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Edited Transcript of YGYI earnings conference call or presentation 16-Apr-19 5:00pm GMT

Q4 2018 Youngevity International Inc Earnings Call

CHULA VISTA Apr 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Youngevity International Inc earnings conference call or presentation Tuesday, April 16, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Stephen Briskie

Youngevity International, Inc. - President, CFO & Director

* Stephan Wallach

Youngevity International, Inc. - Chairman & CEO

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Conference Call Participants

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* William Sutherland

The Benchmark Company, LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Welcome to this Youngevity shareholder call covering quarter 4 of 2018.

During this call, we will be making forward-looking statements regarding Youngevity's current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminologies such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based on current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Youngevity's filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements. The information on this call is provided only as of the date of this call, and Youngevity undertakes no obligation to update any forward-looking statements contained on this conference call on account with new information, future events or otherwise except as required by law.

It is my privilege to turn this call over to our CEO and Co-Founder, Mr. Steve Wallach.

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Stephan Wallach, Youngevity International, Inc. - Chairman & CEO [2]

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Thank you, Alex. Hello, and I want to welcome everyone to the Youngevity International shareholders call today. Speakers on the call are myself; and our President and CFO of Youngevity, Dave Briskie. We will be covering the following topics this morning. We will highlight the 2018 full year results. We will provide revenue guidance. We will provide an update on our direct selling segment and our HempFX brands. We will discuss the strategy of the new business reporting segments, which is commercial hemp. We will wrap up the call with our coffee segment.

Before I turn the call over to Dave this morning, I want to go ahead and talk about the guidance numbers that we put in the press release. I'm going to reiterate those guidance numbers that we provided. We are providing annual revenue guidance for 2019 in the range of $220 million and $240 million, which represents a projected annual growth rate between 35% and 48% over 2018 results. This revenue guidance includes estimated annual revenue contribution from our new reporting commercial hemp segment between the amounts of $45 million and $50 million for fiscal year 2019.

And what I'd like to do now is bring Dave Briskie on the call to go over some of the numbers.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [3]

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Thank you, Steve, and I'd like to welcome everyone to the call. I'm monitoring the call log, and this is by far the largest attendance we've ever had on a shareholder call by probably triple. So I want to thank everyone for making time or taking time out of their busy day to listen in on what's going on at YGYI.

We're really confident that we've stabilized the revenue of our direct selling segment, and we're looking forward to strong growth as we entered 2019. Obviously, we know our Q1 numbers at this point, and it's really good to see the revenues coming in from commercial coffee. We've been talking about this large contract, it seems for a long time. And it's nice to see those number showing up in 2019 and delivering the results that we planned.

Our 10-K is out there for everyone to review on several financial sites. There's a lot of accounting entries that took place in Q4 that are fairly complicated. But suffice to say, one of our goals, as we completed 2018 and it took place in Q4, was to strengthen the balance sheet. And we've shown significant improvements to our balance sheet. And I want to start off with some of those improvements right now, and then we'll move into the income statement for the annual filing period. I also want to encourage everyone so we don't take up too much time on this call, we want to focus on the color in the future. But the Q4 numbers are there for you to read, and of course, the 155-page 10-K is out there on the SEC site as well as many, many financial reporting sites.

In terms of our balance sheet, and we're going to compare the year-end compared to last year, our cash and cash equivalents improved nicely. We finished the year at $2.9 million of cash versus $670,000, December 31, 2017. Also, our total assets were $75.9 million, almost $76 million at year-end 2018 versus $72.389 million in 2017, so over a $3.6 million, let's call it, improvement in assets. Our total liabilities were $52.998 million as of December 31, 2018, and that versus $64.9 million at December 2017, so almost a $12 million fall in terms of our liabilities. So we'd like to see the number moving in that direction. And of course, total stockholders' equity was $22.975 million at the year-end December 31, 2018 versus $7.451 million at December 2017, so certainly a nice improvement in shareholders' equity.

So I'm going to review the full year numbers because I think that gives a good comparison. We worked feverishly on the 10-K, and we're happy to have that filed and moving on to Q1.

