Youngevity International, Inc.
Q3 2017 Earnings Call Transcript

Published: 14 Nov 2017

[Operator:]

Welcome to the Youngevity Shareholder Call. During this call, we will be making forward-looking statements regarding Youngevity's current expectations and projections about future events. Generally the forward-looking statements can be identified by terminology such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based on current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, including those set forth in Youngevity's filings with the SEC many of which are difficult to predict. No forward-looking statements can be guaranteed and actual results may differ materially from such statements. The information on this call is provided only as of the date of this call, and Youngevity undertakes no obligation to update any new forward-looking statements contained on this conference call on account of new information, future events, or otherwise, except as required by law. It is my privilege now to turn this call over to Youngevity's CEO, Mr. Steve Wallach.

[Steve Wallach:]

Thank you, Alex. Hello, I want to welcome everyone to the Youngevity International Shareholders call. Speakers on the call today are myself and our President and CFO of Youngevity, Dave Briskie; our Science and Athletic Advisory Board Chairperson, Sanjeev Javia. Today we will cover the following topics, we will highlight Q3 performance, we will provide an update on a new product strategy that ties into our expanding scientific advisory board. We will discuss growth drivers in our coffee operations and our international operations. I'd like to now bring our President and CFO Dave Briskie onto the call.

[Dave Briskie:]

Thank you, Steve. And I'd like to welcome all the shareholders to the call right off the rip, I want to bring up a couple of areas that we were - you know we've been working on for the last - really last several quarters and that is our international business and of course our coffee operations, we're proud to report that. International revenue in the direct selling division is up 36%. I'll get into some details on that. That's predominantly being led by our Asia expansion and our coffee division revenue was up 29.2%. That's primarily being driven by coffee - green coffee distribution, as well as the sales of our own brand Cafe LaRica both in food service and at retail. And so let’s get to the third quarter 2007 financial - 2017 financial results. For the three months ended September 30, 2017 our revenue increased just under 2% to $44,395,000 as compared to $43,562,000 for the three months period ended September 30 of 2016. During the three months ended September 30, 2017, we derived approximately 85% of our revenue from our direct sales channel with the balance of the revenue coming from our coffee segment which was 15% of revenue. Direct selling segment revenues decreased by $622,000 or 1.6% to $37,945,000 as compared to $38,576,000 for the three month period ended September 30 of last year. Commercial coffee segment revenues increased by a little over $1.4 million or 29.2% to $6,441,000 in the current quarter, as compared to $4,986,000 for the same period last year. This increase is primarily attributed to the increase in revenues from our green coffee distribution business and the growth in sales of our own Cafe LaRica brand both at retail and in food service accounts. For the three month period ended September 30, 2017, gross profit decreased approximately 2.3% to $25,764,000 million as compared to $26,368,000 million for the three month period ended September 30, 2016. Overall gross profit as a percentage of revenues decreased to 58%, compared to 60.5% in the same period last year. This percentage decrease in gross profit is predominantly because of the lower margin coffee division sales that accounted for a much greater percentage of overall revenue in this reporting period. For the three months ended September 30, 2017, our operating expenses increased approximately 6.9% to $27,581,000 million as compared to $25,792,000 million for the three month period ended last year. A breakdown of operating expenses is as follows, distributor compensation decreased 3.9% to $17,391,000 million from $18,101,000 million for the three month period ended September of last year. This decrease was primarily attributable to the decrease in direct selling revenues and lower commissions paid on discounted items related to a higher percentage of sales being achieved through our social selling platform. Sales and marketing expenses increased 28.1% to $4,074,000 million from $3,181,000 million for the three months ended September 30, 2016 primarily due to expenses related to the company's twentieth anniversary convention held in Dallas, Texas just this August in 2017 and increase in wages and related benefits. General and administrative expense also increased 35.6% to $6,116,000 million from $4,510,000 million for the three month period ended last year, last September, last year. Primarily this increase in costs was related to legal fees, computer and internet related costs, international expansion, investor relations, wages and related benefits, amortization and stock based compensation costs. For the three month period ended September 30, 2017, total other expenses increased by a modest amount of $36,000. For the three months period ended September 30, 2016 to company reported a net loss of $1,068,000 million as compared to a net income of $67,000 for the same reporting period. Adjusted EBITDA, which is EBITDA earnings before interest, income taxes, depreciation and amortization as adjusted to remove the effect of stock based compensation, the change in the fair value of the warrant derivative and extinguishment loss on debt or adjusted EBITDA, decreased to a negative 359 for the three month ended September 30, 2017 compared to $1,620,000 for the prior period. Couple of things I think is important to point out as they are material, is there was two line items in the expenses outlined above both in the SG&A area of the company and marketing expenses as well. We took in the Q3 a loan, we experienced a $900,000 expense of legal fees in Q3. For further detail on the legal costs you can read our Q3 financial report that will be filed at the end of day today and beyond most financial sites tomorrow. And we also experienced a $1.2 million cost for our annual 20th anniversary convention. Like I have said for further details I encourage you all to read the 10-Q and review our financial numbers which should be posted on all financial sites by tomorrow. You also can find it on the ygyi.com corporate site. We will also post it there. We bring up those two items because we believe that they will not be expenses that we will be experiencing in Q3 of next year. So by then we expect legal fees to be more of a onetime expense. And then when we look at the cost of our anniversary convention we look at that number at $1.2 million based on our budget for next year's convention that will be in the same month. We moved it here to San Diego. We believe that we can cut the cost of that event in half by moving it out here closer to our corporate headquarters. So we feel like we've got some opportunity there to limit those expenses going forward. I'd like to now turn the call back over to our CEO Steve Wallach.

