Categories Consumer, Earnings Call Transcripts

New Age Beverages Corporation (NBEV) Q2 2020 Earnings Call Transcript

NBEV Earnings Call - Final Transcript

New Age Beverages Corporation (NASDAQ: NBEV) Q2 2020 earnings call dated Aug. 10, 2020

Corporate Participants:

Riley Timmer — Vice President, Investor Relations

Brent Willis — Chief Executive Officer

Gregory A. Gould — Chief Financial Officer

Julie Garlikov — Chief Marketing Officer

Mark Wilson — Group President

Analysts:

Aaron Grey — Alliance Global Partners — Analyst

David Bain — ROTH Capital Partners — Analyst

Michael Grondahl — Northland Securities — Analyst

Presentation:

Operator

Good morning, and welcome to the NewAge, Inc. Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Riley Timmer. Please go ahead, sir.

Riley Timmer — Vice President, Investor Relations

Good morning and thank you for joining NewAge, Inc. second quarter 2020 financial results investor conference call. I’m Riley Timmer, the new Global Head of Investor Relations and I’m joining from ARIIX. I was actually one of the founding partners, and I’m excited to be part of the new combined company and be with you all today. On today’s call we have Brent WIllis, Chief Executive Officer; Julie Garlikov, Chief Marketing Officer; Mark Wilson, President of ARIIX and the new Group President of the combined company; and Greg Gould, our Chief Financial Officer.

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. Factors that could cause these results to differ materially are set forth in our annual report on Form 10-K and 10-Q filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings release which is available on our website at newage.com. The transcript of today’s conference call will be available on the company’s website within the Investors section also at newage.com.

I’ll now turn the call over to Brent Willis, CEO.

Brent Willis — Chief Executive Officer

Thank you, Riley. We appreciate everyone taking the time to join us to discuss our second quarter 2020 results. We hope that you are all staying healthy and safe during this challenging period. On today’s call we will briefly talk about Q2, but frankly as of July 20, it is a totally different company. So we think it is much more germane to give you insight and numbers into what the real company will look like post-closing. We want to be cautious, because we want to under-promise and over-deliver, but the reality is we have a very different company, more profitable, stronger and infinitely more valuable and plain just a better company for shareholders than we did a few weeks ago.

To talk about the new company from an organic growth standpoint, we have asked Julie Garlikov, who has been named the CMO for the new company to discuss brand and portfolio evolution and long time industry veteran Mark Wilson, who will be the firm’s new Group President, with all of the regions reporting to him to discuss our actions and plans in the markets over the next few quarters.

I’d like to start off first, with how things are going on the old stand-alone NewAge business and also touch on the integration and how it’s going so far and what to expect in the coming 90 to 120 days. First off, on NewAge. Year-to-date through the first six months of the year, we are up 1.3% in net revenue. That’s okay, and if it were not for the impact of COVID in our largest markets and our highest growth markets, I believe we would have been up more than 20% organically. With the disruptions a reality, like everyone in CPG has seen. Look, year-to-date, Ko, I think is down more than 30%; Pepsi was down and the direct selling peer group we know that four of the top 5 companies in direct selling were also down yet we are still up and showing organic growth versus prior year, which we believe, puts us in the top tier performance amongst all CPG companies in the first half of the year.

At the end of Q1, we were up almost 10% globally. And in Japan, our largest market, for example, we had a great April, but then they locked down Tokyo and many of the major cities in Japan in May and most of the June and we get impacted. Same in China they had significant impacts in Q2 and still is almost right in line with prior year. Overall, however, historically, we have not had enough scale offsets in other markets to balance out these two regions, something that significantly changes with the combination where we collectively gain a bigger business in the Americas and in Europe, in addition to strengthening in two core regions, China and Japan. So what should investors really need to know across the markets on the NewAge side. Well Japan, our biggest market, that suffered the most COVID in net revenue impact in Q2, actually looks pretty good. The pandemic hurt our supply chain with our Te Mana Shape and Noni+CBD Shot inventory.

In addition to the market lock downs in May and June, but our trends there are looking quite positive. We have more than 51,000 independent reps there and that number is increasing versus prior year. Monthly e-commerce subscribers were 28,561 also up versus prior year and the average order size was JPY23,500 per month also up slightly 2.6% versus last year. Motivation is very high amongst key leaders and more people are joining our system and now they were back in inventory in the key new products, our trends are encouraging.

Switching to China. We are a bit north of $120 million in annualized revenue on a combined company basis. Our new partners are I would say fanatical to get their hands on our direct selling license there which the Chinese government is no longer issuing. It’s a pretty nuance thing to explain, but ARIIX grew their business in China to more than $60 million with a lot of obstacles and limitations. Now that those obstacles are eliminated, we are quite optimistic about what the combination represents for our integrated business in the PRC.

The US, Europe and Latin America are all growing regions, driven by the positive response to our immunity focus products and the influx of new people in need of extra income that have been joining the firm. I may be most proud of our DSD division in the quarter, but these guys had a huge portion of their foodservice business wiped out and traffic to overall convenience outlets has been down by more than 30% in Q2, which had a negative annual impact on this division of around $4 million to $5 million. Yet, in the month of June, for example, they had their best month ever with more than 30% growth versus prior year. And I know it’s anecdotal, but it is a testament to the leadership and perseverance of that team, and frankly all of our associates around the world. So, I would say those are the most relevant headlines in the quarter for NewAge. Good growth in several markets, offset in the short-term by COVID impacts in Japan and China, but quite encouraging on the recent trends we are seeing, especially in Japan.

