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Welcome to this Youngevity shareholder call. During this call, we will be making forward-looking statements regarding Youngevity's current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminologies such as may, should, expects, anticipates, intends, plans, believes, and estimates and similar expressions.
These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Youngevity's filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements.
The information on this call is provided only as of the date of this call, and Youngevity undertakes no obligation to update any forward-looking statements contained on this conference call on account with new information, future events, or otherwise, except as required by law.
It is my honor and privilege to turn this call over to our CEO and Co-Founder, Mr. Steve Wallach.
Thank you, Alex. Hello and I want to welcome everyone to the Youngevity International Shareholders Call this morning. Speakers on the call today are myself; and our President and CFO of Youngevity, Dave Briskie. We will cover the following topics. We will highlight the 2019 Q1 results. We will provide revenue guidance. We will provide an update on our direct selling space and the fate of the commercial hemp business; we will discuss progress in our commercial hemp segment; we will wrap up with the coffee segment at the end of the call as well.
Before I turn over the call to Dave Briskie to go over the numbers, I want to reaffirm the guidance that was provided when we delivered the Q4 numbers just about a month ago. We wish to reaffirm those guidance numbers, which we also reaffirm in this morning's press release.
We are providing annual revenue guidance for 2019 in the range of $220 million and $240 million, which represents a projected annual growth rate between 35% and 48% over 2018. This revenue guidance includes estimated annual revenue contribution from our new reporting commercial hemp segment between the amounts of $45 million and $50 million for 2019 as well.
What I'd like to do now is bring Dave Briskie onto the call this morning.
Thank you, Steve. Before I get going into some of the numbers, I wanted to talk about the balance sheet highlights. First of all, we did highlight this on our last call, which was, I think, only 45 days ago when we announced Q4. In terms of the cash and cash equivalents from 2017, if you remember from 2017 to 2018, cash went from $673,000 to $2.8 million.
And in Q1 of this year, cash equivalents were $2.540 million. Our total assets have grown from the end of the year, which we reported at just under $76 million to $143 million of total assets. Meanwhile, our total liabilities increased from $52 million, almost $53 million, to total liabilities of $95.3 million.
This is a $42.3 million increase in liabilities against a $67 million increase in assets, so therefore, stockholders' equity was $47.6 million as of March 31, 2019 for this reporting period, essentially an increase in shareholder equity of $24.6 million for the quarter.
So the revenues – and it's nice to see our revenues growing again. Our revenues for Q1 March 31, 2019 increased 30.9% to $56.3 million. That's the highest quarterly revenue in the company's history as compared to $43 million for the quarter ended March 31, 2018. The mix has changed considerably. We derived approximately 59% of our revenue from our direct selling segment, and approximately 41% of our revenues came from our commercial coffee segment.
The direct selling segment revenues decreased by 5.4% to $33.4 million in the quarter as compared to $35.3 million for the quarter a year ago. This decrease was primarily attributed to revenues from new acquisitions of 421, offset by a decrease of $2.3 million in revenues from the existing business predominantly in the U.S. Commercial coffee segment revenues increased by just under 197% to $22.8 million in the current quarter as compared to just under $7.7 million for the quarter ended March 31, 2018.
Gross profit for the first quarter ended March 31 increased 7.2% to $26.8 million as compared to $25 million from the year ago quarter. Gross profit for the direct selling segment decreased 8% to $22.755 million as compared to $24.735 million for the first quarter a year ago. The gross profit in commercial coffee segment increased to $4.067 million in the current quarter compared to $277,000 for the quarter a year ago primarily due to increases in revenues coming from our green coffee distribution program.
Operating expenses increased 55.2% to $38.790 million compared to $24.988 million for the three months ended March 31, 2018. This increase included an increase of just under $12.9 million in noncash equity-based compensation. Distributor compensation paid to our independent distributors in the direct selling segment decreased 4.4% predominantly due to the corresponding fall in revenue.
For the three months ended March 31, 2019, total sales and marketing expenses increased just under 15% to $4.019 million from just under $3.5 million for the three-month period a year ago. This increase included an increase of $471,000 in noncash equity-based compensation. Excluding the increase in equity-based compensation, the increase in sales and marketing expense would have only been 1.4%.
