Youngevity International, Inc.
Q1 2016 Earnings Call Transcript

Published: 13 May 2016

[Operator:]

Welcome to the Youngevity International First Quarter Shareholder Call. I’m now going to read the Safe Harbor statement. 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 upon 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 forward-looking statements contained on this conference call on account of new information, future events, or otherwise, except as required by law. And I’m now like to turn the call over to our CEO Steve Wallach.

[Steve Wallach:]

Hello. I want to welcome everyone to the Youngevity International shareholders call. Speakers on the call today are myself, our President and CFO of Youngevity, Dave Briskie; the President of our Coffee Operations, Ernesto Aguila; our Director of IT and Global Technology Solutions Architect, Scott McElroy. We will cover the following topics. We will highlight Q1 performance. We will provide a look into our April Leadership Summit. We will discuss our new product launches released during the Leadership Summit. We will provide an update on our technology initiatives. We will discuss our Coffee Operations and we will talk about the forward guidance and uplifting process. What I’d like to do now is bring our CFP and Presidentm Dave Briskie on to the call.

[Dave Briskie:]

Thank you, Steve. And hello all of our shareholders and distributors and customers that have joined us today. Thank you for being on the call. We’re pretty pleased with Q1’s performanceparticularly in the areas of profitability improvement, especially in EBITDA, which we all know is an area that we focus on greatly and when we think gives the best view of our financial performance. So let’s get to the numbers. Revenue increased 3.8% to $38.2 million for the three months ended March 31, 2016, and this is in comparison to $36.8 million for the three months ended March 31 of 2015. During the three months ended March 31, 2016, we derived approximately 91% of our revenue from our Direct Selling segment and approximately 9% of our revenue came from the Commercial Coffee segment. Direct sales revenues increased 10%, and this was primarily attributed to the increase in our product offerings, the increase in the number of distributors selling our products, and an increase the number of customers consuming our products, which otherwise would be known as organic growth. 55% of the direct selling division growth was organic, while the other 45% is attributable to our acquisition strategy and that number represented just under $1.4 million of the company’s growth for the quarter. The Commercial Coffee segment revenue decreased primarily due to a decrease in green coffee sales to a major and to a major customer. And this was mostly related to timing differences as last year’s contracts with this customer were front-end loaded and the same contract with customers now are back in loaded. So we expect to see a leveling out of the revenue from the Coffee division, as we move through 2016. Revenues also were negatively impacted by the lower commodity price for green coffee. The overall cost of revenues decreased approximately 10.2% to $14.8 million for the three months ended March 31, 2016, as compared to 16,525,000 for the three months ended March 31, 2015. The decrease in cost of revenues primarily attributable to the decrease in the cost of revenue on the Commercial Coffee segment, which had a decrease in revenue cost of 37.2%. And this was offset by an increase in the Direct Selling segment of 3.8% as a result. Gross profit increased approximately 15.2% for the period to 23,363,000, while 28 – $20,282,000 for the three months period March 31 of 2015. Gross profit in the Direct Selling segment increased by 13.3% and gross profits improved in the coffee division by 71% versus the prior year quarter. Gross profit as a percentage of revenues increased 61.2% compared to 55.1% in the prior year. The company’s operating expenses increased approximately 11.5% to $22.2 million for the Q1 March 31, 2016 period, as compared to $19.9 million for the three months ended period of 2015. Including in the operating expense is distributor compensation paid to our independent distributors in the Direct Selling segment. For the three months ended March 31, 2016, distributor compensation increased 13% to $15,974,000 from 14,138,000 for the three months ended March 31, 2015, we’re pretty sure that our distributors are pretty happy about that number and since this is a pay-for-performance type of activity we’re pleased to see it increasing as well. It simply means that our revenue is on the rise. This increase is primarily attributable, as I just stated to a revenue increase. Distributor compensation as a percentage