right from a planning standpoint.

[David Bain:]

That's still -- that's very good. Okay, great. Thank you so much, Brent.

[Operator:]

Next was Anthony Vendetti with Maxim Group.

[Anthony Vendetti:]

Thanks. I just wanted to get an update on the Marley acquisition, I know that it sounds like that's moving along fully integrated, when do you expect to close on that and anything you could talk about in terms of the synergies, how much you expect to be able to save in terms of OpEx and then the revenue synergies?

[Brent Willis:]

Great question, Anthony. Thank you. Honestly, I had expected it to be done already. There are some banking things that had to do with the previous owners that had nothing to do with us and they need to do some things on their side. I think those things are now all prepared to be done. And so frankly I expect it to close because that's the last line item in days, but it won't be anymore than two weeks from now. So from a consolidation standpoint, we won't get to fully consolidate all the results for Q2, but we will be able to consolidate half of Marley for Q2. We're really happy about this opportunity because it comes with the Marley branding that has 74 million Facebook followers and just a frame of reference, Starbucks has 36 million Facebook followers who had twice the amount of Facebook followers than Starbucks has and is a globally relevant brand in this space. It hasn't been managed as well as it could be historically, but we're excited about competing in ready to drink coffee which is a $55 billion segment globally growing about 10% and with Mellow Mood which is actually even a bigger brand than the Marley One Drop coffee, which is kind of a relaxation beverage with [indiscernible] Valerie and Brut and other things in it. From a cost synergy standpoint, we're really -- what we've done is we've integrated all the sales force, we've eliminated virtually all of the rest of their OpEx such that in a month-to-month basis today, even without fully integrating it. It is breakeven at the operating income line as we fully integrated that will be even more profitable because there is some additional headcounts and other savings that will gain. And then beyond that, we have not yet started to gain the savings from a can supply standpoint, manufacturing integration standpoint and shipping standpoint because all we've integrated is marketing and sales at this point and all of the operations aren't yet fully integrated. So, from a total standpoint, I would expect a total synergy level at the cost basis of about $3.5 million to $4 million of which we've already gained about $2 million from just headcount. And on the revenue side especially with some of the new Marley products coming in the pipeline as Jay mentioned driving through our system and it's kind of an untold number, but I would say at least $5 million to $7 million maybe $10 million on the revenue side, of which a safe number to dropdown to the bottom-line and EBITDA would be 10% of that.

[Anthony Vendetti:]

Okay. And the $5 million to $10 million you think right upon close, you will be at that kind of revenue run rate annually?

[Brent Willis:]

We already had a revenue run rate with that business of about $9 million to $10 million today. So with the new things coming, expect the business to grow and that's one of the reasons we bought it to be able to invest behind it put it to our distribution system and drive the heck out of it. But, we got some really new product -- cool new products that aren't just new flavors coming on that, that I think you will see within the next 30 to 45 days.

[Anthony Vendetti:]

And Brent, you've been talking a lot about Aspen Pure Probiotic and it looks like a great product in terms of the opportunity as well as the gross margins, but there is also Aspen Pure just PH balance Aspen Pure, is that -- is that just not as big an opportunity or you just sell it at along side to Probiotic and the Probiotic is the real -- is the real door opener and margin driver.

[Brent Willis:]

Yes. I think they're both attractive margins, but originally was not sure what to do with Aspen Pure until we came up with the Aspen Pure Probiotic because it's a crowded category both premium water and the low-end water, it's really crowded, it's growing well. So, there is lots of interest and there is lots of pretty good brands and competitors in that category. So to compete we had to do something really, really different and Aspen Pure PH even in our view a perfect PH balance water and electrolyte, high electrolyte water in our view doesn't fundamentally have the benefit for consumers. It frankly is being carried along with the Aspen Pure Probiotic as it just so new. So, I would camper from a model standpoint, your expectations in Aspen Pure Probiotic, but what we're seeing it's being carried along with the Aspen Pure Probiotic in new accounts, but we could see the growth in it, I just -- I don't want to account on it yet and we're not going to bank any of our business plans on hold.

[Anthony Vendetti:]

Can you talk about any major new customer wins for Aspen Pure Probiotic at this point?

