Youngevity International, Inc.
Q2 2016 Earnings Call Transcript

Published: 12 Aug 2016

[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 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. Please welcome to the call, Youngevity’s CEO, Steve Wallach.

[Steve Wallach:]

Thanks Alex. Hello everyone and welcome to the Youngevity International Shareholders Call. Speakers on the call today are myself and our President and CFO of Youngevity, Dave Briskie; the President of our Coffee Operations, Ernesto Aguila. A special guest related to a newly closed acquisition will join us on the call today as well our VP of Distribution Relations, Alex Theis. Topics we’ll cover on today’s call; we will highlight Q2 performance, we will provide a deeper look in to the event to our events strategy. We will announce a new acquisition and hear from their CEO on today’s call and we will provide an update on our marketing and 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 President and CFO on to the call Dave Briskie.

[Dave Briskie:]

Thank you Steve. Before I get to the numbers, I’d like to welcome all the shareholders, who are listening in, new investment bankers and analyst that may be hearing one of our shareholder calls for the first time, and of course new distributors from SOZO, Integris and Nature’s Pearl that are likely listening in to one of our calls for the first time. With that backdrop, I’d like to do a brief description of really who Youngevity is, and we’re a trail blazing company right now that‘s on a mission to transform an industry. It’s not create our own unique space to combining everything great about direct selling, high touch and high influence with the growing and powerful shift and adoption by consumers of e-commerce or at-home or online shopping. Youngevity operates very broadly in a multiple consumer sectors or various vertical markets. We encourage our distributors to build a business in product categories that they are most passionate about within our company, and we then partner with our distributors and help them leverage their database by marketing our expansive product portfolio through our developing e-commerce portals. We’re building an ultimate marriage of hi-tech and hi-touch. Steve Wallach, our CEO will touch more upon this later in the presentation, when he speaks to why our plans our timely giving the shifts in the direct selling space and how these shifts are driving our acquisition strategy. So lets’ get right to the 2016 2Q financial results; pretty proud of the performance of the business. For the three months ended June 30, 2016 the company reported revenue of $42.5 million, which was a record revenue quarter for Youngevity, and this compares to 38.7 million in 2015, a 9.7% increase with 87% of our revenue being derived from our direct selling segment, with the other 13% of the revenue derived from our commercial coffee segment. Approximately 45% of the increase was derived from new acquisitions, while the other 55% comes from organic growth. Gross profit for the second quarter of 2016 increased approximately 6.8% to 25.4 million, as compared to 23.8 million for the three month period June 30, 2015. Gross profit as a percentage of revenue decreased to 59.8% in the current quarter compared to 61.5% in the same period last year. Operating expenses for the three month ended June 30, increased about 11.1% to 23.9 million, compared to 21.5 million for the three month period ended June 30, 2015. The main contributor to the increase was derived from the significant increase in the sales and marketing expenses, which increased 65.6% to 2.6 million in the current quarter from 1.6 million in the same period last year. The primary driver was the annual convention cost which shifted from the first quarter of last year to the second quarter of this year. For the second quarter, general and administrative expense have increased 6.7% to 4.5 million from 4.2 million for the three months, primarily due to increase in employee compensation and consulting fees. For the second quarter of ’16, the company reported a net loss of 109,000, as compared to a net loss last year of 408,000 for the three month ended June 30, 2015. As you know, we always encourage our shareholders to look at EBITDA with all of the GAAP movement that comes through Youngevity and all of the different components that affect our financial statements, particularly high depreciation levels because of the coffee business, which is a non-cash component; amortization activity, which is a non-cash component; and warrant derivative liability fluctuations with our stock, which is also a non-cash component. EBITDA as adjusted to remove the effect of stock based compensation expenses and change in fair value of warrants or adjusted EBITDA was 2.6 million for the three month period ended June 30, ’16, compared to the 3.3 million in the same period for the prior year primarily due to the warrant derivative liability fluctuations. We have put out a press release this morning that has our three months and six months earnings. I’m not going to go over the six months data because it’s available for you to read on the press release. You can find that on our ygyi.com site or any financial site. So I encourage you to take a look at that information if you want to see the six months performance numbers. I would now like to turn the call back over to the CEO, Steve Wallach to provide the information on a shift taking place in the direct selling space and why Youngevity is poised to take full advantage of this shift.

