Friday, May 10, 2019 9:15:11 AM
NBEV CEO Brent Willis Q1 2019-Results-Earnings-Call-Transcript......
New Age Beverages Corporation (NASDAQ:NBEV) Q1 2019 Results Earnings Conference Call May 9, 2019 8:30 AM ET
Company Participants
Cody Slach - Liolios Group
Brent Willis - Chief Executive Officer
Gregory Gould - Chief Financial & Administrative Officer
Kelly Olsen - Chief Marketing Officer
Conference Call Participants
Mike Grondahl - Northland Capital Markets
David Bain - Roth Capital
Aaron Grey - Alliance Global
Operator
Greetings, welcome to the New Age Beverages Corporation First Quarter 2019 Investor Conference Call. At this time all participants are in listen-only mode. [Operator Instructions]. Please note, this conference is being recorded.
I will now turn the call over to your host, Cody Slach from Liolios Group. Mr. Slach, you may begin.
Cody Slach
Good morning. Thank you for joining New Age Beverage Corporation's 2019 first quarter financial results investor call. I'm Cody Slach with Liolios, the IR Counsel for New Age. I'd like to welcome you all to the call today and thank you all for joining. On today's call, we have Brent Willis, Chief Executive Officer of New Age Beverages; Greg Gould, Chief Financial Officer and Kelly Olsen, Chief Marketing Officer and one of the founders of Morinda.
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.
I'd now like to turn the call over to Greg Gould, Chief Financial Officer.
Gregory Gould
Thank you, Cody. For the first quarter of 2019 we delivered $60.5 million in gross revenues versus $12.8 million in the prior year, an increase of $47.7 million. Net revenue reached $58.3 million, an increase of 404% versus the first quarter of 2018.
As a frame of reference, for the entire year of 2018 the company did less than $60 million in revenue. Now in the first quarter traditionally our lowest revenue quarter of the year we have already exceeded that.
Within our divisions our direct store distribution group led the way in organic growth once again. The group continues to deliver month after month under the outstanding leadership of Josh Hillegass within brands our Búcha brand has led organic growth followed by Marley.
Now that we have recently gained national distribution with 7-Eleven and Walmart, we expect the scale of this business to grow significantly. Morinda also performed extremely well across most markets, notably Latin America, that was up 70%, leading growth for the group was also a number of key Southeast Asian markets like Indonesia for example; that was up 117% versus the prior year, in Vietnam that was up 103%.
China continues to be challenging as a result of the industry complexities in this country. But we expect to begin to claw our way back beginning in May as the industry restrictions are abated. In gross profit the company delivered $38.5 million for the quarter versus $2.6 million in the first quarter of the prior year, an increase of 1381%.
As the percentage of sales, this equated to a 66% gross margin versus 23% in the prior year reflective of the mix shift in our business. Total operating expenses were $47.1 million due to the increase SG&A associated with the Morinda acquisition that closed on December 21, 2018 and included in this number is $5.5 million of non-cash items.
EBITDA in the first quarter reached a positive $0.6 million, a significant increase versus a loss of $2.1 million in Q1 of the prior year. Reviewing the balance sheet and cash flow statement for the period ended March 31, 2019 we ended with $349.5 million in total assets compared to $286.9 million at the end of 2018, an increase of 22%.
Of these assets $110 million was in cash on the balance sheet versus $42.5 million at the end of 2018. As a frame of reference, New Age had a cash balance of less than $100,000 at the end of Q1 2018. So, going from less than $100,000 to now more than $100 million is progress in the right direction.
Beyond the transformative financial results from the business, in the quarter we made significant progress to strengthen our finance team and strengthen the overall financial flexibility and outlook at New Age. We in placed a new $25 million credit facility at prime plus 0.25% or roughly 6% annualized with East West Bank. This facility provides New Age with a great new banking relationship perfectly aligned with the global nature and growth prospects of our business.
We also completed a new Form S-3 shelf filing that was approved with no review from the SEC a testament to the quality of our governance and buttoned up nature and on time issuance of all of our public filings over the past year. Within the Form S-3 we also filed a subset of that in the aftermarket offering addendum. We feel it is simply prudent and good business practice to have in place, although we have not access it yet.
Beyond the new relationship with East West Bank and other financial progress we also significantly strengthen the quality of our financial resources in-house and expect to continue to do so throughout the year. We added a new head of our audit committee at the board, Amy Kuzdowicz, the former Head of Finance at Panera and a number of other world-class firms.
And with that, I’d like to hand the call back over to Brent.
Brent Willis
Good job, Greg and thank you. Well done on all of the governance aspects and public company filing requirements. It kind of goes under noticed and definitely goes underappreciated, but it is a testament to the quality work that you guys are doing behind the scenes, well done.
As usual, New Age, we have a lot going on. And this quarter is no exception. We have a lot to update you on. And our balances always one of delivering short-term results while emplacing the building blocks to be and/or the industry leading with the sector that we have defined that we expect to be lead healthy beverages and lifestyle products.
I've always said, we had never come here and we never did come here to build $5, $10 or $20 stock. We are successful small beverage company. And in this sector anything less than $1 billion is small. We have very different aspiration. And this why everything we have ever done is strategic and it's building block for where we are headed, first on our initial road map and now on our new road map. The challenge however is a public company with now almost 25,000 valued shareholders in New Age is we can’t just build for that longer terms success and return.
In PEPCOs investors just don’t have the patience frankly with any company or management team to wait and just build for the long-term. So you have to drive that short-term performance, and Greg just talked about that short-term performance for the quarter. What I want to talk about today and really why we own and all of us own this stock. It is about our progress on our strategic drivers and what is going on behind the scene.
One major reason we all own New Age is even as a small firm as we now have an infrastructure that gives us access to 60 markets around the world including some of the fastest-growing beverage geographies on the planet. And not only did Morinda’s integration put us over the $300 million scale mark and provide and support the profitability in cash flow hurdles typically associated with small caps in this sector. But it gives us a platform and the world-class people to drive all of our growth initiatives through.
Now, as I mentioned in our last investor conference call, I felt the Morinda integration was so far so good, not perfect by any means and nothing ever is especially when you have a global business. And in global businesses you have both the value and the diversity of a global business in both developed markets and developing markets, that’s the positive, but on the other side of the equation you also get to manage and led across both developed and developing markets, I mean, as a significant degree of complexity. Some countries always taken off, of course we’re having issues.
And now New Age has the benefit of both those opportunities and complexities, which we love by the way because we’ve got the experience and the track record of leading multibillion dollar, multinationals and we know what we can do with this globally established infrastructure that is now New Age. But my perspective was and is so far so good, but that's just my perspective. I don’t it would be helpful for our investors to hear directly from one of the leaders at Morinda and not just any leader. One of the founders, Kelly Olson, the guy who led Morinda to success and the architect of Tahitian Noni, the original super fruit and one of the most respected leaders in the entire direct-to-consumer industry.
Kelly is now driving our expansion as the New Integrated Global Chief Marketing Officer for the entire company. So first just hearing from me and my perspective on how it’s going, I thought it would be valuable for our industry to hear it directly from one of the key leaders on the frontlines from Kelly. Kelly?
Kelly Olsen
Thanks Brent. I'm really happy to make a contribution to this call today. I think it's an understatement when you say so far so good. I think I understand what you mean. I've been at Morinda since the beginning more than 20 years ago. When we started, it is similar to New Age. I think we were the fastest growing company in our industry. Our growth rate actually became legendary and drove our competitors crazy because they could not follow the path that we had laid out. Morinda was a true startup. We began with literally nothing but a warehouse full of our flagship product Tahitian Noni juice. And then the science and history of that product drove our sales and literally took us global.
So now if you fast-forward to what happened on December 21 of last year when we decided to merge with New Age. Truthfully there was a lot of apprehension worldwide especially in Asia among some of our senior leaders and influencers that don't particularly like change and I have certain amount of apprehension myself, but that's really when I hear you say so far so good I think it's an understatement, because to me since that time in December it's been so far so amazing.
Truthfully, I'm as excited now as I was when we started our business Morinda in 1996, because back then we had nothing and now we have almost 1000 trained dedicated associates who are seasoned, had very, very good at what they do and all with the common goal and purpose. We've established infrastructure in 60 countries. We have the science, facts, studies, patents behind Tahitian Noni and we've successfully expanded on that product base with Noni+Collagen which is a phenomenal new product at a whole range of cosmetics and skincare that are Tahitian Noni based under our TeMana line that is so successfully differentiated and really no one can follow that path either.
What I realized quickly is that all we had built over the last 20 years actually was preparing us for our association with New Age. And that's where my vision really kind of began as this process unfolded and now expands our reach and vision for everyone involved. We have a chance now for everyone to earn stock and be a fellow owner and that is huge, a chance to sell all the New Age beverages in traditional retail in our markets and our new income streams, a chance to build the first omnichannel business, direct-to-consumer like Morinda, but also direct store door, traditional retail, e-commerce and medical channels, had a chance to be globally first with CBD which we just launched which is so huge right now, and so driving so much excitement and energy. But also all the other products coming from the Health Sciences division that we believe will also be breakthrough products.