So revenues for the year ended December 31, '18 decreased about 2% to $162.445 million as compared to $165.696 million for the year ended '17. During the year, December 31, '18, we derived approximately 85% of our revenue from our direct sales segment, and approximately 15% of our revenue came from commercial coffee. Direct selling segment revenues decreased by $3.6 million or 2.5% to $138.855 million as compared to $142.450 million for the year ended December 31, 2017. This decrease was primarily attributed to a decrease of $11 million in revenues from the existing business, offset by revenues from new acquisitions overall just under $7.5 million. We attribute the decrease from existing business primarily to a general decline in net sales in North America in the direct selling business as well as a decline of new distributor acquisition. The company also changed its promotion strategy. This started affecting Q3, but it seemed to have a positive effect on the profitability of business in this promotion strategy that we changed by targeting products with higher gross margins and utilized incentives that were less costly -- had a less costly impact on the profitability.

For the year ended December 31, '18, commercial coffee segments increased by $344,000 or 1.5% to $23.590 million as compared to $23.246 million for the year ended December 31, '17. This increase was primarily attributed to an increase of just over $1 million of revenue in the company's roasted coffee business, offset by a small decrease of $704,000 in the green coffee business.

For year ended December 31, '18, gross profit decreased approximately 0.6% to $95.32 million as compared to $95.565 million for the year ended December 31, '17. Overall gross profit as a percentage of revenue increased by 258.5% compared to 57.7% in the same period a year ago. Gross profit in the direct selling segment decreased by 0.5 point to $94.910 million from $95.379 million in the prior period primarily as a result of lower revenues in the current year, offset by a 6.6% decrease in the cost of sales. Gross profit as a percentage of revenues in the direct selling segment increased by approximately 1.4% to 68.4%.

Operating expenses for the year ended December 31, '18 decreased 3.7% to $97.669 million as compared to $101.447 million for year ended '17. Distributor compensation as a percentage of direct selling revenues decreased to 44% for the year ended '18 as compared to 46.2% for the year ended December 31, '17. This decrease was primarily attributable to price increases reflected in our 2018 revenues, which did not impact commission-based revenues.

For the year ended December 31, '18, operating loss decreased by $3.245 million to an operating loss of $2.637 million as compared to an operating loss last 2017 of just over $5.8 million for the year ended '17. This primarily was due to a decrease in operating expenses of $3.778 million, offset by a decrease in gross profit of $533,000, as discussed just earlier.

For the year-end 2018, total other expense increased by $12.949 million to $17.017 million as compared to $4.068 million for the year ended December 31, '17. Net interest expense increased by $799,000 for year ended '18 to $6.584 million compared to $5.785 million for the year ended December 31, '17. Change in fair value of derivative liabilities increased by $6.670 million for year ending '18 to a $4.645 million expense compared to a benefit of $2.225 million for the year ended '17 as a result of the change in our stock price when compared to prior periods.

We recorded a noncash extinguishment loss of debt of $1.082 million for the year ended '18 as a result of the triggering of an automatic conversion of the 2017 notes associated with our July 2017 private placement to common stock. We also recorded a noncash loss on debt conversion of $4.706 million as a result of one of our investors in our July 2014 private placement having a conversion of their 2014 note for shares of common stock.

For the year ended 2018, the company reported a net loss of $20.070 million of which just over $22 million was noncash items as compared to a net loss of $12.677 million for the year ended December 31, 2017. The primary reason for the increase in net loss when compared to the prior period was due to the noncash increase in change in fair value of derivative liabilities by $6.670 million just discussed and the noncash loss on debt exchange of $4.706 million, an increase of $774,000 in noncash loss on extinguishment of debt and the increase of $799,000 in interest expense, and this was offset by the decrease of $3.245 million in operating expenses and the decrease of $2.311 million in income tax expense. Although we recorded a $20 million net loss, the noncash impact against that loss was just over $22 million of noncash.

EBITDA, which is earnings before interest, income tax, depreciation and amortization as adjusted to remove the effect of stock-based compensation expense, the change in the fair value of the warrant derivatives, the noncash loss on impairment of intangible assets and the noncash loss on extinguishment of debt or, as we call it, adjusted EBITDA, increased to $7.013 million for the year ended December 31, 2018 compared to a negative $549,000 in 2017.