[Steve Wallach:]

Thank you, Dave. You know, we brought social selling and what I'd like to do is talk about some of the initiatives that we've been really employing and deploying over the last couple of years, last few years. But I just want to give you some of some numbers that you know, I kind of pulled together I guess. With our hybrid mode, l we've been integrating social selling initiatives into our omni direct model for - I guess that for you know a few years now and really, especially over the last year. We've launched this style of selling which integrates social media, outreach as a way to expand commerce. We launched this early in the year and we are gaining traction. You know, we brought up social selling and as part of the financials as well. And so again, you can dig into those numbers a bit more in the filings. But it's been gaining traction with this technique of generating sales. In fact Q3 social selling generated over $1.1 million in revenue for the quarter logging by 15% increase over Q2 and Q4 we will be further leveraging social selling in the U.S., in Canada, Mexico and Australia and New Zealand. And speaking of the power of social selling, some of our social media stats, Youngevity spans across more than 20 countries on seven social media sites daily, everyday, Facebook, Twitter, Pinterest, Instagram, LinkedIn, Vimeo and YouTube being our biggest platforms. As a shareholder of YGYI your best bet for financial news is to follow our very own CFO and President Dave Briskie on LinkedIn is the first stop for any and all financial news that gets disseminated to the field and our shareholders. From there you will find - you also find hundreds of posts on Twitter by simply searching the hash tag Youngevity. As a personal fan and friend of Youngevity, you couldn't hope for a better platform of information than what Facebook has to offer. Our Youngevity fan page in the USA has nearly 58,000 organic likes created just in the past few years. Of that 55,700 plus people choose to follow us on a daily basis in their news feeds on Facebook, which is growing on a daily basis. Obviously our likes, shares and engagement average a few hundred to a few thousand per post and there are obviously several posts per day and throughout the week and depending on the content and time of day. Our greatest demographics which is kind of interesting are between 35 and 44 years old. Our biggest fans outside the US are in Turkey, Canada, Mexico, Brazil, Philippines, Australia, England, Thailand, in Argentina and again expanding across the globe on an ongoing basis. Obviously we're now hosting corporate calls on our fan page on the first business day each month using the technology of Zoom, which is fairly new, but it reaches so many more people around the world. It allows our partners to watch us via webinar on their computer, call in on an actual phone or they can just watch it and hear us live on Facebook. It is completely free around the world and possible for everyone to go back easily and catch the news at their personal convenience. On November 1st, we hosted our first Zoom call and had over 9300 people on the broadcast of which 1700 plus people left re-actions, comments and shares. In the first 24 hours following the broadcast we had an additional 3000 plus, almost 3500 people, unique viewers watch it in full, who missed the first airing. We're also evaluating with our SEC counsel the idea of conducting our future shareholder calls, leveraging the same platform. We believe this is a strong way to drive traffic to our social channels and also drive the potential for additional consumption of this content. So we'll keep you informed as to how that progresses. On our website youngevityusa.com, which I encourage everybody to go check out. Again, that’s youngevityusa.com. It's a brand new evolving not only website, but technology platform that we've talked about in the past on these calls, but it's updating frequently. And if you go to youngevityusa.com we have created a social hub where you can click on and see what is being shared around the world from all platforms in one setting. It's our way of connecting brand new people to others who share their passion for Youngevity. It also allows people to see who and what they are missing in their news feeds, so they can easily get caught up in just a few short minutes. With that kind of brief update, what I want to do now is bring Sanjeev Javia onto the call. Sanjeev sits on our Athletic and Scientific Advisory Boards both of them and we have a lot going on and so what I want to do now I guess is bring Sanjeev on to give us an update and overview. Sanjeev are you there?

