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Edited Transcript of NBEV.OB earnings conference call or presentation 29-Mar-19 12:30pm GMT

Full Year 2018 New Age Beverages Corp Earnings Call

DENVER Apr 9, 2019 (Thomson StreetEvents) -- Edited Transcript of New Age Beverages Corp earnings conference call or presentation Friday, March 29, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent David Willis

New Age Beverages Corporation - CEO & Director

* Cody Slach

Liolios Group, Inc. - Director of IR

* Gregory A. Gould

New Age Beverages Corporation - CFO

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Conference Call Participants

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* Aaron Thomas Grey

Alliance Global Partners, Research Division - Analyst

* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* John Harrell

* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the New Age Beverages Corporation 2018 Annual Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Cody Slach, Investor Relations for New Age Beverages. Thank you. You may begin.

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Cody Slach, Liolios Group, Inc. - Director of IR [2]

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Good morning. Thank you for joining New Age Beverage Corporation's 2018 Fourth Quarter and Full Year Financial Results Investor Call. I'm Cody Slach with Liolios, IR counsel for New Age. I'd like to welcome you all to the call today. Thank you all for joining. On today's call, we have Brent Willis, CEO of New Age Beverages; and Greg Gould, Chief Financial Officer.

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 certain risks and uncertainties.

The transcript of today's call will be available on the company's website within the Investors section at newagebev.com. Now I'd like to turn the call over to Brent. Brent?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [3]

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Thank you, Cody. 2018 was an extremely challenging year for the company. And despite being up 24% in Q4 in net revenue, none of us are happy with the performance. So many small companies in this sector struggle with working capital issues, and last year, New Age was dramatically affected across every aspect of its business and every aspect of the P&L. We basically spent the entire year recovering from a failed financing with PNC in the beginning of the year. But through that process, we were able to maintain all of our major customers without a single loss, and in the fourth quarter, did indeed recover to fund the firm and replenish inventory in the last 6 weeks of the year.

Exiting the year, we have a stronger organization with stronger brands and stronger people. But beyond that, we're now a totally different company with scale, with resources, with profitability, with people and organizational capabilities and with an infrastructure across 60 countries to drive our entire portfolio of brands, including a cannabis-infused beverage portfolio, whereby we believe we are in a strong position to capture first-mover advantage in what we believe will be an extremely attractive global market.

I am excited to share with you the insights into our 2019 strategies and action plans. But first, I'd like to pass it over to Greg Gould to review the financial results of the fourth quarter and full year for 2018. Greg?

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Gregory A. Gould, New Age Beverages Corporation - CFO [4]

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Thanks, Brent. For the year-end December 31, 2018, the company delivered consolidated gross revenue of $59 million, an increase of 4% versus prior year. Subtracting discounts and bill-backs, at the net revenue level, the company achieved $52 million, in line with prior year sales. Sales were negatively impacted by approximately $12 million to $14 million due to working capital constraints which severely constricted inventory levels and the company's ability to meet the demand of major distributors and retailers.

The other major impact between gross and net revenue levels was a dramatic increase in bill-backs and discounts from one of our major distributors. We were impacted by significant charges on virtually every shipment we shorted because of our inventory challenges and faced almost $4 million in charges from the crossover with Coco-Libre from its previous -- from concentrate product to the new, better product of 100% coconut water produced at the source. That changeover, albeit a onetime impact, was extremely expensive and unexpected at the beginning of 2018.

On the positive side of the ledger, our direct store distribution operations continued to outperform despite the capital obstacles and the loss of 3 major brands to acquisition by KDP in 2018 and managed to deliver its 10th year of consecutive growth.

On the brands, from a demand and brand health standpoint, our core business grew, with Búcha Live Kombucha, up 27%; Marley, up 73%, led by the new organic Marley Mate launch; and Xing that grew 23%, its first year of growth in over 4 years. Coco-Libre faced the product changeover challenge as previously mentioned.

Think of the brands in simple, reasonable progression. We gained these brands in 2017 and completely remade them. In 2018, we gained regional distribution, and in the year, the brands gained relevance. Not success, but relevance. The top line growth that led to now, in year 2.5 and 3, we are gaining national distribution, and we see the brands growing significantly during 2019. This is a very logical progression, and methodically, and I believe sets us up very nicely for attractive contribution and growth from the brands part of the business in 2019, not from just being and staying in stock, which is one impact, but from distribution expansion to national accounts.

Moving on to gross profit. The firm delivered $9.3 million for the year versus $12.4 million in the prior year. As a percent of sales, this equated to 18% versus 24%, reflective of the increased production, shipping and other costs cascaded from the working capital shortfall.

Total operating expenses for the year were $28.7 million versus $18.7 million in the prior year. This increase was driven by a number of noncash items totaling $5.3 million, which included amortization of intangible assets added to the balance sheet, stock-based compensation expense associated with improving our workforce. Adjusted EBITDA for the year ended December 31, 2018, was a negative $10.9 million, stemming from the inventory shortfall to fulfill demand as previously mentioned.

