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New Age Beverages Corporation (NBEV) Q2 2019 Earnings Call Transcript

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New Age Beverages Corporation  (NASDAQ: NBEV)
Q2 2019 Earnings Call
Aug. 08, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the New Age Beverages Corporation Q2 2019 Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference Mr. Cody Slach. Mr. Slach, you may begin.

Cody Slach -- Director of Investor Relations

Thanks and good morning. Thank you for joining New Age Beverage Corporation's 2019 second quarter financial results investor call. I'm Cody Slach with Gateway, the IR counsel for New Age. I'd like to welcome you all to the call today and thank you all for joining. On today's call, we will have Brent Willis, CEO of New Age Beverages; Greg Gould, CFO; and Olivier Sonnois, President of North America and the Founder of the Brands Within Reach Group, that New Age recently acquired just after the close of the second quarter.

I'd like to remind everyone this call may contain certain forward-looking statements reflecting management's current expectations regarding future results of operations, economic performance, financial condition and achievements of the company. Forward-looking statements, specifically those concerning future performance, are subject to risks and uncertainties. The transcript of today's call will be available on the company's website within the Investors section at newagebev.com.

I'd now like to turn the call over to Greg Gould, Chief Financial Officer. Greg?

Gregory A. Gould -- Chief Financial and Administrative Officer

Thanks, Cody. For the second quarter of 2019, we delivered net revenue of $66.3 million, an increase of 397% versus the second quarter of 2018. The second quarter results were also up sequentially 14% versus Q1, particularly important given the seasonality in our Morinda business is very limited.

Within our segments, our New Age group was up 7% organically in Q2 versus the second quarter of 2018. All brands performed reasonably equally with Bucha, continuing to be our best performer both during the quarter and year-to-date. Our direct-to-store distribution continues to expand and we have added a number of new brands to the group, in addition to expanding the breadth and depth of the division. Morinda also performed extremely well across most markets. Our largest market Japan was up 2% in the quarter versus prior year, and in the month of June was up 9% versus prior year. China had a difficult quarter due to the government restrictions on the industry that were only recently lifted. In all other markets, including Latin America, South East Asia and Europe, Morinda was up 40% organically in the quarter versus prior year.

Gross profit. The firm delivered $41.7 million for the quarter ended June 30, 2019 versus $1.8 million in the second quarter of the prior year, an increase of 2,268%. As a percentage of sales, this equated to a 63% gross margin versus 13% in the prior year. This reflects a shift in the mix of our business.

Total operating expenses were $44.6 million, down $2.5 million versus the first quarter of 2019, but up versus the second quarter of 2018, due to the increased SG&A associated with the Morinda acquisition that closed on December 21st, 2018. Also included in this amount was an unrealized gain of $6.7 million from the change in fair value of the Morinda earnout obligation, which was partially offset by $3.1 million in non-cash expenses and a $1.5 million impairment charge. We had a net loss of $11.7 million, or $0.15 per share in the second quarter of 2019 versus a net loss of $3.4 million, or $0.09 per share in the second quarter of 2018. Adjusted EBITDA for the second quarter of 2019 was positive $14,000 versus a loss of $2.2 million in the second quarter of the prior year.

Reviewing the balance sheet. As of June 30th, 2019 we had $86.6 million in cash and $57.8 million in working capital as compared to $42.5 million in cash and $40.9 million in working capital at December 31st, 2018. At the end of June, we had $331.7 million in total assets compared to $286.9 million at the end of December 2018, an increase of 16%. Beyond the improved financial results for the business, we expanded our brands with the Marley family, completed the Brands Within Reach acquisition and amended our East West Bank loan agreement affixing our interest rate at 5.39% for the remainder of the term. Also this quarter, we continued to strengthen our team and enhance our public company, corporate governance and financial reporting, which will lay a foundation for future organic growth and potential acquisition integration.

And with that I'd like to pass the call back to Brent.

