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Business Wire 7-Nov-2018 4:01 PM
Building on strong year-to-date financial performance, CBA tightens guidance and updates SG&A spend
Craft Brew Alliance, Inc. ("CBA") (NASDAQ:BREW), a leading craft brewing company, today announced financial results for the third quarter and year-to-date ended September 30, 2018. Third quarter results include 9% depletions growth for Kona, as well as continued progress leveraging our improved business fundamentals to develop a strong portfolio for tomorrow as evidenced by the recently announced acquisitions of our three regional partner brands, Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing Co.
As a result of strong year-to-date financial performance in line with management's expectations, including accelerated depletions growth for Kona, a 200-basis-point expansion in gross margin, and a $0.15 increase in EPS, we are tightening full-year guidance and updating our selling, general & administrative (SG&A) expense and income tax rate. We now anticipate higher SG&A spend to reflect incremental marketing programs to fuel Kona's momentum and ongoing innovation initiatives, as well as costs related to our partner acquisitions.
Accelerating Kona's Growth in the Third Quarter
Kona delivered robust 9% depletions growth in the third quarter, after growing 7% in the second quarter and 3% in the first quarter, improving the year-to-date trend to a 7% increase in depletions. Kona's momentum was driven by flagship Big Wave Golden Ale, which grew total depletions by 30% in the third quarter, and is particularly remarkable amidst increased headwinds in today's fast-changing market. Successful testing of incremental marketing programming in key mainland markets, including Florida, also drove Kona's accelerated performance in the third quarter.
Reshaping our Portfolio for Tomorrow
As part of our Kona Plus strategy to support Kona with strong regional brands in key markets, we took steps to round out our portfolio, culminating with the October 10, 2018 announcement that we are acquiring our three partner brands, Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing Co. Year-to-date, these brands have achieved a combined 18% increase in depletions over the same period last year. Looking forward, we plan to increase investment behind these brands to further bolster their contribution and overall value to CBA.
Unlocking Kona's Potential in Brazil with Local Production and Marketing
Building on a successful 18-month ecommerce pilot with Ambev in Brazil, we committed to a comprehensive business plan to grow Kona in the world's third largest beer market with an initial focus in Rio de Janeiro. The plan includes dedicated local commercial resources and increased marketing, as well as local production of Kona to ensure reliability of supply, freshness of beer, and improved sustainability throughout the value chain. With this plan, Rio will become the lead market in Brazil, serving as a template for future international markets.
Investing in the Future through Innovation
In the third quarter, we continued to invest in exploring new opportunities for future topline growth through our ongoing consumer research projects with the Yale Center for Consumer Insights and global consultancy Prophet, as well as our test-and-learn beverage initiative called the pH Experiment. While the research projects are ongoing, our initial learnings continue to broaden our view of today's changing consumer landscape and inform potential evolution of our business model and portfolio in 2019 and beyond.
Third quarter and year-to-date 2018 financial highlights:
"We accomplished a lot in the third quarter – from continuing to accelerate Kona, to bringing our partner acquisitions to the finish line, to maintaining close control of our operations – and I'm proud of our team for their continued focus on achieving these milestones," said Andy Thomas, chief executive officer, CBA. "While our third quarter results were largely in line with our expectations, they nevertheless reflect the increasing costs and challenges of competing in today's crowded market."
Tightened Year-End Financial Guidance
Based on our solid year-to-date performance, we are updating and tightening our guidance as follows:
Forward-Looking Statements
Statements made in this press release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions for the future, including depletions, shipments and sales growth, price increases, and gross margin rate improvement, the level and effect of SG&A expense and business development, anticipated capital spending, our effective income tax rate, and the benefits or improvements to be realized from strategic initiatives and capital projects, are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's report on Form 10-K for the year ended December 31, 2017. Copies of these documents may be found on the Company's website, www.craftbrew.com, or obtained by contacting the Company or the SEC.
About Craft Brew Alliance
CBA is an independent craft brewing company that brews, brands, and brings to market world-class American craft beers.
Our distinctive portfolio combines the power of Kona Brewing Company, a dynamic, fast-growing national craft beer brand, with strong regional breweries and innovative lifestyle brands Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing, and Wynwood Brewing Co. CBA nurtures the growth and development of its brands in today's increasingly competitive beer market through our state-of-the-art brewing and distribution capability, integrated sales and marketing infrastructure, and strong focus on partnerships, local community and sustainability.
Formed in 2008, CBA is headquartered in Portland, Oregon and operates breweries and brewpubs across the U.S. CBA beers are available in all 50 U.S. states and 30 different countries around the world. For more information about CBA and our brands, please visit www.craftbrew.com.