For the fourth quarter, post the recapitalization of the firm's gross revenue reached $15.8 million versus $12.4 million in the prior year. Net revenues increased 24% to $14 million versus $11.2 million in the fourth quarter of last year. Gross profit was 23% of net sales, in line with the previous year. Adjusted EBITDA for the quarter was a negative $4.5 million, reflective of the inventory impact and the increased costs associated with the Morinda merger which was completed in late December.

Switching to the balance sheet and cash flow statement for the period ended December 31, 2018. We ended with more than $280 million in assets compared to $68 million in the prior year, an increase of over 300%. Of the assets, $42 million was in cash versus a balance of only $285,000 in the prior year, a very different picture. And total current assets increased to $93 million versus $16 million in the prior year. Total liabilities at December 31, 2018, were $132 million as compared to $15 million in the prior year. Stockholders' equity tripled to over $150 million on a total of 75 million shares outstanding.

In summary, for the full year of 2018 and the fourth quarter, we are now a very different company, as seen in the balance sheet, than what was reflected in our 2018 P&L performance. We believe a large majority of our shortfall to the plan was due to lack of inventory and working capital constraints during 2018. Despite that, we still delivered a 24% increase in net revenue for the quarter, and our core brand showed relevant performance that is now resulting in further distribution expansion and national recognition in early 2019.

The Morinda acquisition, which one can see in the balance sheet, is transformative for us in virtually every way, but most importantly, in the quality of human resources it brings. The team here is outstanding, and the infrastructure and market breadth that is now part of our company presents a tremendous opportunity for New Age to drive our core brands, its Health Sciences products and our new CBD portfolio through global expansion beginning in 2019.

As a result of these opportunities we see in the business, we expect to deliver approximately $320 million in net revenue for 2019, with a gross margin in excess of 60% and more than $15 million of EBITDA. With that stated, we should note that we see the back half of 2019 being much stronger than the first half as our brands continue to grow and penetrate the markets and with the CBD products gaining traction in the third and fourth quarters.

And with that, I'll pass the call back over to Brent.

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Brent David Willis, New Age Beverages Corporation - CEO & Director [5]

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Thanks, Greg. I wanted to share some insights into our 2019 plan and update all of our investors on our major priorities and the real key drivers of the business. First off, let's review the largest impact in driver performance, and that's really the integration of the Morinda acquisition which we completed on the 21st of December. So we're right at 100 days into the integration, and frankly, so far, so good, I would say.

Key to success on the integration is the successful transitioning and motivation of the independent product consultants, who are really the sales force and customers of -- are primary customers of Morinda. There are 300,000 of them. And especially in cultures like those in Asia Pacific, and Japan, for example, they do not really respond well to change. The motivation and inspiration of these 300,000 folks, unfortunately, cannot be delegated. And applies -- it implies a lot of personal time on the road, but it is going quite well.

And I would say that there is tremendous excitement in our system and growth for 3, 4 or 5 reasons. But they are excited about, I would say, number one, the chance to earn stock in New Age through performance and results such that they, too, can be aligned with all of us on the phone as fellow shareholders.

Number two, they're excited about what being part of New Age represents and the growth story that, that represents in terms of upside for them. Now although we're not satisfied with the performance internally in any respect, the fact is, and they know, that in the past 2.5 years, New Age is up 15,000% in volume from very humble beginnings and a small base. But it's still up 15,000% in volume and the stock is up 3,000% in that same time period. They know that, and they can read it just like anybody else can.

They also like and align to our purpose to inspire and educate the planet to live healthy and to be part of something special and provide consumers healthy beverages and lifestyle alternatives. And emotionally, they can connect to that purpose. But they also, number four, I would say, like our portfolio and the chance to participate in the expansion of the New Age portfolio to traditional retail markets.

And maybe the last thing I'd say is everybody is very excited about CBD, and I would say excited is an understatement. Apoplectic might be an overstatement, but not much of one, I would say. There is an incredible amount of enthusiasm in the system. And they're excited to be part of, or to be a or become the, global leader in CBD. And we are working in every region of the world now to be first in CBD. And to this end, we launched our CBD creams, oils and lotions under the Enhanced brand as part of the Health Sciences Division in April in key markets, including the U.S., and have the same products planned for another 6 international markets in Q2 and Q3. Now the nice thing about these products is they are not in the food system and therefore do not run afoul with the FDA.

On the beverage side, the Marley Mellow Mood+ CBD relaxation drinks are currently in the registration process in 4 major international markets, including in Japan, whereby I will meet next week, for the third time actually, with one of the top 5 distributors in the country, with one of the largest beverage competitors in the world to talk about relationships and 2 major retailers there. We now believe we have the product formulations in both our shot and relaxation drinks down pat, which we believe tastes outstanding. And we are working to effectuate the launch in these 4 international markets, first on the beverage side, and the creams, lotions and topicals in other markets worldwide as an initial starting point.