[Sanjeev Javia:]

Well, thank you. Thank you, Steve. You know, it's been an incredible time for our verticals and nutrition and supplementation because there's just been a greater and greater acceptance of natural products and holistic philosophies and specifically dietary supplements and nutritional supplements to support all types of health conditions and performance. Obviously because of that the credibility of Youngevity in our products has made it a very exciting time due to the fact that while we have been working hard in our research and development - departments and innovating with different types of ingredients and standardizing ingredients, we've also been adding a very high level credibility and expert professionals to support these products. Just recently we added two very highly esteemed individuals to our Scientific and Athletic Advisory Boards, our first one Dr. Dwight Lundell. His career spans over 25 years as a cardiovascular surgeon. He's a pioneer in many different types of heart surgeries and treatments off the pump, heart surgeries. And he's a published author of The Cure for Heart Disease and The Great Cholesterol Lie which is too widely read publications in this area and along with his medical accomplishments he's also a 10 time Iron Man and he was a perfect contributor and person to extend our strategy of bringing together expert individuals and products. Our newly unveiled product Cardio Beat [ph] which is a product that has focused on – is a product that focuses on cardiovascular health and vascular health and performance. Dr. Lundell champions that product. And then second we added an individual Dr. Glen Winkel. Dr Glenn Winkel is a medical scientist from the University of California School of Medicine. He's a Ph.D. specialist in immune health and various other types of disease management state and he is also accomplished athlete as a seven time world champion cyclist and 25 time national champion. One of the relationships that Youngevity has legacy for life is a particular ingredient i26, a hyper immune egg derivative that we will be using to develop a formula around with Dr. Glen Winkel. And as Dr. Lundell and Dr. Glen Winkel began to educate on this targeted nutrition philosophy, having the credibility elements that allow individuals to have a greater comfort in the products that they are taking will actually to be extending this into quarter one where we'll be introducing two more individuals in the areas of sports medicine and then also anti-aging, anti-oxidant and health. So Steve that makes it a very exciting time to develop products with Youngevity and then to be able to have individuals who will truly champion these products that are expert in their field.

[Steve Wallach:]

