Newage Inc (NBEV) 2018 Q1 法說會逐字稿

Ladies and gentlemen, greetings, and welcome to the New Age Beverages Corporation first quarter conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Cody Slach, from Liolios Group.

Thank you, you may begin.

Good afternoon, and thank you for joining New Age Beverages Corporation's First Quarter 2018 Investor Conference Call.

I'm Cody Slach with Liolios, the Investor Relations Counsel for New Age.

I'd like to welcome you all to the call today, and thank you for joining.

On today's call, we will have Brent Willis, Chief Executive Officer of New Age Beverages; and Chuck Ence, Chief Financial and Administrative Officer; Michael Cunningham, Senior Vice President of the U.S. Division; and Josh Hillegass, President of the DSD Division.

I'd like to remind everyone that this conference 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 Chuck.

Chuck?

Thanks, Cody.

For the 3 months ending March 31, 2018, the company delivered consolidated gross revenue of $12.8 million versus $11.4 million in 2017, up 12%.

Subtracting discounts and billbacks, at the net revenue level, the company generated $11.6 million versus $10.8 million in the prior year first quarter.

The company started off particularly strong in the first part of the year, with double-digit growth in the first 6 weeks.

But sales were negatively impacted by approximately $3.5 million due to working capital constraints, which severely constricted inventory levels.

Within our segments, most of the impact was felt in the U.S. division.

The U.S. division is where we are launching all of our new products at close to 50% gross margin, so this revenue impact also flowed through to our overall company blended gross margin.

The DSD division was up versus prior year through February but also felt the effect.

This division was up 9% in January and was up 6% in February, but then was down 5% in March.

Our International division, that is becoming a much more significant contributor overall, was up 337% in January, 1,375% in February, but only up 19% in March.

And the U.S. division was also up in revenue in January by over 60% before the inventory impact.

Despite the constraints, the International division, the E-Commerce division and the Foodservice division were all up triple digits in the quarter versus prior year, albeit off of a smaller base.

Within our portfolio brands, the Búcha brand continues to lead all brand growth.

Our new initiatives, Marley Mate, shelf-stable Búcha and Coco-Libre Sparkling, that importantly are all above 40% gross margin, are all showing tremendous growth and are all rolling out nationally in new distribution.

As an example, one of our largest national distributors was averaging one layer per week of Búcha sales in January.

That's 1/6 of one pallet.

3 months later, that same distributor is now ordering 12 pallets a week.

In gross profit, the firm delivered $3.1 million for the year versus $2.9 million in the prior year, up 7%.

Gross profit, as a percent of sales, excluding shipping, was 26% versus 26% also in the prior year.

Digging into what's behind this top line aggregate number, however, is deceiving as January gross margin was 33%.

With all of the incremental shipping and incremental cost of goods sold experienced in the quarter as we were moving product around to cover inventory needs, this impact in the latter part of the quarter brought down the gross margin for the full quarter to 26.4%, in line with 2017.

Total operating expenses for Q1 were $5.1 million versus $2.9 million in the prior year.

This increase was driven by a number of noncash items, including increased amortization on the almost $20 million of intangible assets added to the balance sheet, stock option and stock expense associated with those acquisitions and rent expense following our sale leaseback executed last year.

We still expect 25% of net sales OpEx expenditures as a good working model assumption for 2018.

Versus our internal budget, our OpEx was actually right in line, but the impact to top line revenue from working capital deficit hurt us both in percent of revenue and overall fixed expense absorption.

Adjusted EBITDA for the quarter ending March 31, 2018, was minus $1.3 million, stemming from the inventory shortfall to fulfill demand.

I'd like now to switch our discussion to financing and working capital.

Given the planned growth in the business, we knew we had an incremental working capital requirement of and between $3 million and $4 million in the beginning of the year.

We started work on this 6 months ago and had the commitment to be in place no later than the end of January.

It didn't happen, and we simply did not expect the delay in execution, but it happened nonetheless.

So why has it been a challenge for the company to put in place a simple line of credit when we have a significant amount of current inventory and receivables over current liabilities?

Let me try to explain as directly and succinctly as I can.

Overall, we're swinging for the fences with the lowest cost of capital as we always have.