[Steve Wallach:]

Thanks Dave, and just a note to say that I really appreciate all the hard work that you and entire team have put in to bringing the Q2 numbers and the six months numbers to us timely as always and though I know it’s a monumental task and you guys do a great job of it. So let me jump right in to this. So for nearly 20 years, we have focused on highly consumable consumer goods in a multiple and multitude of brand and product verticals. So Youngevity strategy from day one has been high quality, high value goods that consumers want to buy anyway. So we’re in a great place considering where the direct selling industry and profession is headed. For 20 years I guess that we focused on this in our acquisition strategy has really extenuated that by bringing on additional high quality, highly desirable, highly consumable consumer goods, and with the advance of online, e-tailing, e-commerce, direct to the consumers door, online shopping, the advent of Amazon and similar internet companies and e-commerce like that, Youngevity is exceptionally positioned to take advantage of the shifts that are now happening not only in those areas but also direct sales. So, in terms of products, a great example of what I was just talking about is, we just introduced the new Keto Caramel weight management products, great tasty shakes and bar and we brought what we thought was a 60 to 90 days’ supply in from our manufacturers with backup orders and place of course to replenish the inventory and stock. And with our initiatives, and we’re really just scratching the surface on the technology aspects to support this growth and these initiatives. And we sold out in 10 days, so the first 10 days of August we have sold out of our brand new, newly launched weight management product the Keto Caramel Shake and Bar. Now we’ve been doing some beta testing and just really nibbling at the edges of our technology initiative leading up to our September launch, and another example of that is a product we recently launched at our April Summit event and that was the Ocuvite, high-end vision support product, and we launched that with just a little bit of these technology initiatives and we also sold out that product very, very quickly, quicker than the - the sell-through is much quicker than we had anticipated and so these are just proof of concept to us in terms of technology and our technology initiative. So this all plays really well in to our acquisition strategy as well. As I mentioned bringing on high quality products, great products that were really the center piece of a whole another company time and time again and partnering with those great people and bring those great products in to the Youngevity family. So everybody has access to them and so we find ourselves really matching products with people and people with their passion, and that strategy not only has been working really well for Youngevity but the whole industry, the whole profession of direct sales is now finding itself focusing on what we’ve been focusing on for like I said, nearly 20 years, which is really the end consumer. Our whole philosophy is that direct sales is just another distribution channel to provide consumer goods to the consumer through distributors in our case with a great business opportunity and so it starts with a great team, but it starts with great products as well, and products that people want regardless of how and where they’re getting them. And then it’s up to us to provide them in a quick and convenient, easy to [fax] as manner through our distributors that hi-touch and hi-tech initiative that we so often talked about. So, as we developed this strategy for our distributors to market the entire industry seems to be taking notice and companies now are copying Youngevity in terms of product initiatives, but also our focus on consumers also our acquisitions strategy. So, some are even trying to copy us, and I would say that we have a 15 to 20 year head start, and I like where we’re positioned and where we’re headed obviously. So all this ties in really, really well with our highly anticipated technology initiative which launches this September. Its cutting edge platform, you guys have been hearing about it, you’ve been seeing just bits and pieces of it like I said. So we’re really excited to launch this at our upcoming convention in mid-September. So the distributors all of you will not only get to use this technology and like I said it’s really a starting point for us, but we’re excited to get to that starting and really dive in to it. This is has an Amazon like platform to put the power of cutting edge technology in our distributors hand, and they will be able to compete directly with Amazon with this leading edge technology reaching consumers wherever they may be and wherever their interests might be focused, whatever type products, brands and product verticals really reaching a target audience far and wide. I’d like to touch on just some recent DSA surveys data to kind of back this up as well, regarding consumers and technology. For example, one of the key initiatives shown by this recent survey and the data is that consumer want things in an instance. They want speed and accessibility that - speed and accessibility matter. Every aspect of the shopping experience will need to be faster and made available 24 hours a days, seven days a week. While some direct selling companies are at a speed disadvantage of mainstream retailer and e-tailers, we look for opportunities to partner with players who can deliver speed and accessibility. For example, shopping made simple, another key initiative. Consumers first equate innovation with making things easier. Direct selling companies need to remove the steps in shopping, kind of removing, Amazon talks about this in terms of removing the friction in the process, and that’s something that we’re heavily investing in and that we are really heavily focused on as well. Intimacy is another key initiative in terms of e-commerce, digital isolation has led to a yearning for more intimate and hi-touch shopping interactions. Consumers are still