Youngevity International, Inc.
Q4 2014 Earnings Call Transcript
Published:
- John Zervas:
- Good afternoon everyone and thank you for joining the Fourth Quarter and Full Year 2014 Earnings Conference Call for Youngevity International. Before we get started, I would like to take this opportunity to read the Safe Harbor statement. The following information presented on this call includes forward-looking statements on current expectations and projections about future events. In some cases, forward-looking statements can be identified by terminologies such as "may," "should," "potential," "continue," "expects," "anticipates," "intends," "plans," "believes," and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict. The information in the shareholder call is provided only as of the date of this release, and we undertake no obligation to update any forward-looking statements contained in this call based on new information, future events, or otherwise, except as required by law. Now, I would like to turn the call over to our Chief Executive Officer, Steve Wallach.
- Steve Wallach:
- Thank you, John. Hello everyone. I want to welcome everyone to the Youngevity International shareholders call. Speakers on the call today are myself; our CFO, Dave Briskie; our President, Bill Andreoli; and we have some special guests here today as well. We’ll cover the following topics. We’ll highlight our full year performance, we’ll provide a review on marketing initiatives and customer and distributor acquisition activity, we’ll take a deeper dive into the numbers, we’ll discuss the new product launches, we’ll provide a comprehensive update on our coffee operations, we will provide an update on international expansion activities. We’re pleased to deliver our shareholders accelerating growth and continued profitability. And what I’d like to do is turn this over to our Chief Financial Officer, Dave Briskie, to go over those numbers.
- Dave Briskie:
- Thank you, Steve. I’d like to welcome everyone to the call as well. We certainly appreciate all of you, our shareholders and we know there is also a number of distributors that are shareholders on this call as well. So welcome to all of you. We are very pleased to report year end December 31, 2014 net revenue of $134 million. This compares to $85.6 million in 2013, which is a 56.5% increase. It’s really important to note that the fourth quarter sales were $37.3 million versus $22.6 million versus four quarter last year and this is a 64.4% increase, so our revenue is continuing to accelerate. The increase in direct selling revenue is attributed primarily to the increase in the company’s product offerings, then number of distributors that are now selling our products, which seems to be increasing month after month and various customers that are enjoying our product. Gross profit for the year end December 31, 2014 increased 48.8% to $76.3 million as compared to $51.3 million for the prior year. Gross profit as a percentage of revenue decreased to 56.9% for the year end compared to 59.9% in the prior year and this is primarily due to lower margins in the green coffee distribution business which grew substantially in 2014. Operating expenses for the year end increased approximately 55.4% to $73 million as compared to $47 million for the year end 2013. Distributor commissions increased to 45.2% as a percentage of direct selling revenues compared to 42.9% in prior year, and this is primarily due to added incentive programs, higher level achievements by our distributors, rank advancements by our distributors and other increased operating costs were due to start up operations that we started last year, including the MK Collaborative line of business as well as the operations that we launched internationally in Nicaragua, Russia, Mexico to name a few. As of December 31, the company evaluated and its tax consultants evaluated the realizability of our deferred tax asset and we determined based on the company’s consistency in delivering profitable results that it is more likely than not that the deferred tax asset will be realized. Therefore, the company has reversed the majority of our valuation allowance. A valuation allowance still remains on the state and foreign tax attributes. The net result of this is a tax benefit of $4.7 million recorded in the fourth quarter of 2014. Therefore, net income for year-end December 31 increased 102.5% to $5.4 million when compared to $2.7 million in the prior year. As stated, the increase was largely attributable to the income tax benefit just discussed. EBITDA, as adjusted to remove the effect of stock based compensation which we refer to as adjusted EBITDA were $6.6 million for the year ended December 31. This compares to $7.3 million in the prior year, a decrease of 9.4%. Total assets, when you look at our balance sheet, were $55.7 million at the conclusion of 2014 and this compares to $34.9 million the year prior. Because of those increases, stockholder equity was up to $18.6 million compared to $11.5 million in the prior year. We filed our 10-K, it should be up on all financial reporting sites soon, and I encourage all shareholders to take a look at the 10-K and any questions you might have, please send into our investor relations’ email address. As we dig in a little deeper into the numbers, 2014 was a really, really nice year of growth for us and we look at ourselves as a growth company that is fiscally responsible in the process. Direct selling accounted for 87% of our business, while the coffee segment accounted for 13%. A year ago, direct selling represented 91% of our revenue while coffee represented just 9% in 2013. So let’s break it down a little bit. Of the $134 million in revenue, $116.3 million came from direct selling and $17.7 million came from the coffee segment, both segments are growing significantly. Direct selling grew 51.4% and coffee grew 101% over last year. So where, when you look at our growth over prior year which accounts for a number of $48.4 million revenue increase, where is that coming from? The coffee segment accounts for $9 million of the growth, which represents 23% of that $48.4 million. Acquisitions contributed $14.5 million of that number, which represents 37% of the growth. And the direct selling segment grew organically $24.9 million, representing 40% of our growth. I now would like to hand off the call to our President, Bill Andreoli, who will talk about our sales and marketing initiatives and give us an update on the convention that we all just came back from last night. Bill?