Our intent on CBD is a global one, it is a long-term one and one where we believe we have the brands and infrastructure globally to put us in a competitive-advantaged position. We want to be on the leading edge, but not the bleeding edge, especially as it relates to beverages in the U.S., but this is not a U.S. story for New Age; or being the first public company, for example, to launch in Washington State, for example. This is about globally winning in CBD.

And hopefully now, it is becoming clear on the incredible value of our Morinda system for our shareholders. Forget about the human resources and the quality and the numbers and people strengthening and the financial and profitability strengthening, and the value and accretion that the addition provides for New Age. Just forget about that for second. It's the global footprint, the infrastructure in 60 countries and the e-commerce system with an auto shipment of $150 million annually and the 300,000-person distributor and customer force bringing and discussing these new CBD products in consumers' homes and educating them on this global movement. That is the strategic power of the addition and integration of Morinda, in addition to having the resources and the people and the key markets to also expand to traditional retail, like we're doing in Japan and other key markets with both Marley CBD beverages and some of our other core New Age Beverages.

So beyond all of the product expansion and new product initiatives, which includes Noni+Collagen global rollout, TeMana portfolio expansion in Europe and now the CBD launches, New Age core brands and Health Sciences new products distribution, beyond all of those top line initiatives, we also have a lot of other things going on.

Now technically, in the merger, we have now combined all of the functions, including legal, operations and supply chain, finance, HR and systems and IT. Sales and marketing are not integrated, and we expect to maintain those functions in their respective commercial operations. But the rest are already operating as part of our shared service group within the first 100 days of the merger. That's fast.

In HR, for example, we have already integrated all the payroll, comp and ben and health care, and in doing so, saved almost $1 million in costs through the integration. In systems, for example, 100% of New Age's software licenses and hardware have been swapped out and upgraded. And Oracle enterprise business system is being implemented right now, 100% with internal resources. And this is expected to be completed by the end of June, providing great, and frankly, needed visibility at New Age. Cost savings, $1,054,000 from that implementation. And in total, we've secured just over $3 million in cost synergies in the first 100 days out of an overall $5 million of planned cost savings in the first 18 months. So integration with Morinda is really on track financially, functionally and operationally.

Now some of our investors may know that the direct-to-consumer industry is under some scrutiny in China, which is one of our largest and highest-growing markets. Our business has been affected there also. But overall, we expect to recover this for the year in China. And we're using the current catalyst to accelerate our e-commerce development and expansion to traditional retail in that market. But notwithstanding the Q1 China softness, all our other markets, including North America, are performing well. And we expect to exceed $60 million in revenue in the first quarter, which as you know, is our smallest quarter of the year.

Now turning to the other aspects of the business. As Greg mentioned, our direct store distribution operations grew last year for its 10th consecutive year despite losing 3 major products to KDP from acquisition. This group, under Josh Hillegass' leadership, continues to deliver year-over-year, in addition to continuing to grow in both revenue and profit contribution on a stand-alone basis, really is kind of operating as our venture arm in testing out either new products internally for New Age or from other small beverage companies.

Turning to the brands side of the business. This is where we believe most of our opportunity in growth lies, driving our core brands in global distribution. In 2018, each of our core brands' top line and consumer demand and consumer offtake grew well, as Greg reported, with the exception of Coco-Libre, which underwent a significant product and packaging change in '18. So the brands, from a consumer standpoint, are gaining relevance. As Greg said, not yet success, but relevance, and enough relevance for now national distribution on which we expect to have more news for investors coming imminently. But just by keeping those brands in stock in 2019, they will show good growth. But that is not the expectation. And it's important for us to continue to strengthen these brands as they are now expanding beyond the U.S. to more international markets in traditional retail, realizing and utilizing the benefits of the Morinda international infrastructure and team.

So when I look at '19 and the growth drivers and building blocks for the company, there are really 5 things that I'd like to point out that are going to be the largest contributors of our 2019 plan and guidance that Greg had mentioned.

Number one, we're going to continue to drive our direct-to-consumer distribution, Morinda, growth and continue to fully integrate it into New Age and integrate New Age into Morinda. Morinda stand-alone grew in 2016, 2017 and 2018 in mid-single digits. And we expect the same in 2019, especially with the Noni+ Collagen expansion; the TeMana expansion; and the launch of our Health Sciences enhanced CBD skin care products that start this next month; and the portfolio of beverages, frankly, rolling out thereafter in 2019. It will be a good year and could be a great year.

Number two, continuing to drive growth and profitability in our direct-to-store distribution group. This group has started off particularly strong in Q1 of 2019, and all systems look like a go for its 11th year of growth in the balance of the year.