You obtain this from the largest banks, but this has a cost in time, in their processes and their very big company ways of working.

New Age had, in the smallest quarter of the year, the first quarter, a borrowing base of between $8 million and $9 million, of what is deemed by the banks is available inventory and receivables.

Banks loan on about 70% of this, so that equates to around $6 million.

Take from that $2 million for U.S. bank, $1.5 million that we owe at 12/31/18, this year, to the Coco-Libre noteholders, and that's the total debt we have on the firm.

But then the major banks want $2.5 million to be held in unaccessed availability, leaving you with very little left for working capital.

We may likely get there with PNC, and we are moving into our bigger inventory and receivable quarters and our borrowing base increases, but we have already had significant delays with them.

We do have another option with a traditional ABL group and a commitment already based on their due diligence of our most recent financials through April.

Also with respect to financing on the confidentially marketed offering that we did in April, we have almost caught up with our inventory needs.

But with production schedules that are, on average, 30 days out from order and more inventory requirements to keep up with increased demand, we still have a good problem to solve.

The good news is the new Marley Cold Brew is in production in the next few weeks as is more Marley Mate, more Marley Mellow Mood, more Xing and more Búcha.

We also have 33 containers of Coco-Libre on the water right now as we speak and the new Xing Craft Collection, all in committed distribution, is also in production.

Currently, we have enough liquidity to meet demand, but we are in a growth mode and will continue to be tight until the new financing facility is in place.

In summary for the quarter, 95% of our shortfall to internal plan was due to lack of inventory from working capital constraints.

Notwithstanding those challenges, we still have the highest first quarter in history.

Let me repeat that, our highest first quarter in history led by the -- led by International that was up more than 300%.

The brands, especially our newest ones, Coco-Libre Sparkling, Marley Mate and Búcha Live Kombucha, are selling extremely well and growing.

And this is why we remain confident in our guidance for the year, albeit at the low end of the range given our Q1 liquidity constraints.

We do not have the luxury of a big cash balance to fund opportunities.

Our company never has.

Unfortunately, we see tremendous organic growth opportunities right now that we can accelerate and frankly see some attractive external growth opportunities also.

We just are not in a position to address them.

Our focus is on continuing to fund the organic growth in the short term, put the new ABL in place with one party or another and just execute the business plan.

And with that, I'd like to pass the call over to Brent.

Chuck mentioned we still feel confident in our outlook for the year, albeit at the lower end, and continue to hold our team accountable to our plan.

The reason for the belief system is all in the revenue.

And to discuss that, I thought it would be most valuable for our shareholders to hear from the 2 leaders managing the largest parts of our business, the largest parts of our revenue: Mike Cunningham, who leads the U.S. division; and Josh Hillegass, who manages our DSD division.

Let me pass it over to Mike, who can give you the facts of what is happening in the market.

Mike?

Thanks, Brent.

As few of you may know that I've been in the CPG sales business for a very long time, including with -- working with companies such as PepsiCo and Cadbury.

Those have been great experiences, but I'm so excited to be at New Age Beverages, especially today.

I want to address 2 points: first, our brands; and then distribution and how it works.

On the brand, we know we have to build our brand or a few key brands with our consumers.

What's happening?

What are the facts?

Well, on the new brand, Marley Mate, Coco Sparkling and Búcha, we can barely keep them in stock.

And the minute we think we're caught up, sales keep growing.

It's like Brent does to us all the time, the minute we think we're caught up, he moves the goalpost.

He's always asking for more.

It's the same way here.

We're just trying to keep up with the growth.

Where the brands are in distribution, Búcha is leading its category in sales growth, Marley Mate is leading its category in sales growth, and Coco-Libre Sparkling is actually the first of its kind in its category.

Our core brand, last year in 2017, we integrated them all into one company.

I hope everybody understands just how much work that actually takes with all our distributors, with all our retailers, with all the systems, and it's incredibly difficult and time-consuming.

And mind you, we did it while we're transitioning to a lower cost and more effective hybrid route to market, and we did it bringing together 5 different companies.

And on top of that, we had to reconstruct the brands, we have created new packaging, new formulas, new products and innovation within the core brands.