I want to continue with a discussion on our recent acquisition, which is the acquisition of Khrysos Industries, which took place in Q1. There's been a lot of questions about that acquisition, and it really has caused us now in our financial reporting. You'll see this mentioned in the K, but when we filed Q1, you'll see that we now have added a third reporting segment, which we are categoring as commercial hemp. So we have our direct selling channel, we have commercial hemp and commercial coffee as 3 distinct selling segments that we will report in.

Our strategy, and we announced it towards the end of last year, was we wanted to go vertical on hemp. We felt like we could take a chapter out of our coffee business that ultimately became a vertical enterprise. Obviously, that's in the agricultural space. And we could go vertical on hemp and extract margins across that vertical by leveraging our capabilities and kind of our core competency that we developed in the coffee space. So we did a pretty deep dive in evaluating the entry into commercial hemp, or CBD, or hemp extracts, that whole ingredient that has really taken the market by storm in terms of interest in the market in various products. It's really hard to turn on the news media without hearing some conversation related to CBD and hemp-derived CBD in particular.

We originally, when we looked at mapping out this model, we thought we would steal a chapter out of our coffee business. But as we focused, like I think everyone else has kind of done on the grow side of the business, which is growing hemp, we took a pretty deep dive into the grow side of the business. And we saw that, that's kind of where everyone, it seemed, was jumping in and making significant investments. As we dug in deeper to grow, we felt like that probably wasn't where we wanted to start.

We really looked at the entire value proposition in hemp-derived CBD and where the margins were really, really happening, and we felt it wasn't necessarily in grow because there were so many folks jumping into the grow side. And certainly, farmers saw an opportunity to grow hemp versus crops like corn. And so we started looking at where the margins were really accelerating. And for us, it started to become apparent that extraction was where it was at. And not only the extraction of the hemp oil or raw crude oil, but more importantly, the conversion of crude oil into isolate, distillate and water-soluble isolate and water-soluble distillate. So this is where we started to look at the opportunity for us. And we felt like if we could find end-to-end processing capabilities, that would drive the most margin.

And we fortunately were able to meet the folks at Khrysos Global. 3 PhDs over there on the Khrysos team, and we were really impressed with the intellectual property that they had developed and that they really focused on extracting hemp oil from the hemp plant rather than what we see a lot of the competition having done, which is really to focus in kind of altered food service equipment extraction equipment from hemp-to-hemp oil, which is a more efficient process. So we were impressed by this intellectual property, and we feel that we were fortunate to be able to acquire Khrysos Industries, their intellectual property and the fact that they not only had the capability of extracting hemp oil from hemp but also had already built out the end-to-end processing. And so we've now got the ability to draw out crude oil. We can then refine that oil. We can turn it into an isolate. We can turn it into a distillate, and we have the ability to do the isolate and the distillate both in water-soluble delivery systems. And we see this as the biggest part of the value proposition as we look at the hemp industry and where the market's going.

Those are the ingredients, which really drive the production of our products. You can't produce a hemp-derived product and enter CBD into these products without being able to have refined oil isolates or distillates. And so that's where our kind of key value proposition landed for us. And we saw Khrysos as much more than the ability to market and sell equipment. Although we do think this is a very lucrative part of our business strategy. What really excited us was the idea of building a refinery that allowed end-to-end processing. And we felt by building out refinery capabilities, we could now kind of not have to jump into the grow space. And when we marketed our equipment, our extraction equipment to our various targets, we could then enter into offtake agreements and not have to have the worries of growing hemp, not have the concern of drought, not have the concern of maybe potential bug infestations and all the things that may affect crops because we would simply enter into offtake agreements as we marketed our extraction equipment, and this offtake agreements would give us the potential to have the raw crude that we were looking to have. So without necessarily having to invest in tons of land and tons of farming, we could end up at the same place in the higher-margin end of the business. And so that's exactly what we're doing in the Khrysos business model.

So where our model gets interesting is with these extraction systems and the ability in every case to enter into offtake agreements, this is where we're going to get our feedstock to then refine our CBD raw crude into refined oil distillate or isolate, like I said, without the necessity to grow hemp. This is a very keen advantage, and it gives us the ability to control a large quantity of feedstock, which puts us into a number of business and revenue-generating opportunities. The real margin right now in the business is produced on the brokerage of isolate, the sale of isolate, the sale of distillate and the sale of both of those in water-soluble formats. And we are able to, with our current equipment capabilities, to do all of those processes.