In the direct-to-consumer industry New Age Morinda is hot news. In our industry creating separation from the competition is difficult, yet so important and we are achieving separation. Why? Well, we are the only company in the industry where distributors can become share owners. We are the first major company in the direct-to-consumer industry to launch CBD, the only one to provide income streams from multiple channels. This is unheard of. Yes, we are -- this is in our -- within our reach to do this. This is why great leaders or emerging leaders in our entire industry want to be part of this opportunity, while we are raising eyebrows literally throughout our industry because they don't have any of these things in their current company. Maybe I’m sharing too much Brent, but I’d like to make it clear to everyone that we just had in April our best month in the past 10 years in our U.S. market.
Our largest market Japan had an extremely good month which is really really important and other key markets in Southeast Asia are up more than 100%. Everyone knows about the short-term industry impacts in China and we have some mindset work and building work to do in some of our other markets, but the drivers and our plan for 2019 and beyond are in place and achieving traction and raising eyebrows. So this is why I say so far so amazing Brent, and why I’m so positive and engaged and basically just fired up because our industry is purely opportunity driven and we are offering the best opportunity in the direct-to-consumer industry and to that our execution – adds that our execution capability has never been better than it is today.
All of our earlier growth when we start up our company were with people who are learning, but as we went today we are seasoned and very very good executors, and we have great growth potential like we’ve never had before in our existing markets and happily to say new markets that are in our sites now and we are sharing the wealth with everyone and I feel great about that.
So, I should probably stop there Brent and swing it back to you.
Brent Willis
Thanks Kelly and thanks for giving the prelook on April, but I didn’t think it was possible to meet somebody with more drive and optimism they need, but Kelly has it. And I promise you optimism in organization is infectious and of course multiplier and Kelly is a force multiplier together with the perseverance that we have and frankly we talked about the entire organization in New Age, Morinda, I don’t believe there’s anything that will get in our way of achieving our objectives.
On the last call, I outlined five strategic building blocks and growth drivers for 2019. Kelly just reviewed the first one and the only thing that I would add to what he imparted was that the expansion of our TeMana line with the system looks promising and that brand alone could exceed $15 million for us this year.
We are also expanding Noni+Collagen launching it in May in China and in markets where we have launched that so far sales have been excellent. It's a great product and consumer offtake has been outstanding. That’s the first part of the model. The second part of the model one in which we expect $10 million of incremental revenue contribution in 2019, but they continue to drive the growth and profitability in our direct-to-store distribution group.
Just to locate this in the first quarter we organize to move our headquarters distribution facility to a location almost twice the size of our original footprint. It is as humble as our original location that provides us the space for expansion which we desperately need to house all of our partner brands and SKUs in this system that's grown to now over 900 from 600 last year.
We also expanded operations in our mini warehouse footprint in neighboring states and in harder-to-reach distribution locations throughout Colorado as we expand the breadth and depth of our penetration. It’s snowing here today in Denver and its May and we are so for the snow to be done as all of our drivers and merchandises and salespeople equally are. We never really talk about the impact of weather on beverage sales, but like I said we're ready for the snow to go away and for the sun to come back out.
Moving on to growth vector three, New Age’s core brands in broader distribution. Now right at the end of the quarter and in April we announced that we had begun shipping Marley and Búcha to Walmart and 7-Eleven. Early consumer offtake reach at Walmart exceeding both our internal and the customer's expectations. This is a good starting point and contributes to the $20 million in growth that we are expecting from this division this year. But we believe in this quarter we will have much more significant national distribution partnerships to announce beyond Walmart and 7-Eleven which are actually not bad for a start.
The fourth drivers to expand our emerging divisions both Health Sciences and e-commerce. In the first quarter as you may have seen, we completely rebuilt the New Age and brands website integrated them in their shopping cart and converted them all into the management and fulfillment by Morinda. Our internal call center team with more than 30 people are doing an outstanding job and they probably cover 20 different languages as we expand that business beyond traditional brick-and-mortar borders of that e-commerce businesses don't see. E-commerce was huge or significantly up I would say in the quarter but off a small base last year and we have a lot of optimism for its contribution in 2018 and thereafter.
Also in this emerging group is our Health Sciences division whereby in the quarter we launched our radiation protection product in Korea. The current model on this product is a royalty model which drops straight to the bottom line with the equivalent revenue of just the first POs [ph] on this product there exceeds $4 million and we're just getting started with this entire portfolio.
Our fifth and final growth initiative is CBD. Now, there's a lot of excitement about CBD and its potential that we at New Age believe is justified. We had intended to provide cautious guidance on CBD for 2019 and we have been explicit and direct that for 2019 we are treating it as an upside to our model, but not financials that are baked in any significant manner. We also said that commercialization following passing of the Farm Bill would not be linear and with the FDA's recent usurping of the intent of congressional decision that has been the case.
So, in the end of April we launched our CBD creams, lotions and topicals. Why? Because we could and that's what we could do to be on the leading edge versus the bleeding edge and still stay on-site with the FDA in the U.S. Now Kelly may have let it slip when he release that, we had our best month in history in U.S. in the past 10 years in April and CBD was definitely a contributor to them.
Now on the beverages side within CBD, we expect to have some additional news to share in May with our partners Docklight and Privateer which is our shareholders know are real leaders and sourcing growing and all things regulatory in that industry. In the U.S. we're working intimately with major U.S. retailers in joint planning, but have not yet launched. We had the FDA hearings coming up at the end of the month in May and we are ready with an outstanding portfolio products that we believe tastes great, consistent with the other products in our portfolio.
In the quarter, we extended and deepened our agreement with the Marley family for another 10 years and this paves the way for this expansion. Where we are focusing for speed is outside of the United States particularly Japan, Mexico and a few other early adopter markets in different regions of the world. Why? Well, again because we can’t and our intent is to lead in this emerging segment of CBD worldwide not just in the state of Michigan or Oregon for example, and last time I checked it was snowing there too. So, those are just a quick update on our strategic growth drivers. Let me ask Greg if I could, Greg again to ask you to comment and where it leads us financially vis-à-vis our outlook.
Gregory Gould
Yes, Brent. Financially as we look forward into our second quarter we’d like to guide the market to let you guys know that conservatively we feel like we should be able to do approximately $65 million in revenue, with that though we do see three drivers that could create substantial upside. The first one is China. A big question we have right now is how quickly can China come back? The Chinese government has just lift several restrictions on the way we can do business there and the big question will be how quickly will this come back. We believe this will be helped substantially by our introduction of Noni+Collagen and that launch is going on right now and going very well.
Number two is our brands division. Our brands division, we have just start to nationally distribute our products. That's going very well for the month of April, but we need to consistently push that forward. That’s helps and we think will continue to drive throughout the rest of this fiscal year. And the last one probably our biggest unknown we have CBD. It was launched in April and the launch was very successful and now we need to continue that momentum going into the last half of this year.
So with that, we do see some fairly big upside, but right now to be conservative we think for the second quarter we should come in the $55 million range. And within that range we also believe that we should be positive on an EBITDA level and that should continue out through the rest of this fiscal year. Based upon where we sit today and based upon the upsides I’ve talked about, we continue to think that we can hit our full year guidance. I think we would continue to progress forward, but with Brent and the rest of the team here we’re very confident in making that happen. Brent, I’ll pass back to you.
Brent Willis
Thanks Greg. Just to close, I mentioned at the start of the call today that we had a lot going on in New Age as usual. So please appreciate just one of those things. Like acquisition and integration of Morinda for example; that's about 100 days old, would be a lot, just one of those things would be a lot for any organization. But when you put in perspective that work, synergy capture amongst the two different companies, the expansion of brands, the national distribution, the doubling of our DSD footprint, the launch and expansion of radiation protection and expansion of our e-commerce to complete redevelopment of the New Age brands and corporate website, the expansion of Noni+Collagen, the installation of Oracle, the bringing in-house of production of key products, the registration New Age brands around the world, our first execution of our omnichannel approach and the launch of CBD, this is what we mean but we have a lot going on. And a lot of reason for excitement and the potential and growth prospects of our business in 2019 and beyond.
And with that, let me open it up to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question is from the line of Mike Grondahl with Northland Capital Markets. Please proceed with your question.
Mike Grondahl
Yes. Thanks Brent, Kelly and Greg. Could you talk a little bit about how you see CBD products rolling out both in the U.S. and globally? And sort what of arrange for these being shift? And I guess globally, Kelly, kind of how do you think that starts and kind of build?