The third driver and the third building block is continuing the evolution and expansion of the New Age brands in traditional retail distribution and to drive consumer awareness and pull-through in current and expected national distribution. Recapturing revenue from, first, being in stock throughout the year; being in 33% more points of distribution for most of the year; and from increased demand and offtake. All of those things will contribute to a real strengthening of that part of the business, and that's even before we start to expand these businesses in select -- or these core brands in select markets internationally.

Number four. The fourth driver is expanding our footprint in our e-commerce distribution system. Currently, we ship more than $150 million of product through this e-commerce system, auto shipped through subscribers and consistent buyers annually. So we have the footprint, but now we want to integrate this with New Age, intelligently expand to e-tail and other e-tail systems, expand our subscriber base, expand our database and build our affiliates both internally and externally.

And finally, number five, our last growth driver is to pursue these new growth initiatives with CBD and Health Sciences products as the regulatory environments allow; to do it globally; and leverage what we believe are competitive advantages in brand, in product and in science; and then also selectively expand the New Age core brand portfolio, utilizing the Morinda infrastructure and organization.

As mentioned, exiting 2018, we had a very different company with the resources, the scale, the people and motivated team, the breadth, the global infrastructure and the financial strength to have what is shaping up to be an outstanding year in all respects in 2019. We are comfortable with our annual guidance, and Q1 also appears to be on track. And of course, we believe we have significant upsides to the plan, we just need to execute against them.

As our long-term shareholders know, technically, our volume is up significantly from a small base when we created New Age 2.5 years ago, and our stock is up equivalently a huge amount, a huge percent, in that same time period from a humble beginnings on the OTC Pinks at $0.19. Our stock also performed very well in Q4 of 2018 at a time when the market did not, and this was a godsend for most of our institutional investors, if not all of our investors, and their portfolios.

But to be very direct also, this significant growth in our stock has also created a personal tax consequence for me. So I will likely have to sell a small amount of shares for the first time since I've been part of the company to cover that tax obligation. And I wanted to be direct with our fellow investors on my requirement.

But the growth heretofore, despite their big numbers, is -- we don't view it as success, and we don't view it in that way at all. It is just a starting point. We know, frankly, we trade at 1/3 of the price to sales ratio of our peer group, 1/3. And with our system, our team, our global reach, our omnichannel distribution model and our financial strength, we believe we are in a very strong position for continued success and shareholder value creation.

And with that, let me open it up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Aaron Grey with Alliance Global Partners.

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Aaron Thomas Grey, Alliance Global Partners, Research Division - Analyst [2]

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Just quickly, as we look to 2019, you've got a number of initiatives in the pipeline between CBD, core products, Health Sciences, along with e-commerce. So you just spoke about some upside opportunities versus the 3/20 guidance. Just how best to force-rank just where you kind of see that upside opportunity going forward?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [3]

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Great question, Aaron. I would say on the CBD stuff, I mean, we've said from the beginning, just because the Farm Bill Passes in the United States, to all of our investors, do not expect the commercialization of CBD to be linear, to follow -- in the United States, to follow the passing of the Farm Bill. And with the FDA's complexity and confusion, it sure hasn't been. So that is a complete upside to the plan on the CBD side and not in the plan.

If I kind of just judge the excitement, and I know the launch plans for both the beverages, which includes Noni+CBD, the Marley CBD beverages in both shot and the relaxation beverage forms, and right away, the creams and lotions that we can immediately put through the system on a global basis, I mean, those things could just be huge for us.

And just to sensitize to the people from the U.S. on the phone, I can't describe the level of interest and excitement, from Hungary to Vietnam to Thailand to Hong Kong to Japan, Korea, China, Taiwan, Indonesia, you name it, as it relates to CBD; Uruguay, Mexico. So that could be a huge upside.

We're more focused, I would say, Aaron, on just the core stuff execution, our core Noni brand execution, our core Noni+ Collagen execution and hitting singles and then some triples with national accounts on the core brands, Marley, Coco-Libre, Xing, that are all going in national distribution for the first time this year. So I think it's okay to be a little bit boring with just core brand singles, execution in core accounts, driving consumer pull-through, doing the right merchandising, doing the right geo framing and stealthy kind of media targeting that we're doing to drive pull-through. So it's really an execution year, as you pointed out in your recent report, and we're focused on doing those things. But good, strong execution builds the base. And then between Health Sciences and the CBD, all of those things are, we view significant upsides to the plan for both '19 and '20.

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Aaron Thomas Grey, Alliance Global Partners, Research Division - Analyst [4]

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All right. Great. That was really helpful. And then just one more, just digging deeper on CBD. Can you provide some color? And while I appreciate definitely the international opportunities, could you provide some color in terms of how many points of distribution you look to have lined up within the U.S. for Marley CBD with your initial launch in the 4 states?