I’ll come back and share the status of the acquisition integration, but before I do that, let me pass it over to Greg to provide the financial detail on Q2. Greg?

Gregory A. Gould — Chief Financial Officer

Thanks, Brent. Overall, we ended the second quarter in a stronger financial position than the first quarter with an increased cash balance, improved working capital and a relative lower SG&A expense. We absorbed numerous negative impacts from COVID disruptions and to still be up year-to-date operationally in net revenue, and to finish with an improved balance sheet and more cash is well quite remarkable.

For the second quarter ended June 30, 2020, net revenue was $62.6 million compared to $66.3 million in the second quarter of 2019. Japan and China that were particularly heavily impacted by COVID-19 in the quarter, were mostly offset by growth in the United States of 13% as well as growth in Western Europe and Latin America. COVID had a negative impact on revenue in the quarter from market operation disruption, supply chain disruption, customer shutdown challenges and distribution issues. Year-to-date through the first six months of 2020 we are still up in net revenue by more than 1% versus prior year, despite the impact of the pandemic in both the first and second quarters.

Gross profit was $38.1 million or 61% of net sales compared to $41.6 million or 63% of net sales in the same quarter of the prior year. The decline in gross margin was due to geographic mix, reflecting the COVID impacts in some of our most profitable Asia-Pacific markets. SG&A in the second quarter of 2020 decreased 7% compared to the second quarter of 2019 as a result of a number of initiatives put in place early in the second quarter, including headcount optimization, which has an ongoing benefit of around $6 million annually, but in the quarter was offset by severance cost. Net loss decreased to $9.6 million or $0.10 per share during the second quarter of 2020, compared to a net loss of $11.7 million or $0.15 per share in the second quarter of 2019.

Adjusted EBITDA was a loss of $5.4 million for the second quarter of 2020, a sequential improvement of $1.7 million compared to adjusted EBITDA in the first quarter of 2020. Adjusted EBITDA in the second quarter of 2019 was a positive $83,000, which included the gain on the change in fair value of the Morinda earnout obligation of $6.7 million.

On the balance sheet, we continue to be in a strong financial position and we believe one of the cleanest capital structures amongst all small cap companies. NewAge’s cash balances increased 48% to $40.7 million at June 30, 2020 from $27.5 million at March 31, 2020. NewAge also holds an additional restricted cash balance of $18.4 million in the United States, China and other markets for a total of $59 million in cash as of June 30, 2020. Total current assets increased 19% to $93.4 million at June 30, 2020 versus $78.8 million at March 31, 2020. The current liabilities were 3% lower, finishing at $59.8 million at June 30, 2020 compared to $61.8 million at March 31, 2020. Working capital also improved 98% at June 30, 2020 as compared to March 31, 2020, $33.6 million compared to $17 million respectively. And we have already met all of the financial covenants and obligations of our credit facility with East West Bank until December 31, 2020.

That’s the summary for Q2, but we’d like to spend the bulk of our time talking about the newly announced merger as it completely changes the company. We did the merger with ARIIX and the four other partners for obvious financial reasons, but also for strategic reasons. Financially, with all of the current and expected COVID impacts and unknowns, a strong balance sheet, guarded cash, more scale and lower relative expenses is the right thing to do for our shareholders. We see a litany of external growth opportunities and a number of companies approaching us, given the current financial environment. Strategically, the increased scale, resources and market access to go with a significantly strengthened team and execution capabilities, gives us a very positive outlook for long-term future organic growth. We hope to see revenue growth in the high single-digits to low teens going forward after the closing of the transaction which could be negatively impacted by COVID disruptions, but positively impacted by a range of new initiatives within Noni by NewAge and across all the portfolio companies that Julie and Mark will talk about.

Julie, let me pass it over to you to share these drivers for growth.

Julie Garlikov — Chief Marketing Officer

Thanks, Greg. So our strategy is to drive healthy functional brand through an omnichannel route-to-market, and we expect to be the first and only omnichannel company, redefining how to build brands with our direct relationship with consumers. We have a major head start in this and we expect to widen the gap versus other CPG companies before they figure it out, and recognize their need for fundamental change in approach. We focus our brand portfolio within three platforms. Health and wellness, healthy appearance or inner and outer beauty and nutritional performance. We build our brands utilizing social and digital communication tool and word-of-mouth and personal selling from our more than 280,000 independent product consultants that will grow to be more than 400,000 with the combination of all the new companies.

In the first half of the year, we have assembled a marketing team, we unapologetic believe is the best in the industry. We launched our Noni+CBD product in Japan, and our Te Mana Shape product in 15 markets, which we had to allocate based on availability, because of COVID related supply chain disruption. So now we are back in stock and these products are really working with consumers. Demand is outstanding. In addition to continuing to roll out these products, this fall we are gearing up for the largest initiative the company has been in 20 plus years, since the original launch of Noni. Since that time our Tahitian Noni has become one of the world’s largest selling nutritional supplements with more than $8 billion in revenue. Let me repeat that the Tahitian Noni Juice nutritional supplement has sold more than $8 billion in revenue since the inception.