- William Andreoli:
- All right, thank you so much, Mr. Briskie, and a special thank you to our shareholders that have joined us here today. 2014 was indeed a banner year for Youngevity’s direct sales force. As we discussed in the Q3 call, the sales and growth trends that started in December of 2013 continued throughout the year. If I had to put a label on 2014, I would call the year of refinement, because we successfully refined nearly every key component of the company. In addition to the refinement of our international growth strategy in our product warehousing and logistics systems which Dave and Steve will discuss shortly, in 2014 we began and/or completed streamlining our website and online shopping experiences with a whole new round-up rebuild of our website and back office systems, giving our customers and distributors a more unified and consistent experience across all the web platforms and devices from smart phones, tablets, and personal computers. Our field training and recognition systems with the addition of a leadership summit are more regionalized and efficient twice a year event, which will ultimately replace [indiscernible] and better support the attendants of our annual conventions. Our acquisition strategy which is now more standardized from the initial negotiations throughout the final implementation giving us some more expeditious decision-making and integration process. Our overall marketing and organic growth good strategy which we refer to as staying lean is now firmly focused on five key tenants for our distributor to build upon. The Youngevity revolution, our history, the 90 for Life product philosophy, competitive advantage and mission statement, the Healthy Body Challenge, our product implementation and action plan for consumers, the CEO Mega Pack, our business outlet and expansion system, our unique incentives, our appreciation campaigns in the benefits of distributor enrolment and finally the 5 x 5 marketing and business building actively plan showing distributors exactly what to do to faster growth in their organizations. All these key refinements either started or saw focused refinement during 2014 which will continue in 2015. As 90 for Life has become perhaps the strongest product in health message in the industry, Youngevity is also gaining a reputation of opportunity and prosperity. We are as many of our competitors struggled to achieve and then sustain growth, the loyalty to our roots while aggressively sharing the relevancy of our message has made us a bit of an anomaly in the industry. A company with a rich history while having the excitement of a brand new start up. Even so, we are not complacent with our relevancy in the market as we plan to continue to meet yet aggressive growth here in the US and abroad. Since we’re already well into 2015, I would be remiss if I didn't comment briefly on our annual convention, which just concluded this past Saturday. It was definitely the largest attended event in the company history and arguably the best event as well, spread over three days at the Ontario Convention Center in Ontario, California, attendees were treated to hours of training, motivation, recognition and some entertainment. I cannot speak for everyone, but for me, I was up until 3 AM after the end of the main session answering questions, taking pitches and encouraging our distributors to go build business bigger and faster than ever before. And it’s their enthusiasm as any indicator 2015 will indeed be another record breaking, record-setting growth year. Events like our annual convention in a now twice yearly leadership summits are critical to the growth and success of our distributor force. The tangible attributes like workshops, great speakers and award banquets are easily described, but the intangible effect of thousands of like-minded people coming together with one team, one dream and one mission is often difficult to put into words, but ultimately the most awful and strongest motivator for growth that we can muster. Our overall growth is a result of sustained organic growth which is a two-test of any direct sales organization. Our consistent level of growth although not unprecedented is a key indicator of these fundamental philosophies are resonating strongly with our core field leadership. It is also an indicator of our overall reputation status within the industry as a whole and distributors and consumers alike are attracted to noticeable success. Needless to say, we are pleased with current growth and anticipate continued upward movement. Some things to look forward to in 2015, simply put, more of what works and less of what doesn’t, as we increase the size of our international footprint and we expect to see double-digit growth in Australia, New Zealand, as well as Canada as these are all areas where we already have key leadership, established product lines and dedicated support staff. This is of course in addition to our new initiatives moving forward in Russia, Israel and Mexico. We will also continue to forge ahead in the Spanish-speaking marketplace with both web and printed supporting materials as well as multimedia presentations. It’s ironic that the more things change, the more things stay the same with continued influence of the internet, social networking and seemingly ever decreasing level of brand and personal loyalty in the world, Youngevity continues to shine is because we are embracing the changes while staying true to our roots and never forgetting where we came from. Establishing and cultivating relationships is important to any business, but even more so in direct sales. Trust and consistency are of critical importance to keep customers and distributors long-term. And as we reiterated today, Dr. Wallach’s 90 for Life messaging is perhaps the strongest and most effective in the industry. Rest assured that as we move forward in a diverse product offerings and acquisitions come on board, we will never abandon our core belief in people, in the message at the start of this company over 17 years ago and those four words, one team, one dream aren’t just a catch phrase here, they are our way of life and our way of business. So again, I want to thank all of you for joining us on the call today and with that I’ll hand this call back over to you, Dave.