Absolutely. Thank you for that update Sanjeev, I appreciate all your hard work and certainly excited about having these additional scientific advisors and experts on the Youngevity team. So what I want to do now speaking of science is kind of give everybody an update on a patent we filed - patent application we filed actually back in January of 2014. So it's been a few years and these things take some time obviously. But I'd like to - and I'd like to report, I'm proud to report that Youngevity has achieved a patented process and product or ingredient and you can read all about the patent, I'm going to give you the patent number right now. And this is a fully issued patent. So the number is 9,759,672. And I'm going to do is read just a little bit from the patent and then you can look up the patent, you can read all throughout, its very lengthy documents and I can read the whole thing, but just a paragraph from the field of invention. The present invention relates generally to a composition containing minerals from aloe rind, and more particularly to compositions containing minerals derived from aloe rind by ashing or fermentation, and methods of preparing and using the compositions and just a paragraph from the background of the patent Aloe is a genus containing about 500 species of flowering succulent plants. The most common and well known being Aloe Vera, or True aloe. The genus is native to Africa and is common in the Cape Province, the mountains of tropical Africa, the islands of Africa including Madagascar, and the Arabian Peninsula. It's called or known as Plant of Immortality. which I think is pretty interesting considering what we're talking about here and again this document is very lengthy, goes into all sorts of aspects of the patent application which is now a patent, but also the 12 claims component - compose I guess within the patent. And so it also talks about the possible and potential types of products covered by the patent and the ingredient used in those types of products, such as skin care, skin preparations, supplements, mineral supplements, topical products, hair care, skin care used for, like I said topical, as well as oral preparations. And so anything you can think of that Youngevity has in terms of plant derived minerals. This product can certainly be positioned with in the patent therefore apply to. And so any time you have a patented product or ingredient and it belongs to Youngevity, my father is the inventor of the novel, science behind it and the novel ingredient and he assigned that goes right to Youngevity during the patent application process. So it belongs 100% to Youngevity. And so this technology is something that my father has talked about and lectured about and researched for quite a while. All sorts of interesting aspects can come out of that, one being that aloe is commonly grown in the United States. It is often grown as a certified organic plant and the fact that it's a contemporary living plant, that product - the derivative of it can be imported all throughout the world. And people are certainly knowledgeable about aloe, aloe has a huge following. And again the fact that it's known as the plant of immortality or the longevity plant, ties perfectly with what we're talking about. We're also contemplating the ideas of using our current plant derived minerals in association with this sometime in the future. And so we're quite excited to again report to you that Youngevity now owns a patent around plant derived minerals. It took quite a while to obtain it, but now is owned by Youngevity, lock, stock and barrel. So all sorts of ways we can use that patent in that ingredient. We're definitely excited about turning that into a viable product and production process and exporting it throughout the world to all these international markets, as well the U.S. of course. Speaking of international markets, what I'd like to do now is kind of shift gears a little bit and talk about our international markets, as well as our services division and our coffee growth. I'm going to bring Dave back onto the call to go over that. But you know, we're pleased to report some bullish signs coming from our international offices and Dave alluded to this and talked about it somewhat in the first part of this call, that growth in our international is up 36% from Q3 2016 to Q3 to 2017 which is a great start. We also experienced just under 30% growth over the same period within our coffee division. You know, both our coffee division and our international offices and international markets have certainly received a very significant investment over the last couple of years. And we talked about that on these calls over the past couple of years. But you know, when you consider these are huge growth opportunities and the international markets on the direct selling side absolutely represent tremendous growth opportunities. The same with the coffee division, we’re excited to see this growth and these early signs of growth as we've talked about. So with that, I am going to bring Dave back on the call to take a deeper dive.

[Dave Briskie:]

