Canada Markets closed

Edited Transcript of YGYI earnings conference call or presentation 14-Aug-19 5:00pm GMT

Q2 2019 Youngevity International Inc Earnings Call

CHULA VISTA Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Youngevity International Inc earnings conference call or presentation Wednesday, August 14, 2019 at 5:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David Stephen Briskie

Youngevity International, Inc. - President, CFO & Director

* Dwayne Dundore

Youngevity International, Inc. - President of Khrysos

* Stephan Wallach

Youngevity International, Inc. - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* William Sutherland

The Benchmark Company, LLC, Research Division - Equity Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

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 terminology such as may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based on 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 the account of new information, future events or otherwise except as required by law.

I now turn this call over to our CEO, Mr. Steve Wallach.

--------------------------------------------------------------------------------

Stephan Wallach, Youngevity International, Inc. - Chairman & CEO [2]

--------------------------------------------------------------------------------

Thank you, Alex. 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; and the President of Khrysos Industries, Dr. Dwayne Dundore. As you know, we acquired Khrysos in February of Q1 of this year. It's now our third reporting segment, which we will title as our commercial hemp enterprise.

On this call, we will cover the following topics; we will highlight the 2019 Q2 results, we will discuss the business model and the progress we have made in our commercial hemp enterprise this morning, we will provide a brief update on our direct selling space and segment, we will wrap up with a coffee segment as well and we will also provide some guidance.

What I'd like to do right now is bring our President and CFO, Dave Briskie, onto the call. Dave, are you there?

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [3]

--------------------------------------------------------------------------------

Yes, I'm here, Steve. Thank you so much. Let's get -- dig right into it, and I appreciate everyone that's on the call, and I appreciate you taking time out of your day to listen in. Just so you know, the call will be recorded and it will be posted up on our ygyi.com investor site for replay. We usually leave it up at least for a couple of quarters, so the call will be recorded and posted there.

I want to start off with some balance sheet highlights. Our cash and cash equivalents were $2.088 million at the end of June 30, 2019, and I'm going to do all of these comparisons on the balance sheet versus the end of last year 2018, so as of December 31, 2018, we had about -- just under $2.9 million on the balance sheet and finished June at $2.088 million.

Total assets were up significantly $136.524 million of assets as of June 30 versus just under $76 million of assets as of year-end '18, that's an 88 -- 80%, excuse me, increase in assets.

Our total liabilities went from $52 million or $53 million as of 2018 end to June 30, $86 million to a 62% increase in the liability side of business, which, of course, bodes well for stockholders' equity. Stockholder equity at June 30, 2019, was $50.5 million versus $22.9 million as of December 21 -- sorry, 31, 2018. That's a 120% increase in stockholders' equity as of Q2 versus last year.

So the results for Q2 revenues for the second quarter end was up 21.2% to $53.7 million, this compares to $44.3 million for the quarter ended June 30 of last year. We derived approximately 60% of our revenue from the direct selling space and 40% came from the commercial coffee segment. The direct selling segment revenues have decreased about 12.8% to $32.1 million in this quarter as compared to $36.8 million for the quarter ended June 30. This decrease was attributable to a decrease of the number of ordering distributors and customers and it was partially offset by an increase in the average order for a distributor and customer, which is an initiative that we embarked on in the beginning of Q1 to raise the average order and start leveraging the multitude of products offered to Youngevity, and so we're happy to see that, that number is starting to move in a direction that is showing some favorable results.

Our commercial coffee segment revenues increased by 186.5% to $21.2 million in the current quarter and this compares to $7.4 million for the quarter ended June 30 of '18. The increase was primarily attributable to increase in revenues from our new green coffee contract that was executed last year and is bearing fruit now. We also -- the commercial hemp segment, that Steve alluded to that we acquired in February, just started to produce revenue in Q2. It was $274,000 in revenue and obviously, we have plans for growth of Khrysos as we move to the year. You're going to hear more about that from Dr. Dwayne Dundore later in the call.