Brent Willis -- Chief Executive Officer

Thank you, Greg. Overall, I would say we performed to expectations in the quarter. There are a lot of very good things happening and some continual challenges both of which I'd like to discuss on the call today.

First, let's address some of the negatives. Number one, we only did $66.3 million in revenue. Yes, it is up dramatically versus prior year and yes, it's up sequentially versus the prior quarter of 14% and yes, it's above the consensus estimate. But I feel we could have done better. We had a number of markets where we just did not get shipments out before the end of the quarter, so that revenue gets pushed into Q3. And overall, I feel as if we just missed out on too many of the opportunities for growth.

Number two, the brands. New Age was up 7% organically, but only 7%. And again I feel we could have done better. Yes, we began our first ever national brand sales with Walmart. Yes, we began our first ever national brand sales with 7-Eleven, but there is a big difference between getting authorization and beginning shipments which we did and ultimately getting on all of the store shelves and getting all of the franchise owners and individual stores at 7-Eleven for example to comply. It just did not happened yet. And as a result total revenue from these two chains, honestly, way under where we expected them to be. It will happen. It's just slower than anticipated.

Number three, CBD. Yes. We did launch CBD in the US and in Hong Kong, China. Yes, it's already contributing revenue, but our CBD infused beverages are not out yet. When we were first planning on this, already had our samples and already had commitments from major retailers, in Q4 of last year, we expected to be able to execute shortly after the passing of the farm bill. What we did not proceed with the FDA completely making navigation as murky as the Straits of Hormuz and to add infill to injury there allowing thousands of other small companies to get out there first, not public enterprises that are compelled to comply with federal law. So it slows us down in the US, it would have already been a much more substantial impact and it allows all of these literally thousands of other smaller competitors to get out there first in the US in beverages.

And number four, China. Yes, New Age still has a great and super high potential operation there. But the impact of the government restrictions on the industry in the first half of the year were draconian and we too were affected. And to make matters worse, given the US is such a, I would say, globally integrated economy with China, the whole tariff stance has also had a negative effect on our business. Not only does our aluminum and our glass prices go up significantly, but especially recently the highly charged negative rhetoric, I would say, against the US going on now within Mainland, China, also puts a significant short-term damper on our business.

Notwithstanding those opportunities for improvement, there also a number of positives. The Japan growth and momentum with all our independent product distributors has taken six months, but they are doing very well. Mind you, our Japan business has not grown for almost 10 years. So turning this around as we have in the first half, after 10 years of decline, is a major accomplishment and credit to our Japanese team.

Number two, in US, we just started shipping our teas in a brand product partnership with Circle K. And they are indeed getting it out to the stores and it is having the expected impact so far. And in addition because we did they added Bucha in two of their largest regions for us into their assortment. And while we're talking about the New Age brands we have just completed the registration of the first wave of our brands in 33 countries and shipments have already begun to these markets. And the Health Sciences products also are now contributing both revenue and profit.

The next positive, acquisition integration and synergy capture. We are now six months, but really only six months into the acquisition of Morinda and its integration and the impact of the human resources on New Age overall I would say has been profound. We are ahead of our projected cost and revenue synergy expectations. And in the quarter, we completed a major transportation and logistics optimization initiative that captured just over $1 million in annual savings. We also just completed the installation of Oracle enterprise business system throughout New Age. And for frame of reference, the last time I put in an ERP system like this, it costs me more than $1 million in implementation fees and took two years. Here we did it at no cost, 100% with internal resources and it went live July 1st.

The two quicker sides on the Morinda acquisition and acquisitions overall. Number one, integration and synergy captures actually not that easy, but we at New Age I think we have it down. And number two, something I just don't understand. For example when I was at AB InBev and helping to build that company, no one ever talk to us about what percentage of my growth was coming from organic versus external growth. They just wanted to grow. And here at this derivation of InBev, I get asked that question all the time. And I think by the point that I'd like to articulate is, we will continue to both execute organically and selectively maybe very selectively pursue external growth as long as the initiatives are accretive for shareholders and support the platform we are looking to build ultimately gain competitive advantage.