And then just any progress you have in expanding to additional states and navigating that regulatory landscape there, particularly as you see the announcement from 2 major national drugstore chains to roll out CBD, even though that's more on the topical side than on the beverages side. Do you have plans also to roll out your own topicals within traditional brick-and-mortar? Or is that more going to be through the Morinda kind of direct-to-consumer distribution here in the U.S.?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [5]

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Yes. Well, step one, fortunately, we have this breadth of portfolio, both healthy beverages and lifestyle products, right? So the first part of your question is on the beverage side, look, we have the demand. I don't remember exactly the points of distribution or numbers of accounts. But in the first 4 states, we've got orders, contingent on the legal environment, from major customers in those first 4 states spanning about $30 million of annualized revenue. Beyond those first 4 states, on a national basis with other customers, more national QSR, foodservice and other national retailers, another at least $30 million of demand. And that's within the United States. But again, I said we want to be on the leading edge, not the bleeding edge with those. So we're being very careful with those customers and meeting at the very senior levels of the largest brick-and-mortar convenience and big-box retailers and part of their global discussions and senior leader discussions as part of their committees. And they all have committees as it relates to CBD.

The fact that -- so that's the first part of the question. There is real demand as soon as we can do it, and we're ready, right? We've got the packaging. We've got the product. We've got everything ready to go in the United States, but it's so much easier right now outside the United States, which is why we're pursuing there first. And it's not contentious with the FDA.

On the creams side and the topicals and those other things, especially with the announcement from Walgreens and CVS bringing those products, it's easy for us because we have got that infrastructure to do that through our direct-to-consumer system. And that's a first way to start, get going and gain insights and learnings in that. I think it's an interesting idea for expanding those things to other channels where we already have breadth. And we are considering those other channels, primarily in Asia Pacific and a few other key markets. We haven't yet in the United States, but that doesn't mean that we won't.

So when you just think about those things and then you think about the breadth of the portfolio, the science that we have, the brands that we have and the breadth of product forms we have, I mean, all of these things add up. It just comes down to let's hit some singles, let's execute our core brands in national distribution and in those other key markets, and let's continue to drive these existing initiatives we have in the pipeline and then let's put in the Health Sciences stuff and the CBD stuff through the international markets on this Morinda system. And it could be just a great year for us.

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Operator [6]

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Our next question comes from the line of Mike Grondahl with Northland Capital Markets.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [7]

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A couple of questions. First off, in 4Q revenues, the net number of $14 million, can you kind of break out or parse out what Morinda contributed to that? Just so we can kind of understand that versus the core.

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Brent David Willis, New Age Beverages Corporation - CEO & Director [8]

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The -- Morinda was a small piece because it was in for basically a week for the year, and so it was a negligible contributor to Q4, Mike. And the other thing you've got to think about, too, is it's in the smallest quarter of the year. Even in the smallest quarter of the year, I think it was about the same size as the third quarter, which is typically our largest quarter of the year. So Morinda, on the P&L side, really came in for about a week in the very smallest period of the year, so not a significant contributor on the P&L side. Where it does really change is the balance sheet. And that's why when you look at the balance sheet now, we've got $42 million of cash -- or $42.5 million of cash, more than $280 million of assets, a very healthy current ratio and then significant scale overall as a company. So it really affects us on the balance sheet, but you can't look at it really as it relates to '18 in terms of any measurable contribution.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [9]

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Got it. And then, Brent, in your prepared remarks, you were saying something about China kind of being soft in Q1, or someone was looking into something. Could you just kind of go over that again? I didn't fully get that.

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Brent David Willis, New Age Beverages Corporation - CEO & Director [10]

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Yes. So the direct-to-consumer industry, which has nothing to do with New Age or Morinda, is under scrutiny in China in Q1, and principally because there were 2 local Chinese companies that were making claims that were not in keeping with the rules and regulations in China. So the government in China shut them down, and they sent a message to all competitors in the direct-to-consumer industry in China in January. And that's affected and slowed down the business somewhat in the first quarter. It's not unique to us, it is an industry specific.

And I was actually there last week and got to see, touch and feel everything for myself with our top 200 leaders there. And I would say even though there is softness in China in Q1, overall, the rest of the markets, from Japan, Southeast Asia in a huge way, the U.S., across all aspects of the business, including the New Age sides of the business and other international markets have offset that softness, continue to have a $60 million-plus Q1. So it offsets that. But our China team is really confident that, for the year, they will continue to drive good growth. They still expect to achieve plan for the year in China.

And -- but at the same time, we're using it as a catalyst to expand to traditional retail and use our couple of hundred people we have there in 10 different offices to expand to traditional retail, expand the New Age portfolio and expand our e-commerce business, such that when our direct-to-consumer business continues to recover throughout the rest of the year, plus we have these additional omnichannels that we're tackling, it could make our China business even more attractive and an even bigger part of our business going forward.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [11]

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Got it. And just following up to that, roughly what percent of Morinda is China?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [12]

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It is about 25% of total. And going forward, the way we're managing the business, because we've already really integrated these companies in the first 90, 100 -- less than 100 days, Mike, is really on a regional basis. So I think going forward, even maybe at our Q1 report, we'll report North America as one region. We'll report Asia Pacific as another region. We may even break out China and Japan, I'm not sure if we're going to do that yet, and rest of the world. Because that's really what the business looks like. It's how we're managing the business.