Over the past 18 months, we’ve extended the brand with Noni+Collagen Shot and recently the Noni+CBD Shot. But now we are revitalizing the flagship that really hasn’t been hedged this materially since its launch over 20 years ago. This evolution and rebrand include new packaging, a totally new visual identity, new claims and a whole host of assets and social media content to power our global sales force to sell in our e-commerce network. We have included our key leaders and consumers around the world as part of the evolution. So we already have significant visibility and confidence in its impending impact.

The other major organic growth initiative is our new line of Noni Shot. These portable nutrition powerhouses are each targeted to a major consumer need state including wellness, fleet, focus and immunity. They contain natural, clinically proven ingredients along with our Tahitian Noni in an easy to use format growing in popularity worldwide. Our field has helped bet this innovation and we’re very excited by the upcoming launch. If that weren’t enough to execute what we already had in the queue at NewAge, now we are integrating with the five other companies and creating one integrated marketing organization. That’s one major work stream to build that team in and of itself, but on top of that we now have 400,000 plus independent representatives, affiliates and consultants and they all want access [Phonetic] to the full portfolio for each of the six companies coming together as part of this merger.

ARIIX brings a very robust line of health and wellness products. Nutrifii is the largest brand for ARIIX, making up approximately 51% of their product sales and significantly strengthened our nutritional performance platform. As we integrate our launch, the major new products we discussed will have three overriding principle. First, we want to be margin enhancing in everything we do. We have a blended margin of around 70%, but not all of our products are at that level yet. Second, we want to bring standardization and synergies behind global scale brands. Through the three category platforms we discussed earlier, we intend to build $100 million scale brands or larger. We have two right now in Tahitian Noni and Nutrifii and we intend to build more. And third, we want to continue to optimize the portfolio in inventory behind winning products with aggressive SKU rationalization that also has the benefit of overall improved profitability. So we have the portfolio, we have the people and team, we have the distribution system and route-to-market, and we have the resources to drive profitable organic growth.

I’m very happy to be partnering with Mark and the rest of the team to make this happen. And with that I will pass it over to him. Mark?

Mark Wilson — Group President

Thanks, Julie. Many of you know that I bring nearly 30 years of experience in the industry and was one of the founding members of ARIIX, where I served as President. Prior to that, I was a Section 16 Officer and Head of Global Sales for USANA, where I worked for almost 15 years. In just over nine years in ARIIX, we became the most disruptive force in the industry and one of the fastest growing companies with a reputation as the most successful in our peers. We bring that in the combination and believe me, the announcement has led to other leaders and companies to say why don’t I join that group. They are winners and I want to be part of them. I took over — I took over the Group President for the combined companies when we announced the merger and I’m very much looking forward to that opportunity. In my new role I will oversee all the markets, execute all our plans and programs through a field force of more than 400,000 and drive superior organic growth together with Julie and the rest of our leadership team. I’m also tasked with the integration of this merger as well as that may occur in the future, it is a great opportunity and I see unlimited runway in front of us.One of the primary reasons why we had so much success at ARIIX was our ability to operate and run our international business. No matter which region or market with a very skilled approach, that means we would hire, manage and invest according to our sales level. So these regions for the most part all function this profit generating segments, that philosophy is what we will be deploying in the combined company on a global basis. So even though on focusing on driving sales and organic growth in each of our markets as part of my work on the Convergence Committee, Greg and I will lead the work streams to capture savings in people and offices. So I can drive profitable sales and growth. We will also see significant advantages in regions where Noni by NewAge business was strong and ARIIX didn’t have much of a presence, and regions where the opposite is also true. We see our most significant opportunities for sales growth in Greater China, Japan and Europe and even emerging opportunities in many of our other developing markets around the world.

Let’s talk about some of those markets. First, China. Combined for us now it is about $120 million and both NewAge and ARIIX have had challenge as previously mentioned in 2019 and ’20 for the same reason everyone else in the industry has had challenge. But it is — but it’s region with significant sales growth opportunity and it’s a combined basis we are going to be so much stronger. Ian Chandler from ARIIX leads the Greater China region for us and is implementing strategies and new exciting sales promotions to increase sales of the combined entity. Not only will we have access to NewAge’s direct selling license in China which will be a huge boost, but the expansion of products, leaders, channels are perfect combination to capture even most of the untapped potential in this market.

Japan has been a NewAge’s largest region and ARIIX second largest region. So now on a combined basis, also together with ZENNOA we are around $140 million in scale. We have a high degree of confidence in our leadership in that market, and in fact, many of the leaders and execs in our different companies just happen to be friends. So it makes our combination just that much easier. Like China, we have a wealth of global opportunities in front of us and we are putting the pieces in place to get all the partner companies access to NewAge’s Noni+CBD Shot product which are thousands of representatives they are very excited to get their hands on. The ARIIX represents — reps are generally a younger generation and have been asking for months for this type of product to help grow sales. This merger now provides that product they were hoping for.