concerned with hi-touch and that personal interaction. I think the direct sales profession gives and provides and opportunity and an advantage to the typical in personal e-tailing or e-commerce companies. Another key initiative is that mobile commerce will account for nearly half of all e-commerce by 2020, just three and half years from now. And so we are well on our way to focusing on that. We’ve invested heavily and this is another key initiative of what we’re doing to put the power of this technology platform in the palm of your hand no matter where you are, because in today’s world e-commerce and the internet really kind of shrink the world. People are working and building their Youngevity business all around the world, 24 hours a day, seven days a week, and so putting the power of that technology and the power to manage their business and to introduce key products and products they’re passionate about no matter where they are at in the world as long as they are connected through the internet, we’re investing heavily in that both in focus and financial resources to bring leading edge technology to our distributors as well. So, one of the key initiative in the survey data that jumped out at me, 64% of Americans are aligned with the life philosophy of, you must be the change, you wish to see in the world. And that really is the philosophy of Youngevity, that’s the philosophy of our foundation, the Youngevity You Be The Change Foundation. And so I think we’re in, like I said, great alignment with not only where the whole industry is shifting, but to where the consumer already is, and I think that brings the power to our distributors and the great business opportunity that Youngevity provides and makes available to them to capitalize on this entire industry shift, not just in the direct sales profession, but really in consumer goods worldwide been able to shop from anywhere you want and buy what you want wherever you are from the palm of your hand. So we’re excited to bring that to everyone. The shift that is driving acquisitions or this shift is driving acquisitions. What’s happening in the direct selling space is that companies have to change. Any time companies have to change what they’ve been doing, what their foundation has been, what the model has been for them creates opportunities for companies and for Youngevity in particular, because some companies instead of choosing to reinvent their company or to change or to be able to change with that shift, they look for companies like ours to partner with or people to partner with. And Youngevity has a great reputation for doing just that, partnering with companies, extenuating their brands, honoring their brands, honoring their products, making their great products available to our great distributor force which then makes them available to all their customers and contacts. And so what we’re seeing because of this shift that’s going on not only in the direct selling space but outside worldwide with things like the You economy and the gig economy is that its created what seems to be a huge opportunity for Youngevity because we have at least a 15 year head start on other companies even being able to do what we do. And we’re seeing more company acquisition potential possibilities, leads, companies we’re working with to partner with them and their products and their people. And so we’re seeing a greater funnel of opportunities of companies that would like to partner with Youngevity than we’ve ever seen before. And as we grow and get larger, what we’re seeing also is that the opportunity is becoming bigger and bigger and that we’re evaluating larger and larger companies to do just that with that we have the opportunity to partner with and we’re seeing more of this than we’ve ever seen before right now. So I think that’s a huge opportunity. I think the shift that’s happening will bring us to an inflexion point in conjunction with our international growth initiatives combined with our technology initiatives as I’ve outlined, combined with our industry leading acquisition strategy connecting people with products and providing a solid platform to be able to promote their passion around the products they are most excited about and around the product verticals they’re most excited about. Speaking of acquisitions, what I’d like to do right now is bring the CEO of our most recent acquisition and partnership on to the line. This is a company called Nature’s Pearl based in Advance, North Carolina. And the interesting thing to me around this particular product line and the technology associated with it is that it’s based heavily on anti-oxidants which Youngevity is deeply involved with and has been deeply involved in promoting and even researching for years for decades actually. One of the high points or most common things in a direct selling company, a direct selling space is to search the globe for the most unique and beneficial ingredients and some of the most exotic things ingredients and products and nutrients come from all over the planet and here is something that is highly unique, highly valuable, highly desirable, highly beneficial, heavily researched and is truly unique and exotic and yet it comes from the southeast United States. So, what’s interesting is that Jerry Smith, who is the CEO of Nature’s Pearl, who we’ve just partnered with, you are guys are hearing about this acquisition and partnership for the first time on this call. But they have done so much research and they have very unique source, they are vertically integrated much like the coffee plantations of Youngevity down in Nicaragua. They do a lot of the same sort of things around the Muscadine which is a non-GMO, all natural wild grapes that have really unique attributes and a ton of science behind it. So we’ve really excited to partner with Jerry and Nature’s Pearl and all their distributors around the world, but also it’s just an amazing product if its’ perfectly within the Youngevity product range and philosophy. So Jerry, I’d like to bring you on to the call and have you tell us all about Nature’s Pearl and what you’ve been up to.