And frankly, it was done at the same time as all the other things.

It's a lot of stuff, but the end result that I see is increased sales, increased retailer and consumer demand and increased sell-through.

That's what I see, and I see this thing working.

It would have been great if we would have been able to hold on to all that volume for the core brands in 2017, but that just was not realistic at all.

Given the way New Age acquired them, they were all declining over a long period of time when they were part of stand-alone unfunded companies with no resources and very little capabilities.

This is why we were able to acquire them and bring them into New Age at about a 75% discount to the market average.

Since that time, we've done the hard work.

We strengthened the brands, we've gained distribution, and now we are growing the core again and gaining more distribution in addition to driving innovation.

So I believe the brands are now really getting there.

Please don't forget, April is the start of New Age's first-ever sales cycle as a company, our first one, and it's going to be great.

Irrespective of the obstacles and the growing pains, we have not been a company for more than 10 years like many of our peers.

New Age is less than 1-year-old as an integrated company.

The portfolio strategy is working and the sales per point of distribution is increasing.

This one-stop shop strategy is unique and really resonating with both the retailers and distributors.

This is why we picked up the military business worldwide, Dot Foods on the Foodservice side and a number of new retailers across the country.

I'll give you an example.

One of our major national distributors expect to be more than $12 million in sales with us this year versus around just over $1 million a year ago.

Now that leads to my second point, distribution.

It is a fact that we have gained right about 85,000 points of sales.

That accomplishment, well, I can't think of any CPG company that has even come anywhere close to that number.

I thought everybody would want to know how distribution works and when will it show up in the numbers.

Here's the process that we go through.

First, we get the retailer to say yes to authorize one of our brands.

That cycle takes up to about 12 months.

In this industry, that's just how it works.

Now please recognize that our new brands and innovation were just finishing Q4 of last year, so the fact that we got all this new distribution in Q1 and Q2 means that we're actually about 6 months ahead of schedule.

Converting the authorization to distribution also takes some time.

But here's how it's working in New Age's particular case.

Of our 85,000 new points of distribution, 20,000 are coming from the Marley family of brands, Mate, Cold Brew, Mellow Mood, Ready to Drink coffee, at a blended 48% gross margin.

25,000 are coming on the Xing family, including the new Craft Brew Collection at a blended margin of 35%.

15,000 are coming on the Coco-Libre and new Coco-Libre Sparkling at a blended 52% margin.

20,000 is coming on Búcha.

The Búcha brand had a 43% gross margin.

And 5,000 new points are coming from other brands that are just starting getting into traditional and alternative channels at a 59% blended margin.

So that's the breakdown by brand.

Timing-wise, we got lucky.

As most of the distribution was coming in April, May and June, which is consistent with the retailer reset calendars.

Had it come sooner, we would have alienated many of our retailers, our retail partners.

Out of the 85,000 new points, 15,000 were set in full distribution at the end of April, another 30,000 will be done at the end of this month, May.

And by the end of June, the remaining 40,000 points will be executed.

This equates to, based on our current rate of sales by brand, to monthly revenue of more than $2 million more a month versus our current level today.

We just need product.

We need inventory.

So our new challenge is not our brands and sales, it's actually keeping them in stock and keeping our customers happy.

In Q1, we had a lot of explaining to do, and I basically told the retailers that because the brands are growing so well, we're having a tough time keeping up with the demand.

If they weren't selling, they would still be on the shelf.

It is 100% accurate.

And as Chuck mentioned, sort of a good problem to have.

Our challenge is we have growing brands, more coming this quarter with Marley Cold Brew and the new Xing Craft Collection, and we have doubled our distribution.

Our brands with traditional retailers are taking hold.

We have 3 to 4 major big-box convenience or grocery channel upsides that we expect to close this coming quarter.

And we're just getting started with the Foodservice business.

So now I'll turn it back over to Brent.

Thanks, Mike.

Well done.

By the end of the year, we expect our U.S. division, not including Foodservice, to be more than 40% of our business at a blended margin north of 45%, being significantly less than 30% of the business a little more than 12 months ago.

And that's a real testament to the work that Mike and I think his outstanding sales team and his network have really delivered.