Thank you, Steve. And I'm very, very excited about the patents and the ability to gain patent protection across the multitude of product categories. It really puts Youngevity in a position to segregate itself and not have to worry about competition in certain areas, with this - the incredible work you put in obtaining this patent, so you know congratulations to you and all the shareholders. You know, taking a deep dive if we can, a little bit deeper dive than we have in the past. We have a number now of international offices opened. Steve alluded to the investment that we've spent over the last really three years and it just seems to accelerate and we had a strategy way back when and we talked about tackling different regions of the world. And so we are now active in these regions in Australia, New Zealand we comp that as a region. Canada its own separate region, Asia which has some 8 different markets within itself, but we quantify Asia. Of course, Latin America which right now encompasses Mexico and we'll be announcing very, very shortly the addition of Colombia as a new office, we're very, very far down the road with Colombia. So that will be added to Latin America. Of course, Eastern Europe and then we have one small market in the Caribbean. So total international revenue for the reporting period is just under $5.4 million. That's significant revenue now starting to be meaningful for our international operations. You know, the growth is starting to ramp up and it's nice to see growth going Q-to-Q. Let me give you example, Q1 revenue from this year 2017 to last year we grew about 12.4% in our international footprint in terms of revenue. Q2 the very next quarter our revenue from Q2 this year to Q2 last year grew 23.3% almost 23.4% and this quarter our revenue was up and we touched upon it 36% just under 36%. So not only is the international revenue growth growing from Q-to-Q., its growing each quarter as we move away from each quarter. So 36% growth is a very, very nice number. To see the number go from 12% in Q1 percent to 23% to 35% shows that our revenue growth is accelerating as we move forward, which means our strategy is working. We almost achieved 15% of revenue coming from the global marketplace versus the U.S. in this reporting quarter. Those of you that looked at e Youngevity at year end numbers last year we were around 9%. And I've been in a number of analyst meetings, a number of meetings with investment banker’s, high net worth individuals, and one of the things we talk about in those conferences is they wanted to keep a close eye on as Youngevity’s global strategy working, is that significant investment they've been making is it starting to accelerate. We talk about the scaled up direct selling companies that are companies north of let's say $500 million, that 50% to 70% of their revenue comes outside of US and that this revenue market here is one of the you know, more challenging markets to grow revenue. And now we've got a very, very nice footprint in this particular marketplace. You know, our USA growth was down 5% and our international growth was up 36% and we kind of touched on the legal costs earlier in the call, and legal expenses of $900,000 for the quarter. So some of you know, the explanation on those expenses and the effect it had on the business can be further read in the 10-Q, so for those that want to go back and look at the impact that we've experienced in the USA or the negative impact related to that situation. So let's talk about some of these markets. Asia really is the shining star for us in terms of growth. It's now 4- it represents 4% of that 14.62% international growth. I have to predict that in the coming year that Asia will become the number one market. We're alive and well in a number of areas. Canada is still number one, but Asia has really shown significant growth. For example Asia in Q1 only represented a few hundred thousand dollars in sales and by Q3 it was over $1.5 million and accelerated. So we are expecting good things to come from Asia. So our top three international markets are Canada, Asia and of course, Latin America. Latin America being Mexico. And we talked about opening up Columbia. We've done all of the product development. We've registered our products. We've picked our office. We signed the lease and we will be opening Columbia here in December. So that's an excitement to add another market to Latin America. Our strategy on international growth and acquisition strategy now is really going to focus on building out these models. We feel like we have enough offices that we – our acquisition strategy can dovetail into creating a accretive opportunities where we can add additional revenue onto this large infrastructure that we've put in place and achieve growth and sales revenue growth without having to add additional expenses. So we're very, very excited to be in that position to now take our very successful acquisition strategy and take that show on the road and be able to add more and more opportunities for revenue on a very, very solid portfolio of infrastructure. So we're excited about that. In the coffee business, coffee has had a really, really strong quarter. It happened to be a record for our coffee division, up 29.2% in revenue. The real growth came in two predominant areas. We talked about the potential for green coffee distribution and our green coffee distribution business for that quarter was up 37%. So that's a very, very nice number. And the sales of our Cafe LaRica brand, we talked about our deal earlier in the year. In April in fact, we signed a deal with the Florida Marlins Major League Baseball's professional team and what that could be, now that our Cafe LaRica brand would be the official Cafecito of the Marlins and it has really probably exceeded our expectation. Cafe LaRica in terms of revenue was up 67% in Q3 versus Q3 of last year and that is in our food service division, which sells Cafe LaRica as a brand and of course, our Cafe LaRica espresso brick which is sold now in a number of retailers. In fact, the Cafe LaRica retail brick on store shelves went from just 145,000 units being sold last year in Q3 to this year - this quarter 280,000 units were sold at retail for the quarter, representing a 93% increase in brick pack sales. That is a