[Jerry Smith:]

Thank you Steve and it’s really a pleasure to be on your shareholder call. First I want to explain about the Muscadine grape because most of these people on the call probably have never heard of a Muscadine grape. The Muscadine grape is America’s first grape. It’s native to the southeastern United States, it won’t grow in the Caribbean, it won’t grow in California, and we have Muscadine grapes here that are documented over 500 years old, still producing Muscadine grapes. It is a phenomenal product, it has over a hundred different phenolic compounds that has already been identified, plus a lot of the doctors are saying Jerry there’s hundreds more that we haven’t even identified. But it grows up through the trees, it will spread it wings approximately 300 feet out through the trees, and so man then started harvesting the Muscadine and now we cultivate the Muscadine and there’s about 17 different types of Muscadine’s, but there’s only two of them that Nature’s Pearl uses, and those are the two with the highest phenolic compounds. We’ve been researching as Steve would say, and we’ve been researching the Muscadine over 10 years, and it’s phenomenal some of the science that’s been developed with the Muscadine and some of the effects on it on cardiovascular price today, the immune system. And so right now we are spending approximately $25 million in doing human clinical trials on this product. So far the results have been phenomenal and we’re so excited to be associated with Youngevity because we believe that we can help Youngevity turn in to that billion dollar multi-billion dollar brand with their product. I can’t say enough about Youngevity because had several options that we could do different companies, but while we looked at Youngevity, we looked at their people that are involved in Youngevity and I said I believe this is the company that we need to go with. Some of the research is coming out, you’ll be reading about it in magazines. It’s just phenomenal, some of the things that they are finding and help with this product. I just can’t say enough about how excited I am about Youngevity. I went out and met with Steve and I told them, I am really excited because I know we can grow this thing together, the entire Youngevity company. So I want to thank you for inviting me on the call, and I’m going to turn it back over to you Steve.

[Steve Wallach:]

Thanks Jerry, and before you go, can you share with us just a little bit about the research and where its being done. I mean you said $25 million in the scientific research, are you able to talk about that?

[Jerry Smith:]

Well it’s been done in a major medical university, it’s been done at Wake Forest Medical. I can’t get in to everything, but I can get in to a lot of it.

[Steve Wallach:]

That’s totally fine. I think it’s great that people here are aware it’s been done, $25 million of research on - and this is just on your Muscadine ingredient. I mean that’s on the Muscadine’s you’re talking about. That’s not other research that is focused just on these products and this ingredient really.

[Jerry Smith:]

Just on that product and we’re only Muscadine product out there with the FDA 21 CFR compliance, and we have the FDA inspectors in here from time to time, and they really compliment on the job that we’re doing and that’s very rare.

[Steve Wallach:]

Absolutely, and just to be clear, Youngevity now partnered with Nature’s Pearl is the only place that people can get this in direct sales environment, right? So there aren’t any other marketing companies that will access to this, no other direct sales companies that will be able to offer this to people, is that right?

[Jerry Smith:]

Absolutely, they will not be able to - the only company that can offer this product in direct sales is Youngevity.

[Steve Wallach:]

Well fantastic. Thank you Jerry for being on the call today and we’re super excited like said, and looking forward to locking arms with you and your team and taking this to a whole new level.

[Jerry Smith:]

Well I can hardly wait to be a shareholder in this company.