- Dave Briskie:
- Thank you, Bill. That was certainly an exciting event, it also marked the first time that a number of shareholders attended our event, which was kind of exciting to see mingling of our shareholder base with distributors, many of these shareholders were taking our products and got the experience that excitement first-hand, they wanted to see what the direct selling business was about and they were in attendance and that was kind of an interesting dynamic that we experienced and everyone seemed to enjoy it. So that was really good. We are going to bring Steve back onto the call now. We had announced a number of new products and new product initiatives and some exciting things as it relates to our product line. So obviously, we all know that Steve is truly a trend-setter and truly genius when it comes to creating products, it’s in his heritage, it’s in his blood and we’re so lucky to have these types of products in our business and continuing growth of an amazing product line. Steve, can you come back on to the call?
- Steve Wallach:
- I can. Thanks Dave, thanks Bill. The event was a super exciting event, it was our largest convention in our nearly 18-year history. Obviously, we introduced new products as we often do, many of these products were products that our team has created, in addition to new products we brought on through acquisition of product lines and so forth. One of the things that we continue to always work towards and strive towards are the highest quality products and things like the science that validates that, Clemson studies, the Manitoba studies and so forth. And so we are excited to announce and we announced this at this weekend’s event as well as that we’ve entered the International Fish Oil Standards with our bestselling essential fatty acid product EFA Plus and our S.M.A.R.T. Fx as well. The International Fish Oil Standards program is the only third-party testing and certification program for fish oils, IFOS as its known, sets the highest standards for fish oil purity standard. So we’re excited to be able to put their logo right on our labels and it’s the mark of third-party validation and assurance of quality. We know our products are of the highest quality, but how does a new consumer or a new distributor or somebody considering our products know that and so third-party validation is the best way to accomplish that. And so we’re excited about the IFOS integration of using their logo and certification program on our products. Additionally, we are now working with NSF to third-party validate some of our top selling products and we are involved in that process of review now and that’s all moving along very nicely. And so we hope to be able to announce full certification of our top selling products very shortly. So that’s exciting. NSF will validate not only what’s in the product, but that it matches the label and that is indeed safe just as Clemson and University of Manitoba have also done, but having that third-party validation is just a great feather in our cap and again be able to use their logo right on the labels, right on the product packaging enables and powers our distributors to be able to show that and point that out to their prospects, to their customers, to their new distributors as well or for anyone considering our products for that matter. So we’re excited about that. Additionally, we did make some new product announcements and launched some new products. One of our top selling liquid product that came on with the acquisition of the product line of the company called Escape International. That product is radical and in a liquid form it is one of our top selling products as a set. So with our popular powders for example, people have been asking for another form of radical. So we're excited to announce radical in a powder format in a jar first and then packets, as many of our products are. So that's exciting. Something else that we announced that we are all excited about was embraced and received with a resounding cheer was that we announced kcups for our direct selling division. And as you know, as we talked about before, we have acquired a brand-new kcups machine that you'll hear more about on this call today, but we announced kcups coming soon for the direct selling space and to be available through Youngevity. This will be the first time kcups have been available in the direct selling industry that I am aware of and kcups is exciting enough. With that said, these aren't just any kcups. These are kcups with our fantastic, our amazing high mountain grown, shape grown, certified organic reinforced, certified Nicaraguan coffee as the center piece of these kcups. And so we're able to show people that not only is it coffee kcups, but it's our coffee, from our plantations, grown with care, processed with care, drying with care, roasted with care, packaged with care and every step of the process vertically integrated, every aspect right to their cup. And so that's exciting and people were thrilled to see and hear about that. We also introduced BTT, Beyond Tangy Tangerine 2.0 in a tablet form and so this is a new product that will come online in probably about the next 4 to 6 weeks through Youngevity and that was met with a resounding cheer as well as it will just improve the ability to carry the product with them, with people wherever they go and so the convenience factor of tablets, certain points and aspects makes a lot of sense obviously and people have been asking for that. So we're excited about that. We also introduced our first consumable essential oils product. Essential oils has been and have been a rapidly growing segment of products, a product line within Youngevity. And so we thought it was time to actually introduce a consumable product in our essential oils line, we call it DOTZ, and so it