For the three months ended March 31, 2019, total G&A expense increased 236.3% to $19.881 million from $5,711 million for the period a year ago. This increase included an increase of just over $12.4 million in noncash equity-based compensation expense. Excluding the increase in equity-based compensation expense, the increase in G&A expense would have been 27.2%. In the direct selling segment, direct general and administrative expenses increased by 223% to $16.459 million in the current quarter from $5.084 million for the same period a year ago.
This increase included an increase of just under $11 million in noncash equity-based compensation expense. Excluding the increase in the noncash equity-based compensation expense, G&A would have increased by 7.7%. This increase would have been predominantly due to accounting and legal fees.
In the commercial coffee segment, G&A cost increased by $2.065 million or 249.7% to $2.892 million in the quarter compared to an $827,000 number in the same period last year. This increase included $1.425 million noncash equity-based compensation expense. G&A expense for the commercial hemp business came in at $530,000 as that business begins to ratchet up in its kind of pre-revenue state.
The net loss for the quarter ended March 31 was $12.660 million. And this compares to a net loss of $2.3 million for the three-month period a year ago. The primary reason for the increase in net loss was $12.966 million noncash equity-based compensation charge. So I reiterate the total loss was $12.6 million and the noncash component was $12.9 million in terms of the net loss. Therefore, EBITDA, which is earnings before interest, income tax, depreciation and amortization as adjusted to remove the equity-based compensation expense and the change of fair value of warrant derivatives and noncash loss on extinguishment of debt, which is certainly a mouthful, but that number is called adjusted EBITDA.
And our adjusted EBITDA, I'm happy to say, increased 58.4% to $2.407 million for the quarter ended March 31, 2019, and this compares to $1.520 million in the same period a year ago.
Against this $2.407 million EBITDA number for Q1, it's important to point out that we had a $500,000 negative EBITDA contribution coming from our commercial hemp business. So apples-to-apples, as we go Q-to-Q, the EBITDA contribution is even stronger than it probably looks at face value. I'd like to continue the discussion on presales for a second and talk about the progress we're making there.
I think there's a really – a strong tie to what we're doing with Khrysos and what we've just achieved in the coffee business as we've clearly announced the significant improvement in the coffee business, a significant improvement in gross margins and now into profitability on that business segment. And I see a strong parallel in our Khrysos operating segment or our hemp, commercial hemp segment.
It's really in the same position, but I am more encouraged that we – although it took us 4.5 to 5 years to scale up our coffee operations to install all of the necessary assets, both on the roasted side and on the green coffee distribution side, those of you that understand manufacturing companies and distribution companies, you hit a critical mass, you hit a tipping point where you go from a struggle with – appears to be a struggle on gross profits, which is certainly the scenario in the coffee business in the last several years because you've got all of those expenses essentially baked into your operating cost, which comes out of your cost as goods, and it appears that your margins are not there. But once those margins get covered, all of a sudden, profits begin to drop to the bottom line, hence an 18% improvement in gross profit on the commercial coffee business, which led to profitability for this quarter, and we're happy to see that happen.
I see a very strong parallel in our commercial hemp segment, particularly in our Khrysos operating division. We – as we stated, we lost $500,000 in the quarter, which was ratcheting up the expenses to build out that business. The encouraging thing in our Khrysos operating segment is the margins. So what took us 4.5 years to do in coffee to hit that tipping point, we believe we can accomplish in six months in our Khrysos division due to the high margins and frankly, the demand for product right now that is well in excess of capacity to deliver product.
In our last call, we talked about our Florida refinery operation that we anticipated having up and running in May and then expanding significantly by July. We are running about two weeks behind that schedule predominantly due to some – to permitting issues in terms of electrical permits and so forth and placing our buildings on the piece of property that we purchased. I'm happy to say that those permitting issues are behind us right now, and we are in the face of bringing up those buildings and bringing up the necessary power to run this phase of our operation.
We anticipate that the initial revenues now from the $11 million contract that we executed just over a month ago will begin now in June. So essentially a couple of weeks from now, we expect to be delivering revenues as a pace of about $1 million a month for June and then into July. Within July, we expect to grow our capacity to deliver revenue by about tenfold, where we anticipate we can deliver $10 million of monthly revenue for that division beginning in August.