[Steve Wallach:]

We’re excited about that too Jerry. So I would like to speak briefly about our quality executives and the team we’ve put together here at Youngevity. So I just want to take a minute to kind of go over that. Over the last 8 months a lots happened and I personally promoted Dave Briskie to President from CFO and so he is President and CFO and those of you that know Dave know that he works tirelessly and seems to have boundless energy that we’re all envious of. But works around the clock and has just a sharp mind for business and not only finances and his unique background in marketing and finance is a real treasure to this company and to all of us. So I’ve tasked Dave with really onboarding quality executives to build a truly unique team within the profession of direct sales to bring key individuals to search high and low for people that fit not only from a culture standpoint, but with a set of key and unique experience, and I’m proud to say that Youngevity has a team that I would say is unrivaled by any direct selling company in the industry now. And an in-depth experience over 300 years of direct selling experience, in terms both in the field as distributors and distributor experience and knowledge, but also on the corporate side. So we have a dynamic team with diverse set of experiences and coming from a diverse background of understanding of marketing and the direct sales space. So I couldn’t be prouder of the team that we have assembled and what I’d like to do is bring in Dave on to the call to kind of go through this a little bit more.

[Dave Briskie:]

Thanks Steve, I appreciate the kind words as well. We got a lot going on, it’s only been 8 months since I became the President of Youngevity and we felt building a team was the key to take us to the next level and to achieve our very, very lofty goals and the way to do that is to build an incredible team with incredible experience. And of course that team that could shift where the industry is and really get in to brand building and e-commerce strategies and all of that. So I’m going to talk about a few people, but the team is so much bigger than this. We brought Scott Bell. Initially Scott Bell a VP of Analytics. You can’t really be in the e-commerce space without strong analytics. Scott was VP of Analytics and Promotions at Herbalife, when they grew from 500 million to 5 billion in sales. So I’d just like to bring up the talent that we’re bring in and the experience level and what scale they’ve worked on with their experience I think is important, and I’m just going to be brief on this. Of course Scott McElroy is our Director of IT PMO in Global Technology Solutions Architect. Incredible background in terms of what Scott has done. He led the design and development, implementation of a number of strategic technological initiatives for Cisco Systems, Deloitte, Intel Corporation, Northern Trust of Chicago, The VONS Company out here and many other Fortune 500 companies. So we’re talking about a significant system architect that’s building a platform or helping us build a scalable that take us wherever we want to go. Dave Rutz, our VP of Global Services is on board. David in his last company took a company from startup over 300,000 customers in the service business and he did that inside of three years, so another really talented executive. Scott Salik, VP of our Global Content. He’s a member actually of the Producer’s Guild of America and Academy of Television Arts. And he has served as the VP of programing and network development for Beachbody, as part of Team BeachBody. So another major key player in Youngevity. And then we’ve put kind of the final piece to the puzzle in place with the hiring of our new CMO, Loren Castronovo. Loren’s resume literally speaks for herself; her background with companies like Estee Lauder, Mary Kay, Chanel; her work on the Big Yellow Box for Crayola; her work with Creative Memories. She really brings the Madison Avenue flair to the company and a new branding strategy that we’re going to be launching. I’d like to touch on here first 30 days and what she’s done, as she is also building an amazing team within her department. And just in the first 30 days she’s included an assessment of all the talent on the team, she’s assessed trends, she’s done a complete study on the market place and industry, did tons of stakeholder interviews related to Youngevity and outside of Youngevity. We’ve incorporated a complete SWAT analysis for our future. She is already in to the strategy phase developing short term and long term strategy and deliverables. She’s got a goal of getting some quick wins which I love that would get some quick wins while we are planning for a very strong future. Underway already is a total revamp of new brand guidelines are being created to strengthen our brand positioning to be highly relevant and highly differentiated. Remember our strategy is very different, it’s a trend setting strategy. It’s unique, it’s got multiple vertical play. So it could be confusing if we don’t bring it back and make it relevant with all the brands and products that we have and she is doing this rebranding effort, and we’ll follow with our priority focus on new packaging, catalog strategy and revamping that catalog strategy based on an ROI model to make sure we’re getting a proper return on investment. She’s already started building out here team, there’s five key areas she’s focusing on; brand and buzz, creative and PR is one areas; events, developing highly branded experience for distributors and customers; portfolio, category management, focused oversight on business plans, profitability for key verticals and we’re measuring each vertical and profitability areas and budgets. Digital market strategy which is something Youngevity has never really done before. Steve touched on this, with the success of the Keto launch at our Ocuvite product. Just by a little bit of tiny drip campaigns, bam we’ve had a sales that we expect the inventory levels that would last us 90 days, all of a sudden last us 10 days, just by flipping the switch a little bit on digital marketing. We’ve recently engaged the director of digital marketing, who’ll begin working on SCO efforts, earned and paid media plans, driving overall customer acquisition, a completed retention strategy, a whole new and creative loyalty program like recognition of the month clubs and all the goal of building loyalty and retention here at Youngevity. Assessment of potential key agency partners; like I said that Madison Avenue flair, building out a 12 month growing marketing calendar, developing a product marketing process, taking product from conception to deliverable. New distributor onboarding plan that coincides with our web development processes and our new e-commerce sites, and a complete review of the distributor and customer life cycle, looking at the experience and conversion opportunities. And that’s just in her first 30 days, and she is well off and running. Her team is so solid and I’m so excited to work with them. And I left one person out, actually a lot of people out. But one person out that happens to be on this call and he’s really a key piece to Youngevity, he’s our VP of Distributor Relations, Alex Theis. And I thought I’d bring Alex, because he’s such an important part of the executive team. He really is out there in the field, he’s a road warrior. He not only travels to US but has experience many countries that we’re already in and where we’re going and building those distributor forces. He really brought and revamped and help create some of the platforms that are driving our business. I’d love to bring Alex Theis on to the call and have him let you know what we’re doing out in the field. Alex, can you take it away.