Gregory Gould
Kelly, you want to hit that part first and then I’ll talk about what we’re doing in other channels. But you want to talk about how we’re doing and launching in hand through Morinda and that can roll out plan?
Kelly Olsen
Yes. So, obviously demand is building up very very very rapidly for these products globally and it's been driven by regulatory issues, obviously every country has its own regulatory requirements. We’re in and I’m very very close touch with regulators, the regulation process and anxious to introduce those products as soon as we possibly can in every one of those markets beginning with our largest market in Japan which I think is imminent.
And so it's kind of like a rolling launch. Global launch is probably not practical, but a rolling launch in terms of not only testing the demand for the market but acceptability in terms of legal regulatory world that we live in, some are very well educated and kind of ahead of the curve and some are little bit – I’m talking in terms of countries a little bit more behind the curve, but we see that beginning – well, obviously began in April with our introduction in the U.S. and that will continue on a rolling basis throughout the world. But there is great demand for these products.
Cody Slach
Kelly, just one other thing, I mean, I know it's an guidance a little bit, but what would be your judgment of the minimum number of markets that in which we’d have CBD through our direct-to-consumer system, minimum number of countries by the end of the year?
Kelly Olsen
I think on the conservative side 15 to 20 markets.
Brent Willis
That's great and that's just one channel. I mean I think Mike one of the things we've done is we launched this in omnichannel. So we're launching it not just through our direct-to-consumer system, but also through our e-commerce system and at traditional retail and through our direct-to-store door distribution system. So we are rolling that out now and the enthusiasm and optimism for that just looks fantastic.
So I would say as kind of Kelly said, this is -- it's a real opportunity for us and one in which we don't aside from the regulatory piece, we don't have barriers to entry and competitive barriers to entry because we haven't given Coke and Pepsi and other competitors a 100 year start like we have in other aspects of our business. So it is wide open where we have a chance to lead.
Mike Grondahl
Got it. And I think last quarter you talked about Food Mart in Japan, you thought that was a big opportunity in addition to the direct to consumer. Any update there?
Brent Willis
Yes, it's actually Family Mart. They've got I think 19,000 stores. As much as I would like maniacal speed, from a Japanese mindset and Japanese perspective, they are moving at maniacal speed. It's just not our definition of speed and my definition within the English language, but we've had four meetings with Family Mart and their parent and the major distributors the ITOCHU Group which is the largest there and with Marubeni, which is I think the fifth largest distributor there.
So we are in deep conversations and I wouldn't just say with Family Mart, but I would say even larger convenience store operators and quick service restaurant operators and even I personally met with the largest retailer there and they're not just interested in our Marley CBD product which of course they are interested in but they're also interested in our Búcha products. So the taste profile really fits and the whole probiotic nature of that brand really fits with Japan and the Japanese culture.
So we're working with some of the major consumer goods beverage companies there, the distributors as I mentioned and direct with the retailers. So all of these things from a Japanese perspective are progressing as fast as they can, but we'd like it to be faster of course, but in the fifth [ph] meetings and we're really in weekly meetings with them now as we plan the execution of the launch.
Mike Grondahl
Got it, got it. And then Brent you mentioned you're working again with Docklight Privateer Tilray. Can you expand on that a little bit? You talked about more progress coming in May. Is that actually shipping product or what were you referring to there?
Brent Willis
It's a bit too forward for them and we're just finalizing those additional things that we're going to do. So I expect within the next couple of weeks we'll have news to announce with them on some additional things that are happening that I think are great for both companies.
Mike Grondahl
Got it. Thanks. I'll jump back in the queue.
Brent Willis
Thanks Mike.
Operator
The next question is from the line of David Bain with Roth Capital. Please proceed with your question.
David Bain
Great, thanks. I have three questions if I could. First you ended with $110 million of cash. I mean that's a lot of cash. Obviously, you don't see $400 million market cap companies with that kind of cash. So to put it bluntly, what are the plans for it?
Brent Willis
Well, we'd like to keep it Dave. I mean when I look at acquisitions and I've looked at acquisitions throughout my career, companies of this scale with this level of cash balance for me they're great acquisition targets because you can freely use that cash and it really reduces your cost of acquisition. So that's my trepidation frankly to keep the cash and stay independent so we can deliver our opportunities, but when we have and we see the regulatory landscape evolve and the growth potential of CBD and these health sciences product products, we want to invest behind those, but when you look at the global scale of the business, we probably need at least $50 million to $60 million, wouldn't you agree, Greg, just for working capital.
Gregory Gould
Yes. About $60 million working capital.
Brent Willis
Yes so $60 million working capital, so it really isn't that big of a balance, but we think it's good enough, but we've got that as Greg mentioned we're positive cash flow in our generation for this last quarter and we expect to be also next quarter and as mentioned we put in place the ATM that even though we haven't accessed it, it provides us the flexibility and we just think it’s the right prudent thing to do. So put another way, we want to keep and maintain the cash to give us just the flexibility for business opportunities as we look going forward.
Gregory Gould
We do have one large payment out here this quarter to, related to the building sale where as part of the contract we will be paying a certain amount of that building sale back to the former owners of Morinda in the $25 million range.
David Bain
Okay, great. Thanks for that. And so just two more; one relates to Morinda China. Can you elaborate on some of the newer restrictions that you mentioned? I know entrepreneurs in China are famously nimble when it comes to finding ways to do business within the regulatory language, but just based on the $320 million guide, it seems like the second half ramp includes China coming back. So I'm trying to understand that a little bit better?
Brent Willis
Yes, it does. So the impact in China had nothing to do with us, it was all industry related and principally driven by actions that the Chinese government took in response to behaviors of two of the local Chinese direct-to-consumer companies that were operating within the guidelines that the Chinese government has established in this sector. So as a result of their behaviors, the Chinese government took the action to stop all meetings for a period of 100 days and they really did that in mid-January where you just couldn't get meetings with your teams and organizations.
So that's one reason for example I know with a number of our senior leaders in Macau which was indeed on sides, but I think we've got a meeting of probably 7,000 or 8,000 people that are Board of Directors is actually going to in the end of June coming up. So we're back in business, those regulations have or those restrictions have now been lifted, but after sort of being on hold for growing the business in the traditional way over the past 90 days, it just doesn't jump start right away.
So in that context we have really accelerated our e-commerce activities, WeChat and are WeChat communication and meeting activities and other e-commerce vehicles because we couldn't do the traditional thing. So I think it's frankly a good catalyst to evolve to Alibaba, WeChat and other aspects that are just huge in China and also registering our New Age brands there to expand and utilize our infrastructure there to accelerate our growth in traditional retail channels.
David Bain
Okay great. And then my final question. One question we get from investors really is the capsulating or quantifying the various buckets of opportunities you have like CBD, health sciences now that you've national distribution and we have our model and assumptions but I know like Brent, you personally model out your businesses. So I'm hoping to kind of probe your thoughts as to the potential of them. This is kind of a question of what if things go right and I think it's fair now that you hit your 1Q target and again where I asked about this, I'd love to hear any thoughts?
Brent Willis
Yes, so for if things go right in 2019, it’s zero contribution because that's the plan. So that's going right, the zero contribution and that we've already exceeded that with the launch of CBD in April. In the U.S. alone on beverages, we know we've got more than $50 million of pre-orders and that's just in the U.S. alone. So that is demand waiting to be fulfilled and I would tell you Dave literally every month we have top-to-top meetings with the major together with Docklight and Privateer in many cases with the major retailers within the United States. So if I look both between 2019 and 2020 look this is going to happen. It's not a question of if; it's a question of when and how fast.
So I don't know how much will be in 2019 for example but between 2019 and 2020, if it went right and the regulatory landscape unfolds globally as we expect it to, if it all went right, my CFO is going to kill me for saying this, but this could be big. So more than $100 million is nowhere near out of the realm of expectation, because mind you it’s wide open and we can be first and we got the science and we got the insights and the doctors and the products and the efficacy and the expertise in dosage and performance we think unlike anybody else. We think we've got the best CBD products out there in not just beverages but also creams, topicals, and lotions that frankly consumers want to be able to trust the science and quality of those products and we think we have them. So it's just a matter of getting that word out and executing it, but it could be well north of $100 million over the next 18 months.
David Bain
Very good, that's very helpful. Thanks so much.
Brent Willis
Thanks.
Operator
The next question comes from the line of Aaron Grey with Alliance Global. Please proceed with your question.
Aaron Grey
Good morning guys, thanks for the questions.
Cody Slach
Hey Aaron, are you going to do a three-part question also?
Aaron Grey
I'll just do two on mine, no worry. So, first one, just want to touch again on CBD. I realize it's still very much in its early days, but we did see the promotion for $125 in free product with the purchase of the CBD pack. I believe it ran four days starting the end of last month. So any color you can offer on how that promotion went and was that just online and was that also being promoted by your DTC consultants?
