Newage Announces Third Quarter Financial Results

Denver, Colorado, UNITED STATES


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

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

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

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

Third Quarter 2020 Financial Results                                                                                                                

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For investor inquiries about NewAge please contact:

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

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

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

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


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


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


Non-GAAP Financial Measures

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

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

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

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


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

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