[Alex Theis:]

Yes, sir. Its’ good to be here and I just want to thank all the shareholders and everybody on this call. It’s been really exciting for the last 18 months to see what’s come together with Youngevity. We already had amazing products and amazing opportunity and amazing community people, and to see all this gel now with an amazing executive team that Dave Briskie has put together and see why that he’s put together and getting to work hand-in-hand with Dave and Steve every day, its’ fund environment and the companies I’ve been with that have hit these big these big marks of $300 million to $400 million a year, you always have an executive team that has fun together and that’s what I see happening. And specifically in the last six months, as Dave calls me, I’ve been a road warrior. I’ve spent at least half my time out on the road, working on that hi-touch piece while we get the hi-tech pieces really rolling. And I’ve seen a distributor and customer force that is very excited about the technology, but also really hungry for powerful events, for hi-touch events to really show off our community. So we’ve made a commitment to events and for those of you on this call that know network marketing. You know that events and an event culture how it really creates accelerated growth in our industry. Companies that are two to three times our size have tremendous event cultures, and that’s our next stepping stone, right. It’s the next place we get. They have a tremendous event cultures and Steve and Dave have committed to growing our event strategy making it better and better. And I want to talk to you just a little bit about let’s say, what we’ve put in place and what’s coming. It started in January with what we call our virtual event. This is an innovative training platform. You heard Steve say that we have a head start over most other companies in our industry with a lot of different initiatives we’ve going on right now. Virtual event is one of them. I do not know another company that is offering these innovative training events like we are offering. The world is moving away from appointment learning and appointment entertainment. All you have to do is look at the (inaudible) out there, Netflix, Hulu, Amazon Prime Video, iTunes. All of these companies creating a long lasting content that people can tap in to and bend to watch if you will. And we’re finding with the advent of Podcast and YouTube that people want to binge their timing as well, so that they can put it in to action. Part of our hi-tech, hi-touch are these virtual training events. We get our leaders as trainers so we tap in to the expertise we have in our field. Starting January, attendance and usage has grown dramatically. For example, in our May virtual event, we had almost 500 events registered averaging at about 10 people per event. These are events happening in people’s homes and they can happen virtually across the globe. So you look at 5,000 people virtually attending an event in May and spreading that out and using it to grow their business. Next, we introduced our roadshows. This started in March with three cities and three nights. And it has grown to include over nine cities, including places like Houston, Denver, Minneapolis, Charlotte, Chicago, Salt Lake. We will be in Phoenix next week for a two day roadshow, including a boot camp training. We have planned another series of these roadshow events in October which will start to include international markets. And the goal of these roadshows initially was to create a deeper connection with our customers and distributors. Getting our new President, Dave Briskie on the road, getting Steve and Michelle Wallach on the road, getting our distributor facing team on the road, this has quickly moved in to a community based event that our distributor and customer base is literally lining up for. We are getting contacted everyday come to this city, come to this city, come to this city. And now its morphed in to boot camp style training where we get people in to action. We’ll do a roadshow on a Friday night