support digestion, it's a digestive formula, but these are small little capsules like softgel capsules, like our essential fatty acid capsules, but with our oils blend right in the softgels. So we're excited about that. In fact, our essential oils products range in sales has contributed quite a bit, significant growth percentage, the best way to put it I guess, of sales within our overall. So the essential oils, for example, have grown about 800% in the last 12 months. So from 2014 to now, early 2014 to now, we've seen about an eight-fold increase in our essential oils product line and it's accelerating. So people are very excited about that. We also introduced a new cardiovascular powder product in a stickpack called Ultimate Cardio STX. So we are excited about that. It's based on Arginine. Those of you that are aware of the health benefits and health aspects of the essential amino acid Arginine, Ultimate Cardio STX, fantastic tasting product in convenience and stick packs as well. Another product we announced at the convention that people are very excited about was a gold mask and this is in our mineral makeup division. So people kept asking if it was for women only, many men that like skincare products seemed interested in this product as well. It definitely was one of the talks among everybody at the convention in regards to new products. Also in our mineral makeup division, we introduced a line of new colors of lip locks and in a very, very new and unique package that has a built-in mirror and a built-in light, and again people were very excited about not only the new colors and the new product within our popular mineral makeup line, but the packaging was very unique and was definitely a popular topic of conversation. Kind of skipping back, I guess, one step, if I could, on the essential oils, one thing to keep up with the growth of the essential oils that I mentioned, we have acquired a auto filling machine and should be installed at our Chula Vista headquarters in about the next eight to 10 weeks. This auto filling machine will accommodate our growth in terms of packaging for another 800% to 1000% or more, actually more than that I guess. It's a fantastic piece of machinery that will allow us to grow within this facility without having to add a whole bunch of more hand labor of filling for instance. So we are excited about that. One of the other things that we introduced at the convention was a new line and a new program of products and this has to do with Beyond Organic. One of the things that is important to assist, being able to leverage our acquisition of product lines of assets, even great people that joined the company through the acquisition of some of these companies and product lines and so forth. And so one of the things that we've been excited about is working directly with Jordan Rubin, the founder of Beyond Organic. He has been working with us and our scientific advisory board members and – has put together a great program based on new technology and a new line of products and so we announced this at the convention as well. A lot of interest and Jordan is a passionate speaker and advocate for the dietary supplement industry to begin with. So when he speaks that passion comes through and when he formulates products that passion comes through. So I'm going to turn this over to Jordan Rubin to talk about this new product launch, if we have Jordan on the call.
- Jordan Rubin:
- We do. Thank you very much, Steve, Dave, Bill, shareholders, great to be here. I am very excited to introduce our brand-new product line, we call it Transform Your Temple. And the concept is to take the 12 systems of the body and feed it the organic ingredients that it craves. We have combined organic herbs with our proprietary medicinal mushroom fermentation process right here in the Central Coast of California that I oversee and we are seeing phenomenal success, particularly using a catalyst of the Youngevity/Dr. Wallach plant derived minerals. And so this really is, we hope, an extension of the great 90 for Life products, the Healthy Body packs, where somebody plugs this in and get the soon to be essential phytonutrients that the body craves. We announced our launch here at the national convention with great results. We have a limited number of initial product slots, as it is a continuity of our auto ship program and we're confident through the Beyond Organic network and the Youngevity family that we are going to fill these slots over the next several months, particularly while working with some of the top Youngevity leaders. So it's been a great privilege to share the stage with great experts, health professionals and leaders of Youngevity and we feel very confident that the 14 skews that will transform your temple will bring certified organic fermented and whole food ingredients to the Youngevity family, giving distributors an opportunity to invite people into a new door to team up along with the amazing 90 for Life products, the essential oils, the mineral makeup, ProJoba and all the other wonderful products, including all the iterations of coffee which you're going to be learning about soon, which is really, really exciting from one farmer's perspective to another. So it's great to be part of the Youngevity team and we are excited, you can learn more as shareholders and distributors at transformyourtemple.com.
- Steve Wallach:
- Fantastic. Thank you, Jordan. I appreciate that definitely and exciting from a formulator's perspective and exciting line of products. And I know that distributors are excited to have access to this program and these products. So thank you.
- Jordan Rubin:
- Steve, when do these kickoff, it's May 1, right? We'll start shipping. So it's right down the road, we're pre-booking it now as I understand it. And on May 1, we'll start shipping.