Gross profit for second quarter ended June 30, 2019, increased 2% to $25.9 million, this compares to $25.4 million for the second quarter a year ago. Gross profit in the direct selling segment decreased 11.6% to 22.6 -- sorry, $22.2 million as compared to $25.1 million for the second quarter ended June 30, '18. As a result of the decrease in revenues is the reason for the decrease in obviously the GP.

Gross profit in commercial coffee segment increased $3.731 million in the current quarter, and this was compared to just $295,000 for the quarter a year ago. This primary increase for these revenues, as discussed earlier, came from the green coffee distribution business, which is growing nicely.

Gross margin in the commercial hemp segment was a loss of $49,000 related to the acquisition of Khrysos, which closed on February 15, 2019. Overall, gross profit as a percentage of revenues decreased to 48.3% in the current quarter compared to 57.4% in the same period last year, and this was primarily due to the increase in revenues in the commercial coffee segment, which generally produced lower margins than the direct selling segment.

Operating expenses increased 3.3% to $25.5 million as compared to $24.7 million for the 3 months ended June 30 '18.

Distributor compensation paid to our independent distributors in the direct selling segment decreased commensurate and essentially with the sales at 12.1%.

Total sales and marketing expenses decreased 9.4% to just under $2.8 million for the 3 months ending June 30 from $3.076 million for the same period last year.

For the 3 months ended June 30, 2019, total G&A expense increased 59.7% to $8.251 million from $5.166 million for the 3 months ended June 30 '18. In the direct selling segment, general and admin expenses increased by 38.8% to $6.071 million in the current quarter from $4.375 million for the same period of last year. This increase is primarily due to the increase in accounting, computer expenses and some noncash equity-based compensation expense. In addition, the contingent liability revaluation adjustment in the current quarter was reduced -- reduction in expense of about $433,000 compared to a reduction a year ago of $1.246 million for that same period.

In our commercial coffee segment, general and admin cost increased by $557,000 or around 70.4% to $1.348 million in the current quarter compared to $791,000 in the same period last year. This primarily was due to an increase in wages, warehouse storage cost and profit-sharing expense compared to a profit shared benefit of the same period last year.

General and admin expenses was $832,000 in the commercial hemp segment, mostly related to wages, supplies and general office costs and setup costs.

Other expenses for the second quarter ended June 30 decreased by $696,000 to $661,000 as compared to other expenses of $1.357 million for the 3-month period ended June 30 '18.

Net interest expense decreased by $487,000 for the 3 months ended June 30, 2019, so $1.062 million compared to $1.549 million for the 3 months ended June 30, '18. The change in fair value of derivative liabilities decreased by $209,000 for the 3 months ended June 30 as compared to $401,000 in other income compared to $192,000 for the 3 months of June 30, 2018.

We did have an income tax benefit for the second quarter ended June 30 was about $226,000 as compared to an income tax benefit of $90,000 for the second quarter ended June 30, '18.

The net loss for the second quarter ended June 30 was $47,000 as compared to a net loss of $614,000 for the 3 months ended June 30, 2018.

EBITDA, which we define as earnings before interest, income taxes, depreciation and amortization, as adjusted to remove the effect of equity-based comp expenses and change in fair value of warrant derivatives or adjusted EBITDA, increased 18.2% to $2.604 million for the quarter ended June 30 and this compares to just around $2.2 million in the same period last year.

I'm getting a lot of questions and a lot of interest, and people are very intrigued about this new operating segment. And so what I want to do is we're going to shift into a discussion about what's going on at Khrysos, and it's my pleasure to introduce Dr. Dwayne Dundore on the call. It'll be the first time you will be hearing from Dwayne, but I assure you, it won't be the last.

So Dwayne, are you available to speak?