[Brent Willis:]

We haven't announced them yet, but we have one major pharmacy chain that is taking it nationally. And then, as of yesterday we just got the largest grocery store group on the Northeast that has agreed to take it, but they can't get it until October. So, we may get it in some off-shelf displays before them. But that was the news that just came as of yesterday. We've also gained a major convenience store group, a largest convenient store group in Canada on the brands and the largest retailer up in Canada is also agreed to take it. So, they kind of come in everyday and so I don't want to have the list and typically I don't like to communicate that a retail has agreed to take until I see it on the shelf because sometimes they change their mind. But, those are just some early wins and indicative of kind of some of the demand that we're seeing. We're not yet on allocation basis to retailers, but we may have to be coming up here soon but we're feverishly looking for additional capacity to produce, that to me what we see is the impending demand.

[Anthony Vendetti:]

So lastly, just in terms of the hurdles because you have a lot going on, is there anything that constraining your growth, any hurdles whether its capacity constraint, whether it's building out any of the infrastructure you need internally, is there anything that you think is right now some type of constraint on the growth that you've outlined?

[Brent Willis:]

I think obviously Anthony, it's -- this is one of the things we met the enemy and he is us. Our only limitation really it's not competition, it's not money, it's not -- the retailer realities in North America of their shelf sets slow you down a little bit, but that's not a long-term impediment, it's a short-term irritant, frankly, because of the system. We have the ideas, we've got the pipeline. Frankly, I think we produce more good people and A players to get more A players. And so I'm really pleased with the team that we're building for the future especially some of the new younger more process-oriented disciplined leaders that we're bringing in. But, we can always use more A players on the sales, marketing, supply chain virtually in CEO area especially every aspect of it, I would update. So, I save you from saying it Anthony. So…

[Anthony Vendetti:]

All right, guys. Thanks a lot. I appreciate it.

[Brent Willis:]

Thank you. I think we've got time for maybe one last question.

[Operator:]

Yes, sir. That question will come from [Michael Scardo] [ph] of Pacific Growth.

[Unidentified Analyst:]

Hi, Brent, it's actually, [Jamie Mendova] [ph] on for Mike. Couple of weeks ago we thought -- hi. Couple of weeks ago we saw the press release noting a bunch of distribution agreements with some of the large [BR] [ph] independent houses. Can you walk through how many of those are incremental and perhaps as you think about the organic growth rate of the company how much you think is going to be driven by distribution gains versus velocity and sell through?

[Brent Willis:]

Yes. I was surprised because frankly when we put out that press release which is kind of a combination of kind of two months of maybe three months of work with all those distributors. It was really a monster we can lease in terms of the results and what if you really know this business, what we'll accrue from all of the new distribution. And it's fell on deaf ears. And I get it because there are some many story and people want to see the results in Q2 and the impacts and all those kinds of things, I understand it. But, that kind of impact is just tremendous. In terms of what's incremental versus what's there, I would say about 75% of the new brands or brands in those distributors were incremental. In most cases, we had XingTea there and now most of the distributors are taking Marley, Mellow Mood, One Drop, Bucha because it's shelf stable and fit through that DST distribution system undertaking now we're just starting to present Coco-Libre to them and they're taking some of the other new products including Aspen Pure Probiotic. So, I would say about 75% of that it incremental. In terms of what's going to accrue from the sales per point of distribution standpoint, growth or distribution growth we haven't done the math yet Jamie. But, the simple easy wins, quick wins is getting get on the shelf and especially in all these independents and all the little outlets that the DST distributors cover. So, Colorado is a perfect example where we picked up 500 new distribution points and now we're seeing the sales per point of distribution come through that to get more sales -- more distribution points because other retailers are just starting to see the success and frankly we've picked up another -- we actually pick up a major Kroger division here in this area. It's also going to be taking the product coming up in the next probably 30 days. So, there is breaking their cycle too to bring it in. So we haven't done the calculations on split between sales per point versus distributions gains, but this year I expect the easy distribution gains and really calculated what that revenue impact is going to be from that because we just haven't gotten to it yet. So, but it's definitely a big, big driver for us going forward and just the starting point before we certainly do all the activities to really drive the portfolio.