And then I guess just speaking more broadly I guess, what you are expecting in terms of cannibalization versus incremental sale because I think when you think about Noni Collagen versus CBD, you might have some cannibalization with the Noni Collagen but CBD should be incremental. So are we thinking about it the right way in terms of that incremental sale versus kind of a potential cannibalization? Thank you.
Brent Willis
Yes, we did. I'm going to pass it to Kelly in terms of some of the feedback and how we're executing it both through our direct-to-consumer consultants and online, but the first part of the question is we do see it as all upside. We don't see it as cannibalizing and we see it as new consumers. Now, our system has to be able to execute it and we need to attract new customers, new consumers and new people to our system because then if everybody's got a limited spending pool, there is a component of cannibalization.
As it relates to Noni+Collagen, we've seen some cannibalization, but I would say it's probably 75% incremental and the CBD stuff I think in terms of our business model is 100% incremental, but let me pass it over to Kelly to talk about the execution online and through our independent product and so on.
Kelly Olsen
So it was a coordinated launch driven primarily by our -- it was an online event, launch event, but all of our IPCs, all of our sales associates were aware of it and anxiously looking forward to it. It was a very successful pre-launch event and so it was -- its one of these events that people have been looking forward to. Obviously, the product has a tremendous amount of buzz and anticipation built. The launch itself was a tremendous success for us, one of the best ever actually.
Brent Willis
Thanks Kelly.
Aaron Grey
Great, thanks. And then, just digging into the guidance a little bit; I know you held the full your guidance. For 2Q, the $65 million, so if we imply that, that would be about a 60% increase in the back half versus the front half of the year with the back half running at about just under $100 million run rate for the last two quarters. So can you just help us kind of bridge that gap and kind of how we get there and then maybe some more color in terms of the number of stores you're going to be in for a Walmart and 7-Eleven what that national distribution just kind of help us kind of back into those numbers, which I would assume don't include CBD and that just being upside?
Brent Willis
Yes. So, we had said all year long and when we pulled together the plan that especially with the integration of Morinda in first quarter even though we didn't know about the China situation, when we pulled together the plan last year that the plan was not backend loaded but more driven toward the backend. So, this is just how the plan unfolds and think about it, I mean CBD we couldn't even spell it and Morinda on December 21st and now within 100 days we've launched it in our system.
So we can move quickly, for example, as evidenced by that launch. But we have the integration pieces. We have China in the back part of the year that we expect to significantly contribute and we have Noni+Collagen to roll out, all the New Age brands rolling out in the global distribution, the Health Sciences products rolling out and I think that's going to be in six markets by the end of the year. You heard about Kelly on the CBD side which we're kind of viewing as an upside, but I would say that coupled with just the natural evolution and the seasonality of this business makes it more in the back half driven. So anything else you want to add on that Greg or…
Gregory Gould
Yes. No, we knew that going in to this year that the back half would be much stronger because we had several different initiatives that were rolling out and with those initiatives it takes some time especially when we're looking at our national distribution things to be going well there but it is still very early so that we'll start seeing significantly increased revenue there.
Brent Willis
And we have more coming on the national distribution side, but we just -- we like to communicate after we've already started shipping and not before because things change with retailers and they have with us in the past. So, we have more coming on that national distribution side but that's why we think we've taken a fairly conservative tact for Q2 because we just -- we're not sure what's going to happen in China. It's an upside, we're not sure how much the national distribution on the brands part is going to take off and how quickly we can roll out the CBD. So we have three sensitivities there that some of this stuff is out of our circle of control. So we just don't know Aaron, and so we're trying to take the conservative tact so we can exceed the expectations.
Aaron Grey
Okay, great. Thanks. That's helpful. And just one quick follow up on that. So just digging a little bit deeper just on so I know you don't breakout DSD and brands anymore, but just if I look at the New Age segment it looks like sequentially it was roughly flat versus 4Q. So I guess just any color on what's going on with brands because it sounds like DSD still kind of grew organically. Just given with the inventory now in much better shape from a capital perspective and your ability to kind of get back into some of those doors that weren't being supplied previously?
Brent Willis
Yes. So, we are expanding the distribution. I think our total numbers went from about 200,000 points of distribution last year that we couldn't fully fulfill to now this year as we executed and roll it out and convert the authorizations into distribution about 300,000. So there's about a 30% incremental distribution level that you get over time. So I don't really draw any conclusions between Q4 and Q1 on the New Age side of the business. I don't think there's any news there aside from we're getting the national accounts now and it's not just the first two that we mentioned and it's not just on Búcha and Marley, it's really across the board on the portfolio as we make the -- just basic execution stuff in the brands division across national accounts.
So we see a lot of upside there which is why we guided to first is on there just the brand side $20 million upside and target for that division incrementally for this year. So that's our part of the model and how we build up our model, but we see that there's upside there but it's a big part and a linchpin of our strategy to make those brands successful in the U.S. because we're registering them in literally 40 countries around the world. Now we need them to be healthy in the United States and this is just the first year that they're getting national distribution. So we got -- we're still in the first mile of getting these brands out there and expect to do a lot more with them.
Aaron Grey
Great thanks.
Brent Willis
Thanks, Aaron.
Operator
Thank you. We have a follow-up from the line of Mike Grondahl with Northland Capital.
Brent Willis
Hey, Mike.
Mike Grondahl
Hey. On 7-Eleven and Walmart, when would you expect to get a reorder or a little bit of flavor on sell through?
Brent Willis
We already sort of have it on Walmart and we are seeing I think the number is 4.7 units per week in terms of pull-through and that far has exceeded the customers' expectations and exceeded our expectations. So the number fluctuates a little bit by type of stores but with Walmart and their Retail Link data which is one of the best systems that there is in the country, you really get visibility by store basis and by customer basis and you have to manage the business in that way with Walmart.
So the early visibility on sell-through there has just been I would say exceeding expectations and as consumers are just discovering this product. So we know with Mate for example, we led the category growth last year even though we weren't in a lot of distribution and retailers are figuring out, that's the brand leading the category growth in a high growth segment within the kind a key coffee subset category, so early read is good. It way, way, way too early on 7-Eleven, but the early read at Walmart so far is great.
Mike Grondahl
Got it. And you mentioned more retailers are coming over the summer. Are those national chains? What's kind of the flavor of those retailers?
Brent Willis
Big guys.
Mike Grondahl
Got it. And do you think that'll ship over the summer, do you plan on announcing those when you ship product, when you win the contract. How do you think that'll play out?
Brent Willis
We believe the contracts are done, but again I like to be conservative when I see the products on the [Indiscernible] trucks leaving out the door and purchase orders getting paid. Then that's when we like to communicate a major win. So the contracts are done, but we're not going to announce those things until the products are on the trucks and have left the door.
Mike Grondahl
Got it. That's fair. And then lastly, you have $110 million of cash on the balance sheet. Help me understand the ATM at $100 million. It sounds like you haven't used it yet. Maybe it's for a rainy day or another acquisition, but kind of how are you thinking about that going forward?
Brent Willis
The way we frame it is we put in a shelf and I think an ATM feature associated with that, but we put in our first shelf in October of 2017 and we didn't touch it until we have the opportunity with Morinda and that merger acquisition opportunity until September, October 2018, so a year later. So my perspective is it is prudent to put those things in place because you never know those opportunities and when they're going to come and if you look at the Morinda opportunity and how financially attractive and infrastructurally attractive and how you get great new leaders like Kelly and frankly a 1,000 other people like Kelly in the Morinda system, it's just fantastic for our shareholders but we were prepared and we had the ATM in place and we had the S-3 shelf in place.
So we just think even if we don't access it for a year or next month or two years from now, we think it is prudent to have it in place for when those opportunities arise just like we were able to execute it for facilitating the Morinda acquisition and by the way on which we took no debt and we’re able to acquire/merge/integrate with the company at a very low cost to capital for our shareholders that's already accretive for our shareholders. We've got track record of doing these things, but we do these things because we are prepared and because we're strategic in terms of our approach.
Gregory Gould
One other thing I'd throw in there Mike is that it costs the same amount for us to do a $100 million ATM as what it does do a $10 million ATM. So it's much more efficient to go with a larger size and it gives us more flexibility so that we can be focused on what to do which is going to be best for our shareholder base going forward.
Mike Grondahl
Got it. That's helpful guys. Thank you.