With the combination, we have just significantly strengthened our two focus regions, but beyond that, we have some new pillars emerging. ARIIX is bringing scale in geographies where NewAge had smaller presence. Europe is now quite as important as a region with combined revenue close to $80 million. NewAge grew there in Q2 as reported and ARRIX had weeks where it was almost triple digits. So we expect to eclipse $100 million in the very near future. NewAge was strongest in Germany and ARIIX brought scale, growth and leadership in France, Spain and Italy. We see significant opportunities for operational savings through better logistics, transportation and combined warehouses along with overall scale and continued growth. Worldwide we have a force of independent product consultants, representatives and affiliates that total more than 400,000 and that number is growing daily. We are the lifeblood of any direct selling business — they are the lifeblood of any direct selling business, sorry. Hence, why we simply provide them with more opportunities and customer building tools and resources, we pride ourselves on the relationship and the trust we build with our leaders and it’s one of the easiest things in this merger because Brent had been still in the same philosophy on the Noni side of the business. I’m excited to take on this new role as our ARIIX — Group President, with NewAge and frankly have a lot of confidence that we are going to be able to do the combined company just as we’ve been doing with ARIIX in the past nine years.

With that I’m now going to turn the call back over to Greg.

Gregory A. Gould — Chief Financial Officer

Thanks, Mark. I think when you hear from industry leaders like Julie and Mark, you see why we are so optimistic in our future and confident in our potential.

Let’s talk briefly about the financial impacts of the combination with ARIIX. For modeling purposes, we expect net revenue on a pro forma basis once we close to be greater than $500 million on an annualized basis. You should also expect a blended gross margin in the 70% range and positive EBITDA of more than $30 million on an annualized basis. Two things are material that will impact our positive net income and EBITDA in the future. The first is the impending sale of some of the retail brands that has all investors know we invested more than $15 million at the EBITDA level in 2019. All of that negative impact will go away. We communicated that we were considering the strategic alternatives, given many of these brands were just too small before the scale of the business we now have and were lower profitability relative to other parts of the portfolio. To be clear, we like the brands, we just have better opportunities. We have received a number of expressions of interest for these brands. We are in the final discussions with a few parties and consistent with our previous commitment, expect to have final resolution by the end of the quarter. But to be honest, it might take just a little longer depending on the negotiations. The second material impact will be the capture of the $20 million in cost savings in fiscal 2021 that we committed to and we will achieve in the combination with ARIIX. Those savings remain on track as we continue to work towards closing the transaction. Closing appears to be on track to happen prior to the end of the third quarter and we are already doing the audit together with Deloitte of the ARIIX financials that will help us as they are our external auditors as well.

With that, I will pass the call back over to Brent.

Brent Willis — Chief Executive Officer

Thanks, Greg, and thanks Mark and Julie. Hopefully our investors can see what a strong team and organization we’re building, and the people and teams behind them are also outstanding. Acquisition integration is never easy. But this one is made easier, because a very similar performance oriented cultures and alignment to a common goal. We are well underway with integration and are all 100% together already in a combined corporate office. Julie is running Marketing; Phil Lewis is running Operations; Greg leads Finance and Administration; Diana Ladson, also one of the stars in the combined company is running R&D and Innovation; and Mark runs the Field Regions and Sales. It’s a powerful, capable and committed group.

In addition to quality people, it’s also made easier by the fact that we both have experience in acquisition and integration. We personally at AB Inbev and with the 3G guys where we did a fair bit of it ARIIX whereby Fred Cooper led integration of a number of companies and NewAge where we have successfully integrated Morinda over the past year. On that I’d give the organization a pretty good grade, not just because Moranda was profitable on a stand-alone basis, not just because the acquisition ranks is one of the lowest considerations paid of all precedent transactions in CPG over the past 2.5 years, but importantly because we evolved from a Founder led culture to a field and rep focused one. Converted a number of markets to growth following long-term declines, reduced costs and began transformation of the portfolio and used the scale and market access to transform our previously subscale small US retail business. So we both have the experience to capture the value and the combination and that’s why I am extremely confident that we will capture at least $20 million in cost savings.

The merger with ARIIX, ZENNOA, MaVie, Shannen and Limu is transformational both strategically and financially. Greg laid out the financial model for you, which is simple and we think attractive. More scale will only strengthen that model which has the effect of further reduced SG&A as a percent of net sales, correlating to a higher EBITDA. And we believe that scale would come both from the organic initiatives that are now picking up steam and potential external growth as more and more companies are unsettled with the rising and increasingly choppy COVID waters. We will have the profitability, the resources, the scale, the unique, one of a kind differentiated business model with our omnichannel platform and let me tell you, we are creating ripples in the industry and competitors are taking note. They can look all they want, they just better realize that we are coming.

But with that, I’d like to pass it over to the operator and open it up to questions. Operator?

Questions and Answers:

 

Operator

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.

Aaron Grey — Alliance Global Partners — Analyst

Hi. Good morning and thanks for the questions.

Brent Willis — Chief Executive Officer

Hey Aaron.

Gregory A. Gould — Chief Financial Officer

Hey, Aaron.

Aaron Grey — Alliance Global Partners — Analyst

Good morning. First one for me is just on some of the color you gave in terms of the pro forma company and the top line growth rate to expect I think high single-digits plus. I know you said some of that is going to be dependent on COVID and those impacts, but just also want to know in terms of what you have embedded on the revenue synergies, because it seems like that’s really where a lot of opportunity is in terms of having the products that are available to both ARIIX and the current NewAge portfolio. So how much of that is embedded, because I know there’s a lot of timing, uncertainty in terms of registration and what have you. So how much of that is kind of dependent on you get the high end or low end of those top line growth rates you expect to have?