[Unidentified Analyst:]

Right, so, I guess the second part of the question if you look at the organic growth rate of the business which has been trending call high single digits plus or minus, I would say that's roughly in line with the end market category growth of the key categories that you guys are presence in and so if you're getting these distribution gains, shouldn't we be on the cost of a pretty nice acceleration in organic growth.

[Brent Willis:]

Sure, we've guided to 7% to 10% to organic growth and I don't think we're hitting in all cylinders yet. As I mentioned I think we're kind of in the -- kind of the overall as a company we're in the first mile of the marathon, but as it relates to organic growth we're kind of [indiscernible] we're kind of just making up our shoes and sizing up the competitors. We're at that starting point. So I do believe this really ends analytically that we can dramatically increase our organic growth rate, am I going to guide to it yet, no, because I want to see it, I want to see it in the numbers first for a couple of quarters before we change our 7% to 10% guidance. We have that opportunity and that's potential, but it's still compound execution and we're okay in execution, but there is other competitors out there that didn't better than us from a sales and retail execution standpoint so [indiscernible] long way go there and we're still in the first mile, we're not even in the first mile and organic growth but lot of potential I just don't want to guide to a change in our number until I see the results from there on the P&L.

[Unidentified Analyst:]

Okay, great. And then lastly on Marley, did you say that they were doing $9 million to $10 million of run rate revenue?

[Brent Willis:]

Yes.

[Unidentified Analyst:]

Okay, great. Thank you. I appreciate it.

[Brent Willis:]

We have time for one more question, maybe or, we'll take one more if there is one more in the queue.

[Operator:]

Yes sir, I believe we'll proceed to John Harrod of Harrod & Associates.

[John Harrod:]

Yes, good morning and thanks for taking my call. Brent, [indiscernible], I'm sorry.

[Brent Willis:]

Yes, [indiscernible] it's the last call, it's the last question.

[John Harrod:]

Okay, Brent, was there is a strategic liquidity in organic growth and now your brand portfolio that seems very attractive, why haven't you guys been acquired yet and have you been approach to be acquired by any major beverage company that's partly look into diversify ways from carbonated and sugary drinks.

[Brent Willis:]

[indiscernible] before this question and let me try to invade your question, John, honestly and be quickly as possible. So first the party lines. We do not talk about any potential or impending acquisitions, definitely we're going to talk about until we done both for governance and legal reasons. So our official party line is absolutely no comment and let me give you a little bit of color though, I think you're right in your session that major competitors both on the alcoholic side and in beer [ph] and others and on the non-alcoholic side with the traditional leaders. Honestly, there are struggling and they are all led to in some case declining and in their major developed market significantly declining. So what are you doing as a result, number one, many of them are looking for new CEOs [indiscernible] put in a new CEO for example. Number two, they are accelerating their phase of consolidation, so we see over the past couple of years significant grater consolidation because they just can't develop that in house staff [ph], it is not part of their DNA and they look at us and they say well, you're growing incidentally faster than we are, number one. Number two, you have a key brand in each of the top-five growth segments. And number three, you seem to have better R&D capabilities than we do and you keep it hoping new stuff that judgmentally we think are really core and breakthrough. So, those -- see those things which is why there are also interested in us and why we are a good fit for them, but we -- that's maybe too much to said already but the reality is we are very focused on building a big company, taking advantage of this window of opportunity with consumers whether really trending towards healthy alternatives in making healthy choices. We have a good portfolio in the right track, it's not perfect, our systems aren't perfect, our execution capabilities aren't perfect, but there are good and becoming better and we're just executing working and building the business frankly to make it different for consumers and that is attractive I think for our investors as a standalone basis because we don't have limitations in terms of achieving our goals, but it's also attractive for some of the major traditional beverage leaders both on the alcoholic side and the non-alcoholic side. They are struggling and they are looking for renewed sources of growth to meet their shareholder expectation. So hopefully that was invasive and cryptic announcement. And with that, I think we'll close the call. I want to thank everybody for joining us today and as always we're here and we're proud to serve you as our shareholders. Thank you very much. Good bye.

[Operator:]

Well, this concludes the question-and-answer session and today's conference call. I would like to thank the management team for their time today and thank you all for participating in today's conference. At this time, you may disconnect your lines. Thank you, take care and have a great day.