--------------------------------------------------------------------------------

Dwayne Dundore, Youngevity International, Inc. - President of Khrysos [4]

--------------------------------------------------------------------------------

Yes, I am. I want to thank everybody for letting me speak to everybody about Khrysos division. To tell you a little bit about myself, I actually hold a PhD in thermodynamics, which is an electrical engineer degree. I actually have built a lot of equipment in the past for General Atomics, SAIC, DARPA to name a few companies. So we'll start talking to kind of about Khrysos and how we got started with that.

So a few years ago, we actually have -- we also have INX Labs, which is a division of Khrysos, which we went and started to look at the cannabis space. So the cannabis space started here in Florida a couple of years ago. I had some customers that knew that I built supercritical equipment and asked me to look at what was out on the market. So we kind of looked at what was on the market and realized that a lot of the stuff was coming from other industries brought into it from food or nutraceuticals and things and it really wasn't designed for cannabis itself. So we started looking into it. We designed a supercritical CO2 system, which basically works as it takes CO2, turns into a solvent, extracts the oil from the plant, which the oil contains the CBDs and in some cases in cannabis THC as well. The machine doesn't really care which one they actually pulls out.

So from there, we kind of went on and we sold equipment. Then about 2 years ago, we realized that we had to actually expand even more. So we actually started to get into preprocessing equipment, postprocessing equipment because again, a lot of the equipment wasn't really designed for cannabis, it was designed for other things brought into it. So we kind of went into those things and we started to build things like winterization, rotary evaporators, distillation equipment. And then, what ended up happening was we realized that over time, it ended up going where customers when we sold them the postprocessing equipment really didn't work. They -- I mean, their equipment worked but they didn't actually understand how to use it. To get things like THC out of the product or even refine CBD products into other things like water-soluble products or distillates, is a more scientific approach. So you can't just do it with an operator that you're training to do something. All of our equipment that we designed, except for distillation, is all automated. So the operator really just has to put the product in and set his parameters, hit start and it tells him what it's done. If it's -- it's all automated so it sends a message out when it starts, when it finishes. If it's a problem, it sends it to us. So we also get those as well, we can monitor those systems anywhere in the world wherever the system's at.

So that is where we came into Youngevity. So what happened was is we realized that to do this, we actually have to get into the postprocessing portion of the business. So we started to look at how the postprocessing comes into play.

So a lot of people couldn't really do the postprocessing because it normally requires PhDs or chemists or things like that and the postprocessing a lot of times when we talk about it, in majority of cases are where we have to pull the fats and lipids out, we have to refine the product to make it more sellable. We may have to take things like pesticides out or herbicides out, we may have to take the THC out of the product to make an end product to be able to sell. So -- and again, farmers that got into it, really couldn't get to that portion. So what we decided to do is to basically kind of follow the same program that Youngevity does with the coffee division or where it basically feeds -- or field for finish where you're making it from hemp products to make CBD-derived products. So how that works is basically what we've done is we've looked at the farmers so it goes back to the farmer, and we'd say, we would take his product, we bring it in and one of the things that we also saw in the industry here recently is that a lot of times we have to compete with other extraction companies.

This is becoming a big problem in the industry because if I am an extractor, I have to compete. So when CBDs are harvested, the hemps harvested in October, November, prices are down. Come June, July, prices are 3x the price of the product, just for the same product that we're buying, the oil that we're getting. So we tried to make it so we actually have a much better broader, let's say, playing field. So what we've done is we go to certain farmers, normally there are farmers that are on their second or third crop because the beginner farmers always end up having trouble with but in -- the ones that have actually been doing it for a couple of years now in certain states, we've been trying to divide them up between the East Coast, Central United States and the West Coast. And what we do is we work out joint venture deals with them. So we don't actually have to do the farming. The farmer does all that. We provide extraction equipment at their sites. They actually come in. They'll use the equipment, the oil comes to us, we preprocess or postprocess it and we would turn it into sellable items. We may turn it into bulk items that are sold to other wholesalers. And this is where the industry is kind of moving.