And again, we're kind of agnostic to channels these days. We just want to build all of our businesses and all of our brands across those relevant channels. So -- and when we look at that going forward, U.S. is going to be about $100 million, Asia Pacific is about $200 million, and rest of world is the remainder, let's just say $50 million. And I know that adds up bigger than the guidance, but of course, we're trying to outperform the guidance. But whatever those relevant numbers are, down to $320 million, because we're not increasing the guidance, especially on this call, that's how we'd break it out.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [13]

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Okay. And hey, just lastly, quick. Is the issues you faced with the product changeover with Coco-Libre, is that done? It sounded like that was in the first half of 2018. Did that affect anything sort of 4Q or?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [14]

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It affected us from a discounts and bill-backs standpoint with these major national distributors. So they keep hitting us with the charges throughout the rest of the year as you change over the product. And we got rid of the Tetra Pak packaging because, A, we felt that was very environmentally unfriendly, so we went to a much more environmentally friendly pack. And we switched out, as you know, from a previous from concentrate product to a product that we thought was substantially superior, bottled at the source from young coastal coconuts.

But that changeover cost us probably north of $4 million in fees and bill-backs. That primarily hits us between gross revenue and net revenue level because they charge us for all of the existing product and then they charge you for all the shipping and they charge you for the additional shipping and UPC changeovers and those kinds of things. So it was extremely expensive. None of it we expected for the year, but it was a significant impact. And as I mentioned, over and above the $12 million to $14 million inventory shortfall. That's a pure around $4 million cost impact that we had last year that we don't have anymore. So the short answer to your question is yes, we're done, but it was painful this year.

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Operator [15]

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Our next question comes from the line of Anthony Vendetti with Maxim Group.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [16]

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So the guidance of $320 million is mostly based on the pro forma of $300 million for this year. That $20 million in incremental, is that spread across the businesses? Or how does that break out, Morinda, DSD and brands?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [17]

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The biggest part of the growth, frankly, is in the brands division. And what's nice is we really got hit from a margin standpoint on that business, as you know, given the working capital issues, and it just affects every single aspect of the P&L in ways that our shareholders just could never imagine. But it really affected that margin. But that business should be between a 35% and 40% gross margin. So not only are the margins recovering on that business, but the volume really recovers from 3 pieces. Of the really $30 million incremental versus 2018, a big part of that is the brands piece. Morinda will continue to grow, but low single digits. The DSD division will continue to grow, but low single-digits. It's really the brands division, and which is really North America, not even accounting brands outside of that. And we're not counting CBD and the other initiatives for -- in our numbers. So those are really all upsides to the plan.

So the predominance of it is beyond the single-digit growth of other pieces of the business; it's really in the brands side, at a blended margin of, I would say north of 30% for this year because we're still improving the margins. Frankly, bringing some of the production of those products in-house through Morinda because we now have a bunch of our in-house production. But that's an additional cost synergy that we don't have yet built in.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [18]

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Okay. And then, I guess, on the EBITDA side, because based on your guidance on EBITDA and historically, Morinda has been around $15 million to $20 million in EBITDA. Is that correct? Is most of the profit, though, Morinda-driven? Or it's now that the brands are growing at a higher margin, some profit from that should be -- there should be some profit from the brands side too incorporated into that guidance?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [19]

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The way I look at it, and I'm sorry to sound like the CFO here, but I like being -- that aspect of the business. But -- so the distribution division throws off a couple of million dollars of EBITDA on a stand-alone basis. The Morinda division, historically, has done in the neighborhood of $20 million of profit. And it's the brands division that's been the real investment part of the division that has lost money and cost us. Once those -- and it's very similar to all the other small beverage companies, that until you get scale on that side of the business, it's going to be a loss-making venture, and this group is no different. But at north of $50 million in revenue, which would be a significant move up from where it was, it gets to, I would say, right around breakeven in terms of revenue -- or sorry, profit contribution on that part of the business. And the rest of the businesses really deliver on the profit. Would you add anything to that, Greg, or?

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Gregory A. Gould, New Age Beverages Corporation - CFO [20]

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Yes. That's spot on. So then today, most of the revenue does come from Morinda. We plan on continuing to invest in our brands. But we see that getting stronger, especially throughout 2019 and going into 2020, because that's where we see the really big upside here. But...

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Brent David Willis, New Age Beverages Corporation - CEO & Director [21]

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But you're -- I mean, I know how in-depth you are, Anthony. And if Morinda, historically, has done $20 million and the distribution division is doing a couple of million and brands is breakeven, that doesn't add up to $15 million. But what we want to do is have the flexibility to invest in CBD, invest in the Health Sciences expansion, invest in all of these real growth opportunities. And that's why I think the $15 million number is a good number because it gives us the flexibility to really invest in these growth initiatives we have around the world.

