Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - CRAFT BREW ALLIANCE, INC. | cba-20160930xex321.htm |
| EX-31.2 - EXHIBIT 31.2 - CRAFT BREW ALLIANCE, INC. | cba-20160930xex312.htm |
| 10-Q - 10-Q 09-30-2016 - CRAFT BREW ALLIANCE, INC. | a2016093010-q.htm |
| EX-31.1 - EXHIBIT 31.1 - CRAFT BREW ALLIANCE, INC. | cba-20160930xex311.htm |
FOR IMMEDIATE RELEASE
18% DEPLETION GROWTH FOR KONA DRIVES OVERALL GROWTH FOR
CRAFT BREW ALLIANCE IN THE THIRD QUARTER
Third Quarter Results Underscore Potency of “Kona Plus” Strategy in Action, Further Amplified by Enhanced Commercial Agreements with Anheuser Busch and Growth from Strategic Partnerships
Portland, OR (Nov. 2, 2016) - Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced results for the third quarter ended September 30, 2016.
The Power of Kona Plus
Against a backdrop of unprecedented competition and slowing sales in the craft beer market, CBA’s brand portfolio delivered its second consecutive quarter of positive growth. Third quarter depletion growth of just under 1% was fueled by robust 18% depletions growth for Kona Brewing Co. and underscores the success of our “Kona Plus” strategy, which combines the strength of Kona as a leading national brand family supported by a stable of distinctive local craft brands, including strategic partners Appalachian Mountain Brewery and Cisco Brewers, and craft pioneers Widmer Brothers and Redhook Brewery.
An Enhanced Relationship with A-B
In the third quarter, we announced a series of substantive agreements with Anheuser Busch ("A-B") that build on the success of our existing master distribution agreement and lay the foundation for transformative growth and cost savings, as outlined in a press release dated August 23, 2016.
1. | Master Distributor Agreement: CBA and A-B extended the current fee structure of their existing Master Distributor Agreement for 10 additional years, through 2028, securing CBA’s brands in the industry’s strongest wholesaler network and enabling continued investment in our brands and strategic partnerships, such as Appalachian Mountain Brewery and Cisco Brewers. |
2. | Contract Brewing Agreement: Under the new agreement, CBA and A-B will work together to transition up to 300,000 barrels of volume into A-B’s state-of-the-art breweries, providing direct support for CBA’s ongoing brewery footprint optimization and significant operational cost savings. |
3. | International Distribution Agreement: A-B will support the expansion of CBA’s portfolio of brands globally through a new international distribution agreement, which creates opportunities to accelerate the growth of CBA’s craft portfolio in additional international markets. |
Optimizing our Cost Base
In exploring these new opportunities and assessing the challenges of our market, we have reexamined our business strategies and are already taking steps to ensure the right level of investment against high-priority initiatives. These actions include the reallocation of existing resources and development of a new companywide plan to reduce our cost base by $5 million to $7 million while still supporting sustainable investment against our brands and improved overall business performance. More details of our cost management efforts will be provided as part of our preliminary 2016 full-year results and 2017 annual guidance.