Craft Brew Alliance, Inc. | |||||||||||||||||||
Condensed Consolidated Statements of Operations | |||||||||||||||||||
(Dollars and shares in thousands, except per share amounts) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Three Months EndedSeptember 30, |
Nine Months EndedSeptember 30, |
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2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Sales | $ | 55,639 | $ | 60,040 | $ | 170,977 | $ | 171,010 | |||||||||||
Less excise taxes | 2,750 | 3,402 | 8,778 | 9,520 | |||||||||||||||
Net sales | 52,889 | 56,638 | 162,199 | 161,490 | |||||||||||||||
Cost of sales | 36,190 | 37,254 | 108,302 | 111,108 | |||||||||||||||
Gross profit | 16,699 | 19,384 | 53,897 | 50,382 | |||||||||||||||
As percentage of net sales | 31.6 | % | 34.2 | % | 33.2 | % | 31.2 | % | |||||||||||
Selling, general and administrative expenses | 16,712 | 16,328 | 47,317 | 47,357 | |||||||||||||||
Operating income (loss) | (13 | ) | 3,056 | 6,580 | 3,025 | ||||||||||||||
Interest expense | (107 | ) | (179 | ) | (348 | ) | (533 | ) | |||||||||||
Other income (expense), net | (13 | ) | (59 | ) | 42 | (46 | ) | ||||||||||||
Income (loss) before income taxes | (133 | ) | 2,818 | 6,274 | 2,446 | ||||||||||||||
Income tax provision (benefit) | (194 | ) | 1,067 | 1,600 | 758 | ||||||||||||||
Net income | $ | 61 | $ | 1,751 | $ | 4,674 | $ | 1,688 | |||||||||||
Basic and diluted net income per share: | $ | — | $ | 0.09 | $ | 0.24 | $ | 0.09 | |||||||||||
Weighted average shares outstanding: | |||||||||||||||||||
Basic | 19,370 | 19,296 | 19,338 | 19,278 | |||||||||||||||
Diluted | 19,545 | 19,443 | 19,525 | 19,401 | |||||||||||||||
Total shipments (in barrels): | |||||||||||||||||||
Core Brands | 186,800 | 205,200 | 566,100 | 572,600 | |||||||||||||||
Contract Brewing | 9,000 | 2,700 | 21,300 | 13,700 | |||||||||||||||
Total shipments | 195,800 | 207,900 | 587,400 | 586,300 | |||||||||||||||
Change in depletions (1) | -1 | % | -2 | % | -2 | % | -1 | % | |||||||||||
(1) Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
Craft Brew Alliance, Inc. | |||||||
Condensed Consolidated Balance Sheets | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
September 30, | |||||||
2018 | 2017 | ||||||
Current assets: | |||||||
Cash, cash equivalents and restricted cash | $ | 12,156 | $ | 405 | |||
Accounts receivable, net | 28,460 | 28,894 | |||||
Inventory, net | 17,271 | 17,659 | |||||
Assets held for sale | - | 23,462 | |||||
Other current assets | 1,275 | 1,372 | |||||
Total current assets | 59,162 | 71,792 | |||||
Property, equipment and leasehold improvements, net | 104,225 | 106,380 | |||||
Goodwill | 12,917 | 12,917 | |||||
Intangible, equity method investment and other assets, net | 20,244 | 20,925 | |||||
Total assets | $ | 196,548 | $ | 212,014 | |||
Current liabilities: | |||||||
Accounts payable | $ | 18,899 | $ | 25,088 | |||
Accrued salaries, wages and payroll taxes | 4,749 | 6,170 | |||||
Refundable deposits | 4,029 | 5,477 | |||||
Deferred revenue | 5,335 | 2,985 | |||||
Other accrued expenses | 2,415 | 4,602 | |||||
Current portion of long-term debt and capital lease obligations | 816 | 1,731 | |||||
Total current liabilities | 36,243 | 46,053 | |||||
Long-term debt and capital lease obligations, net of current portion | 9,763 | 23,527 | |||||
Other long-term liabilities | 13,910 | 19,996 | |||||
Total common shareholders' equity | 136,632 | 122,438 | |||||
Total liabilities and common shareholders' equity | $ | 196,548 | $ | 212,014 | |||
Craft Brew Alliance, Inc. | |||||||||
Condensed Consolidated Statements of Cash Flows | |||||||||
(In thousands) | |||||||||
(Unaudited) | |||||||||
Nine Months EndedSeptember 30, |
|||||||||
2018 | 2017 | ||||||||
Cash Flows From operating activities: | |||||||||
Net income | $ | 4,674 | $ | 1,688 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 7,985 | 7,904 | |||||||
(Gain) loss on sale or disposal of Property, equipment and leasehold improvements | (549 | ) | 164 | ||||||
Deferred income taxes | (673 | ) | (168 | ) | |||||
Other, including stock-based compensation and impairment of assets held for sale | 1,264 | 1,851 | |||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable, net | (676 | ) | (4,886 | ) | |||||
Inventories | (2,905 | ) | 1,371 | ||||||
Other current assets | 2,360 | 1,124 | |||||||
Accounts payable and other accrued expenses | 6,872 | 13,096 | |||||||
Accrued salaries, wages and payroll taxes | (1,128 | ) | 1,203 | ||||||
Refundable deposits | (560 | ) | (884 | ) | |||||
Net cash provided by operating activities | 16,664 | 22,463 | |||||||
Cash Flows from investing activities: | |||||||||
Expenditures for Property, equipment and leasehold improvements | (6,216 | ) | (16,170 | ) | |||||
Proceeds from sale of Property, equipment and leasehold improvements | 22,998 | 95 | |||||||
Investment in Wynwood | - | (2,101 | ) | ||||||
Restricted cash from sale of Property, equipment and leasehold improvements | 515 | - | |||||||