Brent Willis
Thanks Mike. I think we'll stop it there, operator, but I want to thank all of our investors for their continued trust, for their continued belief and their excitement about our Company. I hope everybody can tell the level of excitement and optimism, but tempered by hitting singles and doubles every single day and getting real runs on the board we're doing that and the growth prospects and the focus of everybody throughout our company on executing against those growth prospects is just tremendous and I want to thank all the people across our company for everything that they do every day and thank our shareholders for believing in us and giving us the runway to execute what we still believe is an unbelievable wealth creation opportunity. Thanks everybody. Appreciate the time.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
New Age Beverages Corporation (NASDAQ:NBEV) Q1 2019 Results Earnings Conference Call May 9, 2019 8:30 AM ET
Company Participants
Cody Slach - Liolios Group
Brent Willis - Chief Executive Officer
Gregory Gould - Chief Financial & Administrative Officer
Kelly Olsen - Chief Marketing Officer
Conference Call Participants
Mike Grondahl - Northland Capital Markets
David Bain - Roth Capital
Aaron Grey - Alliance Global
Operator
Greetings, welcome to the New Age Beverages Corporation First Quarter 2019 Investor Conference Call. At this time all participants are in listen-only mode. [Operator Instructions]. Please note, this conference is being recorded.
I will now turn the call over to your host, Cody Slach from Liolios Group. Mr. Slach, you may begin.
Cody Slach
Good morning. Thank you for joining New Age Beverage Corporation's 2019 first quarter financial results investor call. I'm Cody Slach with Liolios, the IR Counsel for New Age. I'd like to welcome you all to the call today and thank you all for joining. On today's call, we have Brent Willis, Chief Executive Officer of New Age Beverages; Greg Gould, Chief Financial Officer and Kelly Olsen, Chief Marketing Officer and one of the founders of Morinda.
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.
I'd now like to turn the call over to Greg Gould, Chief Financial Officer.
Gregory Gould
Thank you, Cody. For the first quarter of 2019 we delivered $60.5 million in gross revenues versus $12.8 million in the prior year, an increase of $47.7 million. Net revenue reached $58.3 million, an increase of 404% versus the first quarter of 2018.
As a frame of reference, for the entire year of 2018 the company did less than $60 million in revenue. Now in the first quarter traditionally our lowest revenue quarter of the year we have already exceeded that.
Within our divisions our direct store distribution group led the way in organic growth once again. The group continues to deliver month after month under the outstanding leadership of Josh Hillegass within brands our Búcha brand has led organic growth followed by Marley.
Now that we have recently gained national distribution with 7-Eleven and Walmart, we expect the scale of this business to grow significantly. Morinda also performed extremely well across most markets, notably Latin America, that was up 70%, leading growth for the group was also a number of key Southeast Asian markets like Indonesia for example; that was up 117% versus the prior year, in Vietnam that was up 103%.
China continues to be challenging as a result of the industry complexities in this country. But we expect to begin to claw our way back beginning in May as the industry restrictions are abated. In gross profit the company delivered $38.5 million for the quarter versus $2.6 million in the first quarter of the prior year, an increase of 1381%.
As the percentage of sales, this equated to a 66% gross margin versus 23% in the prior year reflective of the mix shift in our business. Total operating expenses were $47.1 million due to the increase SG&A associated with the Morinda acquisition that closed on December 21, 2018 and included in this number is $5.5 million of non-cash items.
EBITDA in the first quarter reached a positive $0.6 million, a significant increase versus a loss of $2.1 million in Q1 of the prior year. Reviewing the balance sheet and cash flow statement for the period ended March 31, 2019 we ended with $349.5 million in total assets compared to $286.9 million at the end of 2018, an increase of 22%.
Of these assets $110 million was in cash on the balance sheet versus $42.5 million at the end of 2018. As a frame of reference, New Age had a cash balance of less than $100,000 at the end of Q1 2018. So, going from less than $100,000 to now more than $100 million is progress in the right direction.
Beyond the transformative financial results from the business, in the quarter we made significant progress to strengthen our finance team and strengthen the overall financial flexibility and outlook at New Age. We in placed a new $25 million credit facility at prime plus 0.25% or roughly 6% annualized with East West Bank. This facility provides New Age with a great new banking relationship perfectly aligned with the global nature and growth prospects of our business.
We also completed a new Form S-3 shelf filing that was approved with no review from the SEC a testament to the quality of our governance and buttoned up nature and on time issuance of all of our public filings over the past year. Within the Form S-3 we also filed a subset of that in the aftermarket offering addendum. We feel it is simply prudent and good business practice to have in place, although we have not access it yet.
Beyond the new relationship with East West Bank and other financial progress we also significantly strengthen the quality of our financial resources in-house and expect to continue to do so throughout the year. We added a new head of our audit committee at the board, Amy Kuzdowicz, the former Head of Finance at Panera and a number of other world-class firms.
And with that, I’d like to hand the call back over to Brent.
Brent Willis
Good job, Greg and thank you. Well done on all of the governance aspects and public company filing requirements. It kind of goes under noticed and definitely goes underappreciated, but it is a testament to the quality work that you guys are doing behind the scenes, well done.
As usual, New Age, we have a lot going on. And this quarter is no exception. We have a lot to update you on. And our balances always one of delivering short-term results while emplacing the building blocks to be and/or the industry leading with the sector that we have defined that we expect to be lead healthy beverages and lifestyle products.
I've always said, we had never come here and we never did come here to build $5, $10 or $20 stock. We are successful small beverage company. And in this sector anything less than $1 billion is small. We have very different aspiration. And this why everything we have ever done is strategic and it's building block for where we are headed, first on our initial road map and now on our new road map. The challenge however is a public company with now almost 25,000 valued shareholders in New Age is we can’t just build for that longer terms success and return.
In PEPCOs investors just don’t have the patience frankly with any company or management team to wait and just build for the long-term. So you have to drive that short-term performance, and Greg just talked about that short-term performance for the quarter. What I want to talk about today and really why we own and all of us own this stock. It is about our progress on our strategic drivers and what is going on behind the scene.
One major reason we all own New Age is even as a small firm as we now have an infrastructure that gives us access to 60 markets around the world including some of the fastest-growing beverage geographies on the planet. And not only did Morinda’s integration put us over the $300 million scale mark and provide and support the profitability in cash flow hurdles typically associated with small caps in this sector. But it gives us a platform and the world-class people to drive all of our growth initiatives through.
Now, as I mentioned in our last investor conference call, I felt the Morinda integration was so far so good, not perfect by any means and nothing ever is especially when you have a global business. And in global businesses you have both the value and the diversity of a global business in both developed markets and developing markets, that’s the positive, but on the other side of the equation you also get to manage and led across both developed and developing markets, I mean, as a significant degree of complexity. Some countries always taken off, of course we’re having issues.
And now New Age has the benefit of both those opportunities and complexities, which we love by the way because we’ve got the experience and the track record of leading multibillion dollar, multinationals and we know what we can do with this globally established infrastructure that is now New Age. But my perspective was and is so far so good, but that's just my perspective. I don’t it would be helpful for our investors to hear directly from one of the leaders at Morinda and not just any leader. One of the founders, Kelly Olson, the guy who led Morinda to success and the architect of Tahitian Noni, the original super fruit and one of the most respected leaders in the entire direct-to-consumer industry.
Kelly is now driving our expansion as the New Integrated Global Chief Marketing Officer for the entire company. So first just hearing from me and my perspective on how it’s going, I thought it would be valuable for our industry to hear it directly from one of the key leaders on the frontlines from Kelly. Kelly?
Kelly Olsen
Thanks Brent. I'm really happy to make a contribution to this call today. I think it's an understatement when you say so far so good. I think I understand what you mean. I've been at Morinda since the beginning more than 20 years ago. When we started, it is similar to New Age. I think we were the fastest growing company in our industry. Our growth rate actually became legendary and drove our competitors crazy because they could not follow the path that we had laid out. Morinda was a true startup. We began with literally nothing but a warehouse full of our flagship product Tahitian Noni juice. And then the science and history of that product drove our sales and literally took us global.
So now if you fast-forward to what happened on December 21 of last year when we decided to merge with New Age. Truthfully there was a lot of apprehension worldwide especially in Asia among some of our senior leaders and influencers that don't particularly like change and I have certain amount of apprehension myself, but that's really when I hear you say so far so good I think it's an understatement, because to me since that time in December it's been so far so amazing.
Truthfully, I'm as excited now as I was when we started our business Morinda in 1996, because back then we had nothing and now we have almost 1000 trained dedicated associates who are seasoned, had very, very good at what they do and all with the common goal and purpose. We've established infrastructure in 60 countries. We have the science, facts, studies, patents behind Tahitian Noni and we've successfully expanded on that product base with Noni+Collagen which is a phenomenal new product at a whole range of cosmetics and skincare that are Tahitian Noni based under our TeMana line that is so successfully differentiated and really no one can follow that path either.
What I realized quickly is that all we had built over the last 20 years actually was preparing us for our association with New Age. And that's where my vision really kind of began as this process unfolded and now expands our reach and vision for everyone involved. We have a chance now for everyone to earn stock and be a fellow owner and that is huge, a chance to sell all the New Age beverages in traditional retail in our markets and our new income streams, a chance to build the first omnichannel business, direct-to-consumer like Morinda, but also direct store door, traditional retail, e-commerce and medical channels, had a chance to be globally first with CBD which we just launched which is so huge right now, and so driving so much excitement and energy. But also all the other products coming from the Health Sciences division that we believe will also be breakthrough products.