to a Saturday morning training, getting people in to action. This will continue throughout 2016 and ramp up continually in 2017. We have a convention coming up in Australia in November of this year, as part of our event strategy, and also let’s look forward into 2017. We are expanding to regional events, and this is Steve and Dave listening to our distributor base, listening to our key leaders saying, we would like smaller regional events happening. So we will kick off January 2017 with three regional events across the United States. We want as many face to face touch points as possible to start the New Year. Again hi-touch merging with that hi-tech and we have a very aggressive event strategy moving forward in 2017; virtual events, roadshows, regional leadership event and a convention that you can all look forward to. I want to touch quickly on our retention initiatives, that’s something is very dear to me. One way to grow a company is through retention, keeping people, keeping people ordering more often, and we do that with our remarkable product base. So we have a huge growing base of oil customers. Our focus with these events, a lot of it has been on product training and customer acquisition, and we’re seeing the results with improved retention. We are offering retention based training on our analyst line of great products. Here’s what we’ve seen in this regard retention initiatives. We have one of the highest average orders in the network marketing industry, Youngevity does. Our retention team, their average order is 60% higher than Youngevity’s average order. What does this mean? It means our products work, our expanding product line is becoming even more popular. And the longer people take these products, the better results they get and the more likely they are to stick around. In fact product and retention breakup trainings at our last event in Anaheim in April were our top attended and rated break-out session. So, a product, a customer base is continuing to grow, backed by our amazing community of distributors. Lastly, I’ll touch on our technology initiatives. As Steve and Dave have both mentioned, our technology stack launches in September, coming up next month. This has been a huge push from David’s team and me in the background talking to our leaders, dealing with their feedback and funneling it to our IT team to put something out there that will be one of a kind in the industry. It’s going to have a dramatic impact on both our customer experience and our retention including growth in both areas. It will be a continued marriage of that hi-touch, hi-tech strategy that we’ve mentioned, and it will allow our customers and distributors to continue to truly pick their passion. It’s been really great to update all of the shareholders on this call, and I’ll be excited to provide future updates on our events moving in to throughout 2016 and 2017 and our retention initiatives in customer acquisition. I’m going to hand this call back to our President, Dave Briskie.

[Dave Briskie:]

Thanks Alex, appreciate all the hard work. I know you’ve been hitting it hard. I want to touch on the coffee division really quickly. We’re a two very, very large segment company and the Coffee division had an incredible quarter. Here are a few highlights, record for the quarter, 5.5 million; margin improvement and gross profit, up over 700% over Q2 of last year. Operating income was up 70%, EBITDA $414,000 swing, leading to a 163% improvement in our adjusted EBITDA, and it’s really nice to see this division is doing what it’s doing. But it’s really just getting started. The coffee area is really all about scale. We planned and invested heavily, we’ve got all of the pieces finally in place and they are pieces that are very scalable, very large and have incredible upside potential, and it’s all firmly in place. And it wouldn’t be right to not bring Ernesto Aguila, our President of roasting and really the whole Coffee division on to the call to give a brief update on what’s going on on the Coffee sector. Ernesto, you’re out there?