What we're doing is we're going to open, as a start, a refinery in Florida. That refinery will not only have the capability of taking hemp and turning it into crude oil, but it will be end to end. So it will allow us to do all the processes that we have outlined in terms of production of isolate and distillate. The real cool thing about these refineries is not only is it a very, very nice profit center and have strong growth potential, but more importantly can also double as our showroom where we can now show the capabilities of our systems to prospective clients, which will then drive the ability for us to market more extraction equipment, and not only market it but then obtain more raw crude oil through these offtake agreements. So we feel like we've got a very, very interesting model.

Our first refinery is going to be built on the 45-acre tract of land that we talked about in a press release earlier that's located in Central Florida. 2 modular buildings are being put up on that particular property. They should be up by the end of April, and we will start to move our end-to-end processing into those modular buildings. We've already started the end-to-end processing in another facility that we have. We've already built a new production area or, in our case, an assembly plant in just under an 8,000-square-foot building also in Central Florida where we will assemble our extraction equipments and fabricate it there. And we expect to have the initial phase of our refinery and end-to-end processing systems up and running in early May. And then, as we've announced, we expect to really grow the capacity of that by several multiples by July and really grow the business further.

And that is what's driving the guidance that Steve Wallach mentioned earlier, the -- this $45 million to $50 million for hemp. The bulk of that will be in the last half of the year, starting in July, coming off the refinery and end-to-end processing side of our business where we'll be producing isolate, distillates and water-soluble on both fronts. This is where we see the biggest opportunity for growth for us.

We anticipate operating 3, ultimately 3 end-to-end processing facilities as part of our overall strategy. Once we get the Florida refining operation fine-tuned and up and running, we're going to turn our sites to Las Vegas or the Nevada area for a second refinery where we will do the same processes, learn what we've learned in Florida, take our own equipment and build a second facility out there. And we will talk about a third target after Nevada is up and running.

So these operations, in both cases, will double as our sales showrooms. And we're obviously really placing a big investment in hemp-derived CBD. And we see it as a very, very strong contributor not only in 2019 but as it expands certainly well, well beyond that.

With that, I would like to turn the call back over to CEO, Steve Wallach. Steve?

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Stephan Wallach, Youngevity International, Inc. - Chairman & CEO [4]

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Thanks, Dave. Great update. Khrysos certainly is an exciting part of our business operations, and there is no question that hemp-derived CBD poses a significant opportunity and that we are well positioned, as Dave explained, to take advantage of this opportunity.

To accentuate this point, we operate in 3 separate business segments, and in each segment, we are marketing a number of hemp-derived and based CBD products already. In the direct selling channel, for instance, we have our HempFX line of CBD products. We started with 3 products and are adding at least an additional 3 in the near future, and an additional tincture of a softgel capsule product and of course, our CBD coffee. And we're working on hemp-derived CBD to market with our collaborative branding opportunity with Icelandic Glacial water. I have my Icelandic Glacial water sitting here next to me. And just the massive footprint they've already created, we're excited about that co-branding opportunity and co-marketing opportunity that we've explained previously.

And in our commercial coffee segment, we are already marketing a retail brand -- our retail brand Javalution coffee with hemp. And of course, CLR is making the HempFX coffee for our direct selling segment as well. We believe we are well positioned to leverage the opportunity available with hemp-derived CBD, as we've explained already and Dave described earlier on this call. We believe we have stabilized the revenue of our direct selling segment, as Dave had mentioned, and we believe that the enthusiasm and excitement around hemp-derived products is certainly a part of that. I'm a member of the DSA Board of Directors. And not only have I been asked to speak about hemp products to the DSA membership and as the recent board member, but as part of that meeting, we talked about what's going on with revenues of direct selling across the United States, and the direct selling industry in the U.S. market has been somewhat soft and had some challenges. As the economy has strengthened in the U.S., it's kind of countercyclical with direct selling, and that has created some of this softening in the direct selling industry across the U.S., the DSA feels as an organizational body of the direct selling space. That's one of the reasons we've been working towards a larger international footprint, which we've talked about on these calls, certainly in the past and on today's call as well, and Dave went over some of those numbers and in our filings also. Certainly, our international footprint has not only been growing, but we've invested heavily in the infrastructure, as we've talked about. And so we're really beginning to work on sales and overlaying our strategy to have acquisition on that infrastructure, as we've talked about on previous calls and today's call as well. Asia, for example, we have infrastructure in Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore and Taiwan, Latin America, in Mexico and Colombia, Australia, New Zealand and Canada. So we are lessening our dependency, or diversifying is another way to put it, our U.S. market. And we've been working on that strategy for quite a while, but at the same time, it takes a long time when dealing with foreign governments, product approvals, setting up entities, creating offices and staff and hiring staff and going out and seeking specific individuals to bring into the team of these international markets.