- Steve Wallach:
- [indiscernible] space initially. So yeah, and so we're excited about that and it's now available for pre-booking, yes. So one of the things that I just briefly mentioned was the importance of leveraging the allocation of assets and the acquisition of assets as well and that also includes the benefit of leveraging relationships. And so what that means is just bringing the benefit of people's relationships to their – on the company in a great way. And so one of the things that we rely on is our Scientific Advisory Board for instance. And so adding people to the Scientific Advisory Board has been great for us and creates a great resource for us to lean on. And I have the ability to go to individual people and pick their brain on product formulations like Jordan as an example. One of the things that we were able to is bring in Steadman Graham as a speaker at our convention. And Steadman did an amazing job, motivating and captivating a very large audience and to share with you that Steadman has been somewhat involved with the company for a while now and he walked into the convention and saw the number of people in attendance and the excitement level and he mentioned to me how just amazed he was with the caliber of people, size of the group, the excitement level, the enthusiasm level. And so that was exciting. And it was great to spend a little time with him, but it was even greater to just see his effect in just how many people he touched at the Youngevity convention this year. So that was amazing. On that same line, we had Marilu Henner at this event again and yet again I think she was at the top of her game. She announced several new projects she is working on and she enthusiastically embraced and announced again from center stage just how thrilled she is to be involved with Youngevity, how impressed she is with the people, how impressed she is with the products. We had Theo Ratliff there again this year and Theo has been involved in Youngevity and is on our Athletic Advisory Board as well and has been for quite a while. But he is almost like a family member now and that people just love having him at our event. And he enthusiastically tells people about his personal experiences with Youngevity and Youngevity products and Dr. Wallach and so forth. We also had Drew Pearson at this event and Drew does an amazing job motivating and inspiring people and he has personal testimonials in regards to the Youngevity products as well. But just having him there and him telling his stories and teaching people in terms of leadership and reiterating just every aspect of building teams and building the business was great. We love having Mike Glenn on our Athletic Advisory Board. These people and their association with our company is amazing. Obviously, we are thrilled as well any time we can add a new person like these individuals. And so what I would like to do is introduce our most recent brand ambassador and this is in regards to leveraging really the relationship of Heritage Makers. In 2013, we brought on Heritage Makers the product line partnered with all the people, many of them were at this event and we are obviously very excited, very thrilled to be there. But since that time, we brought on with Youngevity because of our relationship with Heritage Makers or with Heritage Makers in acquiring the product line, the assets, the technology and so forth, we were able to bring on a great individual that literally is a legend in our industry, she is in the Hall of Fame, the direct selling Hall of Fame and that's Rhonda Anderson. And she has been building her associations with Youngevity ever since and through both those relationships, we were able to begin conversations with this most recent person that has joined the Youngevity team and is also a legend, an icon in the industry and we are looking forward to just great things and amazing things in working directly with this person. And we announced her from stage at the convention this weekend and the crowd went crazy and we have her on the call to talk to you today as well and to talk to everybody on the call today and that is Lisa Burns. Lisa, are you on the call?
- Lisa Burns:
- I am, thanks Steve. I want to let you know I am full thrilled to be joining Youngevity and so excited to be here on this call. Just to give you a little background history about myself, which is always little awkward to talk about yourselves, but in the spirit of you all becoming more familiar with me, I started in the publishing field Wordperfect magazine clear about I guess it was in 1980s, maybe 1989, and I was the Advertisement Chief of that magazine for seven years, loved everything about magazine publishing from that experience. During that time, I became obsessed with scrapbooking and I have five children and I was trying to keep up with all of those scrapbooks and would stay up until the wee hours of the night scrapbooking and all of a sudden the light went off one day and I knew I need to start a scrapbook magazine and in 1996 creating Scrapbooking Magazine was born. It has actually went to 500,000 readers all across the world. We had events, ancillary products and I was on TDC, how to TDC for 11 years and I'll talk about that a little bit little later in the call. Also HSN and on the Home Shopping Network last few years and it's spread to [indiscernible] my house, and I appeared on her show, the stage show, people magazine and I literally thought of just that I don't know, a couple hundred million dollar category to billions of dollars. And it was very, very exciting. And over the years, I have successfully released products in retail, Home Shopping and brick and mortar stores. And then a year ago, I was first approached – Youngevity and I started to research the company. And I realized that this company is not only committed to a quality lifestyle through quality products, but they are 100% committed to stable and