Net cash provided by (used in) investing activities | 17,297 | (18,176 | ) | ||||||
Cash Flows from financing activities: | |||||||||
Principal payments on debt and capital lease obligations | (520 | ) | (483 | ) | |||||
Net repayments under revolving line of credit | (22,199 | ) | (3,922 | ) | |||||
Proceeds from issuances of common stock | 427 | 98 | |||||||
Tax payments related to stock-based awards | (92 | ) | (17 | ) | |||||
Net cash used in financing activities | (22,384 | ) | (4,324 | ) | |||||
Increase (decrease) in Cash, cash equivalents and restricted cash | 11,577 | (37 | ) | ||||||
Cash, cash equivalents and restricted cash, beginning of period | 579 | 442 | |||||||
Cash, cash equivalents and restricted cash, end of period | $ | 12,156 | $ | 405 | |||||
Craft Brew Alliance, Inc. | |||||||||||||||
Select Financial Information on a Trailing Twelve Month Basis | |||||||||||||||
(Dollars in thousands, except per share amounts) | |||||||||||||||
(Unaudited) | |||||||||||||||
Twelve Months EndedSeptember 30, |
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2018 | 2017 | Change | % Change | ||||||||||||
Net sales | $ | 208,165 | $ | 207,294 | $ | 871 | 0.4 | % | |||||||
Gross profit | $ | 68,773 | $ | 63,792 | $ | 4,981 | 7.8 | % | |||||||
As percentage of net sales | 33.0 | % | 30.8 | % | 220 | bps | |||||||||
Selling, general and administrative expenses | 60,423 | 60,233 | 190 | 0.3 | % | ||||||||||
Operating income | $ | 8,350 | $ | 3,559 | $ | 4,791 | 134.6 | % | |||||||
Net income | $ | 12,509 | $ | 1,764 | $ | 10,745 | 609.1 | % | |||||||
Income per share: | |||||||||||||||
Basic | $ | 0.65 | $ | 0.09 | $ | 0.56 | 622.2 | % | |||||||
Diluted | $ | 0.64 | $ | 0.09 | $ | 0.55 | 611.1 | % | |||||||
Total shipments (in barrels): | |||||||||||||||
Core Brands | 724,100 | 738,000 | (13,900 | ) | (1.9 | )% | |||||||||
Contract Brewing | 25,300 | 19,900 | 5,400 | 27.1 | % | ||||||||||
Total shipments | 749,400 | 757,900 | (8,500 | ) | (1.1 | )% | |||||||||
Change in depletions (1) | -2 | % | -2 | % | |||||||||||
(1) Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
Supplemental Disclosures Regarding Non-GAAP Financial Information |
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Craft Brew Alliance, Inc. | |||||||||||||||||
Reconciliation of Adjusted EBITDA to Net Income | |||||||||||||||||
(In thousands) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months EndedSeptember 30, |
Nine Months EndedSeptember 30, |
||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Net income | $ | 61 | $ | 1,751 | $ | 4,674 | $ | 1,688 | |||||||||
Interest expense | 107 | 179 | 348 | 533 | |||||||||||||
Income tax provision (benefit) | (194 | ) | 1,067 | 1,600 | 758 | ||||||||||||
Depreciation expense | 2,521 | 2,371 | 7,713 | 7,709 | |||||||||||||
Amortization expense | 77 | 65 | 272 | 195 | |||||||||||||
Stock-based compensation | 371 | 391 | 1,058 | 945 | |||||||||||||
(Gain) loss on disposal of assets | (55 | ) | 18 | (549 | ) | 164 | |||||||||||
Adjusted EBITDA | $ | 2,888 | $ | 5,842 | $ | 15,116 | $ | 11,992 | |||||||||
CBA has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") in these tables to provide investors with additional information to evaluate our operating performance on an ongoing basis using criteria that are used by management. We define Adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization, stock-based compensation and other non-cash charges, including net gain or loss on disposal of property, equipment and leasehold improvements. We use Adjusted EBITDA, among other measures, to evaluate operating performance, to plan and forecast future periods' operating performance, and as an incentive compensation target for certain management personnel. |
As Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America ("GAAP"), this measure should not be considered in isolation of, or as a substitute for, net income (loss) as an indicator of operating performance, or net cash provided by (used in) operating activities as an indicator of liquidity. The use of Adjusted EBITDA instead of net income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense and associated cash requirements, given the level of our indebtedness; and the exclusion of depreciation and amortization which represent significant and unavoidable operating costs, given the capital expenditures needed to maintain our operations. We compensate for these limitations by relying on GAAP results. Our computation of Adjusted EBITDA may differ from similarly titled measures used by other companies. As Adjusted EBITDA excludes certain financial information compared with net income (loss) and net cash provided by (used in) operating activities, the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded. The table above shows a reconciliation of Adjusted EBITDA to net income (loss). |
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