So June and July at a million-dollar pace, and as we enter August, we expect to grow that tenfold, to be delivering around $10 million potential revenue at that pace. At this point, demand is exceeding supply. What we anticipate doing is a balance of making our own products that we have current relationships in terms of selling relationships for along with tolling agreements. There's a significant demand for tolling within our capabilities to produce distillate and water-soluble options.
Our revenue forecast, I'd like to say, is really calculated at the lowest end of the ingredients we can make. Please understand, our processing allows us to do every form of ingredient production in the hemp space. So not only can we do premium oils or refined oils, we obviously can do isolates, and then you get into the more higher-profit items like distillate and water-soluble options in both water-soluble distillate and water-soluble icelifts, where the margins really grow.
So when I talk about our revenue projections or our revenue potential at $1 million a month for June and July, that's essentially servicing a contract we have in place. As we grow into August and we look at revenue potential of $10 million, I'm assuming that and calculating that at the lowest-price ingredient that we could produce, and we're looking to upside when we talk about marketing distillate or water-soluble options, which drives up the revenue potential and the margins even further.
Up and running now as we speak, we have a single-pass glass system up and running. By the end of July, we will have a single-pass steamless system, which goes to 10 times larger capacity. We're currently running three rotary evaporators. And by August, when we've already purchased – placed the orders for this system and will be coming online in the end of August, we'll have a – what they call a falling film evaporator. And a one falling film evaporator essentially can replace the work of 10 rotary evaporators. And we're using this technology to grow these capabilities to deliver revenues.
And also, by the end of August, we'll have our first multi-pass distillation system up and running, which essentially is a one continuous flow from beginning to distillate, which is extremely efficient, very low on labor and energy cost, and we really expect to drive our profitability in EBITDA by having those systems installed by then. So it really remains a bullish outlook. We've only lost a couple of weeks' time, and obviously, our forecast to the back half of the year for our commercial hemp businesses remains bullish in Q3 and Q4.
With that, I'd like to turn the call back over to Steve Wallach.
Thanks, Dave. Khrysos is certainly making progress as against the – that new segment approaching revenue. To accentuate this point, we operate in three separate business segments, and in each segment, we are marketing a number of hemp-based products. In the direct selling channel, we have our HempFX line of products.
We expect to be bringing to market a core tincture as well as a softgel for hemp-based products in just a couple of weeks, so some time next month, also, coffee at the end of Q2 or early Q3, and we're in the final phase of sampling water-soluble hemp dried extracts in a delivery system that will be marketed with our Icelandic Glacial water as we leverage that brand. In fact, many of you may have seen Icelandic Water with – interestingly in the season finale of The Big Bang Theory.
Tens of millions of people saw Icelandic Water in that one show alone. It’s among the fastest-growing water brands in the United States, and I sincerely believe that’s because of not only the best-tasting water, but it actually is bottled at the source in Iceland.
So it has an amazing story, it’s an amazing product, an amazing water, and so we’re excited to be able to leverage that brand. We believe we additionally had stabilized the revenue of our direct selling segments, and we see an opportunity to ramp up with our acquisition model for the segment, in addition to opportunities such as leveraging the Icelandic Water opportunity as well as the hemp-based products that we were just talking about. I’m going to get into a little bit of the – not only some numbers, but circumstances regarding our international markets as well as things like ramping up our acquisition model.
So let’s get into that. Latin America, Mexico and Colombia, in particular, we talked about on a previous call a supply chain disruption and being able to provide products to our Latin American markets, again, on one of these earlier calls. We’ve overcome that and we, in the last three quarters, Q-to-Q, have seen steady increases in sales in Latin America, for example, and so that’s exciting to see obviously.
And Dave went over some of the numbers of our direct selling segment. And one of the highest priorities that we’ve talked about on several of these calls, especially recently, is expanding the international markets, but also overlaying our acquisition strategy into the infrastructure that we’ve built in these international markets. So that continues to be a top priority, and I’m going to give you some numbers now that I think you’ll find interesting.