And this takes me to the last positive that I want to talk about on today's call, the BWR acquisition. This acquisition was incredibly accretive and a great value for the New Age shareholders. The shorters created fear and doubt and the stock went down as a result. Look, we just added some of the world's best beverage brands to New Age. The Nestea license is the exact one we used to have at Coke. And now we, New Age, we have the brand. And relative to other brands, as much as it's difficult for me to say comparing the New Age brands to Nestea Elite Coffee, Volvic, which is the world's second largest water Evian well. Honestly, there's just not a legitimate comparison.

So I've asked Olivier Sonnois, the founder of the Brands Within Reach Group, who joined New Ages part of the acquisition to provide some insight into how he is framing the opportunity. Olivier?

Olivier Sonnois -- President of North America, Founder, Brands Within Reach

Thanks, Brent. Good morning, everybody. As a mean of introduction, I have spent the past 25 years in the beverage industry at the known for many years as [Indecipherable] organic food company which was sold to Hain Celestial. And then I founded and self-funded BWR more than 12 years ago. And here is a simple perspective I have on the beverage industry. There are only about 50 companies, over $100 million in revenue in the sector. And there are more than 10,000 which are under $10 million. Why? Well, it is just very challenging to scale and even more challenging to scale in a profitable manner. So I thought it would be good to share with you why I chose to do the deal with New Age.

First and foremost, I really like the people, and I really like the culture. It is a perfect match. We have the same committed culture at BWR, dedicated to bringing something different to the category and providing healthy products for consumers. The cultural and team integration has been so easy, really effortless, as we have had been operating together all along since day one.

Number two, it solves my scale and resources challenges. There is only so much you can do on your own and New Age with Morinda could bring the size and resources to build this fantastic globally iconic brands bigger, better, broader and faster.

And number three, I think we also solve the challenge for New Age. They have great brands in their portfolio, but not any like Nestea for example, which has almost 90% consumer awareness. And that is a great and imported accelerant for New Age. They most likely needed us at this stage.

Number four, they needed us not just for the brand, but also for the very well orchestrated infrastructure and sales teams, our systems, our processes we have been putting in place for the past 12 years. The New Age team was just getting started on people and processes just because they were so new and we had been out there for 12 years. They could have done it, but we acted as a huge infrastructure and an organizational capability accelerant for them. It is those processes that enabled us to be breakeven on our own even as a very small beverage company, one of the very few in fact, and if not the only profitable one, which was under $100 million in revenue. And now New Age has it all.

And lastly, I would say, selfishly we also wanted the New Age stocks, because we believe and rather we know it has huge potential, even greater now with the addition of the BWR global brands in their system. So essentially that's why I did it. Now what have I seen so far? Well, it's still early days, 30 days since the close, but I'm very optimistic and I see huge upside potential and lots of low hanging fruits. There are so many key accounts and distribution and window across all channels added to the support of a well-seasoned management and marketing opportunities for the New Age brands. Similarly, there are equal upside and maybe even more for the BWR brands to New Age key accounts through their e-commerce system, which is very impressive and through their Colorado they have the system which is near instant impact from brands and probably one of the best managed I have seen. Our brand partners are just very excited.

And I am now very excited to build even more competitive advantage with our unique omni-channel system which the Board and Brent have asked me to lead as the new President for North America. As part of my own boarding, I had the chance to be with the Board of Directors at the last board meeting in Japan. Well, I have to say, they're not just strategic like any Board should be, but they're very involved, they are engaged, they're in our face, and they're very demanding, but above all they are amazing. I was very impressed as you can tell as we have exceptional strength in our Board of Directors. I also expect us to build competitive advantage with CBD across all channels and in a number of product forms.

Like Brent said, would I have liked to have our CBD beverages out already? Of course, but having the option to prepare our launch more strategically and build a range a product forms across a range of channels might in fact, an even greater opportunity. Because that is something we can uniquely do at New Age, because we have these omni-channel capabilities, which opens up even more opportunities for us that I'm not sure everyone comprehend yet and the future will tell. So like I said, it's still early days that I'm very excited for BWR, the company I created, to have joined forces with New Age. And we are indeed going to build a force to be reckoned with under my leadership and with our merge teams. And I really think we're just getting started.