of direct selling revenues also increased up to 45.9% now compared to 44.7% a year ago. And this was primarily due to newly added incentive programs and higher level achievements by our distributor force. Sales and marketing expenses decreased 15.1% to 1.8 million for this quarter, while last quarter was $2.1 million. The the large difference for that is a switch and the timing of our Annual Leadership Summit that last year took place in March and this year took place in April and we’re going to hear more about that summit from our CEO, Steve Wallach, who is going to provide a review of what we did at the summit and how that went. General and administrative expenses increased 21% to $4,425,000 from $3,649,000 for the three-month period ended March 31, 2015. And this was primarily due to increase in consulting costs related to international expansion, travel expenses, website costs, website maintenance, insurance costs, bank fees, and increase of employee compensation costs, charitable contributions, primarily to the Be the Change Foundation and accounting fees offset by a decrease in contingent acquisition liability reevaluation of $391,000 in Q1 of this year. Increase in the Commercial Coffee segment was primarily due to rent expense and employee wages up a bit. Operating income increased approximately 211% to $1,163,000 for the three months ended March 31, 2016. This is compared to $374,000 in the period a year ago. The primary reason for this increase in revenues and gross margins and the lower sales and marketing costs, we had marked improvements in operating and income and both Direct Selling and the Coffee Segment. Operating income as a percentage of revenues increased to 3% compared to 1% for the three-month period ended last year. EBITDA, earnings before interest, taxes, depreciation and amortization has adjusted to remove the effect of stock-based compensation or non-cash laws on extinguishment of debt and the change of fair value of warrant derivative, which is a mouthful is adjusted EBITDA increased 72.8% to $2,236,000 for the three-month period ended March 31, of this year. And that compares the 1,294,000 for the same period last year. So almost $1 million increase for the quarter in EBITDA. Our cash and cash equivalents for March 31 were $2.7 million compared to $3.8 million of the year ago period. In the same period. In the same period, our investment in inventory grew to just under $20 million from $18 million, and this was done in anticipation of the growth in both divisions of the company, so we made a more significant investment in our inventory. $total assets as of this year Q1 ending were $64.9 million compared to $61.3 million a year ago. We’re also pleased to announce that two of our acquisitions, True 2 Life and Heritage Makers were paid off in the first quarter. The acquisition liability has now been extinguished and approximately took place three years ahead of the forecasted date at the time of the acquisitions. This is a credit to our acquisition structure and the leadership spearheading these acquired entities. This will increase Youngevity’s monthly cash flow by approximately $125,000 each month beginning in April, which will improve the company’s working capital. As always I encourage all of our shareholders to review our financial numbers, which will be posted on virtually all financial sites tomorrow morning as well as on YGYI.com’s corporate site. I would now like to turn the call back over to our CEO, Steve Wallach to provide an update on our Leadership Summit with a specific focus on new product launches that took place that Summit. And Steve before you take over the call, as you know, I grab some numbers following our leadership summer to measure the sales performance of our distributor force for the 11 day period following the Summit. We call that an impact point you’re a Youngevity that 11 day period after we do a major event, what happens to the field. And I ran sales from the April 18 that was the first Monday following the Summit through the 28th of the month and for that 11 date period. We delivered just over $4.6 million or $422,000 a day in revenue. I look back five years measuring the 18 of the month through the 28th of every single month and a five-year look back and this was the highest revenue production in the history of Youngevity for that period of time, including months we had major promotions. We also measured this against our previous Summit with just was held last September in Charlotte and for that 11 day period following Summit, the sales were $3.6 million or $327,000. So clearly our recent Leadership Summit and it message had an Impact. Steve could you tell us why you think the Summit has generated so much measurable activity.

[Steve Wallach:]