In 2017, 91% of our direct sales revenue came from the United States, 91%, and 9% internationally obviously. In 2018, 84% of our direct selling revenue was derived from the United States, 16% internationally as those markets began to take root and grow on that infrastructure. In 2019, in Q1, we derived just about 17% from our international markets and we would like to see the international number approach 20% of our direct selling business by year-end, and I believe we will accomplish that.
So it’s definitely time to leverage that infrastructure, which we are doing, with the more acquisitions internationally as well as strategically bringing on specific people to work in those international markets with specific skill sets. So it’s definitely exciting to see that coming to be.
So what I’d like to do now is bring Dave Briskie onto the call to give us some color in regards to the coffee segment.
Thank you, Steve. Obviously, the coffee business is a highlight this particular quarter. And the investment we’ve made in that business over the last many years, it was very good to see that deliver and deliver to a plan that we put in place. When we look at the revenue versus just a quarter ago, we’re talking about a 518% increase over Q4 and almost a 200% increase from Q1 of last year or $15.1 million, the coffee division delivering a $22 million in sales. Gross profit’s up significantly.
As I discussed earlier, we were talking 17.8% gross margins or $4,067 million in gross margin , which is a – almost a full 850% increase over Q4 and a 1,300% increase over Q1 of last year. So very, very significant progress there. And of course, operating income increased to $1.1 million or 157% increase over Q4 and a 250% increase over Q1. And it's really coming from both ends of the business. Obviously, the big driver being the green coffee distribution end of the business. But also the roasted coffee business margins are improving. We're really seeing more branded sale of our own brands, which is the highest margin and of our roasted coffee business, particularly Cafe La Rica and the newly acquired Cafe Cachita brand.
I want to talk about that a little bit. I think you can look for stronger margins coming from that. We basically tore a chapter out of the largest espresso brand's playbook, that being Pilon and Bustelo. Pilon and Bustelo is marketed, Bustelo as kind of the higher-end premium brand, and they hold their price, it's the highest-priced espresso in the market, and they also own Pilon, which they will do for discounting and BOGOs and promotions.
So we felt that we wanted Cafe La Rica, which we believe is the best-tasting espresso on the market, to be able to sell that alongside and on the same shelves as our Café Cachita brand, and we are using that as a promotional brand. And this has allowed us to increase prices on our Cafe La Rica brand but still provide the retailer the traffic generator that they want in that coffee aisle, using our own Cafe Cachita brand.
And so these – the combination of these two espresso brands, our own brands which we control the distribution of, has helped us drive revenues in terms of gross profit as well in our roasted coffee business. So that is good to see, and we expect to continue to step on the gas there and grow those brands.
When it comes to net income, we delivered over a $2 million profit in the coffee business and obviously, positive EBITDA off of that and adjusted EBITDA, over $2.5 million. Both the coffee business and the direct selling business delivered positive EBITDA. And as I pointed out, we had a $500,000 drag due to kind of ratcheting up our third segment, which is really just getting started. And obviously, we're quite bullish on what we expect to deliver from our commercial hemp business.
So we're kind of hitting on a – starting to hit on all cylinders, that's good to see, and I'm happy to open up the call to some Q&A. [Operator Instructions]
Good day. This is Bill Sutherland.
How are you doing Bill?
Good. Just a couple of questions. The – in the direct selling business, your – the profitability in the quarter is – hey, Gary?
Sorry, Bill.
This is – something's going on. My voicemail just kicked in. Hold on a second. Say what, I'm going to jump off. Sorry.
Do we have any other questions related to the call and the information presented?
Okay. I'm back. It's Bill Sutherland again. Sorry about that. Something happened and my voicemail just kicked in. It's very strange. Anyway, on coffee gross margin, I'm kind of curious here in terms of the mix of green and roasted. And obviously, that mix of revenue has been changed as the year goes on just based on the timing of the green contracts. So what's that split look like roughly on gross margin?
For the $22 million delivered, just over $3 million was in roasted coffee. So we delivered $22 million in revenue and $3 million of it is roasted coffee. And the margins coming from the roasted coffee is generally a blend of private label and our own brands. So that margin was up in the upper – at a product level in the 35% range in margin. And then we delivered around 10 points of margin in the green coffee division.