[Ernesto Aguila:]

Thank you Dave and Steve. I’m very excited to be back on the call. While the second quarter CLR was tremendous. We had a record quarter and back to back record months in June and July. Let me start off with the operation in Nicaragua. I was there all last week and the harvest for next year is looking absolutely great. There was a lot of rain, we anticipated early harvest for 2017. We planted last year 250,000 new trees. Two years ago we started the operations and these trees are blooming with coffee cherries for this year. We just started seen huge increases in production. Our goal is to remain the most dense coffee plantation in all Nicaragua over the next five years. The mills, we just finished four new offices, conference room, waiting and sitting areas, the office areas at the mill look absolutely amazing. We have a lot of big projects that are going on in Nicaragua and I look forward to keeping you guys posted on our next call. Let’s talk about the roasting operation here at CLR. We got a lot of projects that are going on, let’s start off with retail. Publix just approved Josie’s Java House, K-Cup shipper program with three items, although paper work is in, we’re just waiting to get a green light to get started and get orders in to the stores, about 250 of them. I will be meeting with them in September to work our expansion on Cafe La Rica brick distribution and that Josie’s Java House products to Publix’s line. Big Lots, we have scheduled meeting in September to expand our current 12 ounce distribution, and also presenting our Josie’s Java House K-Cup program for them as well. Ross Stores, we’re setting up meetings with the new buyers for all of CLR’s branded products. [Gourmets], we have presented all of CLR’s branded products for a 100 locations. Christmas Tree Shops, we have a hundred stores that are now ordering K-Cup from us. Ocean State, we sold in truckload program and we should be receiving our first orders very soon. Canteen in their annual corporate meetings next month they will be submitting a request to make CLR Roasters an approved vendors, and give us full approval for the entire Josie’s Java House, K-Cup, Flack-packs and whole bean line. This will be huge for us because Canteen is one of the non-retail operators in the United States. We have also been awarded some cruise line business, one of the largest in the industry. We are working on the paperwork as we speak and that’s all I can share with you at this moment. Our Food Service division landed six weeks ago (inaudible) with 17 locations, Miami through Melbourne, very prestige accounts that puts us in the food service map. I’m working right now with the hundred 7-11, 15 Vicky Bakeries, and on August 19, we have a trade show with over 75 local restaurants and we are the only coffee company at the show that will be providing free coffee and will be able to show these restaurants our products and services. I’m getting very excited about the new Food Service business. In production, our new Brazilian four corner machine is almost up and running. So this will give new opportunity to gain new business with our packaging line. We have been working very hard in production to make our facility more efficient for 2017, and I look forward to giving you more details on our very next call. Well I have covered up a lot of activities here at CLR and as I have stated before, our bigger and better days are in front of us and may be another record quarter. Thank you everyone for your time today. Steve, back to you, thank you.

[Steve Wallach:]

Thank you Ernesto great job and all the hard work. The plantation is looking amazing, all the work you and your entire team have done down there is nothing short of incredible. CLR is another - a transformation from five years ago is mind boggling. You guys are just amazing, so thank you. So before we complete the call, I’d like to let you know that we’re on track for the uplifting that we’ve been talking about. We’re going to talk about that a little bit. Dave has met with several investment bankers, I believe a total of 18 and he’s narrowed the search for the final four. I’m flying to Wall Street with Dave on Sunday, just around the corner, just a couple of days from now. And we have two full days of meetings and discussions with those investment bankers with plans to make a final selection and start working on the structure with the chosen organization, chosen investment bankers. You have heard about our performance and the excellent team we’re putting together and have put together and continue to build. And I feel strongly that this team needs to be working for a company that is listed on a major exchange. You’ve Dave on this call over the last several years and myself as well saying that was our goal and we’ve been working towards that and we’ve been keeping you up-to-date and you’ve been hearing more and more about it recently. We’ll definitely keep you apprised of our progress. As Ernesto just said, how excited he is about the coffee opportunities that he’s seeing in front of them. I am equally as excited about the opportunities that I see in front of all of us. On the last call we provided guidance as well of a 175 million to a 190 million and total annual sales for 2016, and I’m comfortable that we’ll fall in that range as we complete 2016 as well. So a lot of great things, a lot of great updates on today’s call, and a lot of great things that we’re working on that we hope to be able to talk about on the next shareholder call coming up. So I’d like to thank all of you for attending today’s call, and look forward to speaking with you again soon. Thank you. [No question-and-answer session for this event]