very, very nice number to see and we're carrying this momentum as we move into 2018 and obviously our deal with the Florida Marlins continues now only through 2018 but all the way through 2019. And even in Q3 we added 64 new store sets of the CLR Cafe LaRica bricks that were compassing that Bravo stores, Tropical [ph] and Price Choice. So continued growth there is the story on our Cafe LaRica brand and we really have a strong feeling that our own brand and growing value there is very, very good for shareholder and shareholder value. Brick pack sales, our own bricks. Its our brand and I will tell you in this country it is very, very difficult to create that kind of IP in your own brand at retail. And we're having some very, very nice success with our Cafe LaRica brand. A couple of things that happened since the end of the quarter that's very, very exciting and will certainly be reflected in future numbers. We landed a nice contract with a company called Save Mart out in California. We talked about the excitement of Daymon Worldwide as a rep organization representing CLR roasters and their first piece of business that they brought in is with Save Mart, a relationship that we did not have. We entered into a contract with them which will start shipping in 2018. That's a two year contract worth $1.8 million a year. It encompasses single serve copies or take-ups, retail bags, ground and whole bean and we actually have their entire bulk whole bean coffee copy program as well. So a $3.6 million contract from Save Mart. We also entered into a contract with FCStone. FCStone is a Fortune 500 company. They provide funding for the commodities business and we now have a $3 million facility with FCStone just to grow the spot market of green coffee and we've brought in already our first 30 container loads are 1.2 million pounds in Miami to sell on the spot market and we're going to be leveraging our organic coffee’s, fair trade coffee’s, bird friendly coffee’s and our rainforest alliance coffees by bringing those coffee’s into an exchange traded warehouse essentially in partnership with FCStone, we’ll market those coffees to the specialty coffee market and at the end of each buying period we then move those coffee’s to the exchange, recycle our cash and do it again and again and again. We believe we can turn that four times a year. We also achieved an approval for additional funding, an a line [ph] increase with our lender at the coffee operations Crestmark. Our line has now been increased by another $1.5 million to help finance the growth, not only from Save Mark, but the upcoming growth coming from Publix. We've been granted another 218 stores starting in Q4 that were resetting the Publix supermarkets down in Florida. And we just received a three year extension with Signature HealthCARE contract, which is our - those wellness centers that we've had for many, many years. That contract has been extended to 2020. So things are alive and well up the coffee business. Daymon Worldwide is just getting started with us and we're very, very bullish on other opportunities that they brought to us, that we're in bid process with them. We're hopeful that Save Mark is just the tip of the iceberg in terms of business revenue through the Daymon Worldwide relationship. I just want to touch just briefly on our service business. We talked about launching Youngevity services. Well, the Youngevityservices.com portal is up and running. I encourage you to check it out. Youngevityservices.com and you can see all the services that we now have offering Youngevity both for consumers and also for businesses B2B service. Our service revenue up over Q2 to Q3 is up 3.4%. But keep in mind, we just launched that portal the very end of August. We really only had the portal in play the last month of Q3. What's encouraging is the Q [ph] service representative growth, in other words new people marketing our services is up 73% over the last quarter, in fact, we have 2300 new service representatives added to this division compared to 1300 new service represented in the previous quarter So that is pretty strong participation and it gives you an idea how strong this portal is now that we have 2300 new marketers of our services and we're very excited about that. We always felt like the service sector we could be very strong there and this portal as we're feeling is the key kind of onto unleashing that revenue. The thing that's great about the services business is one of the reasons why Steve Wallach was so keen on us really ramping up this end of the business because the retention is so strong. Services are subscription based businesses and it's very sticky, revenue seems to stick around for months and months and months if not years and years and years. The driver in our services sector right now is predominantly the business to business end of the business. We're leveraging off our David Allen Capital business that we acquired, which is the small business lending arm of Youngevity and now we've added business telecom, Internet and cloud service, as a service we're marketing and the DAC representatives have really jumped into this other B2B peace and we're seeing very, very strong uptick there. We also offered a number of new consumer services. We now market ID Theft Protection and Credit Marketing, Travel and Entertainment service, Virtual Tech Support services similar to like a Geeksquad, as well as a roadside assistance service similar to like a AAA and that's a beautiful set of services to market to our growing distributor base and customer base. Within Youngevity, we have a new tele care branded prescription discount card, as well as tele care a virtual doctor visits. So we anticipate continued growth from these services. We're seeing some uptick. We're seeing new marketers within the services and so it's an exciting time to keep your eye on the service businesses and we expect that to be a revenue driver as we move into 2018. With that Steve, I'll turn it back over to you to close up this call.

[Steve Wallach:]

Thank you, Dave. Again thank you everybody for being on the call today. We look forward to everybody being on the next call coming up early next year. And everybody have a great afternoon and a great week.

[Dave Briskie:]

Thank you. [No Q&A session for this event]