Select third quarter financial highlights
• | Third quarter depletions for Kona increased by 18%, compared to the third quarter in 2015, driving positive overall depletion growth of just under 1% across the entire portfolio. |
◦ | CBA’s strategic partnerships with Appalachian Mountain Brewery and Cisco Brewers, as well as our international business, also contributed to depletion growth in the third quarter, which was offset primarily by decreases in our Widmer Brothers and Redhook Brewery brand families as we continued to focus those brands in their respective home markets. |
• | Shipment volume for Kona increased 12.7% in the third quarter, while overall shipment volume decreased by 11,600 barrels, or 5.3%, to 208,400 barrels, compared to the third quarter of 2015. Distributor inventory pressures and lower-than-anticipated contract brewing volume in the third quarter directly impacted our overall shipment volume. |
• | Net sales grew 0.9% in the third quarter to $55.2 million, while gross profit increased 0.7% to $17.0 million compared to the same period last year. The growth was driven primarily by an increase in net revenue per barrel, fees earned associated with our international distribution agreement with A-B, and partnership agreements with Appalachian Mountain Brewery and Cisco Brewers, as well as pub sales. The net sales increase was partially offset by a decrease in shipment volume, compared to the third quarter in 2015. |
• | Third quarter gross margin rate was 30.7%, a decrease of 10 basis points, compared to the same period last year. |
◦ | Our Beer gross margin rate increased 20 basis points to 33.5% in the third quarter, compared to 33.3% in the third quarter last year, primarily due to mix (brand, package, geography), accrued international incentives from our new international agreement with A-B, lower A-B fees, and lower component costs, partially offset by lower net pricing, increased distribution rate, and lower brewery productivity. |
◦ | Our Brewpub gross margin rate decreased by 150 basis points to 14.3%, compared to 15.8% in the third quarter of 2015, and reflects a decrease in guest counts and sales, primarily at our Woodinville and Portland brewpubs, as well as expenses associated with the construction of our Seattle brewpub. |
• | Selling, general and administrative expense (“SG&A”) for the quarter was $15.9 million, which represents a 2.4% increase over the third quarter of 2015 and is primarily due to employee related and severance costs, legal and professional fees associated with emerging business and the new A-B agreements, and brand marketing; partially offset by lower employee benefits costs. As a percent of net sales, SG&A increased to 28.8% compared to 28.3% in the third quarter of 2015. |
• | Net income for the third quarter was $552,000, a decrease of $180,000 or 25% compared to the third quarter of 2015. |
◦ | Diluted earnings per share for the third quarter were $0.03, a decrease of $0.01 compared to the third quarter of 2015. |
“CBA’s third quarter performance demonstrates further validation of our Kona Plus strategy and underscores our unique value proposition in a progressively competitive and unprecedented market,” said Andy Thomas, chief executive officer, CBA. “Looking ahead, we believe that Kona Plus, combined with the benefits of our expanded A-B relationship and upcoming cost optimization efforts, will position CBA for long-term shareholder value.”
Select year-to-date financial highlights
• | Depletions for Kona increased by 18% while overall portfolio depletions grew just under 1%. |
• | Shipments of our owned and partner brands decreased by 15,000 barrels, or 2.5%, from the comparable period in 2015, primarily due to lower shipments of Redhook and Widmer Brothers outside of their home markets and the planned shutdown of our Portland Brewery in the first quarter of 2016. The decrease in shipments was partially offset by Kona, which increased shipments by 16.9%, as well as incremental growth of Appalachian Mountain Brewery and Cisco Brewers. |
• | Net sales increased by 1.1%, primarily attributed to improved net pricing, lower A-B fees, alternating proprietorship fees, increased guest counts at our brewpubs, and the fees earned related to the international distribution agreement with A-B; partially offset by a decrease in overall shipment volumes. |
• | Year-to-date gross margin rate was 29.5%, a decrease of 60 basis points compared to 30.1% for the same period last year, which primarily reflects higher direct and distribution costs per barrel, partially offset by an increase in net pricing, alternating proprietorship fees, lower A-B fees, mix, and a decrease in component costs. |
◦ | Our Beer gross margin rate decreased 80 basis points to 32.0%, compared to 32.8% in the same period last year. |
◦ | Our Brewpub gross margin rate increased by 90 basis points to 14.1%, compared to 13.2% in the same period of 2015. The increase reflects higher guest counts, primarily in our Hawaiian brewpubs. |
• | SG&A year to date increased by $1.6 million, or 3.7%, compared to the same period in 2015, primarily due to emerging business and international support, brand marketing, employee related and severance costs, and legal and professional fees associated with the new and enhanced A-B agreements. |
• | Diluted loss per share was $0.02, compared to diluted earnings per share of $0.05 for the same period last year. |
Trailing twelve-month financial highlights
• | To address the wide variances in quarterly results and provide a more representative view into our financial performance, we are sharing trailing 12-month comparisons for the periods ended September 30, 2016 and September 30, 2015. |
◦ | For those periods, our Beer shipments decreased 2.7%, depletions were flat, and net sales increased 1.8%. |
◦ | Our Beer gross margin was flat at 32.6% and Brewpubs gross margin expanded by 110 basis points to 13.6%, for a combined gross margin expansion of 10 basis points to 29.9%. |
“As many of our craft beer peers begin to acknowledge and address the changes facing our industry, CBA’s foresight and investments in our infrastructure and business development, as well as enhanced cost management efforts, will enable us to capitalize on the power of our distinctive portfolio strategy while preparing for our future,” said Joe Vanderstelt, chief financial officer, CBA.