So for example, in 2017, 91% of our direct selling revenue was derived from our U.S.A. market and 9% international. In 2018, that represented 84% of our U.S. market sales, represented 84% of our U.S. market and 16% came from our international markets. In 2019, we would like to see and anticipate as much as 20% of our business coming from our international markets for our direct selling segment. So we feel it's time to leverage that infrastructure, as I was mentioning, and we're hiring specific individuals that have a focus in selling and generating revenue in those markets in particular. So we're excited about that. And we're seeing the benefits of that already in some of these markets, as we've been discussing.

So what I'd like to do now is bring Dave back on the call and get an update on our coffee segment.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [5]

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Thank you, Steve. Appreciate that. And I agree, I think it really is time to leverage the infrastructure we've built internationally. I think that's a big opportunity for 2019.

I first want to focus on the roasted coffee segment real quick. There's been all this talk about what we're getting done in -- with this large green coffee commitment and green coffee contract. The roasted coffee business is actually growing at a very nice pace, and it actually is the reason why we were up on revenue last year. We're seeing that across the board not only in private label roasting operations, maintaining our existing relationships with the cruise lines like Carnival and Norwegian Cruise Lines and Royal Caribbean, but more importantly, growing in other retail pieces and becoming a bigger private label supplier.

And also, the growth of our own brand, the Café La Rica brand, is really gaining a nice foothold in the hottest-selling espresso market in the U.S., which is South Florida. Those of you that have been a shareholder for a few years now know that, that brand's the official cafecito of Major League Baseball's Miami Marlins. And it -- that marketing agreement has really bore fruit for Café La Rica as an espresso brand, and it continues to do well and expand its footprint. Now Café La Rica is available in the Northeast and several retail stores. It's now made its way out West. So it's continuing to expand.

And as we move up the prices of our Café La Rica espresso, we brought in another brand that we recently acquired. So we have Café Cachita as the second espresso brand that we brought in, and we own that brand as well. And we look at that as our value brand as we move Café La Rica up into, let's just say, a more well-known brand that we believe can ultimately become a national brand and will promote Café Cachita side-by-side. So we're excited about that in a big way.

The other thing that you can't help but talk about is the green coffee distribution business. I mean this is a 5-year label of love or labor of love to build out something that's this scalable. And it took a lot of patience, patience from our board, patience from obviously our shareholders to finally have this coffee business to a point where we can really scale it. Obviously, we have a view of Q1's numbers, and we know where the revenue landed. And you've seen our revenue guidance. And I would just like to say that Q1 will certainly not only be a significant improvement over last year's coffee numbers in total in Q1 on its own, but it'll -- you'll see that Q1 almost, in the coffee sector, will almost equal what we did all year in coffee in the prior year. So certainly, we're starting to realize those stronger coffee numbers, and we expect that to continue obviously in the Q2. And it's one of the drivers of our forecasted higher revenues.

Of course, I'm excited to see the effect that the Javalution and the HempFX coffee brands, which is coffee with CBD extracts, will have on our business. There certainly seems to be a lot of excitement around that particular product. And as we launch actual shipping of that product, it'll be very interesting to see how the consumer responds to it and see if that is a driver that maybe we hadn't anticipated in our 2019 numbers.

We are also ready to move on to the questioning phase of this call. The way it works here is we've got the ability for people to raise their hand. If you are a guest and you want to ask a question, you press star 2, and that would allow us to see you and we could bring you on to the call. If anyone has any questions.