In the direct-to-consumer industry New Age Morinda is hot news. In our industry creating separation from the competition is difficult, yet so important and we are achieving separation. Why? Well, we are the only company in the industry where distributors can become share owners. We are the first major company in the direct-to-consumer industry to launch CBD, the only one to provide income streams from multiple channels. This is unheard of. Yes, we are -- this is in our -- within our reach to do this. This is why great leaders or emerging leaders in our entire industry want to be part of this opportunity, while we are raising eyebrows literally throughout our industry because they don't have any of these things in their current company. Maybe I’m sharing too much Brent, but I’d like to make it clear to everyone that we just had in April our best month in the past 10 years in our U.S. market.
Our largest market Japan had an extremely good month which is really really important and other key markets in Southeast Asia are up more than 100%. Everyone knows about the short-term industry impacts in China and we have some mindset work and building work to do in some of our other markets, but the drivers and our plan for 2019 and beyond are in place and achieving traction and raising eyebrows. So this is why I say so far so amazing Brent, and why I’m so positive and engaged and basically just fired up because our industry is purely opportunity driven and we are offering the best opportunity in the direct-to-consumer industry and to that our execution – adds that our execution capability has never been better than it is today.
All of our earlier growth when we start up our company were with people who are learning, but as we went today we are seasoned and very very good executors, and we have great growth potential like we’ve never had before in our existing markets and happily to say new markets that are in our sites now and we are sharing the wealth with everyone and I feel great about that.
So, I should probably stop there Brent and swing it back to you.
Brent Willis
Thanks Kelly and thanks for giving the prelook on April, but I didn’t think it was possible to meet somebody with more drive and optimism they need, but Kelly has it. And I promise you optimism in organization is infectious and of course multiplier and Kelly is a force multiplier together with the perseverance that we have and frankly we talked about the entire organization in New Age, Morinda, I don’t believe there’s anything that will get in our way of achieving our objectives.
On the last call, I outlined five strategic building blocks and growth drivers for 2019. Kelly just reviewed the first one and the only thing that I would add to what he imparted was that the expansion of our TeMana line with the system looks promising and that brand alone could exceed $15 million for us this year.
We are also expanding Noni+Collagen launching it in May in China and in markets where we have launched that so far sales have been excellent. It's a great product and consumer offtake has been outstanding. That’s the first part of the model. The second part of the model one in which we expect $10 million of incremental revenue contribution in 2019, but they continue to drive the growth and profitability in our direct-to-store distribution group.
Just to locate this in the first quarter we organize to move our headquarters distribution facility to a location almost twice the size of our original footprint. It is as humble as our original location that provides us the space for expansion which we desperately need to house all of our partner brands and SKUs in this system that's grown to now over 900 from 600 last year.
We also expanded operations in our mini warehouse footprint in neighboring states and in harder-to-reach distribution locations throughout Colorado as we expand the breadth and depth of our penetration. It’s snowing here today in Denver and its May and we are so for the snow to be done as all of our drivers and merchandises and salespeople equally are. We never really talk about the impact of weather on beverage sales, but like I said we're ready for the snow to go away and for the sun to come back out.
Moving on to growth vector three, New Age’s core brands in broader distribution. Now right at the end of the quarter and in April we announced that we had begun shipping Marley and Búcha to Walmart and 7-Eleven. Early consumer offtake reach at Walmart exceeding both our internal and the customer's expectations. This is a good starting point and contributes to the $20 million in growth that we are expecting from this division this year. But we believe in this quarter we will have much more significant national distribution partnerships to announce beyond Walmart and 7-Eleven which are actually not bad for a start.
The fourth drivers to expand our emerging divisions both Health Sciences and e-commerce. In the first quarter as you may have seen, we completely rebuilt the New Age and brands website integrated them in their shopping cart and converted them all into the management and fulfillment by Morinda. Our internal call center team with more than 30 people are doing an outstanding job and they probably cover 20 different languages as we expand that business beyond traditional brick-and-mortar borders of that e-commerce businesses don't see. E-commerce was huge or significantly up I would say in the quarter but off a small base last year and we have a lot of optimism for its contribution in 2018 and thereafter.
Also in this emerging group is our Health Sciences division whereby in the quarter we launched our radiation protection product in Korea. The current model on this product is a royalty model which drops straight to the bottom line with the equivalent revenue of just the first POs [ph] on this product there exceeds $4 million and we're just getting started with this entire portfolio.
Our fifth and final growth initiative is CBD. Now, there's a lot of excitement about CBD and its potential that we at New Age believe is justified. We had intended to provide cautious guidance on CBD for 2019 and we have been explicit and direct that for 2019 we are treating it as an upside to our model, but not financials that are baked in any significant manner. We also said that commercialization following passing of the Farm Bill would not be linear and with the FDA's recent usurping of the intent of congressional decision that has been the case.
So, in the end of April we launched our CBD creams, lotions and topicals. Why? Because we could and that's what we could do to be on the leading edge versus the bleeding edge and still stay on-site with the FDA in the U.S. Now Kelly may have let it slip when he release that, we had our best month in history in U.S. in the past 10 years in April and CBD was definitely a contributor to them.
Now on the beverages side within CBD, we expect to have some additional news to share in May with our partners Docklight and Privateer which is our shareholders know are real leaders and sourcing growing and all things regulatory in that industry. In the U.S. we're working intimately with major U.S. retailers in joint planning, but have not yet launched. We had the FDA hearings coming up at the end of the month in May and we are ready with an outstanding portfolio products that we believe tastes great, consistent with the other products in our portfolio.
In the quarter, we extended and deepened our agreement with the Marley family for another 10 years and this paves the way for this expansion. Where we are focusing for speed is outside of the United States particularly Japan, Mexico and a few other early adopter markets in different regions of the world. Why? Well, again because we can’t and our intent is to lead in this emerging segment of CBD worldwide not just in the state of Michigan or Oregon for example, and last time I checked it was snowing there too. So, those are just a quick update on our strategic growth drivers. Let me ask Greg if I could, Greg again to ask you to comment and where it leads us financially vis-à-vis our outlook.
Gregory Gould
Yes, Brent. Financially as we look forward into our second quarter we’d like to guide the market to let you guys know that conservatively we feel like we should be able to do approximately $65 million in revenue, with that though we do see three drivers that could create substantial upside. The first one is China. A big question we have right now is how quickly can China come back? The Chinese government has just lift several restrictions on the way we can do business there and the big question will be how quickly will this come back. We believe this will be helped substantially by our introduction of Noni+Collagen and that launch is going on right now and going very well.
Number two is our brands division. Our brands division, we have just start to nationally distribute our products. That's going very well for the month of April, but we need to consistently push that forward. That’s helps and we think will continue to drive throughout the rest of this fiscal year. And the last one probably our biggest unknown we have CBD. It was launched in April and the launch was very successful and now we need to continue that momentum going into the last half of this year.
So with that, we do see some fairly big upside, but right now to be conservative we think for the second quarter we should come in the $55 million range. And within that range we also believe that we should be positive on an EBITDA level and that should continue out through the rest of this fiscal year. Based upon where we sit today and based upon the upsides I’ve talked about, we continue to think that we can hit our full year guidance. I think we would continue to progress forward, but with Brent and the rest of the team here we’re very confident in making that happen. Brent, I’ll pass back to you.
Brent Willis
Thanks Greg. Just to close, I mentioned at the start of the call today that we had a lot going on in New Age as usual. So please appreciate just one of those things. Like acquisition and integration of Morinda for example; that's about 100 days old, would be a lot, just one of those things would be a lot for any organization. But when you put in perspective that work, synergy capture amongst the two different companies, the expansion of brands, the national distribution, the doubling of our DSD footprint, the launch and expansion of radiation protection and expansion of our e-commerce to complete redevelopment of the New Age brands and corporate website, the expansion of Noni+Collagen, the installation of Oracle, the bringing in-house of production of key products, the registration New Age brands around the world, our first execution of our omnichannel approach and the launch of CBD, this is what we mean but we have a lot going on. And a lot of reason for excitement and the potential and growth prospects of our business in 2019 and beyond.
And with that, let me open it up to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question is from the line of Mike Grondahl with Northland Capital Markets. Please proceed with your question.
Mike Grondahl
Yes. Thanks Brent, Kelly and Greg. Could you talk a little bit about how you see CBD products rolling out both in the U.S. and globally? And sort what of arrange for these being shift? And I guess globally, Kelly, kind of how do you think that starts and kind of build?
Gregory Gould
Kelly, you want to hit that part first and then I’ll talk about what we’re doing in other channels. But you want to talk about how we’re doing and launching in hand through Morinda and that can roll out plan?
