Newage Announces Third Quarter Financial Results

Rhea-AI Summary

NewAge, Inc. (NASDAQ: NBEV) announced financial results for Q3 2020, reporting net revenue of $62.7 million, a decline from $69.8 million YoY, exacerbated by COVID-19 and qualification events in Asia. The company expects a merger with ARIIX to close by November 30, aiming to double revenues and enhance profitability. The merger could create a company with over $500 million in revenues and $30 million in EBITDA. Gross margin improved to 60%, while net loss rose to $14.1 million. NewAge's cash balance stood at $26.9 million, totaling $45.2 million when including restricted cash.

Positive

• Merger with ARIIX expected to close by November 30, 2020, which could double revenue.
• Gross margin increased to 60% in Q3 2020, up 207 basis points YoY.
• 11% revenue growth in the U.S. market during the third quarter.

Negative

• Net revenue declined 10% YoY from $69.8 million to $62.7 million.
• Net loss increased to $14.1 million in Q3 2020 from $10.7 million in Q3 2019.
• Adjusted EBITDA loss of $10.2 million, compared to break-even in Q3 2019.

Announced merger with ARIIX expected to close by November 30, 2020
Revenues expected to double with close of ARIIX transaction
Sale of BWR brands expected to enhance financial strength  

DENVER, Nov. 09, 2020 (GLOBE NEWSWIRE) -- NewAge, Inc. (Nasdaq: NBEV), the Colorado-based social selling and distribution company, today announced financial results for the quarter ended September 30, 2020 with net revenue reaching $62.7 million on a stand-alone basis. This includes the reduction in revenue associated with the sale of the BWR retail brands during the quarter, but does not include revenues from its recently announced combination with ARIIX and four other e-commerce/direct selling companies, which is expected to more than double the size of the Company and significantly improve the combined entity’s profitability.

Brent Willis, Chief Executive Officer of NewAge, commented, “We continue to make substantial progress on integrating the five companies that are part of this game-changing merger to create a leading social selling company. We had major achievements in the past few quarters in disposing of the BWR brands which had a negative impact of more than $15 million in EBITDA⁽¹⁾ in fiscal 2019, capturing cost synergies of approximately  $10 million in NewAge , and in achieving growth in the U.S., Latin America and Western European markets. We expect the merger between NewAge and ARIIX will close this month. As we come together, we expect to generate accelerated growth and profit contribution, and are extremely well positioned to do so.”

NewAge signed a definitive agreement to acquire ARIIX and four other e-commerce/direct selling companies on July 20, 2020. The definitive agreement was amended and restated on September 30, 2020. The transaction is expected to close by November 30, 2020. The combination creates a company with expected annual revenues of more than $500 million, a blended gross margin of 70%, and expected annual EBITDA of more than $30 million.

Third Quarter 2020 Financial Results                                                                                                                

Net revenue reached $62.7 million for the quarter ended September 30, 2020, versus $69.8 million for the third quarter of the prior year. The year over year variance is primarily due to the impact of COVID-19 and the timing of significant qualification events in the Company’s Asia markets.  Positively, the United States had revenue growth of 11% in the third quarter versus the same quarter in the prior year. Included in our United States region is the DSD division, which grew nearly 15% in the third quarter of 2020 versus the same quarter in the prior year.

Gross margin in the third quarter of 2020 reached $37.5 million, or 60% of net revenue, compared with $40.3 million, or 58% of net revenue in the prior year third quarter, an increase of more than 207 basis points.  Gross margin percentage increase was driven by improved product and channel mix, and overall improvement in cost of goods sold in the direct selling side of the business.  

During the third quarter of 2020, the Company sold its BWR brands subsidiary and substantially all of its U.S. retail brands. In addition to a negative impact of more than $15 million of EBITDA in 2019, the retail brands also negatively impacted net income by $2.1 million in the quarter.  It is anticipated that the divestment of the BWR brands business will improve gross margins, lower actual and relative SG&A expense, and improve overall profitability.

Net loss was $14.1 million, or $0.14 per share, during the third quarter of 2020, compared to a net loss of $10.7 million, or $0.14 per share, in the third quarter of 2019.   Adjusted EBITDA was a loss of $10.2 million for the third quarter of 2020, compared with break-even for the third quarter of 2019. The increase in net loss and decrease in Adjusted EBITDA during the quarter can be primarily attributed to a number of non-recurring items including human resource restructuring charges of $1.7 million, the disposal of the BWR brands of $3.4 million, and BWR operating losses of $2.1 million.  Excluding these charges that are not expected to continue in future periods, Adjusted EBITDA for the third quarter of 2020 would have been a loss of $2.9 million.