Brent, back to you.

Brent Willis -- Chief Executive Officer

Thank you, Olivier. I might ask you just one question while we have you on the phone before your flight actually. What would you say your framing is your biggest opportunity and maybe your biggest challenge?

Olivier Sonnois -- President of North America, Founder, Brands Within Reach

The biggest opportunity we have ahead of us is really to organize our stable of brands and to position them in every category that we're competing in and we're taking serious steps into that already. Category management being one of them. Education of our retailer partners on upcoming trends and researching even deeper consumer insight is clearly opportunities that we have. Our challenges we have right now is to move as quickly as the world expect us to do so and to execute results so quickly. The results will come, and they will come almost with certainty. We just have to accelerate things and hiring right now the best talents is something we've been doing even more recently and I think we're building a team of champions out there. And I think this is what's going to help us the timing challenge that we're faced with.

Brent Willis -- Chief Executive Officer

Awesome. Thank you very much, Olivier. I think North America represents one of the biggest upsides in our plan and both 2019 and in 2020. And I'm excited to see the team succeed going forward under Olivier's leadership. And to that end at the close of the second quarter, we put out an 8-K that Randy Smith, President of Morinda was retiring for some serious health issues effective almost immediately. Randy contributed 15 years of outstanding leadership to Morinda and to New Age as part of the merger. And frankly without him the transaction wouldn't have been possible and without him we would not have enjoyed the level of success we have had since the merger. He will be missed.

With that catalyst, however, and with the evolution of our strategy at New Age, it challenged us to revisit our organizational structure and determine if its followed directly enough and flowed from our strategy. The answer, with Morinda as a stand-alone division was not as much as it could. And given our focus and our opportunities in key regions, especially Asia-Pacific, China, North America and given the portfolio of products, not just beverages, we want to drive primarily in those regions embodying our omni-channel approach and we felt that moving to a regional structure with incremental resources in those regions and bringing our business and our leaders closer to consumers was the right path to take.

So, as Olivier just mentioned he's been named our President for all of North America. Josh Hillegass will continue to run our distribution operations. A new president for Asia-Pacific is forthcoming. And Shon Whitney, former VP of Sales and Marketing at Morinda is now President of the rest of world region. Shon did a great job in marketing at Morinda, and his work is cutout for him with Latin America, Scandinavia, Russia and the Baltics, Europe and new markets reporting to him, especially since in Q2 his area was up 40% versus prior year and his targets are substantially greater than that. So that's just a quick update on the positives and negatives. But let me ask Greg to comment on where it will lead us financially versus our outlook.

Gregory A. Gould -- Chief Financial and Administrative Officer

Thanks, Brent. As we move forward into the third quarter of 2019, we believe that revenues should be in the $70 million range and most likely will be in the high $200 million range for the entire year of 2019. We believe that there could be some upside to this guidance, such as how quickly China can rebound the amount of lift we can get from the BWR acquisition and integration with our brands products and if we are able to sell CBD in the United States in the second half of 2019, which is currently being restricted by the FDA. In addition to revenue, we expect to continue to be positive on the adjusted EBITDA line for the third quarter and the entire year as we make necessary investments in our brands, distribution, market expansion and people consistent with the new regional structure that Brent mentioned earlier in the call to enhance our future revenue growth.

Brent, with that I'll hand it back to you.

Brent Willis -- Chief Executive Officer

Thanks Greg. So let's see if we can surprise to the upside again. Look, even at these levels we still only trade about one multiple of revenue which is four times to five times less than the average of our peer group, so we see substantial incremental value and upside for our shareholders going forward, but better to be conservative than the opposite, especially with how new our firm is and our new recent additions.