I'd like to bring Will Sutherland on to the call. Will, are you there? So Bill Sutherland, I see you had your hand up. Let's try to go to Q&A. (Operator Instructions)

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Questions and Answers

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [1]

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Okay. I was muted. I was asking about Khrysos and just thinking about the number for the year that you guys are thinking about for revenue and that it's in the 6-month period. And I was -- my question is, is that -- so I think about if that is a run rate number going into 2020? Or is there more capacity to be developed in Florida from there?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [2]

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That's a great question. Actually, the run rate that we are calculating is about 50% of the capacity that we expect to have up by July. And that's just the capacity at the Florida facility. And as I mentioned, we expect to add a separate end-to-end processing facility in Nevada and expect that to be up and running as we exit 2019 or at least enter 2020.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [3]

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That was my next question. Okay. Dave, can you give us a sense of the impact of coffee prices particularly on your 5-year contract revenue that you expect in the current year?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [4]

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Yes. There's no question that the -- when we put out the guidance, we were very careful about the $250 million revenue number we've put out. And we also let everyone know that, that was essentially 41 million pounds a year. Since the time we've put out that guidance, the price of coffee has fallen almost 20%. So when we talk about our guidance, the coffee revenue is going to be down about 20% from that guidance number that we provided earlier. It's being partially offset by the increase in the roasted coffee business. And I don't think anyone would have anticipated the price of green coffee at these low levels. And everything you read on the commodity side feels like there'll be a bounce back on that, but it's certainly going to have an effect on our revenue for 2019.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [5]

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So we should think about what price against the annual shipment is, 145 pounds, I think?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [6]

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It's 41 million pounds annually.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [7]

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I mean -- yes, 41 million I think is right. And the prices above, where are these, Dave?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [8]

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It's hovering between $0.95 and $1.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [9]

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Okay. And then the last question I was thinking about was on the direct sales business and as you develop Asia more. Are there -- I'm noting that the Asian market's not as good as it was than some of the bigger players, the guys that have been there for a while. Are there headwinds that you're anticipating this year if this builds out?

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Stephan Wallach, Youngevity International, Inc. - Chairman & CEO [10]

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So Bill, this is Steve. Coming back from the DSA board meeting and being on the board, I'm sitting at the table with top executives, some of the largest companies, which of course a significant, if not almost all their business -- a significant part or, if not, almost all their business comes from Asia and China in particular. The largest companies doing business within China continuously seem to have challenges with China and they'll get going huge revenues and then they'll stumble on some change of policy within China, but it always seems to get worked out. These are companies that have been the major players and are the highest visibility, the biggest names within China. And I can tell you that the conversation within that board meeting and within the DSA meeting, annual meeting in general, continues to be that Asia and China in particular represent a huge opportunity for direct selling companies. And for us, we're starting essentially at a very low level or 0, in some instances, in some markets of Asia. And so the growth opportunity for us remains extremely high and extremely large. And so nobody in that room felt that Asia was a softening market or that China was a declining market. They were all very excited about it. My wife just came back from China, and one of the biggest buildings and gleaming -- the most beautiful building she saw in China was the Amway headquarters. And so it's really -- we continue to feel Asia overall represents a huge opportunity for us. Sean Brown, our VP of Sales and Marketing, is overdoing a 10- to 14-day tour in Asia right now across several of our country markets within Asia and continuing to see growth and excitement there. So we continue to be very bullish on our international markets in Asia certainty as a major one of those.

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William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [11]

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So that -- so if -- I guess the message is that if the domestic trend stabilizes as you think it is, then your growth will come from international principally in 2019.

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Stephan Wallach, Youngevity International, Inc. - Chairman & CEO [12]

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Principally in 2019 for direct sales. And Youngevity as a direct selling company is 22 years old. The countercyclical nature of the U.S. economy and its impact on domestic sales for the direct selling channel is not something that's new. I've lived it, I've seen it, I've experienced it in past economies and so our economic trends and cycles. So we definitely believe this is a trend associated with that. And again, we have been focusing on international sales and in our international footprint, broadened our direct selling company and the revenues associated with it. But also, we've explained on these calls that the international markets for these larger companies is where the really huge opportunity for direct selling tends to be anyway. And so we just knew we needed to get infrastructure to be able to actually take advantage of that.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [13]

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Okay. We see if [R. Bennet] has the hand up. (Operator Instructions)

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Unidentified Analyst, [14]

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Yes, can you hear me?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [15]

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Yes, we can hear you.