consistent growth. And that really went through to me. They have structured out everyone in the organization to succeed and I loved that too, whether you're an investor, distributor, consumer, Youngevity is good for you. So I'm so thrilled to be Youngevity brand ambassador and to serve as the spokesperson for the overall memory keeping category. This includes Heritage Makers and Our Memories For Life. And I love Youngevity products, I use them, my family and friends use them. I absolutely cannot be more excited about what they do to change your life. I'm thrilled to be able to share with people the reality of what Youngevity can do for me both professionally and personally. So I want to tell you very quick in all of business ventures that I have been a part of, I have never put my personal name on a product line for and over the last couple of years I searched long and hard for the right partner to put my name on and I'm so thrilled to tell you all that my new product line is being by Youngevity, it's called Anthology by Lisa Burns and if you don't know the word anthology it means a collection or a compilation. So I will be producing a new fresh exciting line of products that is founded on the principle that quality scrapbooking and memory keeping does not have to be difficult. So Anthology by Lisa Burns will be available late summer 2015. Just finally, I want to tell you guys this is my goal for this category. When I was on QBC a few years ago, I sold $1 million of scrapbooking products in one hour. Now, you guys can do the math on that, how many dollars per minute. This category is huge and Youngevity is significant. We try to reach out to all of our former subscribers and introduce some to the products and buy them to learn more. And we also have great scrapbooking, you should see what's happened on lisaburns.com right now, and we have an extensive social media footprint that we find to continue to market Youngevity products. So in a nutshell, that's a little bit about me. Again, so excited to join the family and that convention was electrifying, I think Jordan just mentioned how excited that was, was it Jordan or Steve, one of you guys was saying just electricity in the air and such a quality crowd. So excited to be here, thank you everybody.
- Steve Wallach:
- Thank you, Lisa. I mean it's easy to see why we believe we are now positioned to lead the industry in the memory of booking and then scrapbooking world, I mean with amazing leaders like Lisa and Rhonda and everybody at Heritage Makers. It's just a fantastic opportunity for all of us. And so thank you again Lisa for being on the call. So what I want to do now is bring Dave back on the call and one of the aspects that we talked about on prior calls as well, so you've been hearing about this and Dave mentioned a little bit about it going through the numbers as well is start up operations and really expansion and that includes international expansion and international operations which has been a very significant initiative, especially while the last 12 months or so. And so I would like to bring Dave back on and kind of recap that and just go over what's going on with this.
- Dave Briskie:
- Thank you, Steve. First thing I'm going to do, I want to get to international, but before I do, we launched a project last year called the MK Collaborative, MKCollab.com which was a really richly immersive shopping experience that we created to allow people to really enter Youngevity through an e-tailing atmosphere. And it's really starting to catch on over the tremendous amount of work, we created our own line of women's fashion apparel and jewelry and that business is starting to come into its own and it was a big investment to create this vehicle and the number of celebrities that are getting involved in this fashion movement is pretty exciting. So we are looking for big things with MK Collab this year. Obviously, if you are in a direct selling space, one of the things that is most exciting to enter into is the global marketplace. The global marketplace is where all the companies with critical scale really show their real big success. Like I like to say critical scale to me is that $300 million to $500 million company. And you can evaluate any of those, you will see pretty quickly that 60% to 75%, somewhere in that range typically comes outside of the US market. The US market is the most difficult market to be successful in. So it's very encouraging to all of our executives and board of directors to see that we are excelling in the toughest market, which gives us incredible confidence as we enter the global platform of what we can do there and what our numbers should be. Still the international markets in 2014 only represented 8% of our total sales. So as we crossed over $116 million in direct selling revenue, if you do the math, obviously the future is very bright as we open up international markets with the success that we know we will. Our strategy internationally is first and foremost to support some of those markets that never had people on the ground, believe it or not, and one of those markets is Canada that very, very quietly has grown into the largest international market that we have. We brought in not only Martino onto our team and finally put bootstraps on the ground in Canada, not only speaks French, believe it or not, we've never given French speaking support in Canada and we are really proud to bring her on to the team. She was with ViSalus for a number of years and has an incredible resume of helping support the distributor base and our distributors in Canada are really excited to have a corporate presence up in Canada to rally around. The second thing we did in taking share of a market that's really been growing, thanks really to a number of things, one of them being our essential oils platform and Rhonda Anderson who is the founder of Creative Memories had a huge group in Australia and