Brent Willis — Chief Executive Officer

Yes, Aaron. It’s a great question. And in terms of the model we have zero of the revenue synergies baked in and we’re treating it all as upside, and it can be a very significant upside. So we were calculating the high single-digits just based off of the organic growth initiatives that we already have in the queue. The Noni Shots that are coming, the expansion of Te Mana Shape, the Noni+CBD and as Julie mentioned this revitalization of what is our largest brand in the entire portfolio, our core Noni brands. So all of those things get us to that high single-digit growth. And if you look at ARIIX, they are actually already in double-digit growth, if you look at all of their business worldwide. Similar to us, kind of mixed performance in China and Japan, depending on what’s going on the market, sometimes up, sometimes down but huge growth in Europe and other markets that is now scale for us. So the real upside to get us to double-digit growth, like — as I mentioned ARIIX is experiencing today is those revenue synergies. The — and zero is built until today. The excitement I just can’t tell you is just powerful across the system where everybody wants access to everybody else’s product. And in Japan everybody really wants that Noni+CBD, which is really doing quite well. So it does — some of these things, we already have registered like with that in Japan, for example, it’s just a matter of getting it over and making sure the compensation system works to the other side.

China, we’ve already got so many things established in both products registered and then it’s just a matter of registering in some of those new markets. So I would say by the closing is going to be — we expect in the third quarter and then in the fourth quarter, you will start to see some of that revenue impact on the upside to push us into the double-digit level. It may push a little bit longer than that. But, frankly all of the markets and all the leaders that we serve really want it yesterday. So we’re working on those registrations and everything as we speak now. So I guess the short answer would be fourth quarter you’d start to see more of that top line benefit. But right now we’re treating all of the revenue synergies as complete upside to the model.

Aaron Grey — Alliance Global Partners — Analyst

Thanks for that color. That’s super helpful and great to hear that revenue synergies represents upside to those growth rates. Another question from me is just kind of around COVID, obviously still a lot of uncertainty. You guys with the direct selling business have had some optionality in terms of, do the virtual consultation, but you also mentioned some things around the supply chain. So I just wanted to kind of get some update in terms of where you are right now in terms of kind of the COVID playbook, because we don’t know where it might go come fall. Do you guys feel more confident in terms of like where your in virtual conference — the virtual consultations and then supply chain getting fixed up? And then what potential impact that could have in terms of the timing of the synergies being realized on the pro forma company, if we do still see that being impacted come fall? Thanks.

Brent Willis — Chief Executive Officer

Yeah. So on the overall cost synergies we expect many of them to come through in 2020, especially from a headcount and office consolidation reduction, and we really saw that because ARIIX no longer has office cost because we’re all now combined from a corporate office standpoint, and we’re looking at that in many of the markets. Before we look at the headcount optimization pieces, which we expect to happen in the fourth quarter of this year. On the supply chain side, look everybody’s supply chain get slowed down, right. So we have to slightly increase inventory levels on some things, but just some suppliers just don’t have film or they have significantly slower production times in those things and that impacted us, especially on our Noni+CBD product in Q2 and our Te Mana Shape product. So the timelines just get extended significantly.

But what we have now with our new overall operations leader Phil Lewis is just the machine on all of those things and ARIIX that has fewer SKUs, fewer less inventory overall is really running those pieces of the company. So we expect to see more savings and better overall management from an inventory control standpoint and from a supply chain standpoint. On the leaders and the model and the virtual nature of the model and evolution, I’d kind of ask like Mark and Julie to comment on it, because they see that evolution in that shift towards all of the social selling and the use of virtual meeting tools that we’ve been doing, Mark do you want to talk about all these calls that you and I do every single night throughout the day, every single week.

Mark Wilson — Group President

Sure. Sure. Thank you. And this has been a huge change in our industry that used to be a — an event that would have thousands of individuals all gathered together and you try to get them all excited, do the recognition and send them on their way. Now we’ve completely transitioned everything to Zoom meetings and events where quite frankly, we’re doing really, really well. We have tens of thousands of individuals joining on a weekly basis on various different events where we have continued and in some ways you actually get better reach, because individuals were sequestered in their homes and had nothing else better to do then just sit down and work on home-based business.

Europe has been one of those examples where we have seen significant growth and the ability to do social selling using the social media tools that are out there. I think it took a little longer for China to start figuring this out, because they weren’t doing the social selling like America or Europe and other places in regions, even Mexico has been a great growth one for us recently with this and so it’s just a whole new dynamic with our business, but it’s allowed us actually, quicker response times and ability to reach and touch many, many more people that we in the past weren’t able to do, because it was you had to go to a live event to really see people or get the feeling and the excitement and energy. So I think it’s an exciting time for us because the transition has allowed us that far greater reach.

Brent Willis — Chief Executive Officer

Hey, Julie, could I ask you also to comment on Aaron’s question in terms of some of the social selling tools and digital activities and our global kind of virtual business summit that you’re organizing, and the fact that instead of having thousands there we can now have tens of thousands of these things at a much lower cost. So can you talk about some of the social selling tools that we are empowering the field with now.