As I mentioned, we have some components of our company that I am not happy with, and frankly the addition of the BWR team addresses one of those most important elements of dissatisfaction. Even with those pluses and minuses, however, as I mentioned on our last call, I believe we have the discipline and the Board and management team characteristic of a much larger and robust company, a bulge bracket one. But on top of that, we have all of the growth and prospects of the small cap. We've been planting the seeds and we expect that they will begin to bear fruit for all our shareholders, as we begin our -- and build our components of competitive advantage, play our game on our terms and action emerging growth opportunities faster and better than anyone in the industry and frankly just build this great company. The legacy leaders with their legacy soft drink portfolios have had their time. Now it's our time and now it's time for New Age.

And with that, I'd like to open it up to questions.

Questions and Answers:

Operator

Thank you. [Operator Instruction] Our first question comes from Aaron Grey with Aligned Global Partners. You may proceed with your question.

Aaron Grey -- Aligned Global Partners -- Analyst

Hey, good morning, guys. Thanks for the questions.

Brent Willis -- Chief Executive Officer

Hi, Aaron.

Aaron Grey -- Aligned Global Partners -- Analyst

First question is going to be on the updated guidance. So $70 million for next quarter but just digging into the full year, when you say high $200 million, if we can just noted that down a little bit. Would it be about $290 million, just wanted to try and get a better sense of how much of a ramp-up you would expect in 4Q versus 3Q? So some color there and then what will kind of drive that ramp up in the fourth quarter versus 3Q, which seems to be -- would be pretty significant would be helpful? Thanks.

Gregory A. Gould -- Chief Financial and Administrative Officer

Yeah. At first let me jump in on this real quick. So then when we look at the entire year, we've said somewhere within the high $200 millions. Could it be $290 million? Yes. I mean, there's lots of things we see that could really affect us here. And the biggest being China. And just how quickly that, that really rebounds. And really what happens to CBD during the second half of this year, because we currently have CBD top goes out within via US, but we really see that there's a big market here for infused beverages and we're just looking for more guidance there from the FDA. And once we get that, we think and hope that the floodgates could really open up. Brent, do you have more on that.

Brent Willis -- Chief Executive Officer

Yeah, I'd just add. I think that's right. I mean, we want to be conservative but the truth is given we're new and given we have a number of moving parts. There is sensitivity in the business, so that's why we want to guide to what we think is the lower end of our spectrum. And if those initiatives as Greg mentioned, materialize, great. But it's just not 95% sure that those things will materialize. And as you mentioned, there is CBD in beverages in North America. There's further expansion of our topicals, there's the whole impact of BWR and better short-term impact on all of our brands in North America and frankly a number of CBD initiatives outside the United States that could positively impact, but that -- what all that implies with those four or five different variables is variability and sensitivity. So we'd rather be conservative and just as we did this quarter exceed to the upside versus the opposite.

Aaron Grey -- Aligned Global Partners -- Analyst

Okay. Great. Thanks, that's helpful. And then just digging a little bit deeper on China, I know you mentioned some of those restrictions being lifted. Can you just give some color in terms of the timing of when those were lifted? And then if you give any color in terms of how sales kind of trended monthly if there was kind of some ramp up there? And what you expect going forward? It sounds like now you have another overhang in terms of what you saw with the tariffs and the broader kind of US view in China. So any kind of color on China and what you're kind of seeing more granular in terms of sales, if you had seen any kind of improvement or but still just something you're looking for going forward. That would be helpful? Thanks.

Brent Willis -- Chief Executive Officer

Yeah. Great question, Aaron. Like I said, I and we all still feel we have fantastic potential and a fantastic organization in China. And it's a big growth and focus area for us. So all these things that we're talking about are short-term impacts. The biggest short-term impact, again had nothing to do with us. It was industry wide that emanated with the SAIC and MOFCOM from actions to -- some actions that happened with some local Chinese companies and then they just put the restrictions on the entire industry. And that was ultimately lifted. And really the end of July, beginning of August, right, so that really affected us through there. But those restrictions for the most part are listed although we're still having to be very, very careful and we're operating very delicately, but the actual and absolute restrictions were lifted in the beginning of August.