NewAge’s cash balance was $26.9 million at September 30, 2020. NewAge also holds additional restricted cash balances of $18.3 in the US, China and other markets for a total of $45.2 million in cash as of September 30, 2020.  Total current assets were $73.5 million at September 30, 2020 and total current liabilities were $52.2 million. Working capital was $21.3 million at September 30, 2020.

⁽¹⁾ EBITDA and Adjusted EBITDA are non-GAAP financial measures with reconciliations provided in the table below.
             
Conference Call

The Company will host a live conference call and webcast today at 8:00 a.m. ET. Conference call details are provided below. Interested investors can dial into the conference call to hear the details of management's update and participate in a question and answer session.

Date: Monday, November 9, 2020
Time: 8:00 a.m. Eastern time
Toll-free dial-in number: 1-877-407-3982
International dial-in number: 1-201-493-6780
Conference ID: 13711691

The conference call will also be broadcast live and available for replay here and via the investors section of the Company’s website at https://newagebev.com/en-us/our-story/investors. The webcast replay will be available for approximately 45 days following the call.

Please dial into the conference call 15 minutes prior to the start time due to increased demand for conference calls. You will be asked to register your name and organization.

A replay of the conference call will be available after 11:00 a.m. Eastern Time on the same day through Monday, November 16, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13711691

About NewAge, Inc. (NASDAQ: NBEV) 
NewAge is a Colorado-based organic and healthy products company dedicated to inspiring and educating consumers to “Live Healthy.” The Company is an omni-channel distribution company with access to traditional retail, e-commerce, direct-to-consumer, and medical channels across more than 75 countries worldwide when combined with ARIIX.  NewAge markets a portfolio of differentiated healthy functional brands in three category platforms including Health & Wellness, Healthy Appearance, and Nutritional Performance.  The Company operates the websites newage.com, noninewage.com, and a number of other individual brand websites.

NewAge has announced a transaction with ARIIX LLC. Once the ARIIX transaction is completed, we will be the only omni-channel company with access to traditional retail, e-commerce, direct-to-consumer, and other channels across more than 75 countries worldwide, with a network of over 400,000 exclusive independent product consultants, representatives, and affiliates around the globe. After the transaction closes, NewAge will market a portfolio of better-for-you products along with the companies, ARIIX, ZENNOA, Shannen, MaVie, and Limu in healthy hydration and wellness, healthy appearance, and nutritional performance platforms.  The Company announced NewAge’s entry into a definitive agreement to acquire ARIIX and four other e-commerce/direct selling companies on July 20, 2020. The Company entered into an amended and restated definitive agreement on September 30, 2020. This transaction is anticipated to close by the end of November 2020.

Safe Harbor Disclosure
This press release contains forward-looking statements that are made under the safe harbor provisions within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are any statement reflecting management's expectations regarding future results of operations, economic performance, financial condition, the acquisition of ARIIX, statements about the benefit of the ARIIX transaction including the proforma revenue, blended gross margin, expected EBITDA and expected cost savings, and the extent and duration of COVID-19 on its business. The forward-looking statements are based on the assumption that operating performance and results will continue in line with historical results. Management believes these assumptions to be reasonable, but there is no assurance they will prove to be accurate. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. NewAge competes in a rapidly growing and transforming industry, and risk factors, including those disclosed in the Company's filings with the Securities and Exchange Commission, might affect the Company's operations. Unless required by applicable law, the Company undertakes no obligation to update or revise any forward-looking statements.

For investor inquiries about NewAge please contact:

NewAge Investor Relations:
Riley Timmer
Vice President, Investor Relations
Tel: 1-801-870-8685
Riley_Timmer@NewAge.com

Investor Relations Counsel:
John Mills/Scott Van Winkle
ICR – Strategic Communications and Advisory
Tel: 1-646-277-1254/1-617-956-6736
newage@icrinc.com

NewAge, Inc.:
Gregory A. Gould
Chief Financial Officer
Tel: 1-303-566-3030
Greg_Gould@NewAge.com