Sure, absolutely. Thanks Dave. Let’s definitely be – I kind of dig into that. The Leadership Summit just held last month was – as you said the most successful event in Youngevity history ever and so obviously we’re all excited about that. We unveiled our messaging to 1,000 distributors. The theme of the event was be the change and we will be in the – to the tagline that the Youngevity is different, but in a really good way and it is. We provided a sneak peek into our technology initiative. We’re going to hear from Scott McElroy in a minute on that further. But we unveiled that and showed it to the distributors and while in attendance as well as people after the Summit as you mentioned as well. That included a completely reimagine youngevity.com for instance website and we’re excited to show that to the rest of the world one is complete as well. Complete new branding, we also provided sneak peek into our new digital photo booking platform that our technology design team has been diligently and bitterly working away, I had with the guidance of our distributor field leaders hat are very passionate about our digital scrapbooking and in memory booking initiatives for instance. We are excited to start beta testing that as well and I think we’re going to hear a little bit as to what goes into from Scoot in a few minutes as well. We had several celebrities speak at this particular event, providing motivation and personal development. The speakers included Marilu Henner, who we’ve heard from before, but we’re going to hear more in an expanded relationship with Marilu on this call in a few minutes as well. We had her Andrew Pearson at this event and we unveiled an expanded partnership with Drew that includes speaking on the radio, five days a week and Youngevity is prominently featured on that and obviously we all know that Drew is the Dallas Cowboy Grayson and I’m seeing hearing about him, all over the place that more now than ever before and in my involvement with the Drew. We had Stedman Graham, speak at this event as well, and Stedman is always great at our event. This is I think the second and third time he spoken for us at our events and obviously he is incredibly well known worldwide and provides great motivation and leadership, but everybody that attended as well. You would brought up some quick packs and went to some details and hear some more. So some quick packs regarding this particular event, we had shipped 27 pallets, not only good and merchandise, but also equipment and so forth to this event to really supported very, very well from Chula Vista to Anaheim, thousands of items were sold in the store, many of which were brand-new. Over 200 translation headset were utilized during the event at the same time to allow for translation of the speakers to the audience we had an incredible amount of photographs that were taken during this event you can actually see those if you go to photos.youngevity.com and Peru through just an amazing array of photographs of this event. But since the event, there have been 372,000 – more than 372,000 actually views of those photos and so it’s an incredible resource that people are clearly utilizing and a really getting to see not only they wants the event what the miss but among the people that attended there also going through that and sharing those with family and friends and business partners and contacting and so forth. There were about 42 different speakers that were on the main stage, not all the same, obviously but through out the event. We had 20 different breakouts sessions were held over a three-day period of time. We’d assist and put into together more than 44 slide presentations for the main stage speakers. We had 37 video segments that were created for the Summit event, specifically branded Youngevity. We’ve had more than 36,000 video views on our YouTube and video channel since the event, and there was even one marriage proposal on the main stage at this particular event. I think that the first for us. We provided a comprehensive international update given by Ben Ho, our VP of Asia who unveiled our two and five year international growth strategy plan that included our entry down the road into China among other Asian countries as well. We unveiled the following new products, as David mentioned that there was an emphasis on new products. We expanded our Pro or professional line of supplements. We added an Eye Support and Vision Support product called Acu-Tip [ph] and a lot of buzz around that, fantastic product and I guess the latest addition to our Pro line. but we also introduced an Synaptic to the world, really and this is a brain support product part of our Pro line supplement line as well but that we provided or introduced that with a twist and that is that Marilu Henner is endorsing this product and everybody I think those Marilu Henner is one of 12 people in the world that is known that particular brain attribute which is that she can recall. Things that happened on a particular date, anytime in her and during her life, if you would give her a particular date in history, she would recount not only what happened in her day, but the world history that she is aware of and again one of 12 people. So she went through not only the product, this product, but the manufacturing and ingredients to ensure she could attribute her name to it to support brain health, which is a huge category of supplementation in today’s world. We also introduced the ketogenic and shake – and weight management bar, so we now have a one-two combination of ketogenic shake and a weight management bar, these are an amazing tasting product. And we sampled these at the event, everybody loved on their and amazing salt and caramel flavor or caramel salted flavor that is – each of these are high in protein, very high quality protein blend but also at the bar is rich with beneficial fats to aid in weight management and weight loss. So we’re excited to get these in and there in production and manufacturing right now, but again everybody sampled them at this event and love them. We were able to actually finally introduce our healthy peanut butter cups, which we told the world were coming, now they’re available and we introduce them at this event and so again before anticipating needs and absolutely I love them in their in the warehouse and shipping now. The latest addition to our healthy chocolate line of our products, but as a further expansion of our healthy chocolate line, we’re in the process of R&D right now of chocolate covered espresso beans and we’re using the world’s finest chocolate covered espresso beans are grown right on our own plantation, plantations in the Nicaragua. So excited to see this through, but I can tell you they are amazing and so we are very about the project as well. We as part of the Summit, we launched another business segment, which was our services segment and I believe on the previous call, you heard from David Rutz, heading the Southeast Asia spoke at our event as one of the people on the main stage one of the main speakers, and the latest services products were introduced to everyone including David Allen Capital, then small business lending division at distributors can participate in. There has been a lot of activity and excitement around that, but also the Youngevity TeleCare product, and again, people are very excited about that. And so, it was a action pack, busy, busy, Summit, as Dave said our most successful event to-date. And that, of course, leads us to the upcoming Convention in Salt Lake City in September, which we announced also at this event and wrapped it up without announcement. So we’re seeing a lot of great activity around that as well. What I’d like to do now though is, bring Scott McElroy on to the call and kind of talk a little bit about, not only his experience in history, but maybe weave that into what was unveiled at this Summit in terms of the technology initiatives and things like website that I mentioned the youngevity.com website update and snap to finish and so forth. So, Scott, are you there?