Anticipated refined financial results for the full year 2016
Strengthened by the benefits of our enhanced A-B agreements and planned cost savings initiatives, while continuing to acknowledge the ongoing challenges in our market, CBA is refining its full-year guidance, as follows:
• | Depletions ranging between an increase of 1% and decrease of 1%, reflecting the growth potential of our Kona Plus strategy, as well as the significant competition and headwinds in the craft beer segment. |
• | Full-year shipment decline between 3% and 5%, as a result of significantly lower-than-anticipated contract brewing volumes in the fourth quarter of this year. |
• | Our forecast of average price increases of 1% to 2% remains unchanged, while beer-related revenue per barrel is expected to increase 4% to 6%, as a result of net pricing, new A-B international incentive payments, receipt of contract brewing penalty fees, lower A-B fees, and alternating proprietorship revenues. |
• | Gross margin of 31.0% to 32.5% remains unchanged, and we expect to be at the low end of the range. Looking at the balance of the year, we expect to see incremental gross margin improvement as a result of strategic cost reduction initiatives, including the recent right-sizing of our Woodinville brewery operations to align with anticipated contract brewing volumes. Additionally, we expect to realize additional benefits through the Portland brewery bottling line modernization and beer loss centrifuge, as well as the Portsmouth canning line. |
• | SG&A ranging from $59 million to $61 million, an increase from previously issued guidance, as a result of legal and professional fees related to emerging business and the A-B agreements, employee related and severance costs, and a Kona media test. |
• | Capital expenditures between $17 million and $19 million, a decrease from previously issued range, primarily due to a change in timing of certain planned strategic investments. |
Forward-Looking Statements
Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including depletions, shipments and sales volume, price increases, and gross margin rate improvement, the level and effect of SG&A expense and business development, anticipated capital spending, and the benefits or improvements to be realized from our sales and marketing initiatives, relationship with A-B, cost controls, operational enhancements, strategic partners, 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, 2015. 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 a leading craft brewing company that brews, brands and markets some of the world’s most respected and best-loved American craft beers. We are home to three of the earliest pioneers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery founded in 1981; Widmer Brothers Brewing, Oregon’s largest craft brewery founded in 1984; and Kona Brewing Company, Hawaii’s oldest and largest craft brewery founded in 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and approximately 30 international markets.
In addition to growing and nurturing distinctive brands rooted in local heritage, Craft Brew Alliance is committed to developing innovative new category leaders, such as Omission Beer, which is the #1 beer in the gluten-free beer segment, and Square Mile Cider, a tribute to the early American settlers who purchased the first plots of land in the Pacific Northwest.
Publicly traded on NASDAQ under the ticker symbol BREW, Craft Brew Alliance is headquartered in Portland, OR and operates five breweries and five pub restaurants across the U.S. For more information about CBA and its brands, please visit www.craftbrew.com.