New Zealand. We give some support to Rod Dreur who has been on the ground in New Zealand where our New Zealand office is and literally we busted out of the seems of our New Zealand facility and we just signed a new lease, new facility there that's now I think three times the size of our existing facility, so that we could support New Zealand and Australia and we are expanding the team there and that business has been growing at a really nice rate and we are anticipating doing events finally, corporate events in that particular territory since its growth is so apparent. We also added Wiley Hurt who had been with Youngevity a number of years, he is one of the most gifted project managers I've ever been around. He knows Youngevity inside and out, he understands our systems and he is now helping me in a huge way. He is our VP of Global Operations and starting to coordinate all of these projects, because every time we open an international market, it's a humongous project in undertaking to do it well. And we have a real strong strategy as we grow into international, there are three areas we are focusing on. The first is going to be our Latin American speaking countries. When we go into Latin America and Spanish-speaking countries, we talk about the beachhead we built in Guadalajara, Mexico. Be rest assured that Susana Azocar, who is heading up Latin America and the reason why we put this beachhead Guadalajara, Mexico is because we have reached into Mexico with one of the largest groups that we have in Youngevity here in the US are Latinos and they are really committed to what Youngevity is all about. So we are now have already created the Spanish-speaking material that we need, we have a Spanish-speaking website and we're giving all types of support as we build our distribution in Mexico. The plan there and why we take a beachhead there is to then start hitting other Latin American countries, Colombia will be next on the list and there are several others. So this plan of reaching into Mexico is far encompassing and will be the fostering of significant growth as we put these boots on the ground. We have an office there, we have our distribution set up there already, we have people there on the ground and we have leadership there. So it's very, very exciting to be able to watch that reason growth over the next several years. The next area and we actually got very, very lucky in our timing and I will use the word luck happens to be Russia. We entered Russia really at the perfect time, we priced all our products before the ruble did with it and so we're perfectly positioned to enter Russia. We didn't have any issue with currency devaluation or asset devaluation during their situation, but the market is absolutely prime and it's never been more ready for what Youngevity can bring to the table. Youngevity really excels in markets where the health care system is struggling. And that's certainly is the case in Russia and Kazakhstan where we just now opened. We have our product approvals there already in place, so it's really exciting that we're there on the ground and we actually generated our first revenue in February just this past month, so it's exciting to actually be in a position where Russia goes from expenditures and start-ups to revenue creation. So we're really excited to see what it will do. The reason why we picked Russia is it's our entry point to Eastern Europe. Eastern Europe and all of Eastern Europe is a great, great area to enter the direct selling space. So as we knock out Moscow, where we opened our office and get our distribution to establish which we have established in both Moscow and Kazakhstan, we will then start to play packman throughout Eastern Europe. So that is the significance of that area. The third area and one that is obviously the biggest is Asia. And many of you probably read the press release where we added Ben Ho to the team and what a gifted guy Ben is. And Ben Ho is leading our effort and we are opening an office in Singapore and we will be open and shipping products in Singapore by the end of the summer. It doesn't take rocket sciences to figure out why we would enter Singapore and that will be beachhead we will build as we enter the Asian market place and really do distribution all around China before an eventual entry into China when we are ready for that and that certainly will be some years off. So those are three areas that we're really focused on on top of Canada and New Zealand, Australia which I have already mentioned. So it's going to be an interesting year for us in terms of international growth. I want you to rest assured that we've been very, very conscious of protecting our fully reporting public status, we've hired the accounting firm of Grant Thornton which does all of our international accounting and all of these marketplaces, including Nicaragua which we cannot leave out since we've got significant operations there in Nicaragua. So we've done it right in terms of our accounting team, we've done it right in terms of our legal structure and we are doing it right in terms of product registrations. So really keep an eye and watch, it will be exciting to watch Youngevity enter the global marketplace and see what we can do over the next five and 10 years and certainly in the immediate future. With that, I would like to bring Ernesto Aguilar on the call. I'm going to bring Ernesto on to the call, he doesn't get on these calls often, but we have so much going on on the coffee end of our business. We didn't want to leave out that important part, particularly with coffee now reaching into the vertical play with our direct selling and all of the incredible things we have going on in coffee on the manufacturing, brewing side, wholesale side of the business. Since I have already gone over the numbers of our 101% growth over last year, I thought Ernesto could give us a glance into 2015. Ernesto, are you here on the call?