[Scott McElroy:]

I’m, thank you, Steve. I’m very excited to work with Brad and Youngevity’s executive leadership team in driving our 2016 IT initiatives through development and toward a successful launch. Although I joined Youngevity just six months ago, I’m confident that the investment is being made in our new technology platforms, governance processes, and applications, will be incredibly beneficial to the organization, its distributors, and customers in both the very near future and for years to come. Basing this on my 30-plus year career in education, which has been specific to business information, technology and infrastructure. Previously, I’ve been responsible for leading large-scale, multi-team and multimillion dollar application development projects for the likes of Intel Corporation, Cisco Systems, and most recently First American Financial, which is based out of Santa Ana, California, having have the benefit of implementing enterprise class business and technology program governance processes, project management toolset, and scalable application architecture, supported by outstanding analytics toolsets, security architectures, cloud infrastructure, and operational support systems. I’m now very excited to be able to play an instrumental role in bringing these same capabilities to Youngevity. Over the next few months, the infrastructure that supports our legacy system is migrating to the cloud. Our initial testing is revealed that this will deliver a more responsive and reliable experience for the users of our systems. Going forward, all new applications will be deployed to the same robust cloud architecture. We believe that in addition to enabling Youngevity to deliver better systems that we will be able to deliver platform-as-a-service capabilities to develop fully tested feature sets in compressed timeframes. Now, our Athena project will be the first benefactor of this new Arctic infrastructure architecture, Athena is our data factoring and warehousing project, which will aggregate data from five different operational systems. This cloud-hosted environment will enable our analytics team to drive future business and technology initiatives based on fact. Also benefiting is our Millennium project. Millennium is the application and infrastructure architecture supporting all future publicly facing websites for Youngevity and its brands. These include all legacy sites as well as a re-imagined youngevity.com the new snaptofinish.com and Our Memories For Life and OMFL, several of which were demonstrated at the most recent conference. Millennium incorporate aspects of a product information management system, a digital asset management system, and a geo-distributed replicating e-commerce system, all powered by our adaptable cloud infrastructure. The Millennium project is currently supported by three teams with a total of 25 business analyst, designers, developers, quality assurance resources, and project managers. Our project governance processes have been tuned to optimize both team productivity and velocity. We believe that the output of the Millennium project will add great capabilities and power our core business operations as well as our distributors and our customers. In summary Youngevity’s IT is presently very busy yet poised for success. At this point I’d like to go ahead and pass the call back to Steve.

[Steve Wallach:]

Thank you, Scott. I appreciate that. I appreciate all you and the team is doing and accomplishing. What I’d like to do now is bring Ernesto Aguila on to the call and to give us an update on the copy operations and we’re just talking about those amazing Espresso beans as part of the chocolate covered coffee beans, but as part of our healthy chocolate line. And so I’m anxious to hear what you have to bring to the table on this call today Ernesto, I know you and your team have been busily working away, lots going on down there is, we’re briefly talking about for this call. So Ernesto are you there?