When we were there and we were there with the Board in the end of July, we had just a fantastic month in terms of performance and throughput, but as I mentioned we didn't get all the shipments out of the door. So that affects us before the quarter, but what it says is boy you really had a lot of good upside and good momentum as soon as these restrictions and the kid gloves are taken off in China. So we do see it as short-term. We do see it as getting back to our run rate that we were last year going forward for the end of the year, but the impact in the beginning of the year means that's lost for us.

The tariffs and other stuff, I mean, yes the tariffs affect us from the cost of goods sold standpoint in North America, although we're looking at different locations for supply from glass and aluminum, but that's one piece, but there is this undercurrent now throughout the environment there in China coming from the media and the Chinese government that is rhetoric against US companies and all US companies and a big driver of our business is new distributors and new independent product distributors coming on into our system. And if there's a lot of negative rhetoric about interacting or working or overall with the US or US companies that has a negative impact of people wanting to be associated with or partner with US companies. So I just start to see the undercurrent of that and it's accelerating and the minute we can start to make progress in the tariffs, which will happen again it's a short-term issue. But as soon as that starts to happen some of that rhetoric will start to ease and we'll get back to normalized opportunities.

That being said our overall take on China is these are short-term impacts. We do not see any whatsoever structural or long-term impact on our business in China. And in fact we see significant upside potential and we're taken the actions both on a product standpoint, both in terms of business model which we chat e-commerce and our expansion beyond 10 provinces. We've taking those actions to significantly grow our business going forward and not just beat the mercy of some short-term fluctuations.

Aaron Grey -- Aligned Global Partners -- Analyst

Okay, great. Thanks. I'll jump back in the queue and leave questions for some others. Thanks.

Brent Willis -- Chief Executive Officer

Thank you.

Gregory A. Gould -- Chief Financial and Administrative Officer

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Mike Grondahl with Northland Securities. You may proceed with your question.

Michael Grondahl -- Northland Capital Markets -- Analyst

Oh, yeah. How are you guys? Hey, just a couple follow-ups on Morinda. You gave some numbers out. But what did China do year-over-year? And what did total Morinda revenues do year-over-year?

Brent Willis -- Chief Executive Officer

We don't breakout China specifically but you know -- some of the companies there are down significantly you 50%. /60% of their previous business were nowhere near in that kind of round. But we don't breakout and we don't communicate China specifically and we like to maintain flexibility without communicating performance in individual countries. Overall, Japan is still our largest market and so that was up and especially up in June. And as I mentioned from a pure volume throughput standpoint China was up in June, sorry, yeah, in June as we did our big meetings with like 4,500 people that were there as part of our most business -- our business summit that we most recently had there. So a lot of the other markets, Latin America especially, Southeast Asia especially are really expanding for us and starting to be significant contributors. US was up slightly, but the big drivers were all these new markets emerging markets Southeast Asia and Japan in Q2.

Michael Grondahl -- Northland Capital Markets -- Analyst

Got it.

Gregory A. Gould -- Chief Financial and Administrative Officer

When you look at Morinda stand-alone or orverall

Michael Grondahl -- Northland Capital Markets -- Analyst

Yeah, overall.

Gregory A. Gould -- Chief Financial and Administrative Officer

Yes for year-to-date 2019 we're just over $100 million in sales there.

Michael Grondahl -- Northland Capital Markets -- Analyst

Okay. I guess, I get a $100 million but is it up or down what is it year-over-year?

Brent Willis -- Chief Executive Officer

Overall it's all up, so if you look at a waterfall Mike, it's all up, but all of that upside has essentially been offset by China. So everyplace is up except for China. And so had we been just on track or continuing or been flat in China boy we would have had -- a just tremendous year this year. But if you look at where we were and what we expected at the beginning of the year versus kind of our revise more conservative guidance, when we look at it is, it's a 100% China. And we're up its actually kind of 200% China in terms of negative impact offset by the improvement in New Age, the improvements in all of these other markets. So that's the one impact but everyplace else we're up.