Julie Garlikov — Chief Marketing Officer

Yes, absolutely. And building on what Mark was sharing, we — it has been a process with different markets getting used to and adjusting to both COVID and social and digital e-commerce at different rates. But what I am so encouraged by is the kinds of numbers that we’re seeing coming to our event. So for instance, recently we held an event for our Te Mana Shape product, where we invited new customers to learn from an expert and instead of having a live event where we might have a 100 or 200 people at a hotel or at our office in Japan like we did in the past, we had thousands of people attend that evening, getting super excited and learning how to use the product and understanding the science behind it. So there is a real power to social commerce once people embrace it in our field is really adopting it across the board and COVID has really sped up they’re adaptation to all things digital and social. So it’s one of the, maybe only positive benefits the COVID has been that people are embracing some of these digital tools more quickly than they might have in the past.

So when we launch our big Noni innovation that I was speaking about, we’ll be doing so in a virtual launch format and that will allow us instead of reaching several hundred people at a live meeting in Europe as planned to reach almost our entire field single handedly with a super impactful multimedia event that allows sharing and information and chatting and engagement and gamification as a way to learn and get excited, but the momentum that we can have on a launch now including adding our team members to that or rebroadcasting for our team members is just so much faster and so much higher impact in getting the entire field organization up to speed and excited to start selling a product than we were ever able to do with live event — or in person events in the past.

Brent Willis — Chief Executive Officer

Thank you, Julie.

Aaron Grey — Alliance Global Partners — Analyst

No. That’s great. Thanks for all the color. Really appreciate. I’ll go ahead and jump back in the queue.

Brent Willis — Chief Executive Officer

Thanks, Aaron.

Gregory A. Gould — Chief Financial Officer

Thanks, Aaron.

Operator

Thank you. Our next question comes from the line of David Bain with ROTH Capital Partners. Please proceed with your question.

David Bain — ROTH Capital Partners — Analyst

Great. Thanks for all the transparency, guys. First question, something we get from investors, just the cooling impact or potential cooling impact from US-China relations or is really — so to be looking at the major brands is being recognized on the ground when it comes to China, I know, Julie mentioned like for the Tahitian piece, $8 billion sold over time. So how do we look at that? How do you view it?

Brent Willis — Chief Executive Officer

Hey, Mark. Could I ask you to talk about what you see on the ground in China and any negative impact or potential negative impact that you see on the business because we’re quote a US company?

Mark Wilson — Group President

Sure. Yes. That’s also how is the sensitive piece there and I think you need to navigate that carefully, but the good news is the representatives that are selling and introducing individuals are Chinese nationals, right. So they’re building the business locally with their teams and regardless of some of the government strains, I would say, the relationship to a quality product coming from the United States or one that has been sourced through that is still a very strong approach for Chinese. As we work with our leaders, our reps and even our customers, they still demand excellence, they want incredible products, products that work, function the way they would expect and that quality is still coming I think primarily from the United States and in Europe. And so I think having said that, I’m not too concerned about that. We certainly need to watch that. It would probably be more supply chain and concerns that way we would have to make sure we’re careful about, but we’re managing that and watching as well, and trying to do our best to keep our relations there in China strong with the government.

Brent Willis — Chief Executive Officer

I would just add…

David Bain — ROTH Capital Partners — Analyst

Okay, great.

Brent Willis — Chief Executive Officer

I would just Dave, to what Mark said. One of our benefits is we’re shipping out of Tahiti into China and then locally filling in our manufacturing facility in Chongqing. So that’s kind of an additional piece that that insulates us because our company there is actually even called Tahitian Noni. So it doesn’t even say America. And then, as Mark said, our business leaders there are all Chinese and Chinese nationals. We have offices in 10 major cities, sorry 10 major provinces in China and operations in more than 300 cities where we sell and commercialize our portfolio. So we’re completely embedded from an infrastructure standpoint into the country with so many people that depend on this — depend on this income for their livelihood, and now we’re at least doubling the size of the business with the combination with ARIIX, and I got to tell you the ARIIX reps are just crazy to get their hands on the license and just get rid of all the obstacles they have had to encounter in building the business without a license. Now that they have it, it’s kind of like unobstructed growth for them on double the scale of the business, utilizing our infrastructure and offices in reputation we already have there.

David Bain — ROTH Capital Partners — Analyst

Okay. Fantastic. And I just have two more quick ones, if I could. One was, the beverage brand divestment. Are we going to see any changes to the US DSD or BWR? Are those cash flow positive growers for you in your view? And do they hold strategic value at this point?

Brent Willis — Chief Executive Officer

Well, on the DSD business, I mean, the fact that they were up more than 30% in just the month of July and continue to grow and we continue to see that growth, I mean, we like that growth. It’s not a hugely profitable business, but they are pushing on $50 million in revenue and I know when we first acquired that part of the business in the middle of 2016, it was kind of mid 30s. So they’ve continued to grow for 10 years consecutively, so — under just very good leadership. And strategically for us, Dave, in terms of embodying our omnichannel system, we really like that business because you can test market all sorts of things there, limited basis and see what works and what doesn’t work very quickly before making the investments to roll that out.

