Craft Brew Alliance Announces Second Quarter 2015 Results

August 5, 2015 4:01 PM

Home Market Depletion Growth of 7% and Continued Infrastructure Optimization Validate Long-Term Growth Strategy; Management Updates Guidance to Reflect Short-Term Market Challenges

PORTLAND, Ore.--(BUSINESS WIRE)-- Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today reported its financial results for the second quarter ended June 30, 2015. The Company reported net sales of $58.5 million, a 3% increase over the second quarter of 2014, driven by a 2% increase in shipments and higher net sales per barrel. Gross margin increased to $18.7 million, while the gross margin rate decreased by 90 basis points as a result of higher cost of goods sold per barrel compared to the same period last year, which included increased production volume in anticipation of our Memphis brewery coming online. SG&A expense increased by $1.1 million, which reflects planned investments in sales infrastructure and marketing.

Net income for the second quarter was $1.4 million, or a decrease of $0.6 million from the same period in 2014. Earnings per diluted share for the second quarter of 2015 were $0.07, or a decrease of $0.03 from the comparable period in 2014.

Second quarter 2015 financial highlights include:

Year to date 2015 financial highlights include:

Trailing twelve-month financial highlights include:

“While I’m disappointed in our second quarter topline growth, we continued to make solid headway in multiple areas that underscore the strength of our distinctive strategy. Strong home market growth of 7%, continued double digit growth for Kona and Omission, further proof of Widmer Brothers’ turnaround, and continued improvements in our operational efficiency were offset by unanticipated weaknesses in Redhook and California,” said Andy Thomas, chief executive officer, CBA. “Looking forward, we continue to be emboldened by the validation of our home market strategy, ongoing progress in achieving sustainable gross margin growth, and success in planting seeds in key beer geographies. Together, these will not only address our short-term challenges, but also set us up for long-term success.”

“Our relatively flat depletion growth across the first half of the year has affected our revenue and profit growth against our guidance and expectations,” said Joe Vanderstelt, chief financial officer, CBA. “At the same time, we maintain a healthy balance between depletions and overall shipments and have reduced distributor inventory days. We continue to see healthy pricing, and our margin enhancement initiatives are on target. Looking forward, we expect to see growth in our full year revenue, gross margin, and earnings as second half 2015 commercial programming is executed for our core brands.”

Components of anticipated 2015 financial results and developments

We are revising previously issued guidance regarding our anticipated full year 2015 results, with the exception of estimated average price increases, 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 of the future, including shipments and sales growth, price increases, level of contract brewing revenue and gross margin rate improvement, the level or effect of SG&A expense and business development, anticpated capital spending, 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, 2014. 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, which 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 more than 15 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.

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,

2015 2014 2015 2014
Sales $ 62,638 $ 60,728 $ 107,257 $ 107,745
Less excise taxes 4,107 4,042 7,017 7,233
Net sales 58,531 56,686 100,240 100,512
Cost of sales 39,841 38,112 70,388 70,098
Gross profit 18,690 18,574 29,852 30,414
As percentage of net sales 31.9 % 32.8 % 29.8 % 30.3 %
Selling, general and administrative expenses 16,263 15,208 29,216 27,270
Operating income 2,427 3,366 636 3,144
Interest expense (150 ) (105 ) (271 ) (206 )
Other income, net 7 9 13 3
Income before income taxes 2,284 3,270 378 2,941
Income tax expense 894 1,275 151 1,147
Net income $ 1,390 $ 1,995 $ 227 $ 1,794
Income per share:
Basic and diluted net income per share $ 0.07 $ 0.10 $ 0.01 $ 0.09
Weighted average shares outstanding:
Basic 19,145 19,029 19,130 19,002
Diluted 19,177 19,087 19,164 19,077
Total shipments (in barrels):
Core Brands 228,300 225,300 386,800 397,500
Contract Brewing 10,600 9,000 19,800 19,600
Total shipments 238,900 234,300 406,600 417,100
Change in depletions (1) 0 % 9 % 1 % 9 %
(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,
2015 2014
Current assets:
Cash and cash equivalents $ 1,277 $ 6,424
Accounts receivable, net 21,572 13,330
Inventories, net 19,350 20,133
Deferred income tax asset, net 1,746 1,775
Other current assets 4,510 3,749
Total current assets 48,455 45,411
Property, equipment and leasehold improvements, net 110,354 106,050
Goodwill 12,917 12,917
Intangible and other non-current assets, net 16,916 17,337
Total assets $ 188,642 $ 181,715
Current liabilities:
Accounts payable $ 18,571 $ 20,977
Accrued salaries, wages and payroll taxes 5,000 6,251
Refundable deposits 7,426 7,971
Other accrued expenses 2,043 1,940
Current portion of long-term debt and capital lease obligations 1,100 557
Total current liabilities 34,140 37,696
Long-term debt and capital lease obligations, net of current portion 18,368 11,693
Other long-term liabilities 19,895 19,058
Total common shareholders' equity 116,239 113,268
Total liabilities and common shareholders' equity $ 188,642 $ 181,715
Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended

June 30,

2015 2014
Cash Flows From Operating Activities:
Net income $ 227 $ 1,794
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,727 4,255
Loss on sale or disposal of Property, equipment and leasehold improvements 306 19
Deferred income taxes 67 66
Other, including stock-based compensation and excess tax benefit from employee stock plans 616 (114)
Changes in operating assets and liabilities:
Accounts receivable (9,831) (1,959)
Inventories 62 (2,909)
Other current assets (97) (347)
Accounts payable and other accrued expenses 5,330 5,232
Accrued salaries, wages and payroll taxes (114) 1,635
Refundable deposits (181) 446
Net cash provided by operating activities 1,112 8,118
Cash Flows from Investing Activities:
Expenditures for property, equipment and leasehold improvements (5,816) (5,074)
Proceeds from sale of property, equipment and leasehold improvements 387 15
Net cash used in investing activities (5,429) (5,059)
Cash Flows from Financing Activities:
Principal payments on debt and capital lease obligations (245) (291)
Net borrowings under revolving line of credit 4,900 -
Proceeds from capital lease financing - 841
Proceeds from issuances of common stock 58 63
Tax payments related to performance shares issued (151) (150)
Excess tax benefit from employee stock plans 51 176
Net cash provided by financing activities 4,613 639
Increase in cash and cash equivalents 296 3,698
Cash and cash equivalents, beginning of period 981 2,726
Cash and cash equivalents, end of period $ 1,277 $ 6,424
Craft Brew Alliance, Inc.
Select Financial Information on a Trailing Twelve Month Basis
(Dollars in thousands, except per share amounts)
(Unaudited)
Twelve Months Ended

June 30,

2015 2014 Change % Change
Net sales $ 199,750 $ 194,076 $ 5,674 2.9 %
Gross profit $ 58,148 $ 56,768 $ 1,380 2.4 %
As percentage of net sales 29.1 % 29.3 % (20 ) bps
Selling, general and administrative expenses 54,946 49,021 5,925 12.1 %
Operating income $ 3,202 $ 7,747 $ (4,545 ) (58.7 )%
Net income $ 1,510 $ 4,432 $ (2,922 ) (65.9 )%
Basic and diluted net income per share $ 0.08 $ 0.23 $ (0.15 ) (65.2 )%
Total shipments (in barrels):
Core Brands 779,800 775,900 3,900 0.5 %
Contract Brewing 39,900 34,900 5,000 14.3 %
Total shipments 819,700 810,800 8,900 1.1 %
Change in depletions (1) 3 % 10 %
(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 Loss
(In thousands)
(Unaudited)
Three Months Ended

June 30,

Six Months Ended

June 30,

2015 2014 2015 2014
Net income $ 1,390 $ 1,995 $ 227 $ 1,794
Interest expense 150 105 271 206
Income tax expense 894 1,275 151 1,147
Depreciation expense 2,380 2,098 4,607 4,134
Amortization expense 59 61 120 121
Stock-based compensation 303 273 624 444
Loss (gain) on disposal of assets 91 (4 ) 306 19
Adjusted EBITDA $ 5,267 $ 5,803 $ 6,306 $ 7,865

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 earnings (loss) before interest, income taxes, depreciation and amortization, stock compensation and other non-cash charges, including net gain or loss on disposal of property, plant and equipment. 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).

Craft Brew Alliance, Inc.

Media Contact:

Jenny McLean, 503-331-7248

jenny.mclean@craftbrew.com

or

Craft Brew Alliance, Inc.

Investor Contact:

Edwin Smith, 503-972-7884

ed.smith@craftbrew.com

Source: Craft Brew Alliance, Inc.

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