Kelly Olsen
Yes. So, obviously demand is building up very very very rapidly for these products globally and it's been driven by regulatory issues, obviously every country has its own regulatory requirements. We’re in and I’m very very close touch with regulators, the regulation process and anxious to introduce those products as soon as we possibly can in every one of those markets beginning with our largest market in Japan which I think is imminent.
And so it's kind of like a rolling launch. Global launch is probably not practical, but a rolling launch in terms of not only testing the demand for the market but acceptability in terms of legal regulatory world that we live in, some are very well educated and kind of ahead of the curve and some are little bit – I’m talking in terms of countries a little bit more behind the curve, but we see that beginning – well, obviously began in April with our introduction in the U.S. and that will continue on a rolling basis throughout the world. But there is great demand for these products.
Cody Slach
Kelly, just one other thing, I mean, I know it's an guidance a little bit, but what would be your judgment of the minimum number of markets that in which we’d have CBD through our direct-to-consumer system, minimum number of countries by the end of the year?
Kelly Olsen
I think on the conservative side 15 to 20 markets.
Brent Willis
That's great and that's just one channel. I mean I think Mike one of the things we've done is we launched this in omnichannel. So we're launching it not just through our direct-to-consumer system, but also through our e-commerce system and at traditional retail and through our direct-to-store door distribution system. So we are rolling that out now and the enthusiasm and optimism for that just looks fantastic.
So I would say as kind of Kelly said, this is -- it's a real opportunity for us and one in which we don't aside from the regulatory piece, we don't have barriers to entry and competitive barriers to entry because we haven't given Coke and Pepsi and other competitors a 100 year start like we have in other aspects of our business. So it is wide open where we have a chance to lead.
Mike Grondahl
Got it. And I think last quarter you talked about Food Mart in Japan, you thought that was a big opportunity in addition to the direct to consumer. Any update there?
Brent Willis
Yes, it's actually Family Mart. They've got I think 19,000 stores. As much as I would like maniacal speed, from a Japanese mindset and Japanese perspective, they are moving at maniacal speed. It's just not our definition of speed and my definition within the English language, but we've had four meetings with Family Mart and their parent and the major distributors the ITOCHU Group which is the largest there and with Marubeni, which is I think the fifth largest distributor there.
So we are in deep conversations and I wouldn't just say with Family Mart, but I would say even larger convenience store operators and quick service restaurant operators and even I personally met with the largest retailer there and they're not just interested in our Marley CBD product which of course they are interested in but they're also interested in our Búcha products. So the taste profile really fits and the whole probiotic nature of that brand really fits with Japan and the Japanese culture.
So we're working with some of the major consumer goods beverage companies there, the distributors as I mentioned and direct with the retailers. So all of these things from a Japanese perspective are progressing as fast as they can, but we'd like it to be faster of course, but in the fifth [ph] meetings and we're really in weekly meetings with them now as we plan the execution of the launch.
Mike Grondahl
Got it, got it. And then Brent you mentioned you're working again with Docklight Privateer Tilray. Can you expand on that a little bit? You talked about more progress coming in May. Is that actually shipping product or what were you referring to there?
Brent Willis
It's a bit too forward for them and we're just finalizing those additional things that we're going to do. So I expect within the next couple of weeks we'll have news to announce with them on some additional things that are happening that I think are great for both companies.
Mike Grondahl
Got it. Thanks. I'll jump back in the queue.
Brent Willis
Thanks Mike.
Operator
The next question is from the line of David Bain with Roth Capital. Please proceed with your question.
David Bain
Great, thanks. I have three questions if I could. First you ended with $110 million of cash. I mean that's a lot of cash. Obviously, you don't see $400 million market cap companies with that kind of cash. So to put it bluntly, what are the plans for it?
Brent Willis
Well, we'd like to keep it Dave. I mean when I look at acquisitions and I've looked at acquisitions throughout my career, companies of this scale with this level of cash balance for me they're great acquisition targets because you can freely use that cash and it really reduces your cost of acquisition. So that's my trepidation frankly to keep the cash and stay independent so we can deliver our opportunities, but when we have and we see the regulatory landscape evolve and the growth potential of CBD and these health sciences product products, we want to invest behind those, but when you look at the global scale of the business, we probably need at least $50 million to $60 million, wouldn't you agree, Greg, just for working capital.
Gregory Gould
Yes. About $60 million working capital.
Brent Willis
Yes so $60 million working capital, so it really isn't that big of a balance, but we think it's good enough, but we've got that as Greg mentioned we're positive cash flow in our generation for this last quarter and we expect to be also next quarter and as mentioned we put in place the ATM that even though we haven't accessed it, it provides us the flexibility and we just think it’s the right prudent thing to do. So put another way, we want to keep and maintain the cash to give us just the flexibility for business opportunities as we look going forward.
Gregory Gould
We do have one large payment out here this quarter to, related to the building sale where as part of the contract we will be paying a certain amount of that building sale back to the former owners of Morinda in the $25 million range.
David Bain
Okay, great. Thanks for that. And so just two more; one relates to Morinda China. Can you elaborate on some of the newer restrictions that you mentioned? I know entrepreneurs in China are famously nimble when it comes to finding ways to do business within the regulatory language, but just based on the $320 million guide, it seems like the second half ramp includes China coming back. So I'm trying to understand that a little bit better?
Brent Willis
Yes, it does. So the impact in China had nothing to do with us, it was all industry related and principally driven by actions that the Chinese government took in response to behaviors of two of the local Chinese direct-to-consumer companies that were operating within the guidelines that the Chinese government has established in this sector. So as a result of their behaviors, the Chinese government took the action to stop all meetings for a period of 100 days and they really did that in mid-January where you just couldn't get meetings with your teams and organizations.
So that's one reason for example I know with a number of our senior leaders in Macau which was indeed on sides, but I think we've got a meeting of probably 7,000 or 8,000 people that are Board of Directors is actually going to in the end of June coming up. So we're back in business, those regulations have or those restrictions have now been lifted, but after sort of being on hold for growing the business in the traditional way over the past 90 days, it just doesn't jump start right away.
So in that context we have really accelerated our e-commerce activities, WeChat and are WeChat communication and meeting activities and other e-commerce vehicles because we couldn't do the traditional thing. So I think it's frankly a good catalyst to evolve to Alibaba, WeChat and other aspects that are just huge in China and also registering our New Age brands there to expand and utilize our infrastructure there to accelerate our growth in traditional retail channels.
David Bain
Okay great. And then my final question. One question we get from investors really is the capsulating or quantifying the various buckets of opportunities you have like CBD, health sciences now that you've national distribution and we have our model and assumptions but I know like Brent, you personally model out your businesses. So I'm hoping to kind of probe your thoughts as to the potential of them. This is kind of a question of what if things go right and I think it's fair now that you hit your 1Q target and again where I asked about this, I'd love to hear any thoughts?
Brent Willis
Yes, so for if things go right in 2019, it’s zero contribution because that's the plan. So that's going right, the zero contribution and that we've already exceeded that with the launch of CBD in April. In the U.S. alone on beverages, we know we've got more than $50 million of pre-orders and that's just in the U.S. alone. So that is demand waiting to be fulfilled and I would tell you Dave literally every month we have top-to-top meetings with the major together with Docklight and Privateer in many cases with the major retailers within the United States. So if I look both between 2019 and 2020 look this is going to happen. It's not a question of if; it's a question of when and how fast.
So I don't know how much will be in 2019 for example but between 2019 and 2020, if it went right and the regulatory landscape unfolds globally as we expect it to, if it all went right, my CFO is going to kill me for saying this, but this could be big. So more than $100 million is nowhere near out of the realm of expectation, because mind you it’s wide open and we can be first and we got the science and we got the insights and the doctors and the products and the efficacy and the expertise in dosage and performance we think unlike anybody else. We think we've got the best CBD products out there in not just beverages but also creams, topicals, and lotions that frankly consumers want to be able to trust the science and quality of those products and we think we have them. So it's just a matter of getting that word out and executing it, but it could be well north of $100 million over the next 18 months.
David Bain
Very good, that's very helpful. Thanks so much.
Brent Willis
Thanks.
Operator
The next question comes from the line of Aaron Grey with Alliance Global. Please proceed with your question.
Aaron Grey
Good morning guys, thanks for the questions.
Cody Slach
Hey Aaron, are you going to do a three-part question also?
Aaron Grey
I'll just do two on mine, no worry. So, first one, just want to touch again on CBD. I realize it's still very much in its early days, but we did see the promotion for $125 in free product with the purchase of the CBD pack. I believe it ran four days starting the end of last month. So any color you can offer on how that promotion went and was that just online and was that also being promoted by your DTC consultants?