One of the things that actually happens in the industry right now is that if you look at just even some of the -- look at one of the largest drink manufacturers, they actually sell 1.6 billion cans of soda every day. Well, it's no really good places for companies that actually buy large quantities of stuff, and there are some things where some people need like 100 or 1,000 kilos a week or 10,000 kilos a week of water-soluble isolate, but if you have all these smaller locations doing it, we normally have to come up where we're trying to get it. So now we can consolidate this. So they kind of get the senses of the facility that we actually are taking over, which you actually see a press release this week on, which we just took over a GMP Pharmaceutical plant, which is 82,000 square feet. This actually has come into play because of some of the issues we've been having with power, getting enough stuff for our equipment to get it operational but this actually now boosts us up a few years and which Dave will talk about a little later on.

But -- so what it's done now is we can actually go in, we can set it up. Our capacity with the equipment we have existing, we should be able to do about 8,000 kilos of product in, about 4,000 kilos out. And people always ask me about why that's like that? It's because normally when we get product that comes in from the farmers after it's winterized, it's going to be about 40% to 50%, maybe a little greater. We're going to take it to 80% in most cases to be able to sell to other manufacturers. And when we do that, we actually takes 2 kilos to make 1 kilo going out. So with the new facility and the equipment that we have, we can be able to process about 8,000 kilos in, about 4,000 kilos out. We also are adding packaging and bottling as well. So we can actually do some white labeling. We also are putting in a line that's just going to be for basically tolling.

Tolling is where we get other manufacturers or other farmers that want their product run. They may want to look at the THC taken out, and we would be able to do that for them. We could take the THC out of the plant or pesticide and then we would or maybe just take it up in potency, give it back to them and normally, we get in that case about $1,000 a kilo in most cases to be able to do that. So we have a couple of different revenue streams. We also are -- haven't forgot our roots of being able to build equipment. We just did a trade show in California, and we've got right around 500 leads for equipment out of that show itself. To kind of give you an idea of how it was in the past, like last year, we did the same show, we got about 100 leads. This year, we got over 500 leads, I mean it was an incredible show for us. And we are planning on doing another one in Las Vegas in -- I think, in November.

So I think that's pretty much it, Dave. Hopefully, I covered everything.

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [5]

--------------------------------------------------------------------------------

No. You're good, and I'll wrap it up. I think we're going to now bring Steve onto the call to talk about the direct selling segment but before we do that, Dwayne, before you bounce off, when do you expect this new 82,000 square-foot facility? I know we started moving in our equipment this week. When do you expect it to be at full capacity?

--------------------------------------------------------------------------------

Dwayne Dundore, Youngevity International, Inc. - President of Khrysos [6]

--------------------------------------------------------------------------------

We actually are hoping to have -- we're actually going to be moving some of the equipment. We actually started already this week to move equipment in. We have -- so we're hoping to be at full capacity, which is the 8,000 by the end of the year. We probably will be at partial capacity by, I would say, sometime by the end of August. We have been -- because we do have that contract, a contract that's we're starting to fulfill actually tomorrow or Friday -- sorry, which is, I think that's a $19 million contract, which we're going to start to fill in. So we had already made product ahead of time. So when we take the equipment down, we won't lose any of that production time. So we should be up, like I said, to start making that here by the end of August, we'll be back online with everything. And then -- but by the end of the year, we should be at full capacity. That capacity is actually the same capacity we would have been at. It would've taken us -- if we weren't moving into this facility, it would be about -- it would've taken us about 3 years to get to that same capacity. So I mean, I think this is a huge benefit for us. The facility is also -- is a GMP facility so it's only -- we would be actually the second GMP facility in the hemp space in the United States that are just hemp-derived products. It's one in Colorado and we would be the only one on East Coast, so it's GMP facility. So I look forward to that and I'm sure we're going to tell you more about that as we go over the next couple of months.

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [7]

--------------------------------------------------------------------------------

Absolutely. Okay. Steve, can you give us an update on the direct selling segment?