NEWAGE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
		September 30,				December 31,
ASSETS		2020				2019
Current assets:
Cash and cash equivalents	$	26,885			$	60,842
Accounts receivable, net of allowance of $361 and $535, respectively		10,334				11,012
Inventories		30,567				36,718
Prepaid expenses and other		5,686				4,384
Total current assets		73,472				112,956
Long-term assets:
Identifiable intangible assets, net		40,104				43,443
Right-of-use lease assets		36,585				38,458
Property and equipment, net		27,571				28,443
Restricted cash, net of current portion		16,846				3,729
Goodwill		10,284				10,284
Deferred income taxes		9,735				9,128
Deposits and other		5,161				4,689
Total assets	$	219,758			$	251,130
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,598			$	13,259
Accrued liabilities		40,083				49,451
Current portion of business combination liabilities		-				5,508
Current maturities of long-term debt		1,504				11,208
Total current liabilities		52,185				79,426
Long-term liabilities:
Long-term debt, net of current maturities		18,469				12,802
Operating lease liabilities, net of current portion:
Lease liability		33,699				35,513
Deferred lease financing obligation		16,049				16,541
Deferred income taxes		5,484				5,441
Accrued employee benefits and other		9,491				9,132
Total liabilities		135,377				158,855
Stockholders’ equity:
Common Stock; $0.001 par value. Authorized 200,000 shares; issued and outstanding
98,490 and 81,873 shares as of September 30, 2020 and December 31, 2019, respectively		98				82
Additional paid-in capital		232,175				203,862
Note receivable for stock subscription		(1,250	)			-
Accumulated other comprehensive income		1,134				802
Accumulated deficit		(147,776	)			(112,471	)
Total stockholders' equity		84,381				92,275
Total liabilities and stockholders' equity	$	219,758			$	251,130

NEWAGE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2020				2019				2020				2019
Net revenue	$	62,719			$	69,828			$	189,049			$	194,483
Cost of goods sold		25,224				29,532				71,952				73,962
Gross profit		37,495				40,296				117,097				120,521
Operating expenses:
Commissions		17,458				21,185				55,378				58,830
Selling, general and administrative		27,983				26,104				84,868				81,121
Gain from change in fair value of earnout obligations		-				(6,244	)			-				(12,909	)
Loss on disposal of Divested Businesses		3,446				-				3,446				-
Impairment of right-of-use assets		-				-				400				1,500
Depreciation and amortization expense		1,751				2,241				5,293				6,494
Total operating expenses		50,638				43,286				149,385				135,036
Operating loss		(13,143	)			(2,990	)			(32,288	)			(14,515	)
Non-operating income (expense):
Interest expense		(521	)			(727	)			(1,693	)			(3,129	)
Gain (loss) from sale of property and equipment		(62	)			(85	)			(128	)			6,357
Gain (loss) from change in fair value of derivatives		(86	)			(166	)			(392	)			304
Interest and other income (expense), net		291				(48	)			1,082				(233	)
Loss before income taxes		(13,521	)			(4,016	)			(33,419	)			(11,216	)
Income tax expense		(612	)			(6,671	)			(1,886	)			(12,768	)
Net loss	$	(14,133	)		$	(10,687	)		$	(35,305	)		$	(23,984	)
Net loss per share (basic and diluted)	$	(0.14	)		$	(0.14	)		$	(0.38	)		$	(0.31	)
Weighted average number of shares of Common
Stock outstanding (basic and diluted)		97,819				78,076				92,087				76,550

NEWAGE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(In thousands)
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(35,305	)		$	(23,984	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,607				6,776
Non-cash lease expense		3,913				4,910
Loss on disposal of Divested Businesses		3,446				-
Stock-based compensation expense		3,415				5,278
Accretion and amortization of debt discount and issuance costs		414				1,796
Impairment of right-of-use lease assets		400				1,500
Loss (gain) from change in fair value of derivatives		392				(304	)
Loss (gain) from sale of property and equipment		128				(6,360	)
Expense for make-whole premium and other		73				511
Gain from change in fair value of earnout obligations		-				(12,909	)
Deferred income tax benefit		(442	)			(4,919	)
Changes in operating assets and liabilities, net of effects of business acquisition and disposal:
Accounts receivable		(932	)			(1,912	)
Inventories		2,741				1,190
Prepaid expenses, deposits and other		519				(3,201	)
Accounts payable		(484	)			657
Other accrued liabilities		(13,738	)			10,030
Net cash used in operating activities		(29,853	)			(20,941	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from buyer of Divested Businesses, net of cash conveyed of $209		381				-
Proceeds from sale of equipment		231				-
Capital expenditures for property and equipment		(2,108	)			(2,576	)
Cash advance under unsecured promissory note		(1,250	)			-
Net proceeds from sale of land and building in Japan		-				37,548
Security deposit under sale leaseback arrangement		-				(1,799	)
Acquisition of BWR, net of cash acquired of $537		-				(963	)
Net cash provided by (used in) investing activities		(2,746	)			32,210
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock		25,122				13,529
Proceeds from borrowings		6,868				52,068
Proceeds from exercise of stock options		34				418
Principal payments on borrowings		(10,825	)			(34,415	)
Payments on business combination obligations		(5,761	)			(34,000	)
Purchase and retirement of stock		(1,193	)			-
Payments under deferred lease financing obligation		(480	)			(307	)
Payments for deferred offering costs		(164	)			(195	)
Debt issuance costs paid		(95	)			(931	)
Proceeds from deferred lease financing obligation		-				17,640
Cash paid for make-whole premium		-				(480	)
Net cash provided by financing activities		13,506				13,327
Effect of foreign currency translation changes		(247	)			1,578
Net increase (decrease) in cash, cash equivalents and restricted cash		(19,340	)			26,174
Cash, cash equivalents and restricted cash at beginning of period		64,571				45,856
Cash, cash equivalents and restricted cash at end of period	$	45,231			$	72,030