And is that where you think that business is going to be as far as direct contribution?
We do. I mean we kind of forecasted it at a $0.10 per pound. It's really how we normally price coffee just because of the commodity. But with coffee prices at an all-time low right now running in the kind of a $0.90, $0.92 for the commodity, obviously, we're able to deliver on a percentage basis. It may appear to be a little bit higher margin, but from a dollar-per-dollar standpoint, this is what we can expect.
Okay. Good. And then in – down in Florida, the Khrysos, what is the pipe – now that you've got a lot of demand, what's the – do you have a pipeline specifically beyond the $11 million contract that you're going to work towards fulfilling? Or is that yet to be determined?
Well, we haven't made announcements yet in terms of specific contracts. But I would – I am comfortable saying that supply is definitely short of where the demand is. So we do anticipate buttoning up a number of contracts. Obviously, to be able to hit our forecast, we would have to. And when we really look at the – where we are, we really are just starting templating, if you will, that business. That business had been running kind of as more of a smaller company-type operation, and we put the legal team in place to build scalable and close deals on a quicker basis.
So we templated now our LOIs, and now we're rolling those templates into legal agreements that allow us to button up business quicker. And we expect to accelerate the process as those documents come out of legal actually today, which will allow us to then to convert letter of intents, which we don't announce because they're considered nonbinding, into contracts that then we will begin to announce. And I then think that, at that point in time, people will start to see the growth coming out of this particular segment.
And are these contracts going to be generally just a interest of the standard contract to refine and to the other steps? Or will those be some of the revenue-sharing model that you've talked about?
Actually, a little bit of both. Our model is, right now, we're not actually willing to market our extraction equipment on as a standalone basis without the ability to do an off take agreement. And that's been very well-received because of the targets that we are marketing extraction equipment to basically are in the business of selling oils so – or are selling crude oil. So we make sure we have an off take agreement for that and a rev share that goes along with it. And this is what will drive then our end-to-end processing business that I discussed earlier on the call. So essentially, they're in tandem, and one feeds the other.
Okay. And then finally for me, you used up – in the quarter, there was $4.8 million used for operations, cash used in operations. What's your general feel sort of at least directionally on that for the year? And because part of that is also maybe color on the extent of the non-cash, the equity-based comp in the quarter, which was elevated, and also, I guess includes equity issued for services, kind of where that's going to. Thanks.
Yes. I don't see a repeat of the non-cash compensation. I kind of look at that as more of a kind of a one-off, if you will, at least in that size range, of course. So I expect that to be reduced significantly and not be a major factor, a material factor as we move forward. The second part of your question, right now, we've got – because of the margin structure, the commercial hemp business, we feel like we can finance this business using 8% to 9% debt instruments with maybe a small equity enticement. And we've got a couple of offerings out there that we're utilizing to do that to grow that business. And the margins are such that the paybacks are there. We also have significant interest from some lease finance companies that we've utilized to grow our coffee business, so we're going to steal a chapter out of that.
And given the profitability and the scale-up of the revenue, utilizing a lease finance structure to operate our refineries actually fits very nicely in our business model and keeps us from creating any significant dilution on our stock. It's no secret, I mean you've heard me say it and I'll say it on this call, we feel that our share value is undervalued and we're kind of reserving equity as something that we'd like to consider using in the future when we feel that the market understands what we're doing and starts to give us what we would consider a fair value of our equity.
And as far as just operating cash flow, will that turn as you turn up Khrysos?
It absolutely will. And of course, the – when you back out all the non-cash components, operating cash flow was actually – it will become clearer as it comes out of the coffee business as well because the coffee business is definitely – will start to throw off significant cash as well.
Okay. I think that’s it for me. Thanks.
You’re welcome.
Okay. With that, we had a goal of trying to keep these calls down to 30 minutes, and we almost achieved that. So it's 10:34. So with that, we're going to close out the call. Obviously, anyone has any questions, please e-mail myself or Steve Wallach. My e-mail is davebriskie@ygyi.com or swallach, W-A-L-L-A-C-H, @ygyi.com. Thank you.