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press release

Aug. 7, 2019, 4:00 p.m. EDT

Craft Brew Alliance Reports Strong Second Quarter Results Led by Robust Acceleration for Kona and Record Beer Gross Margin

National media investment fuels 8% depletions growth for Kona, driving overall depletions growth for CBA portfolio

Craft Brew Alliance, Inc. (“CBA”) /zigman2/quotes/209915231/composite BREW +0.55% , a leading craft brewing company, today reported financial results for the second quarter and year to date ended June 30, 2019. Financial and operational highlights for the second quarter include:

  • Kona depletions grew 8%, driving a total CBA depletions increase of more than 1% over the second quarter in 2018.

  • An 11% increase in Kona shipments contributed to an overall 4.4% increase in owned beer shipments.

  • Core beer sales increased 2.7% over the second quarter in 2018.

  • Beer gross margin expanded 220 basis points to a record 41.6% in the second quarter.

  • Brewpub gross margin expanded 710 basis points over the second quarter last year.

  • Net income was $2.6 million, or $0.13 per share.

CBA Chief Executive Officer Andy Thomas said, “CBA’s second quarter results reflect a tangible return on the strategic investments we’ve made to fuel Kona’s momentum, realize the full value of our newly acquired brands, and unlock our future potential. In a down market, we accelerated Kona to 8% depletions growth, returned our total portfolio to net positive, and delivered record gross margin — all while doubling down on our future growth prospects to drive shareholder value.”

Christine Perich, CBA Chief Financial and Strategy Officer, added, “While we are pleased with our first half performance, which continues to underscore the strength of CBA’s portfolio and overall foundation, we are also cognizant of the sweeping changes taking place across the beverage category and the fact that our upcoming anniversary with AB is a significant one on multiple levels. Regardless of these external challenges and unknowns, I am confident that the strategic work we are actively doing — not just in beer but in beverage overall — will drive shareholder value.”

Performance highlights for the second quarter and year-to-date

Fueling Kona’s momentum in an unprecedented market

Kona’s momentum accelerated in the second quarter, with 8% depletions growth far outpacing the beer category and the craft segment, which were both down compared to second quarter a year ago. Fueled by the national marketing investment that kicked off in the first quarter and continued into the second quarter, Kona’s year-to-date depletions were 6% higher than the same period in 2018, with especially strong performance in the on-premise channel. Kona flagship Big Wave Golden Ale, which featured prominently in the media campaign, delivered a 25% increase in domestic depletions in the quarter and a 22% increase year to date. During the quarter, we continued to work closely with our international distribution partners, driving a 21% increase in international Kona shipments over the second quarter last year. We also continued to make progress ramping up local production of Kona in Brazil, working closely with Ambev.

Achieving record gross margin

Second quarter gross margin expanded 270 basis points to 38.5%, which reflects a 220-basis point improvement in beer gross margin to 41.6% and pub gross margin expansion of 710 basis points to 10.1%. Our beer gross margin improvement reflects the positive impact of transitioning Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing from an alternating proprietorship to owned brands, as well as the continued benefit of our rationalized footprint, which includes leveraging our brewing partnership with Anheuser-Busch. Our pub gross margin expansion is attributed to our reshaped brewpub footprint, which includes the addition of our newly acquired brewpubs in Boone, North Carolina and Miami, Florida. Our record margin expansion was achieved while taking on greater complexity and innovating to address today’s dynamic and rapidly changing consumer trends.

Broadening our portfolio for the future

CBA’s investments in future growth — including comprehensive research initiatives with the Yale Center for Consumer Insights and Prophet, as well as the launch of The pH Experiment business unit — are already driving portfolio expansion, both within and outside of traditional beer. Rooted in our learnings and strong understanding of the ever-shifting consumer landscape, we’re broadening our portfolio to capitalize on emerging trends. During the second quarter, we accelerated work on our approach to the seltzer market and began work to expand distribution of Wynwood’s La Rubia Blonde Ale. Additionally, The pH Experiment continued its focus on incubating and accelerating future growth with the launch of PRE Aperitivo Spritz, an Italian-inspired, cider-based botanical cocktail, and Pacer Low Proof Seltzer, a line of 2% ABV, 50-calorie, zero-sugar seltzers, in the second quarter. Building on a series of successful tests with Amazon Go stores, The pH Experiment will be expanding distribution of multiple products through Amazon Fresh and Amazon Prime.

Summary of financial results for the second quarter and year-to-date 2019

  • Core beer sales increased 2.7% in the second quarter and 2.9% year to date.