[Ernesto Aguila:]

Yes, I’m Steve, thank you very much, and yes, we do have a lot going on. First of all, let me know that – and everybody know that, I’m very excited to be back on the call with you guys. Okay, let’s get right into what is happening at CLR Roasters. Let’s start off in Nicaragua. We just recertified our plantations. They are fair trade, organic, and Bird friendly, and we just added this year Rainforest Alliance and also UTC certifications for 2016. This puts us in a very rare position compared to other plantations in Central and Latin America. The work at the living complex at our plantations the new storage and office buildings are completed. We are planning to do a reevaluation of the plantations dry mills and we anticipate a huge property increases with all the work that has been done there for the past two years. Guys we are building the most modern plantation in Central and Latin America that is exciting news, and we are very happy to be a part of that. Thanks everybody from Youngevity and Steve and Dave. The next point I want to drive home and I want to drive it home very hard. So we can see a lot of business related to only the first quarter. We have contracts particularly for Green Coffee that are back loaded compared to last year’s. We anticipate a record year for CLR for 2016. On our Green Coffee business, we have over £19 million that we have on the contract to deliver for this year. And with our new Rainforest certifications, there’s a new contract pending samples for another $700,000, this business model will deliver huge revenue and healthy margins for 2016. Keep in mind that some of the customers like Dunkin’ Donuts, McDonald, 7-Eleven are consuming our coffees was a major, major accounts. Let’s talk a little bit about our branded business. We now have 15 – we have 15 states that have distribution our Josie’s Java House brands, Jacob’s, Frac Packs, Whole Beans, we’re working to meet with another master distributor that handles 12 states, they have to really sample our products, they love our marketing plan, they love the plan of business that we’re heading, and they are anxiously looking to grow the business with us. They handle 12 states in the central part of the United States, that would give us 27 states of distribution for Josie’s Java House brands. This brand provides great margins, company brand assets, long-term stability for the company. Another note, I’m waiting on a 2 million K-Cup Josie’s Java House bid for the state of Florida that I feel very strongly that we’re going to land in the next couple weeks. Our retail part of the business, I’m very excited about this. We just gotten approval for shippers for Café La Rica Bricks and three Josie’s Java House for 286 public stores in the State of Florida. Katie will be doing the distribution for us. Let me give you a little more details. Our Cafe LaRica bricks were on the shelves. The shipper allows us to put product in the aisles, in the main area of stores to grow our business. Keep this in mind also too, all the items all the K-Cup items of public they do a minimal of $2 million in annual revenues. And we have three right now have been authorized, great opportunity for us there. Target is also reviewing all of our regional products and will advise over the next couple of weeks. I’m working on securing meetings with Big Lots, TJ Maxx, for Josie’s Java House, K-Cup business for the end of this month. Big Lots alone delivers over $25 million of K-Cup business. So there will be a huge opportunity for us as well. On our food service part of the business, this is a new business that we launched little bit nine, 10 months ago. We have added a chain to have 18 locations. We have been test marketing one of the locations for the past six to eight weeks. And now we have been given the green light to rollup all of their locations. With this new account we will be generating over $1 dollars in revenue in this new division. All sales in this division are from Cafe LaRica’s own brand that yields great margins over 50%. Also we have seven, excuse me – 6, 7/11 that we have been test marketing and their corporate office are very, very happy with the results. And now they’re interested in possibly expanding into 90 locations. So this will give us a total of 96 7/11 in the South Florida market, great opportunity there for us. Our private-label part of the business, we have started to work on four K-Cup’s or brands Robert Rothschild and four K-Cup’s for Sarabeth that will be rolling out in the next six to eight weeks. This new K-Cup brands it generates huge sales for us. These two brands are nationally recognized, especially in discount outlets like the Big Lots, Ross, Tuesday Morning, TJ Maxx just name a couple. A couple other pending parts of the business and I want to fill you in we’re on the verge of expanding on our contract with finish your healthcare for another two years, they have been a customer of ours in the past seven. The other big news is I’m working on a huge cruise line business opportunity one of the largest in the world. They have met with me, the executives have met with us at CLR, the decision-makers had met with us at CLR and they’re very excited. They have recently given us a blend that they use on one of those ships for us to match. Dave will share last week, myself and Dave practitioner and we worked on matching the blend and we think that we’ve hit it right on the nail. We’re going to get a great opportunity to land his business. I will give you more details on our next call. So I have covered a lot of things from a CLR team. I’d like to thank Steve, Dave all of our shareholders for allowing me to be on the call. Dave, back to you buddy.