- Ernesto Aguilar:
- I am here. Thank you for having me on the call today. Good afternoon to all of the shareholders, Steve, Bill, and everyone else on the call. Let me give you a glance into 2015 first on roasters. Let's start off with the plantations in Nicaragua. Last month, we just got our re-certification for fair trades, we received a certification for three years. This morning, [indiscernible] plantations for re-certification for reinforce alliance. I'm hoping to have that wrapped up in the next three days. What does this mean for us, for coffees offering from our plantations. First, we think our coffee as a specialty. We would then receive $0.30 a pound more versus the market price. We can sell the coffee as organic, which then we'll also receive $0.30 premium versus the market. We can sell our landforms alliance, plus $0.10 versus the market as a premium. We can sell the coffee is a strictly high quality plus $0.10 versus the market. We can also sell our fair trade at plus $0.20 versus the market. Or simply we can sell fair trades strictly high grown fair trade organic specialty coffee with a score of 84 points and above which then gives us an extra $1 versus the market. So an example would be the market today, the open market is $1.50, we will have the ability to sell our coffee in the open market for $2.50. And by the way all samples that we send up from the coffee from our farms are all scored above 84 points, very exciting news. As far as fair trade USA, fair trade International certifications are concerned, we are the only company in Central America both certifications. We have the certifications on our plantations, the mill, and our roasting facility here in Miami. This puts us in a category onto its own coffee business. Let's talk a little bit about the milling side of the business. Besides the 300 containers of commercial coffees we already have an agreement to deliver in 2015, we had already started shipping organic coffees. We have shipped containers to New York and also to Vancouver. I am anticipating starting to – I would say another 10 containers while the next couple of weeks of fair trade organic coffees which we already have some commitments into New York, Portland, Toronto, Miami and Vancouver locations. This is all new business for our mill [indiscernible] coffee division. Let's talk a little bit about [indiscernible] business. We have a lot of great news to pass on. First and foremost, our tcup machine which Steve was talking about earlier arrives at our warehouse tomorrow morning at 10 AM. We will be up and running by April 20. We will be shipping new products, we will be shipping products to new customers I would say later on May 1. We have 10 kcup items under the [indiscernible] company owned brand and already we have new customers ready for this launch of this new products. We will be the first company to offer kcups in the direct selling industry. We have already contracts for private label, we also have a bid order for another 8 million units and we also have an upcoming bid in the next two weeks for another 10 million units. Over the course of the next three months, we should see substantial bid opportunities that will exceed over 50 million units annually. Our machine is the most modern machine in the industry and we are inviting major players to visit our CLR. One of the first major players to accept our invitation is Cisco. They will be in our facility here next month. We have a lot of great opportunities with this machine. This is the most rapid growing segment in the coffee industry. On our private label side of the business, we recently landed two new accounts on the retail bag business that should generate about $2 million of incremental business. We just received our first purchase order for this new business. We also acquired more equipment to support this growth and reduce overheads to make this segment more profitable for us. On the branded side of the business, we have added 200 new stores which will start in July or August for our Cafe La Rica espresso. And in the first quarter of 2015, we're off to a great start. We're up 28% versus first quarter of 2014 on Cafe La Rica. March 2015 marked the first time in our roasting operation that we will cross $1 million a month sales. We saw this business grow last year from $8.7 million to $17.7 million. Most of that growth was related to green coffee sales. In the past, we have been very close. Last month, for example, we missed that benchmark by $6,000. This month, we'll crack that. I want to close by letting everybody know that we have become one of the most vertical coffee companies in the world. When we say [fond of cup] it's true statement and I feel our better days are still right in front of us. Steve and Dave, thank you for the opportunity to be on the call.
- Dave Briskie:
- Appreciate, Ernesto. I appreciate the update, I know we've got a lot of exciting things going on there. Just to clarify, in case you didn't come through with Ernesto mentioned $1 million month, it's just on roasted coffee, there's nothing to do with the green coffee division. So it's been a milestone that every company likes to break through and obviously we haven't started marketing kcups which would be in the roasted category. So the future looks very, very good for the green coffee segment. I just want to wrap up the call now, before I do, just say we've been taking our story to the street and the audience is starting to really expand, if you will, into larger players in terms of the interest level of our YGYI stock story. We've been around a while and we've been working hard, we've been on the radio, we've been in road shows, we've been in conferences, it's been nice to see based on the results of our last road show where we visited some 30 institutional investors that can invest in microcap, we've seen some growth in our daily volume and that's nice to see. By no means, are we pleased or happy with the results of the volume in our stock or price of our stock, we all have the opinion that we are undervalued and we're going to work tirelessly to bring the share price to a value that's commensurate with the value of our company. So look for more activity in that regard and more effort in that regard and more rolling up our sleeves in that regard to bring this story to the street. And with that, I would like to turn the call back over to Steve to close it up for us.
- Steve Wallach:
- Thank you, Dave. I would like to reiterate thank you to everybody for your time today. Thank you for being on our call. Thank you for being shareholders and distributors of our company. And thank you everybody that was speakers on today's call as well, so thank you and I look forward to the next call.
- Dave Briskie:
- Thank you, everyone.
Other Youngevity International, Inc. earnings call transcripts:
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