Non-GAAP Financial Measures

The primary purpose of using non-GAAP financial measures is to provide supplemental information that we believe may be useful to investors and to enable investors to evaluate our results in the same way we do. We also present the non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis, as well as comparing our results against the results of other companies, by excluding items that we do not believe are indicative of our core operating performance. Specifically, we use these non-GAAP measures as measures of operating performance; to prepare our annual operating budget; to allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of our results with those of other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and in communications with our board of directors concerning our financial performance. Investors should be aware, however, that not all companies define these non-GAAP measures consistently.

We provide in the table below a reconciliation from the most directly comparable GAAP financial measure to the non-GAAP financial measures presented.

EBITDA and Adjusted EBITDA. The calculation of our EBITDA and Adjusted EBITDA is presented below (in thousands):

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2020				2019				2020				2019
Net loss (1)	$	(14,133	)		$	(10,687	)		$	(35,305	)		$	(23,984	)
EBITDA Non-GAAP adjustments:
Interest expense		521				727				1,693				3,129
Income tax expense		612				6,671				1,886				12,768
Depreciation and amortization expense		1,855				2,335				5,607				6,776
EBITDA		(11,145	)			(954	)			(26,119	)			(1,311	)
Adjusted EBITDA Non-GAAP adjustment:
Stock-based compensation expense		966				991				3,415				5,278
Adjusted EBITDA (1)	$	(10,179	)		$	37			$	(22,704	)		$	3,967
(1)  Net losses and Adjusted EBITDA for the three and nine months ended September 30, 2020 include charges for (i) severance expenses of $1.7 million and $2.6 million for the three and nine month periods, respectively, and (ii) a loss on disposal of the Divested Businesses of $3.4 million for each of the three and nine month periods. In addition, prior to the disposal of the Divested Businesses, operating losses, exclusive of depreciation and amortization expense, related to the Divested Businesses were incurred for $2.1 million and $5.1 million for the three months ended September 30, 2020 and 2019, respectively, and $7.3 million and $8.8 million for the nine months ended September 30, 2020 and 2019, respectively.

EBITDA is defined as net income (loss) adjusted to exclude GAAP amounts for interest expense, income tax expense (benefit), and depreciation and amortization expense. For the calculation of Adjusted EBITDA, we also exclude the following item for the periods presented.

Stock-Based Compensation Expense: Our compensation strategy includes the use of stock-based compensation to attract and retain employees, directors and consultants. This strategy is principally aimed at aligning the employee interests with those of our stockholders and to achieve long-term employee retention, rather than to motivate or reward operational performance for any particular period. As a result, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.

FAQ

What were NewAge's Q3 2020 financial results?

NewAge reported Q3 2020 net revenue of $62.7 million, a decrease from $69.8 million YoY, and a net loss of $14.1 million, or $0.14 per share.

When is the expected closing date for the NewAge and ARIIX merger?

The merger between NewAge and ARIIX is expected to close by November 30, 2020.

How has NewAge's gross margin changed in recent quarters?

NewAge's gross margin improved to 60% in Q3 2020, which is an increase of 207 basis points compared to the previous year.

What impact did the sale of BWR brands have on NewAge's financials?

The sale of BWR brands negatively impacted NewAge with an estimated loss of $15 million in EBITDA in 2019 and a $2.1 million hit to net income in Q3 2020.

What is NewAge's cash position as of September 30, 2020?

As of September 30, 2020, NewAge's cash balance was $26.9 million, with total cash including restricted balances amounting to $45.2 million.