On the BWR side of the question, the problem is, all of those brands and all of the other brands, now that we’re $500 million in revenue and growing, they’re just too small. And if you have to get $1 billion competitors and a sea of confusion in 40 linear feet of carbonated soft drinks in traditional retail, nobody has the money or resources or sales force or anything to compete against that. So we think it makes sense to work on our businesses that are 70% gross margin and our businesses where we have a 400,000 plus sales force and our e-commerce business in building the relationship directly with consumers. So we see all CPG moving direct. We even see Pepsi trying to become direct, and this is, when Julie said, look, these traditional competitors are going to have to recognize, they need to change their business model too, because traditional retail and convenience, it’s down 30% in traffic as a channel. I mean, those things are really, really going to struggle going forward. So we want to be omnichannel. We expect to keep our DSD business, but really only scale brands on the traditional retail side and moving more and more towards direct, which is where the money is, where the cash flow is, where the margin is going forward. So, I’d say that’s how we’re thinking about it.

David Bain — ROTH Capital Partners — Analyst

That’s perfect. I promise, last question. I’m just — Julie marked at a really good job talking about kind of the strategic vision relative to other direct selling companies. But I had so many notes. I’m wondering if you could maybe sum it up or break it down into kind of the three or four largest ballets that’s kind of what separates you now from other direct selling companies. Is it the profitable acquisition potential with the comp structure, the healthy product line of the younger demographic. I know it’s kind of all the above, but what’s the secret sauce, in your view, relative to what you see out there from competitors?

Brent Willis — Chief Executive Officer

I want to ask Mark this question because Mark is probably one of the top one, two or three most respected leaders in this industry. But — and he only has 30 years more experience in the industry than I do. Same with Julie, but I’ll tell you this, because this is what I hear taking a fresh approach. I hear we have the best compensation system. So this is what is relevant for leaders wanting to join this system, where companies that are just knocking down our door. Number one, we have the best compensation system. Number two, we have access to as many markets as the biggest ones on the planet. Number three, we have what is becoming the best and broadest and one of the most respected brand and product portfolios. Number four, we have access to all channels, this omnichannel idea is really relevant for all of the reps, because it is more than just a direct selling earnings stream and when they get our earnings stream, whether it’s affiliate revenue or anything from e-commerce they really like it. And number five, access to stock. And access to stock ownership through performance. I mean those are five reasons why we’re seeing such growth relative to peers in direct selling that really differentiate us, but that’s based on a unencumbered kind of unparadigm new perspective coming into the industry that I bring, but Mark’s got 30 years of experience and Julie too. So Mark, what would you say of what makes — what’s our secret sauce. What is — what makes us different?

Mark Wilson — Group President

Thanks, Brent. I would agree 100% with what Brent brought to you. One thing I would add is, we also have what we call the representative bill of rights. We have changed the industry in how we treat in our relationships with our field. The beautiful thing coming together with Brent and the NewAge Group is they had the same exact philosophy, and by strengthening that, we will position ourselves to help representatives really feel and understand that they own a business and they’re not glorified salespeople. The rest of the industry, if you really look at it, you’re a glorified salesperson. And you don’t have business rights. You really don’t own your own independent business the way most people perceive they do when they start, and we give them the ownership to the business adding the stock, the brand strategy that we have, ARIIX always had this house a brand mentality, adding to what NewAge has put together with Noni and the pieces. This thing is incredible, and the leaders are really, really fired up.

And as Brent mentioned, the ability to acquire companies, no one in our industry has been really successful if you really look at that, they struggled. They’ve struggled with the acquisition model. We’ve spent the last nine years working on and improving, I won’t quite say we’re perfect yet, but we’re getting really, really good at what we’re doing, which allows a smaller company to come into then now NewAge family and become part of something that they have access to markets around the world, they have access to more brands, more opportunity and the stability that we’re going to provide for these smaller companies to come in and be part of ARIIX — I mean part of NewAge, sorry, I keep saying that. But to be part of this is going to be a key differentiator for us.

David Bain — ROTH Capital Partners — Analyst

Fantastic. Very helpful. Thank you guys.

Operator

Thank you. Our next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.

Michael Grondahl — Northland Securities — Analyst

Yes. Good morning guys. First one for Greg. Greg, any sense of the range of cash you might be able to get for the brands?

Gregory A. Gould — Chief Financial Officer

You know, it’s pretty difficult to tell. We are in fairly good conversations right now with three different groups, and we are walking through some different scenarios with each one of them. But at this point, I don’t think it would be in our best interest to really talk about different ranges of cash that we want to see to have.

Brent Willis — Chief Executive Officer

[Speech Overlap] this negotiations, Mike. But I would tell you, forget about the cash on that piece because, frankly we haven’t a scale overall on the top line. The real benefit there is eliminating the $15 million to $18 million negative EBITDA drag, and all of that will go away. So even with those three potential external parties that are right at the finish line, we are now still — we also still are evaluating what do we want to keep and what can we keep or what should we keep, and — but what we will not keep is that $15 million to $18 million negative EBITDA drag. One way or another that goes away. So that gets added back to the P&L on a go-forward basis.

Michael Grondahl — Northland Securities — Analyst

Got it, got it. Okay. And one for Julie. Julie, what new products are you most excited about over the next 12 months?

