NewAge, Inc.

Greetings and welcome to New Age Inc. Third Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Riley Timmer, Global Head of Investor Relations. You may begin.

Thank you, Laura. Good morning, and thank you for joining New Age Inc.' 's third quarter 2020 financial results investor conference call. I'm pleased to be with you all today. And on today's call, we have Brent Willis, chief executive officer, Greg Gould, chief financial officer, and Mark Wilson, the incoming group president of the combined company. 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, especially 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 press 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 investor section, again, at newage.com. I'll now turn the call over to Greg Gould, our Chief Financial Officer.

Thank you, Riley. Good morning, everyone. For the third quarter ended September 30, 2020, Net revenue was $62.7 million, slightly ahead of the previous quarter in Q2 of 2020, and behind the third quarter of 2019, where we did $69.8 million. During the quarter, COVID-19 and the timing of significant qualifying events related to our IPC's compensation in China most significantly impacted the results. We have seen the continued effect of COVID-19 across virtually all markets. But despite that impact, we saw good growth in a number of our markets, especially in the U.S., where overall revenue growth was up 11%, led by the New Age direct store distribution, which was up 15%. We also showed improving growth in Latin America and Western Europe. In Japan, our largest market, we saw continuing improvements in our trends. Gross profit was $37.5 million, or 60% of net sales compared to $40.3 million, or 58% of net sales in the same quarter of the prior year. This improvement of 207 basis points in gross margin percentage was driven by positive product and channel mix, overall improvement in cost of goods sold on the direct selling side of the business, and improved inventory management in our new age segment. SG&A in the third quarter of 2020 increased 7% compared to the prior year quarter as a result of a non-recurring severance expense of $1.7 million. If we did not have this non-recurring expense during the quarter, SG&A would have been nearly flat year over year. Moving forward into the fourth quarter, we will also be removing the divested businesses SG&A, which was $1.3 million in the third quarter of 2020. Our bigger picture in SG&A is the fact that in the last two quarters, we have eliminated approximately $10 million in headcount-related cost. This will really benefit us in Q4 of this year and all of next year throughout 2021 at the bottom line. Coupled with the elimination of BWR, that cost the company approximately $7 million in EBITDA during the first nine months of fiscal 2020 and the loss on the disposal of BWR of $3.4 million. These three items should impact our going forward adjusted EBITDA by more than $20 million annually. It also puts the company in a much stronger profit position And this is on a standalone basis before the addition of ERICS, which is profitable on a standalone basis. And this all before the benefit of the additional cost synergies we expect that we will accrue from the transaction during 2021. Net loss increased to 14.1 million or 14 cents per share during the third quarter of 2020 reflective of the severance and BWR eliminations and other non-recurring charges compared to a net loss of 10.7 million, also 14 cents per share in the third quarter of 2019. We had an adjusted EBITDA loss of $10.2 million for the third quarter of 2020 compared to a break-even adjusted EBITDA for the same quarter in 2019. If you remove the non-recurring expenses for the third quarter of 2020 related to severance, the BWR disposal, and the loss incurred by BWR during the quarter, our adjusted recurring EBITDA was a negative $2.9 million. Switching to the balance sheet, New Age's cash balance was $26.9 million at September 30, 2020. New Age also holds additional restricted cash of $18.3 million in the U.S., China, and other markets for a total of $45.2 million in cash and restricted cash as of September 30, 2020. Total current assets were $73.5 million at September 30, 2020, and total current liabilities of $52.2 million. Importantly, current liabilities reduced by $7.6 million versus the previous quarter, and the total working capital was $21.3 million at September 30, 2020. As we look to the future in the probable closing of the RX transaction, we believe the company should have significantly improved financial performance. If the RX transaction had closed on June 30, 2020, we believe that our unaudited financials for the third quarter of 2020 on a preliminary pro forma basis consolidated with RX would have had revenues in excess of $130 million with a gross margin in the high 60% range and a positive adjusted recurring EBITDA. With that, I'm going to turn the conference back over to Brent.