And I can't -- I wish I could have people and our investors understand the vibe in this company. 2018 was really hard, but it's in the rearview mirror. And it's -- I mean, the excitement about this just plethora of opportunities, the requirements to focus on those biggest hitters is really our biggest challenge in allocating resources, both human and financial, against those. But the vibe here is just -- it's just palpable. It is unbelievably exciting time to be part of this company because we've got the system, we've got this funnel, we've got this infrastructure, we have these people. We can drive all of these great innovations and new products and science through this system. It's just, I mean, I know as the CEO, you're supposed to be balanced and keep the highs not too high and the lows not too low and be in that respect, but I just cannot contain the enthusiasm. And we see it and feel it throughout all our system. And that winning belief and attitude is driving a lot of momentum in our company.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [22]

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Okay. And then just last question on CBD, and I know that's upside, not in your plan. But I think in your latest slide deck, I mean, you blacked out the customers, but it certainly seems like you have the interest because you have orders that are ready to go, I guess, if everything falls into line. So are those -- can you just talk a little bit about how that -- you see that rolling out based on all the, I guess, issues or FDA guidance and the actions taken by states like New York and California? I mean, I'm just trying to figure out what that opportunity is here in 2019 versus -- is that -- is it more of a, I guess, an opportunity in 2019, but more of a realization of it in 2020, or something like that?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [23]

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It's a really hard question to answer. But from a modeling standpoint, I wouldn't put any of the CBD in the modeling from our North America -- sorry, from our U.S. business in '19 because I think it's just too complex. And like I said, we want to be on the leading edge, but not the bleeding edge, as it relates to beverages. On the -- we will get some revenue from CBD beverages in '19, I believe, really starting in the second quarter from some of the international markets where we don't have the complexity with the FDA. So that's completely on side and that's completely safe for us as a responsible public company. But we just have too good of a company to risk being on the bleeding edge in beverages right now in the United States. The demand is there, the demand is significant. And the demand is there from some of the biggest and best in the United States across QSR, restaurants and outlets and traditional grocery and convenience retailers. The demand is really there.

And our personal relationship, together with our partners at Docklight and Privateer, at the very senior levels of all of these companies, is also really there. And we're providing guidance and insight and regulatory and legal perspectives to them to walk hand-in-hand with these. So we know the level of commitment and the level of partnership we have with these guys. But we're going to be first in a significant way with these customers, but only when we can do it responsibly and legally without putting the company at risk in the United States. But that -- again, this is a global, long-term play for us. And we're here to win long term with that. But modeling-wise, I wouldn't put, as I stated from the beginning, anything in the U.S. modeling for CBD for '19. And we'll see how -- things could change daily with Congress and the FDA. So we're really close to that situation.

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Operator [24]

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Our next question comes from the line of John Harrell with Harrell & Associates.

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John Harrell, [25]

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In an 8-K back on March 1, there was language that suggested former stockholders of Morinda would be paid $25 million from the proceeds of a Q2 financing event. And as such, I believe that investors are obviously anticipating a capital raise in Q2. Do you mind providing a little more detail about this financing event?

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Gregory A. Gould, New Age Beverages Corporation - CFO [26]

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Yes, this is Greg. The financing event is based upon the potential sale of a building in Japan, which would be a sale/leaseback. And basically, the way the deal was structured, to get it done quickly and not have to wait for that to happen, we put in place where once we do the sale/leaseback, the former owners of Morinda would get up to $25 million, which is the net proceeds. So if the sale/leaseback is for an excess of $25 million on a net basis, we get the excess amount. And if for some reason, it was less, the cutback goes to the former Morinda shareholders. So basically, we feel like we're very well protected in this. We did it to get this deal done very quickly because we saw how transformative it could be for the entire New Age company. And that's what it is. And really, there's no risk to us. So it's got...

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Brent David Willis, New Age Beverages Corporation - CEO & Director [27]

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I want to answer the question in an additional way, not a different way. So we did a, technically, what's called a reverse triangular merger, we did not do an asset purchase. And in a reverse triangular merger -- or sorry -- so -- and we did not buy all the assets of the firm, including the office building that the company owned in China. So -- or sorry, in Japan. So when we sell that for north of $25 million, the Morinda shareholders get that $25 million and we get the excess, minus all the fees and expenses. And the reason we couldn't be, I would say, more -- not clear, clear is not the right word, but more descriptive on that transaction that creates this confusion that makes people think, oh, we're going to have to go raise $25 million to pay the money. It's not the case at all. We're just selling a building.