The other very big part of the business is our DSD division, and Josh Hillegass is also joining the call today.

Josh manages what is historically the largest part of our company, our DSD division.

And as I have imparted before, this division is highly strategic for New Age as it provides the business foundation, the scale, the resources to enable us to drive our entire business and invest in organic growth.

On a stand-alone basis, Josh's division delivers positive cash flow and really efficient cash conversion and under his leadership, just kind of delivers.

It performs, day in and day out.

Josh, can you give us a quick update on what you're seeing in your division?

Yes.

Thanks, Brent.

I have had the fortune of leading this division for the past 9 years.

And in those past 9 years, we have had 9 years of consecutive growth.

It's all due to a great sales team, merchandising team, driver team, warehousing, shipping and loading, a great team in every other aspect of the business.

It has taken years to get this organization and our group in place, and I'm so proud of them and the dedication they bring every day to growing New Age and our partnered brands.

This year will be our 10th consecutive year of growth, and anything else is just not going to happen on our watch.

Similarly to how New Age built the foundation of 2017 in the U.S. division, we also strengthened our DSD division last year.

For more than 10 years, we structured our routes based on experience and experience alone.

Last year, we emplaced our first-ever routing software and added a number of new routes to increase our distribution universe.

We also added a number of Hispanic-specific routes given the changing demographics within our local market.

We strengthen our inventory management and our supply chain processes across-the-board and promoted key leaders internally to positions of increasing responsibility.

So we're much stronger as a division now than we've ever been before and are in a position to further scale up.

We felt the same crunch on inventory as Mike did in the U.S. division.

We had a fast start in January and February on top of an outstanding first quarter in 2017 but felt the impact in March.

What sustains us, however, and really supports our consistent results is the quality of our brands and brand partners and the distribution universe we enjoy that encompasses more than 6,000 outlets.

We have more than 600 SKUs across more than 60 different brand partners, with great brands including Nestea, Sparkling Ice, Arrowhead Water, Jones Soda, Arizona Tea, Essentia, Perrier, Grupo Bimbo Barcel, Jarritos, New York Seltzer and too many others to mention.

These are all great brands that are entrusted to us, and together, with our own New Age Beverage portfolio, we treat our partner brands as our own.

We are in these stores every day, increasing presence for them in both depth and breadth and building these brands at the point-of-sale, where more than 75% of brand choice is made.

We see plenty of growth in front of us in 2018, driving that is the expansion of our routes within our existing territory, expanding our distribution reach beyond our current territories and our new cash-and-carry business.

We are also expanding our channel reach and breadth to new on-premise outlets, alternative outlets and within our existing channels and customers, are expanding our depth with incremental merchandising displays and secondary and tertiary points of distribution.

All of this sounds like basic execution, blocking and tackling, which it is, but we do it very well, and that's why we have grown consecutively over the past 9 years and again, for an even 10 in 2018.

With that, I'll pass it back to Brent.

Thank you, Josh.

Both Josh and Mike, I believe, are singularly outstanding leaders and embodiments of our culture.

And there is a direct correlation from their leadership, and that's the superior performance of their divisions.

New Age is lucky to have them, and all 169 associates in our company admire them.

So to summarize, we thought it was important to address the inventory challenge in the first 4 months of the year and its resulting impact.

The situation was extremely frustrating, not just because of the commitments that major institutions made to us on which we counted and then didn't come through, but more so because of the lost opportunity and the profitable growth that we know is really right there in our grasp.

We also thought it was important to share the facts in the market and what's really happening with their brands and sales, from the key leaders directly responsible.

To reemphasize a point Mike made, in the U.S. division, this is our first-ever sales cycle for New Age as an integrated company, our first one.

And as both Mike and Josh mentioned, sales and distribution growth are not our problem, and they actually see upside in their plans.

With retailers and distributors, New Age's one-stop shop strategy is working.

With consumers, our brands, and especially our new products, are connecting.

But unfortunately and perversely, this exacerbates our inventory and short-term working capital issue because our products are selling at increasing rates.

Think about it.

That is a very different and interesting situation to be in and one that not many, if any others that I know of, are encountering.

We never envisioned our path to achievement of our objectives as a path that was going to be linear.