  • Kona shipments increased 11% in the second quarter and 10% year to date, contributing to a 2.6% increase in total CBA shipments for the second quarter and a 2.1% increase in total CBA shipments year to date, compared to the same periods last year.

  • Kona depletions increased by 8% in the second quarter and 5% year-to-date, driven by strong consumer response to the national media campaign. Kona’s strong performance contributed to a 1.1% increase in total CBA depletions for the quarter, which improved CBA’s year-to-date depletion trend to a decrease of 1.4% from the same period a year ago.

  • Total company gross margin expanded by 270 basis points to 38.5%, compared to 35.8% in the second quarter of 2018, and year-to-date gross margin expanded 270 basis points to 36.7% compared to the same period last year.

  • Selling, general and administrative expense (“SG&A”) increased by $3.5 million to $19.4 million over the second quarter last year, which reflects additional investments to amplify our national Kona marketing campaign, as well as employee-related costs.

  • Net income was $2.6 million in the second quarter.

  • Earnings per share were $0.13 in the second quarter, a decrease of $0.10 from the second quarter of 2018, which reflects the planned increase in SG&A to amplify the Kona marketing investment.

2019 Outlook

Acknowledging our year-to-date results and given the broad implications related to the August 23, 2019 milestone with Anheuser-Busch , we are deferring an update of our full-year outlook until early September. Details will be communicated shortly.

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 and shipments, gross margin rate improvement, the level and effect of SG&A expense and business development, the effect of the class action settlement, effective tax rate, and the benefits or improvements to be realized from marketing campaigns, portfolio expansion and other strategic initiatives, and capital projects, are forward-looking statements. It is important to note that the Company’s actual results may 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, 2018. 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

Craft Brew Alliance (CBA) is a leading 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 Ended June 30,   Six Months Ended June 30,
  2019       2018       2019       2018  
 
Sales $ 63,815   $ 65,253   $ 113,583   $ 115,338  
Less excise taxes   3,256     3,430     6,032     6,028  
Net sales   60,559     61,823     107,551     109,310  
Cost of sales   37,272     39,696     68,081     72,112  
Gross profit   23,287     22,127     39,470     37,198  
As percentage of net sales   38.5 %   35.8 %   36.7 %   34.0 %
Selling, general and administrative expenses   19,381     15,857     44,946     30,605  
Operating income (loss)   3,906     6,270     (5,476 )   6,593  
Interest expense   (504 )   (107 )   (812 )   (241 )
Other income, net   33     21     33     55  
Income (loss) before income taxes   3,435     6,184     (6,255 )   6,407  
Income tax provision (benefit)   825     1,732     (1,501 )   1,794  
Net income (loss) $ 2,610   $ 4,452   $ (4,754 ) $ 4,613  
 
Basic and diluted net income (loss) per share: $ 0.13   $ 0.23   $ (0.24 ) $ 0.24  
 
Weighted average shares outstanding:
Basic   19,443     19,334     19,416     19,322  
Diluted   19,593     19,517     19,416     19,502  
 
Total shipments (in barrels):
Core Brands   228,300     218,700     392,700     379,300  
Contract Brewing   2,200     5,900     7,300     12,300  
Total shipments   230,500     224,600     400,000     391,600  
 
Change in depletions [(1)]   1 %   -2 %   -1 %   -3 %
(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)
 
June 30,
  2019     2018
 
Current assets:
Cash, cash equivalents and restricted cash $ 970 $ 5,778
Accounts receivable, net   30,223   36,999
Inventory, net   20,579   14,522
Other current assets   3,591   1,874
Total current assets   55,363   59,173
Property, equipment and leasehold improvements, net   111,634   104,982
Operating lease right-of-use assets   19,002   -
Goodwill   21,935   12,917
Trademarks   44,245   14,415
Intangible and other assets, net   5,710   6,054
Total assets $ 257,889 $ 197,541
 
Current liabilities:
Accounts payable $ 19,489 $ 20,042
Accrued salaries, wages and payroll taxes   4,920   4,673
Refundable deposits   3,685   4,282
Deferred revenue   4,364   4,685
Other accrued expenses   8,101   3,163
Current portion of long-term debt and finance lease obligations   1,483   807
Total current liabilities   42,042   37,652
Long-term debt and finance lease obligations, net of current portion   51,675   9,946
Other long-term liabilities   31,699   13,995
Total common shareholders' equity   132,473   135,948
Total liabilities and common shareholders' equity $ 257,889 $ 197,541
Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
  2019       2018  
 