Julie Garlikov — Chief Marketing Officer

Well, as I mentioned on the call, what I’m most excited about actually is this revitalization to earn only flagship. And the reason I say that is because between the brand revitalization as well as the new product format of the Shot, I think we have the ability to expand — it’s always great to expand from your biggest and most successful. And we need to be able to reach new audiences and new consumers with that product. So the addition of all these new representatives who are super excited and younger and digitally savvy in our huge powerhouse brand and you put that together, I am so excited by the momentum that we can have there. We have many other things in the works and many other things that we’ll be working at launching between our combined portfolios, but this one is one of the largest that we’re working on. I think it has the most positive momentum going forward into 2021.

Brent Willis — Chief Executive Officer

Hey, Julie, I want to build on Mike’s — Mike can I build on your question now, because, look, NewAge has got or Noni ny NewAge has got the largest network in the group, with 291,000 reps and independent product consultants, and that number compares to a little bit north of 270,000 that we had last year. So we’re getting more and more reps. Julie, what would you say of the other pieces of the portfolio coming from Limu or Shannen or ZENNOA or ARIIX, our field would be most excited about from a cross pollinization standpoint of portfolio — product portfolio through that network of 291,000 people that they want to get their hands on in addition to all the revitalization that frankly never happened in this network. So all the revitalization of the existing products coupled with new stuff coming. What do you think our field is most excited about on other elements of the portfolio?

Julie Garlikov — Chief Marketing Officer

Well, we have things happening in basically every pieces and parts of our portfolio. So we have the Te Mana Shape line being reinvigorated and added to later this year that will add a lot of options for intermittent fasting and weight loss alternatives coming into the New Year and Lunar New Year. So that is a big opportunity across our platform. We have the opportunity to bring the Nutrifii supplements in nutrition portfolio as well as ZENNOA product across our system. There are a few products in the ZENNOA portfolio that we’re all super excited about, because they fit really well with Noni that we know can have great impact in our market as well as of course the Noni+CBD Shot that was already spoken about across Japan — across all the fields in Japan. So I look at it — there is also a big Skincare launch that’s coming out on the ARIIX side that I think has a lot of synergies and potential on this complementary to the skincare lines across our portfolio. So in every one of our three segments in wellness and inner and outer beauty and in nutrition and sports performance, we have key products and our brands that we intend to put together or share with our respective fields in the upcoming 12 to 18 months.

Michael Grondahl — Northland Securities — Analyst

Got it. That’s really helpful. Hey, Greg.

Gregory A. Gould — Chief Financial Officer

Yes.

Michael Grondahl — Northland Securities — Analyst

One more for you. Could you just update us on the ATM in 2Q? How many — how much dollars was raised in shares? And then maybe go-forward, what kind of the plan is for the back half of the year?

Gregory A. Gould — Chief Financial Officer

Yes. Basically, where we sit right now is that we raised about a little bit over $25 million, almost $26 million on the ATM during the first half of this year, which was about 18 million shares or a little bit less than that. And going forward, all we’d need to raise for the East West Bank, if we wanted to do that would be another about $4 million so fairly minimal. And right now we are really just focused on getting this deal closed, because we think that we will create significant more value for our shareholders by — once we get this closed and people can really go out and see that our actual run rate gets up above $500 million and basically bringing down the positive EBITDA and profit and that’s going to be what we think really grows the stock and then to really start doing that on a consistent basis in showing consistent growth and once we do that, that’s when it would be better for our shareholders if we use the ATM. But right now, our biggest focus is on closing this transaction as quickly as possible.

Brent Willis — Chief Executive Officer

Yes. And I would just add to that Mike. We have zero plans to be precise. Zero plans to use the ATM between now and the rest of the year. And when you think about combined free cash flow of the Group, the combined positive net income of the Group. If you’re throwing off $30 million or $40 million or more million of free cash a year, you really should have no reason or need to access that ATM. So that’s why I would say, you never say never, but right now there is zero plans between now and the end of the year to access the ATM.

Michael Grondahl — Northland Securities — Analyst

Got it. Got it. Okay, thanks guys.

Brent Willis — Chief Executive Officer

Thank you, Mike.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Willis for any final comments.

Brent Willis — Chief Executive Officer

Once again, thank you everybody for joining us on the call. To be up here today is still we think pretty darn good results in this kind of context and what’s even better with that is look, we now have more scale, we now have more resources. On the combination we’re positive that the net income level, positive at the EBITDA level, and as we add more scale to that that is just going to increase. ARIIX has got really the best reputation in direct selling for a reason they are an efficient machine, and the people there are very, very, very good. So we love the combination.

And every time we get to our next milestone, we kind of feel like we are in the first — we still feel like we in the first inning of the opportunities in front of us, both organic growth as Julie and Mark talked about and external growth. I mean there are a lot of companies that are unsettled out there, and we’ve got a very, very stable, solid and growing platform that people would just love to have access to. So we’re being very choiceful about what we do and when we do it, but we see tremendous, both top line and bottom line growth coming as we look forward towards the next quarters. Thank you very much for joining us on the call today and please feel free to keep following up with us and Riley, our new great, Head of Investor Relations, if you have any further questions. Thanks everybody.

Riley Timmer — Vice President, Investor Relations

Thanks, Brent.

Operator

[Operator Closing Remarks]

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