Never.

We believe all good things come to those who absolutely never take no for an answer and do whatever they have to do to achieve success.

That's what we have at New Age, and that's why we are all here.

And with that, I'd like to pass it back to Adam and open it up to questions.

(Operator Instructions) Our first question comes from the line of [John Harrow], a private investor.

I've got a question for Brent, actually a 2-part question.

Brent, is there a problem with closing on this $15 million line of credit with PNC?

And if so, is there a plan B going forward such as what we recently experienced with the surprise capital raise?

Secondly, I would like to know at what point gross margins on all the new products exceed your CapEx as that obviously seems to be the point in time where the company really starts to take off and run.

Yes.

I'm going to -- [John], I'm going to pass that question over on the PNC loan, which we tried to describe in the call, but I'll ask Chuck describe again why it's not in place yet, how we've gone around with them and what the next steps are to putting in place a banking facility for the firm.

[John], thanks for the question.

Yes, as we talked about in the call, we are still working with PNC bank.

We still are providing due diligence requests as we pointed out in the first quarter.

It is our lowest quarter from an accounts receivable and inventory current asset standpoint.

So that's where our availability comes from.

So as we progress with PNC bank, we also have a plan B, as you pointed out in the question.

We will not put all of our eggs in one basket.

We do have another ABL firm looking at our results through April.

They have given us a commitment, and this is an ABL company as opposed to a bank.

There will be higher rate associated with that.

However, the unaccessed availability requirement will not be there with the normal ABL company.

So we are pursuing a plan B, but we also are still pursuing our plan A with PNC.

And that's the real benefit of nontraditional banks is they don't need the strength here, this un-accessed availability that basically limits the amount of working capital that would be available to us.

And that's why we're putting this loan in place to get incremental working capital to meet the needs of a growing business.

On the margin question, that's a pretty insightful question, [John], because as these new products get out there and they're all in the U.S. division at north of 40% margin, and many of them more than 50% margin, the more we sell of those, it offsets and increases the overall blended mix to above 35%, which is our target for the year.

And we saw that we hit that in January.

As we're getting those new products out there, we hit 33% gross margin.

But as we had limited inventory on all of those new products and some of our existing products in our U.S. division, our blended margins for the quarter ends up being 26%.

So we know and we see the math.

And as we get those new products with higher margins out there and we get more scale in that, so goes the blended margin of the firm.

And if we can stay disciplined with keeping OpEx at less than 25% of net sales, that's how you see the P&L gears and we start to drop that positive cash flow to the bottom line and a very positive EBITDA margin, which is in our plan for the remainder of the year.

But thank you for those questions.

Our next question comes from the line of Rommel Dionisio from Aegis.

You mentioned how important the relationships with new distributors are, and obviously, it causes you to make some decisions here in the quarter.

Could you just give us an update in terms of the strength of those relationships, if you feel any of the new distributors or existing ones were at all alienated in any way?

I wonder if you could just give us your view on that.

Great question.

And frankly, given our hybrid route to market that includes both some very good DSD distributors, natural distributors or direct to customers, well, basically are guided by what the retailer wants and how the retailer wants to receive the products.

And many of these national retailers, they dictate those terms.

So I think that point being, we have a varied and evolving route to market that is intending to be lowest cost to get products from point A to point B. From a relationship standpoint, I think I'll ask Mike to describe both -- let's say the relationship with the Unified, the DSD distributors and even the Dot Foods and some of the Foodservice distributors in terms of how they're feeling about us, Mike, and what some of the dialogue is with them.

Yes -- no, I appreciate you giving me the opportunity to comment on that because what happens is we have -- we do have a very good relationship with our distributor partners.

And one of the things that happened over the last month is we depleted the pipeline.

So we have flushed out all the Unified's inventory, which they usually carry 60 days or so of product.

And with the relationships we have with our distributor partners, they also move product internally around to their warehouses.

So Unified, for example, they have 22 warehouses across the country.

If they had excess inventory in Marino Valley in South Cal and they needed it in York, Pennsylvania, they actually move product internally to meet the needs that we didn't have on supply.

So one of the things that's happening now is the pipeline is empty.

And as we produce product and as it comes in, it's going out the door right away.