Cash Flows From operating activities:
Net income (loss) $ (4,754 ) $ 4,613  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization   5,386     5,387  
(Gain) loss on sale or disposal of Property, equipment and leasehold improvements   22     (494 )
Deferred income taxes   (1,536 )   (629 )
Other, including stock-based compensation   1,506     875  
Changes in operating assets and liabilities:
Accounts receivable, net   75     (9,215 )
Inventories   (3,349 )   (285 )
Other current assets   (687 )   1,761  
Accounts payable, deferred revenue and other accrued expenses   8,068     7,889  
Accrued salaries, wages and payroll taxes   (715 )   (1,204 )
Refundable deposits   104     (241 )
Net cash provided by operating activities   4,120     8,457  
Cash Flows from investing activities:
Expenditures for Property, equipment and leasehold improvements   (9,440 )   (4,284 )
Proceeds from sale of Property, equipment and leasehold improvements   22     22,936  
Restricted cash from sale of Property, equipment and leasehold improvements   -     515  
Business combinations and asset acquisitions   (274 )   -  
Net cash provided by (used in) investing activities   (9,692 )   19,167  
Cash Flows from financing activities:
Proceeds from issuance of long-term debt   5,192     -  
Principal payments on debt and capital lease obligations   (455 )   (348 )
Net borrowings (repayments) under revolving line of credit   930     (22,199 )
Proceeds from issuances of common stock   -     206  
Tax payments related to stock-based awards   (325 )   (84 )
Net cash provided by (used in) financing activities   5,342     (22,425 )
Increase (decrease) in Cash, cash equivalents and restricted cash   (230 )   5,199  
Cash, cash equivalents and restricted cash, beginning of period   1,200     579  
Cash, cash equivalents and restricted cash, end of period $ 970   $ 5,778  
Craft Brew Alliance, Inc.
Select Financial Information on a Trailing Twelve Month Basis
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Twelve Months EndedJune 30,
  2019       2018     Change   % Change
 
Net sales $ 204,427   $ 211,914   $ (7,487 ) (3.5 )%
 
Gross profit $ 70,595   $ 71,458   $ (863 ) (1.2 )%
As percentage of net sales   34.5 %   33.7 % 80 bps
 
Selling, general and administrative expenses   76,913     60,039     16,874   28.1 %
Operating income (loss) $ (6,318 ) $ 11,419   $ (17,737 ) (155.3 )%
 
Net income (loss) $ (5,225 ) $ 14,199   $ (19,424 ) (136.8 )%
 
Income (loss) per share:
Basic $ (0.27 ) $ 0.74   $ (1.01 ) (136.5 )%
Diluted $ (0.27 ) $ 0.73   $ (1.00 ) (137.0 )%
 
Total shipments (in barrels):
Core Brands   732,800     742,500     (9,700 ) (1.3 )%
Contract Brewing   23,200     19,000     4,200   22.1 %
Total shipments   756,000     761,500     (5,500 ) (0.7 )%
 
Change in depletions [(1)]   -1 %   -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
 
Craft Brew Alliance, Inc.
Reconciliation of Adjusted EBITDA to Net Income (loss)
(In thousands)
(Unaudited)
 
 
Three Months Ended June 30,   Six Months Ended June 30,
  2019     2018     2019       2018  
 
 
Net income (loss) $ 2,610 $ 4,452 $ (4,754 ) $ 4,613  
Interest expense   504   107   812     241  
Income tax provision (benefit)   825   1,732   (1,501 )   1,794  
Depreciation expense   2,540   2,608   5,141     5,301  
Amortization expense   120   43   245     86  
Stock-based compensation   835   202   1,253     687  
(Gain) loss on disposal of assets   14   22   22     (494 )
Kona class action expenses   62   -   4,902     -  
Adjusted EBITDA $ 7,510 $ 9,166 $ 6,120   $ 12,228  

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 loss on impairment of assets and 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).

View source version on businesswire.com: https://www.businesswire.com/news/home/20190807005785/en/

SOURCE: Craft Brew Alliance, Inc.

Jenny McLean, Director of Communications, (503) 331-7248
Investor.Relations@craftbrew.com

Copyright Business Wire 2019

/zigman2/quotes/209915231/composite
US : U.S.: Nasdaq
$ 7.33
+0.04 +0.55%
Volume: 199,077
Nov. 11, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$141.90 million
Rev. per Employee
$310,054
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