But the reason that we weren't more precise or descriptive on that is, in the middle of the negotiation, especially with the Japanese and some of our international cultures, if we say, "Hey, we're going to go sell a building as part of this." It creates all sorts of fear and confusion and worry and those kinds of things needlessly in the middle of an integration. So we didn't want to run that risk, needless risk, as part of that. But again, for us, it's actually an upside for us financially, both cash-wise and potentially tax-wise, too, as we sell this building because we'll get the tax benefit of that sale. So it's actually not the potential negative that investors were worrying about, as you pointed out, John, but a potential very big positive for us.

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Operator [28]

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Our next question comes from the line of Mike Grondahl with Northland Capital Markets.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [29]

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One question, just trying to understand the at least $60 million of revenue for 1Q '19. The 8-K/A, which had pro forma numbers, it looks like for Morinda for the first 9 months of the year, you did $177 million. If I divide that by 3 for the quarters, it's like $60 million a quarter. And then if I add $11.5 million, which you guys did roughly in 1Q '18, that's like $71 million. Am I thinking about that right? Or is there more seasonality there?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [30]

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Yes, there's a lot more seasonality. There's 2 things. There's a lot more seasonality, number one. Number two -- and there's seasonality across the business, both in Morinda and the New Age side. Number two, the impact that you don't really see is the expanded distribution on the brands side. So the DSD Division kind of performs like clockwork, but seasonally adjusted. The brands side, all of that new distribution that's going from 200,000 points of distribution this year to 300,000, a predominance of that incremental, let's say, the first 50,000 incremental points of distribution, are happening in April. And the reason we haven't communicated directly who those retailers are and what they are is we're just starting the shipping to them now. But we expect to be able to communicate those things imminently. So those things really are Q2 impacts. A lot of these new products, the Noni+ Collagen broader rollout are Q2 impacts. So we're trying to be conservative, Mike. But I think it's a good sweet spot at around $60 million for Q1. But -- and that's good execution if you ask me. But Q2 is, I hate to keep kicking the can down the road quarter-by-quarter, but $60 million is a good number for Q1.

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Gregory A. Gould, New Age Beverages Corporation - CFO [31]

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Yes. And just like I said within my statements, too, we do see the back half of this year being much stronger than the first half.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [32]

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Got it. And maybe lastly, Brett -- Brent, thanks for kind of calling out you'll be selling a little bit of stock for tax obligations. Do you have a rough range of the quantity or amount of shares that you think you roughly have to sell?

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Brent David Willis, New Age Beverages Corporation - CEO & Director [33]

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Well, I've never sold a single share. I really don't want to do it because, especially with us trading at 1/3 of the average price to sales ratio of our peer group and all of the opportunities that I see, I mean, it's honestly last thing I want to do, but I can't tap into trusts to go pay that tax consequence. And the truth is our stock has grown from $0.19 when I started and all of our investors have benefited. So I think, frankly, Mike, it's as little as I can get away with to meet that tax obligation, which is a couple of hundred thousand shares. But a couple of hundred thousand shares over time, such that it will have de minimis or no impact on the market, especially given our liquidity of -- I don't know what our average liquidity is, but it's over 5 million shares a day. So I think it'll be a rounding error in the market. But not that I want to do it, but I need to do it. And I want to be straight and never not forthright with our investor partners, so.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [34]

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Good. Yes. I was just -- I didn't know if it was millions of shares or a couple hundred thousand. So that helps kind of put a bracket around it (multiple speakers)

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Brent David Willis, New Age Beverages Corporation - CEO & Director [35]

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I hate to do it, but I got to do it, so.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [36]

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I get it. The stock's done very well.

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Brent David Willis, New Age Beverages Corporation - CEO & Director [37]

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Okay. What...

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Operator [38]

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Thank you. Ladies and gentlemen -- I'm sorry. Go ahead.

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Brent David Willis, New Age Beverages Corporation - CEO & Director [39]

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Sorry, Melissa, go ahead.

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Operator [40]

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That concludes our question-and-answer session. I'll turn the floor back to Mr. Willis for final comments.

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Brent David Willis, New Age Beverages Corporation - CEO & Director [41]

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Yes, I don't really have any other final comments. I thought the questions were great. We're always available for additional questions from individual investors or others who were here. That comes with being a small-cap company.

So we believe in the company. I mean, the company, it's just different, right? And we can't look in the rearview mirror in '18. It's not indicative of '19 and the kind of company we have at all. It really is, I think, an execution story, and we're focused on hitting those singles, but also, we've got a potential bunch of home runs, and those opportunities are really interesting in the company. But the core business, the core foundation, the core-est foundation is really solid for kind of the base revenue, profit and EBITDA of the company. But it's really the upsides that we're excited about. But just continue to deliver the core and do the basic blocking and tackling, and we will be fine, and I think drive tremendous wealth creation for all of our shareholders, which everybody and all almost 1,000 people in the New Age company and Morinda are committed to.

And with that, we'll close the call. Thank you very much. Appreciate everybody being on today.

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Gregory A. Gould, New Age Beverages Corporation - CFO [42]

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Thanks, everyone.

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Operator [43]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.