So I know we said it a couple of times already, the problem we have is supply, and it's going to -- we can't make it fast enough because it's gone through the pipeline.

It's still got to be filled and get to the retailers.

So that's exactly what's happening.

Mike, let me just ask you, how would you characterize the relationship?

Good?

Bad?

Strained?

Growing?

Why are the Unifieds of the world, those major retailers that are going direct with us or the KeHEs, or why do these guys want to work with New Age versus more established traditional companies that had been out there for like 10 years?

Why do they want to work with us?

And how would you characterize the quality of the relationship in a couple of words?

Yes -- no, I think the relationship is very good.

And I think a lot of the desire to work together is our common goal and vision of natural healthy products for the customers.

And they see us as a one-stop shop and somebody that can provide a lot of needs that their customers are asking for.

And we're the perfect fit for that.

So we haven't gotten to a point where there's been any disruption with any buyers or any issues because we've had the ability to move product around internally through our distributors.

So we've just got to keep getting that product and building that inventory so that doesn't happen.

But I will say that we have a common vision with most retailers out there which is driving that relationship.

Our next question comes from the line of [Kevin Barrett] from [BOE].

Brent, I just had one question for you today, but before that, I did want to say congrats on kind of eking out another quarter of record growth despite the cash crunch you guys have had.

And when you look at your filings over the last year or so, it's easy to see that you guys really haven't had a lot of cash for about a year.

So to continue to deliver in those situations certainly is impressive.

So congrats on that.

Now you did not talk about the Health Sciences division in the call and the potential is a key reason that a lot of us have invested in the company, including myself.

So is there anything going on with that division?

Any recent kind of updates that you can give us with what's going on.

Well, first, thanks for the words of encouragement despite the obstacles still achieving record sales.

We're never satisfied and we'll never be satisfied.

We're always moving the goalpost and asking for more, that everybody like Mike should not have said on the call today.

But we can talk about that later.

But I give a lot of credit to Josh and his team, Mike and his team, Craig Thibodeau on the International side, everybody in the company, for despite those obstacles, just not -- just never taking no for an answer.

And this is a team that just delivers even though we haven't had real cash for investment like many of our peers that had been around for a long period of time.

So I appreciate you recognizing and doing the homework on the balance sheet over the past year of the company and the performance despite some of those obstacles.

I didn't talk about the Health Sciences division today just because I felt it was too much, and everybody really just wants to hear about the financing which we're fixing.

We're getting that in place.

It's just I would love to have it in time for this call, but it just doesn't, right, it doesn't work like that.

So we're going to get the financing in place, and we have to have it in place to continue to drive our growth and meet the needs.

We also need the financing for the production of our Enhanced Recovery After Surgery beverage, which I'm happy to say has just received its first purchase orders and from 3 different groups.

One is a major national OB/GYN group.

One is a major health care provider based out of the Midwest.

And one is Hospital Corporation of America that has more than 200 hospitals across the country, evaluated a number of potential choices for their ERAS, which is Enhanced Recovery After Surgery protocol.

And based on that assessment has chosen Enhanced Recovery, our Enhanced brand or Enhanced Recovery brand as their ERAS beverage of choice for preoperative care before surgery.

So we -- and that brand has fantastic margins for us.

So we're particularly excited about that brand and business.

If you ask anybody in our company which brand has the most potential, you'll get 10 different answers from 10 different people because we have kind of so many opportunities that all look attractive.

But if you ask me, I think our Enhanced Recovery, given we have first-mover advantage, the margins are fantastic, truly limited competitive intensity in that segment, and we have a competitive-advantaged product that is probably out with more than 300 different hospital groups evaluating right now, major ones across the country.

I'm pretty excited about that, and I'm excited to see the first parts of the revenue coming in from that division.

There's other things in the queue, but Enhanced Recovery After Surgery was our first effort and now expect to build on that base through our nurse network that really is a big gatekeeper for many of these hospital-buying decisions and are major hospital systems that we're partnering with or beginning to do evaluations with.

So I'm excited about that division too and the key reason why I really believe in the big future of our firm.

(Operator Instructions) Our next question comes from the line of Alexander Scharf from Maxim Group.