[Dave Briskie:]

Thank you, Ernesto. I appreciate the update, thanks for being on the call. I know you’re super busy down there in Miami and I appreciate all the frequent trips to Nicaragua as well. I’m going to cover a couple of points here. One is the up listing process, Steve Wallach, our CEO. Steve alluded to the fact that this is something we were going to move. I received a lot of feedback from shareholders about the up listing some were very excited, some were had a lot of questions about this process and how it worked. We’re very, very serious about this, but the thing you need to know most is that we are not going to simply reverse our stock or to achieve an up listing. This will be a comprehensive capitalization of the business it’s going at Youngevity for its future growth and put its financing structure in place to not only grow over the next two or three years, but to put us in a position to grow over the next 10 to 20 years. We’re – I’m going to personally be meeting with several investment bankers here in the middle of June say full slate of meetings it’s exciting to see midsize investment bankers intrigued by what Youngevity is doing really buying into our trailblazing business model. They love for what we’re doing in the coffee business and the coffee story that we have and the ability to expand that coffee story into a retail segment potentially. So all of this discussion is taking place with our investment bankers, when we ultimately select our investment banker and make our move to a higher exchange or to either the New York or the NASDAQ. Everyone knows that I have a personal affinity to the New York Stock Exchange, but apparently that has created some buzz with NASDAQ and try to win our business, so you know what we’re open to listen they’re both very reputable exchanges and will evaluate who will give us the best opportunity and provide the best return for our shareholders and which investment banker is going to do a job for us. It definitely will include a capital raise we talked about this from the beginning that we would not just do it up listing for up listing sake that we would do up with the right partners, the right investment bankers perhaps a cataclysmic event or two may take place at the same time and we’re going to put all of this in motion with our investment banker who will then become our finance partner as we move forward into 2016. So this process starts the middle of June. It will be a lot of meetings, a lot of roadshow work, a lot of rolling up the sleeves to make sure that we put a structure together that makes and guarantees Youngevity’s success in terms of financial capabilities over a long period of time. We have a very, very ambitious plan between the IT initiatives, between what’s going on in coffee between the vertical integration, between the potential for retail, between incredible growth being achieved at Youngevity between the thousands of products, between all of the acquisitions and the accelerated acquisition strategy that we’ve been embarking on. And the interest we’re seeing from other companies to align with what Youngevity is doing. To our global growth strategy, which showed a 37% increase of April sales versus last April, all of that will require capital for us to achieve the company of our dreams. And we need to put that in motion now to make sure were well positioned for the growth we anticipate in the future. With that idea, and with that commitment to now start that process and they get very serious about moving up to a higher exchange finding a good investment banker, making sure that investment banker has analyst on board so we can finally get good analyst production on Youngevity that really digs in and understands our business model. We felt that this call was the right time to start providing at least limited guidance as to what we see in the future so that we start behaving like exchange traded company. And based on our current sales trajectory of our direct selling division, our acquisition pipeline, the evident sales growth occurring in our global markets especially growth taking place in Mexico and Canada. And the coffee track contracts currently in hand for the back half of this year. We anticipate revenue guidance of $175 million to $190 million for 2016. And with that, I turn the call back out to Steve Wallach.

[Steve Wallach:]

Thank you, Dave. Lot of exciting news there and we’re all excited to undertake all of this exciting news and we’re excited that our distributors and shareholders are excited about it as well. With that, we’re going to go ahead and end the call. And we look forward to seeing all of you on the next shareholder call as well.