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Unidentified Analyst, [16]

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Congratulations on what appears to be turning a corner with the positive EBITDA. And my question is for your newly bought -- new acquisition, Khrysos, you have pretty ambitious guidance there with, say, $45 million to $50 million. And it's going to take, I see a lot of capital to get it to that point with opening up an extraction facility in Las Vegas and growing on the 45 acres in Florida. Dave, can give us a little color on how you plan on raising capital? I know you're having as the money agreement, it's about $75 million. Do you have plans on using that? Or do you have a different vehicle to raise funds to finance that growth?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [17]

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Our first approach -- and it's a good question. Our first approach is in nondilutive financing as a first stop. So we have a couple of open offerings right now that are gaining some traction, and they're of a nondilutive or a limited dilution variety. We have a feeling and a belief that in terms of our position in this particular sector, that the market has not necessarily figured out what we're doing. We're going to have to work feverishly on that. But we believe when the market figures out what we're doing and as our institutional investor base grows, which it has grown significantly over the last quarter, we went from literally no institutional ownership to now almost 1 million shares of institutional ownership. So from nothing to 4%. Not where we wanted to be, but certainly, as that institutional base grows, we think that will be a better timing when people start to recognize what we're doing and start giving us valuations that we think are more appropriate would be that time that we would look to utilize the equity.

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Unidentified Analyst, [18]

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Do have a number like how much capital you'll need to raise in the short term or in the long term?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [19]

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Our open offering on the capital, we're raising short term. And the lower dilution format is about $10 million. (Operator Instructions)

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Unidentified Analyst, [20]

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So you pay for your acquisitions through earnouts. But given that your contingent debt balance is about $8 million with about $800,000 of that current. And the last 12 months, it's only been about $150,000 paid out. Why would you not expect a tremendous downward revision of the contingent debt and the intangibles, which are about 30% of total assets supported by that fair value estimate?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [21]

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Why would we not consider a what?

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Unidentified Analyst, [22]

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Why would you not expect a tremendous downward revision of the contingent debt balance and the intangibles supported by that balance?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [23]

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We adjust the intangible valuation each quarter and have it reviewed by our auditors based on sales and performance of the 20-something acquisitions that we've done as a company. And so it's something that we painstakingly go through an analysis on. And we believe that they are accurately reflected, and we make adjustments up or down on a quarterly basis.

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Unidentified Analyst, [24]

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Given the last 12 months payout of about $150,000 versus the $8 million you expect to pay out, how do you see that ramping up given that it's significantly slowed down over the last several quarters or years?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [25]

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I don't know where you're getting the $150,000 number, so I can take that offline.

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Unidentified Analyst, [26]

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It's on your cash flow statement. It's on cash flow from financing.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [27]

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Right. And I can assure you that the amount of payout on our contingent liability is far more than $150,000 a year.

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Unidentified Analyst, [28]

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What would that line item be referring to?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [29]

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I don't know. I have to look at the statement. Why don't you write me at dbriskie@ygyi and send me -- because you're listed here as anonymous. So just dbriskie@ygyi. Go ahead and send me an e-mail and your number, and we'll get on the phone and talk about it.

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Unidentified Analyst, [30]

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Okay. I appreciate that. One more, if I could. It's about the factoring agreement. Why did Crestmark...

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [31]

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Just before you go on, the $150,000 is the amortization section. The most of the payout, the way the earnout is written is in the interest, okay? And so we have about...

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Unidentified Analyst, [32]

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So it's the cash flow statement, right?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [33]

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Yes, I know. But in the -- there is interest in the cash flow statement as well, okay? And in the interest section of our cash flow statement, you'll see about $6.584 million of interest. $1.961 million of that interest is noncash or contingent debt interest.

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Unidentified Analyst, [34]

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The earnouts, the ones that you've disclosed, they're all cash payouts based on a percent of sales of its acquired inventory or the acquired distributor, so...

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [35]

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The interest is paid out as well. No, in GAAP accounting, the interest, you have to do a calculation and a forecast and do an interest calculation. So $1.961 million against those earnouts is interest. You also should be aware the way our acquisition model works in terms of those contingent debts, they have a time cap on them. So at the end of -- and the time cap is 10 years, could be as high as 12. At the end of that cap, whatever is not paid in the established value is forgiven by the -- and essentially goes away.