So you've talked about a $3.5 million net revenue impact due to the inventory shortfall.

Can you quantify or break down that $3.5 million between the brand and the DSD division?

Yes, I would say we don't have all of the specifics -- we do have all the specifics, Alex, but we don't really want to break it down.

But in truth, most of that impact was in the U.S. division.

So I would say because a lot of it was on our core brands and our new brands going into, frankly, North America, that's where we frankly had to hold back.

When you've got existing distribution with Nestlé and Arizona and all those kinds of things, you just -- you have no choice.

You got to fill the pipeline.

You got to keep those shelves stocked.

You have no option whatsoever.

So I would say, of the $3.5 million, 85% to 90% was in the U.S. and International divisions, and then the remaining 10% to 15% would be in the DSD division.

Would you agree with that, Chuck, or do you think the numbers are a little bit different?

No.

Actually, I do agree with that, Alex, with his question.

The other thing too is in the DSD division.

As Brent pointed out, you have the commitments, you have the relationships, you have to fulfill those.

But in the brand division, in the U.S. division, there's also production involved, there's raw materials involved, there's more significant logistics involved being across the country and those kinds of things.

So yes, the impact was felt more severely in our U.S. division for sure.

And I got (inaudible) for that.

Say again, Alex?

I didn't hear that.

And then given your current working capital, how long can you wait to add a line of credit before you run into the similar disruption again?

And how confident are you that you can get that financing tied up by then?

Well, we have the current liquidity we need to meet current demand.

However, with the ramp-up in the seasonality, we are 100% confident we'll be able to get a line of credit in place.

We're -- we, like I said, we have both a plan A and a plan B. We have commitments from our plan B. So we're 100% confident about getting a line.

And for short-term, we can -- from a liquidity standpoint, we can meet our short-term obligations, but in order to meet our future increased demand, increased production, we will need a line of credit and it is imminent that we will put in place.

And then lastly, can you talk a little bit about the radiation drink?

I believe you are planning to launch it in Japan and South Korea.

Can you just talk a little bit about the progress there?

We could.

I'd rather hold that news until I see it in real distribution.

We have received some starting financial benefits from the radiation protection products, which people don't see it on a day-to-day basis.

But over there, radiation protection, especially in Japan and around Fukushima, you're starting to see the effects of the fallout of the accident that happened recently, which we knew and we predicted.

And our Chief Medical Officer had actually worked with some of the officials in the governments over there to tell them what was going to happen.

So what is happening now is exactly what we, our team, had communicated to them.

So we are working with sales groups in both of those countries that span probably more than 10,000 associates that we're working with, very big groups.

But until the numbers are really on the board, until it's really in the market, I'd like to just be a little bit more cautious.

But we do have high expectations for both that product, first, in those markets and China and then thereafter in the United States for not just all x-rays, all 320 million surgeries, but also all the impacts that you get from ionizing radiation for every single flight in the planet, which people just don't realize every time you go up into the atmosphere.

So that's one of the next things in queue in the Health Sciences division on which we have a robust patent, robust protection, and we think a very differentiated advantage in terms of where beverages are going, not just in that, but coming on the heels of that, is neuro protection, diabetes and cardiovascular health.

So we're excited about the future.

But honestly, Alex, in the short term, we got basic blocking and tackling to do, basic financing of the firm to get that in place, run the basic beverage business and get that in distribution, which is good.

This -- all of this other stuff on the Health Sciences division, E-Commerce, Foodservice, that's really the transformative stuff for us that clearly is not baked into the value of the stock today, but we have to both execute the basic business and build for the future and not lose any focus on the core basic business and getting our new products out there because that gets you your margin while we are carefully building that stuff that could be transformative for us.

Operator, I think we said we're at an hour there in terms of time, so I think we'll stop there.

As everybody knows, our management team is very accessible, so please feel free to reach out to the company directly and we'll do everything we can to get back to you and answer any specific questions you have.

As I mentioned, I mean, this team is, I think, fantastic.

Our brands are really working.

Our distribution is really working.

And we appreciate everybody's confidence and trust in us to drive return because we are in the exact same boat and committed to driving real value for everybody.

So thanks, everybody, for the call.