Michael Grondahl -- Northland Capital Markets -- Analyst

Got it. And then Morinda you have an earnout with Morinda. And I think the likelihood of you paying that earnout went down because of the $6.7 million kind of gain that you took. So how was Morinda's EBITDA trending because I think there is like a waterfall if they do $20 million of EBITDA they earn it. If they don't, I think it falls to 0. Could you just remind us kind of how that works and how it's trending?

Gregory A. Gould -- Chief Financial and Administrative Officer

Yeah with that there is definitely a waterfall, they need to hit a $20 million EBITDA number and if they hit that they would get a $15 million payout in the actually the first quarter of 2020. And then with that for every dollar that the short of that $20 million it goes down by a multiple of 5. So --

Brent Willis -- Chief Executive Officer

If they hit $15 million they get 0 basically.

Gregory A. Gould -- Chief Financial and Administrative Officer

Yeah. So then we did make an adjustment this quarter bringing that down pretty substantially. We had accrued on our books as of December 31st that it would be a little bit more than $13 million of a payout.

Brent Willis -- Chief Executive Officer

Do we still have -- we still have --

Gregory A. Gould -- Chief Financial and Administrative Officer

And now we still have about $6.5 million, $7 million accrued on the books as of June 30th and we're going to continue to evaluate that during second half of this year.

Brent Willis -- Chief Executive Officer

And just think about it Mike some of the markets and on average Morinda is like 80% margin or a high 70% gross margin. So if you have China round numbers of China is down $20 million and you got an 80% margin in there that's a $15 million, $16 million negative EBITDA impact. So that gets wiped out and then you offset that with all the growth in the other markets. So that's why we said, look, we're going to continue to make investments in the business. We're making investments in people, we're making investments in the brand, we're making investments in the launch and expansion of new products whether it's Health Sciences, CBD or the other things in North America and around the rest of the world. So that's why we said, look, we're just going to pay our bills we're going maintain positive EBITDA, but because of Morinda, it's size and scale for overall business and because of what's happened in China this year, that wipes out a big piece. And then again, a simple way to look at the business is boy it's really doing well at New Age, Rest of World, Japan, even in the US, offset by the negative impact from China, which again we believe is short-term.

Michael Grondahl -- Northland Capital Markets -- Analyst

Got it. Got it. Okay.

Gregory A. Gould -- Chief Financial and Administrative Officer

Thank you.

Michael Grondahl -- Northland Capital Markets -- Analyst

Shifting over to Walmart and 7-Eleven, you kind of said those were under your expectations. Is it a distribution issue? Is it a demand issue? Why are those under?

Brent Willis -- Chief Executive Officer

It's all distribution. So the way these systems work, especially 7-Eleven is that puts you in the national planogram and they authorize you and they make initial orders, so that has happened with 7-Eleven and Walmart. So we went in these planogram. But then with 7-Eleven, not all of the store owners and franchise owners in all of these regions across the world and even in some of the corporate owned stores, they don't put it on the shelf, they don't set it, they don't comply with what corporate wants to do and if you look at within the 7-Eleven system, there is always massive lawsuit going on between the franchisees and corporate, so it's a very difficult system to operate with. So we don't have a demand issue or we don't know if we have a demand issue frankly because we're just getting on the shelves now. So getting it on the shelves is been really challenging and we're having to do additional things because we just can't rely on the change, especially indicates 7-Eleven to get it out on the shelves. So it's not a demand issue, it's a distribution execution issue within their own systems that because they have those issues in their systems, we're having take it on to address the problem ourselves.

Michael Grondahl -- Northland Capital Markets -- Analyst

Got it. That helps with 7-Eleven. Is Walmart similar or how would you characterize that?