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Unidentified Analyst, [36]

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Right. So you're saying that the line item in the cash flow from financing section of the cash flow statement is amortization. It's not cash payouts from your earnout agreements.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [37]

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At the very bottom of the cash flow, you'll see the EBITDA calculation. So yes, I'm saying that. And in the interest number...

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Unidentified Analyst, [38]

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It's not the EBITDA calculation. It's in cash flow from financing.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [39]

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Right, but the interest is in the cash flow as well. At the very bottom of the page.

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Unidentified Analyst, [40]

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In the interest of time, if I could do one more, I'd really appreciate it.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [41]

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The one at the bottom of the page is obviously if it's in our cash flow, is the actual cash payments.

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Unidentified Analyst, [42]

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Right. Right.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [43]

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Here. It's right here. Page...

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Unidentified Analyst, [44]

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Given the trend of it over time versus the actual contingent debt total amount, either it's going to have to ramp hugely or that number is totally off by a couple million. So really, the question is...

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [45]

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Yes, the interest number on the cash flow is $4.623 million. It's on our cash flow statement. And a lot of that interest is going towards this contingent acquisition debt. $4.623 million. It's right there in the cash flow.

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Unidentified Analyst, [46]

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I don't -- But how is the interest involved in acquiring one of these companies like ViaViente, for example?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [47]

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We have to do -- it's amortization. We have to do a 10-year forecast or to the end of time in terms of how much -- we establish a price, right? We establish a price. The price, once it's established, we then make payments every month based on a percentage of revenue. Some of that percentage of revenue is booked as amortization, and the others is booked as interest, and that's how it's done. And then we adjust the forecast each quarter.

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Unidentified Analyst, [48]

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The cash payments out as a percentage of revenue is booked as amortization or interest? I'm sorry, I'm not -- right.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [49]

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And then we have an obligation to how much we pay. And then at the end, we either hit the aggregate number for the acquisition or we reach the time cap.

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Unidentified Analyst, [50]

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I expect that the aggregate number, that is being amortized as you go through the use for life, I mean the assumed one usually 10, 12 years, now would be the amortization line item. I don't see where the interest line item's coming through. But you're saying that the cash -- the amortization's in the cash flow from financing. That didn't got up to me. If I could, I just have one more question.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [51]

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Sure.

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Unidentified Analyst, [52]

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So when Crestmark ended the factory agreement, the removal of the credit agreement had an outsized impact on sales to H&H, the related party relative to nonrelated party sales. So there's something like a 90% decline for H&H versus like a 30% for non-H&H sales. Why was the impact so disproportionately towards the H&H sales?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [53]

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So first of all, there still is a factoring agreement in place with Crestmark. So there's -- it's still there. Crestmark...

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Unidentified Analyst, [54]

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On your last earnings call, you said that they were no longer interested in financing in overseas green coffee business.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [55]

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That's true. And so I -- but you had said that we no longer had an agreement with Crestmark, which isn't true. So Crestmark is still our factoring company. It still provides the line of credit. They are predominantly a domestic factoring company. We had moved into a scenario where we could -- we came up with an alternative way to finance this green coffee business, which obviously you'll see reflected in Q1. Crestmark understood this wasn't part of their core business. They were uncomfortable with the size of the international receivables particularly coming out of Nicaragua. And they knew that we had an alternate way to finance the business going forward in -- the end of '19 -- or sorry, the beginning of '19. So they said, "We would rather not finance the green coffee business out of Nicaragua and stick to our core competency of financing U.S. receivables and inventory." And so that took place, and we had already had arrangements to execute on our large green coffee contract moving into '19. So it did create a small blip in terms of revenue but something that doesn't affect us as we move forward into 2019.

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Unidentified Analyst, [56]

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Any word on who those accounts receivables in Nicaragua are from?

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [57]

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We don't share our green coffee customers.

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Unidentified Analyst, [58]

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There's mainly 2, right? I mean, one of them is in the U.S., Rothfos, but the second, H&H, who owns your plantation or operates alongside you guys in Nicaragua.

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David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [59]

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Yes, but that's green coffee distributors. Their end customers, which we're aware of many, we don't necessarily disclose.

With that, we're going to wrap up the call. We appreciate everyone's time. This one went a little bit long, but some really great questions. Like I'd like to say, dbriskie&ygyi if you have questions that you felt weren't answered or you want further color on, please write me and I'll make sure we give you the proper answers to the questions. Thank you, everyone.