And then I guess just speaking more broadly I guess, what you are expecting in terms of cannibalization versus incremental sale because I think when you think about Noni Collagen versus CBD, you might have some cannibalization with the Noni Collagen but CBD should be incremental. So are we thinking about it the right way in terms of that incremental sale versus kind of a potential cannibalization? Thank you.
Brent Willis
Yes, we did. I'm going to pass it to Kelly in terms of some of the feedback and how we're executing it both through our direct-to-consumer consultants and online, but the first part of the question is we do see it as all upside. We don't see it as cannibalizing and we see it as new consumers. Now, our system has to be able to execute it and we need to attract new customers, new consumers and new people to our system because then if everybody's got a limited spending pool, there is a component of cannibalization.
As it relates to Noni+Collagen, we've seen some cannibalization, but I would say it's probably 75% incremental and the CBD stuff I think in terms of our business model is 100% incremental, but let me pass it over to Kelly to talk about the execution online and through our independent product and so on.
Kelly Olsen
So it was a coordinated launch driven primarily by our -- it was an online event, launch event, but all of our IPCs, all of our sales associates were aware of it and anxiously looking forward to it. It was a very successful pre-launch event and so it was -- its one of these events that people have been looking forward to. Obviously, the product has a tremendous amount of buzz and anticipation built. The launch itself was a tremendous success for us, one of the best ever actually.
Brent Willis
Thanks Kelly.
Aaron Grey
Great, thanks. And then, just digging into the guidance a little bit; I know you held the full your guidance. For 2Q, the $65 million, so if we imply that, that would be about a 60% increase in the back half versus the front half of the year with the back half running at about just under $100 million run rate for the last two quarters. So can you just help us kind of bridge that gap and kind of how we get there and then maybe some more color in terms of the number of stores you're going to be in for a Walmart and 7-Eleven what that national distribution just kind of help us kind of back into those numbers, which I would assume don't include CBD and that just being upside?
Brent Willis
Yes. So, we had said all year long and when we pulled together the plan that especially with the integration of Morinda in first quarter even though we didn't know about the China situation, when we pulled together the plan last year that the plan was not backend loaded but more driven toward the backend. So, this is just how the plan unfolds and think about it, I mean CBD we couldn't even spell it and Morinda on December 21st and now within 100 days we've launched it in our system.
So we can move quickly, for example, as evidenced by that launch. But we have the integration pieces. We have China in the back part of the year that we expect to significantly contribute and we have Noni+Collagen to roll out, all the New Age brands rolling out in the global distribution, the Health Sciences products rolling out and I think that's going to be in six markets by the end of the year. You heard about Kelly on the CBD side which we're kind of viewing as an upside, but I would say that coupled with just the natural evolution and the seasonality of this business makes it more in the back half driven. So anything else you want to add on that Greg or…
Gregory Gould
Yes. No, we knew that going in to this year that the back half would be much stronger because we had several different initiatives that were rolling out and with those initiatives it takes some time especially when we're looking at our national distribution things to be going well there but it is still very early so that we'll start seeing significantly increased revenue there.
Brent Willis
And we have more coming on the national distribution side, but we just -- we like to communicate after we've already started shipping and not before because things change with retailers and they have with us in the past. So, we have more coming on that national distribution side but that's why we think we've taken a fairly conservative tact for Q2 because we just -- we're not sure what's going to happen in China. It's an upside, we're not sure how much the national distribution on the brands part is going to take off and how quickly we can roll out the CBD. So we have three sensitivities there that some of this stuff is out of our circle of control. So we just don't know Aaron, and so we're trying to take the conservative tact so we can exceed the expectations.
Aaron Grey
Okay, great. Thanks. That's helpful. And just one quick follow up on that. So just digging a little bit deeper just on so I know you don't breakout DSD and brands anymore, but just if I look at the New Age segment it looks like sequentially it was roughly flat versus 4Q. So I guess just any color on what's going on with brands because it sounds like DSD still kind of grew organically. Just given with the inventory now in much better shape from a capital perspective and your ability to kind of get back into some of those doors that weren't being supplied previously?
Brent Willis
Yes. So, we are expanding the distribution. I think our total numbers went from about 200,000 points of distribution last year that we couldn't fully fulfill to now this year as we executed and roll it out and convert the authorizations into distribution about 300,000. So there's about a 30% incremental distribution level that you get over time. So I don't really draw any conclusions between Q4 and Q1 on the New Age side of the business. I don't think there's any news there aside from we're getting the national accounts now and it's not just the first two that we mentioned and it's not just on Búcha and Marley, it's really across the board on the portfolio as we make the -- just basic execution stuff in the brands division across national accounts.
So we see a lot of upside there which is why we guided to first is on there just the brand side $20 million upside and target for that division incrementally for this year. So that's our part of the model and how we build up our model, but we see that there's upside there but it's a big part and a linchpin of our strategy to make those brands successful in the U.S. because we're registering them in literally 40 countries around the world. Now we need them to be healthy in the United States and this is just the first year that they're getting national distribution. So we got -- we're still in the first mile of getting these brands out there and expect to do a lot more with them.
Aaron Grey
Great thanks.
Brent Willis
Thanks, Aaron.
Operator
Thank you. We have a follow-up from the line of Mike Grondahl with Northland Capital.
Brent Willis
Hey, Mike.
Mike Grondahl
Hey. On 7-Eleven and Walmart, when would you expect to get a reorder or a little bit of flavor on sell through?
Brent Willis
We already sort of have it on Walmart and we are seeing I think the number is 4.7 units per week in terms of pull-through and that far has exceeded the customers' expectations and exceeded our expectations. So the number fluctuates a little bit by type of stores but with Walmart and their Retail Link data which is one of the best systems that there is in the country, you really get visibility by store basis and by customer basis and you have to manage the business in that way with Walmart.
So the early visibility on sell-through there has just been I would say exceeding expectations and as consumers are just discovering this product. So we know with Mate for example, we led the category growth last year even though we weren't in a lot of distribution and retailers are figuring out, that's the brand leading the category growth in a high growth segment within the kind a key coffee subset category, so early read is good. It way, way, way too early on 7-Eleven, but the early read at Walmart so far is great.
Mike Grondahl
Got it. And you mentioned more retailers are coming over the summer. Are those national chains? What's kind of the flavor of those retailers?
Brent Willis
Big guys.
Mike Grondahl
Got it. And do you think that'll ship over the summer, do you plan on announcing those when you ship product, when you win the contract. How do you think that'll play out?
Brent Willis
We believe the contracts are done, but again I like to be conservative when I see the products on the [Indiscernible] trucks leaving out the door and purchase orders getting paid. Then that's when we like to communicate a major win. So the contracts are done, but we're not going to announce those things until the products are on the trucks and have left the door.
Mike Grondahl
Got it. That's fair. And then lastly, you have $110 million of cash on the balance sheet. Help me understand the ATM at $100 million. It sounds like you haven't used it yet. Maybe it's for a rainy day or another acquisition, but kind of how are you thinking about that going forward?
Brent Willis
The way we frame it is we put in a shelf and I think an ATM feature associated with that, but we put in our first shelf in October of 2017 and we didn't touch it until we have the opportunity with Morinda and that merger acquisition opportunity until September, October 2018, so a year later. So my perspective is it is prudent to put those things in place because you never know those opportunities and when they're going to come and if you look at the Morinda opportunity and how financially attractive and infrastructurally attractive and how you get great new leaders like Kelly and frankly a 1,000 other people like Kelly in the Morinda system, it's just fantastic for our shareholders but we were prepared and we had the ATM in place and we had the S-3 shelf in place.
So we just think even if we don't access it for a year or next month or two years from now, we think it is prudent to have it in place for when those opportunities arise just like we were able to execute it for facilitating the Morinda acquisition and by the way on which we took no debt and we’re able to acquire/merge/integrate with the company at a very low cost to capital for our shareholders that's already accretive for our shareholders. We've got track record of doing these things, but we do these things because we are prepared and because we're strategic in terms of our approach.
Gregory Gould
One other thing I'd throw in there Mike is that it costs the same amount for us to do a $100 million ATM as what it does do a $10 million ATM. So it's much more efficient to go with a larger size and it gives us more flexibility so that we can be focused on what to do which is going to be best for our shareholder base going forward.
Mike Grondahl
Got it. That's helpful guys. Thank you.
Brent Willis
Thanks Mike. I think we'll stop it there, operator, but I want to thank all of our investors for their continued trust, for their continued belief and their excitement about our Company. I hope everybody can tell the level of excitement and optimism, but tempered by hitting singles and doubles every single day and getting real runs on the board we're doing that and the growth prospects and the focus of everybody throughout our company on executing against those growth prospects is just tremendous and I want to thank all the people across our company for everything that they do every day and thank our shareholders for believing in us and giving us the runway to execute what we still believe is an unbelievable wealth creation opportunity. Thanks everybody. Appreciate the time.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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