Brent Willis -- Chief Executive Officer

Walmart is similar and less so from an execution standpoint versus 7-Eleven and very much less over versus Circle K, which we never really communicated and we didn't communicate at all but the Circle K expansion is gone really well, but that's not a franchise model and they are really hitting on all cylinders that really just shift in the very end of the quarter, so that's going particularly well for us. But Walmart same kind of issue in terms of getting it out and getting it out of all the stores and then driving the traffic and awareness, remind you, one of the reasons we love our omni-channel system is because when you shop a traditional retail category, it's such a sea of confusion in the beverage industry with thousands of products and 40, 50 linear feet of shelf space of carbonated soft drinks to sort through until you get and you get to find a healthy products and healthy beverages. So it's just a matter of time. And we're doing some things now directly with Walmart in terms of rollbacks and promotional incentives inside the store to build awareness of the availability of the Marley brand now at Walmart.

Michael Grondahl -- Northland Capital Markets -- Analyst

Got it. And then just lastly on CBD, besides topicals would you say you're just waiting for the FDA framework, so you're in a holding pattern until you get more insight or they say, how to proceed?

Brent Willis -- Chief Executive Officer

Well, we are proceeding outside the United States, and I've always said, this is a global opportunity for us. So one of our big variability is -- our sensitivities to the upside is, how quickly and broadly can we get CBD outside the United States in all these markets. So their regulatory barriers and hurdles and all these other international markets that been we've been working to overcome and we have some -- had some very good success on overcoming some of those regulatory barriers in those other markets that gives us a lot of optimism for CBD outside the United States in the second half of the year. So it's just a matter of how quick and how fast and how broad that gets and in what channels we go. Within the United States, as I said, it's as murky as The Straits of Hormuz, that's a pretty difficult place to navigate these days and it's been murky for us too just in terms of unclear rules that apply for sure to public companies and apply to public companies that have to comply with federal law like ourselves but they are not being policed in terms of some of these other smaller companies that are getting out there. There may be some things that we can do where we can indeed comply with federal law -- comply with our requirements as the NASDAQ listed company and still be able to execute on the beverage side but we're making sure that we can do that from a legal standpoint and making sure we can do that with the FDA and so we're in constant dialogue with our lawyers that are in dialogue with all of these different entities to be able to make the navigation a lot more clear that it is. But CBD in the United States is another potential upside to how we're seeing the year, but it's just too many unknowns at this point.

Michael Grondahl -- Northland Capital Markets -- Analyst

Fair enough. Any update on the Docklight partnership?

Brent Willis -- Chief Executive Officer

Because we have that partnership that is one potential way that we can navigate the waters, I'd rather have the market and consumers and or investors see that delicate navigation that ultimately results in effectuation and our Marley brand on shelves in beverages. So I expect to have positive news for our shareholders and consumers frankly with this great brand in that area and because of that unique relationship with Docklight it may be a way to be able to execute and execute it in a very significant way this year.

Michael Grondahl -- Northland Capital Markets -- Analyst

Got it. Okay. Thanks, guys.

Brent Willis -- Chief Executive Officer

Thanks. Mike.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Brent Willis for any further remarks.

Brent Willis -- Chief Executive Officer

Hi. Thanks, everybody. Appreciate the time on the call. Again, we were pleased with a lot of things happening. We've got improvement opportunities just like everybody does, but simple way to look at the business is China has had a negative impact on the first half offset by frankly a number of good things happening in a lot of different places that we expect to continue to effectuate inaction for the rest of the year. We love the business and we love the potential that our business represents and you know like I said, even at high-200s [Phonetic] where Greg said, we are calling the business right now even, even still at that level, that means we're trading at one times revenue or about 75% below that of our peer group. So we think there's a lot of upside for our shareholders going forward as we continue to execute the business. Thanks very much for joining the call.

Cody Slach -- Director of Investor Relations

Thanks everybody.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Cody Slach -- Director of Investor Relations

Gregory A. Gould -- Chief Financial and Administrative Officer

Brent Willis -- Chief Executive Officer

Olivier Sonnois -- President of North America, Founder, Brands Within Reach

Aaron Grey -- Aligned Global Partners -- Analyst

Michael Grondahl -- Northland Capital Markets -- Analyst

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