Media Contact: Jenny McLean Craft Brew Alliance, Inc. (503) 331-7248 jenny.mclean@craftbrew.com | Investor Contact: Edwin Smith Craft Brew Alliance, Inc. (503) 972-7884 ed.smith@craftbrew.com |
Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Operations
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Sales | $ | 58,660 | $ | 58,460 | $ | 166,747 | $ | 165,717 | |||||||
Less excise taxes | 3,457 | 3,771 | 10,044 | 10,788 | |||||||||||
Net sales | 55,203 | 54,689 | 156,703 | 154,929 | |||||||||||
Cost of sales | 38,229 | 37,830 | 110,514 | 108,218 | |||||||||||
Gross profit | 16,974 | 16,859 | 46,189 | 46,711 | |||||||||||
As percentage of net sales | 30.7 | % | 30.8 | % | 29.5 | % | 30.1 | % | |||||||
Selling, general and administrative expenses | 15,876 | 15,497 | 46,348 | 44,713 | |||||||||||
Operating income (loss) | 1,098 | 1,362 | (159 | ) | 1,998 | ||||||||||
Interest expense | (186 | ) | (148 | ) | (520 | ) | (419 | ) | |||||||
Other income, net | 7 | 7 | 19 | 20 | |||||||||||
Income (loss) before income taxes | 919 | 1,221 | (660 | ) | 1,599 | ||||||||||
Income tax expense (benefit) | 367 | 489 | (264 | ) | 640 | ||||||||||
Net income (loss) | $ | 552 | $ | 732 | $ | (396 | ) | $ | 959 | ||||||
Basic and diluted net income (loss) per share | $ | 0.03 | $ | 0.04 | $ | (0.02 | ) | $ | 0.05 | ||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 19,244 | 19,171 | 19,213 | 19,144 | |||||||||||
Diluted | 19,343 | 19,180 | 19,213 | 19,171 | |||||||||||
Total shipments (in barrels): | |||||||||||||||
Core Brands | 202,100 | 211,700 | 583,500 | 598,500 | |||||||||||
Contract Brewing | 6,300 | 8,300 | 20,500 | 28,100 | |||||||||||
Total shipments | 208,400 | 220,000 | 604,000 | 626,600 | |||||||||||
Change in depletions (1) | 0 | % | 0 | % | 0 | % | 0 | % | |||||||
(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, | |||||||
2016 | 2015 | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 410 | $ | 1,816 | |||
Accounts receivable, net | 23,742 | 18,719 | |||||
Inventory, net | 20,906 | 18,276 | |||||
Deferred income tax asset, net | 2,077 | 1,802 | |||||
Other current assets | 2,029 | 3,831 | |||||
Total current assets | 49,164 | 44,444 | |||||
Property, equipment and leasehold improvements, net | 122,347 | 112,964 | |||||
Goodwill | 12,917 | 12,917 | |||||
Intangible and other assets, net | 19,548 | 16,914 | |||||
Total assets | $ | 203,976 | $ | 187,239 | |||
Current liabilities: | |||||||
Accounts payable | $ | 18,253 | $ | 17,420 | |||
Accrued salaries, wages and payroll taxes | 5,858 | 5,775 | |||||
Refundable deposits | 6,804 | 7,934 | |||||
Other accrued expenses | 1,943 | 2,008 | |||||
Current portion of long-term debt and capital lease obligations | 1,312 | 503 | |||||
Total current liabilities | 34,170 | 33,640 | |||||
Long-term debt and capital lease obligations, net of current portion | 29,020 | 16,242 | |||||
Other long-term liabilities | 21,898 | 20,223 | |||||
Total common shareholders' equity | 118,888 | 117,134 | |||||
Total liabilities and common shareholders' equity | $ | 203,976 | $ | 187,239 | |||
Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (396 | ) | $ | 959 | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 8,056 | 7,221 | |||||
Loss on sale or disposal of Property, equipment and leasehold improvements | 16 | 318 | |||||
Deferred income taxes | 174 | 217 | |||||
Other, including stock-based compensation and excess tax benefit from employee stock plans | 655 | 603 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | (4,816 | ) | (6,978 | ) | |||
Inventories | (2,902 | ) | 1,375 | ||||
Other current assets | 410 | 581 | |||||
Accounts payable and other accrued expenses | 736 | 2,893 | |||||
Accrued salaries, wages and payroll taxes | 389 | 661 | |||||
Refundable deposits | 545 | 452 | |||||
Net cash provided by operating activities | 2,867 | 8,302 | |||||
Cash flows from investing activities: | |||||||
Expenditures for Property, equipment and leasehold improvements | (12,206 | ) | (9,772 | ) | |||
Proceeds from sale of Property, equipment and leasehold improvements | 8 | 410 | |||||
Expenditures for long-term deposits | (925 | ) | — | ||||
Net cash used in investing activities | (13,123 | ) | (9,362 | ) | |||
Cash flows from financing activities: | |||||||
Principal payments on debt and capital lease obligations | (477 | ) | (968 | ) | |||
Net borrowings under revolving line of credit | 10,138 | 2,900 | |||||
Proceeds from issuances of common stock | 172 | 64 | |||||
Tax payments related to stock-based awards | (78 | ) | (151 | ) | |||
Excess tax benefit from employee stock plans | — | 50 | |||||
Net cash provided by financing activities | 9,755 | 1,895 | |||||
Increase (decrease) in Cash and cash equivalents | (501 | ) | 835 | ||||
Cash and cash equivalents, beginning of period | 911 | 981 | |||||
Cash and cash equivalents, end of period | $ | 410 | $ | 1,816 | |||
Craft Brew Alliance, Inc.
Select Financial Information on a Trailing Twelve-Month Basis
(Dollars in thousands, except per share amounts)
(Unaudited)
Twelve Months Ended | ||||||||||||||
September 30, | ||||||||||||||
2016 | 2015 | Change | % Change | |||||||||||
Net sales | $ | 205,942 | $ | 202,366 | $ | 3,576 | 1.8 | % | ||||||
Gross profit | $ | 61,674 | $ | 60,362 | $ | 1,312 | 2.2 | % | ||||||
As percentage of net sales | 29.9 | % | 29.8 | % | 10 | bps | ||||||||
Selling, general and administrative expenses | 59,567 | 56,889 | 2,678 | 4.7 | % | |||||||||
Operating income | $ | 2,107 | $ | 3,473 | $ | (1,366 | ) | (39.3 | )% | |||||
Net income | $ | 863 | $ | 1,677 | $ | (814 | ) | (48.5 | )% | |||||
Basic and diluted net income per share | $ | 0.04 | $ | 0.09 | $ | (0.05 | ) | (55.6 | )% | |||||
Total shipments (in barrels): | ||||||||||||||
Core Brands | 772,600 | 786,600 | (14,000 | ) | (1.8 | )% | ||||||||
Contract Brewing | 29,200 | 37,800 | (8,600 | ) | (22.8 | )% | ||||||||
Total shipments | 801,800 | 824,400 | (22,600 | ) | (2.7 | )% | ||||||||
Change in depletions (1) | 0 | % | 1 | % | ||||||||||
(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
Craft Brew Alliance, Inc.
Reconciliation of Adjusted EBITDA to Net income (loss)
(In thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income (loss) | $ | 552 | $ | 732 | $ | (396 | ) | $ | 959 | ||||||
Interest expense | 186 | 148 | 520 | 419 | |||||||||||
Income tax expense (benefit) | 367 | 489 | (264 | ) | 640 | ||||||||||
Depreciation expense | 2,651 | 2,433 | 7,926 | 7,040 | |||||||||||
Amortization expense | 43 | 61 | 130 | 181 | |||||||||||
Stock-based compensation | 333 | 275 | 642 | 898 | |||||||||||
Loss on disposal of assets | 7 | 12 | 16 | 318 | |||||||||||
Adjusted EBITDA | $ | 4,139 | $ | 4,150 | $ | 8,574 | $ | 10,455 | |||||||
The Company 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 the Company’s management. The Company defines Adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization, stock compensation and other non-cash charges, including net gain or loss on disposal of property, equipment and leasehold improvements. The Company uses 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 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 the Company’s indebtedness; and the exclusion of depreciation and amortization which represent significant and unavoidable operating costs, given the capital expenditures needed to maintain the Company’s 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 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).