--------------------------------------------------------------------------------

Stephan Wallach, Youngevity International, Inc. - Chairman & CEO [8]

--------------------------------------------------------------------------------

Yes, absolutely, Dave, and thank you, Dwayne, for that update as well. Dave, you and I have watched and participated obviously in the expansion, growth and coming up to capacity and full capacity of the coffee facility at CLR in Miami, the facilities in Nicaragua, and certainly the facilities here in Chula Vista so it will be exciting to see Khrysos do that same thing with this new exciting facility. So thank you.

Okay. So on to the direct selling division within Youngevity. On the last call, we advised that we had taken somewhat of a pause on acquisitions and our acquisition strategy. And we've really been focusing more on international for probably the last -- certainly for the last year plus and so we haven't really done acquisitions within that time frame until recently. So we've begun really focusing on growth through acquisition again and looking back at the growth of Youngevity, a lot of the growth is -- has certainly been at least in part because of the acquisition and our acquisition model, which is one of the things that that the direct selling division within Youngevity is known for.

And so we feel this pause just kind of had a negative effect on growth and so that's why we have turned our attention back to the acquisition strategy and we've talked about overlaying some of the international infrastructure that we've been focused on building also with our acquisition strategy, and we've been doing that also especially in the last quarter or so. And we definitely have a lot of conversations underway currently. So the acquisition pipeline again, which acquisitions have been quite effective, the acquisition pipeline is definitely ramping back up. And one of the biggest benefits of our acquisition model that we've developed within Youngevity is that it's a nondilutive acquisition style and nondilutive manner, I guess is the best way to describe it.

And so definitely it has worked out well for Youngevity in the past and certainly, we believe it will continue to. One of the best aspects that Youngevity attributes or derives from our acquisition model I guess is that not only is it nondilutive but we get great products, great people, great leaders as well as around the world. And one of the things that I'll talk about today is that we've brought on 2 small acquisitions recently that you guys probably haven't even heard about. One is a company called Well & Company, which is in the U.S. and has been really a developer of some unique and fantastic products. And I believe this ties into the conversation that Dave and Dwayne were just having as well, for instance, around hemp-derived products. The key products associated with Well & Company are another delivery system for nutrients and raw whole foods in particular, and that is a chewable. So it's a chewable nutrition, and if you can imagine like an Now and Later piece of candy, although this is not candy, this is whole raw foods put into a chewable piece of food really and so it may seem like a piece of candy which is great from a compliance standpoint of the person consuming it, and Dave talked about increasing our average order and certainly the average order per customer and per distributor.

And this is one of the ways that we do it is by bringing on additional great products that people want to use every day in their lives, and so this company is called Well & Company. And then also one of the developers and formulators of this unique proprietary delivery method of raw whole foods, and nutrients is Dr. James Rouse. Dr. James, I've known Dr. James for about 10 years now. He is a great really thought leader within the dietary supplement, whole food, raw foods, movement within the wellness space. So Dr. Rouse actually attributes his turning towards natural healing and natural wellness methods leaving traditional medical school because of hearing my father's lecture quite a while ago obviously, and he wanted go into the same naturopathic school in Portland, Oregon that my father attended, graduated from and wound up teaching at as well. And so Dr. James has already made a huge positive impact within Youngevity. He has such a huge heart. He fits right in with the distributor demographic and distributor base within Youngevity, which is known for having just this huge heart and willing to -- willingness to just teach people about health and wellness and to really educate the world around that. And so Dr. James is a great addition. He'll be speaking at our upcoming convention, and everybody that meets him is just excited to hear more. So that's one of the exciting aspects of our acquisition model, in particular, as the people that wind up coming to Youngevity.

Another company that we've done something with similar very recently is called Taiwan Vinegar. And this happens to be in Taiwan, as you would imagine. And -- so this overlay is really perfectly with our Taiwan infrastructure, which is, again, one of the aspects that we talked about in recent past on these calls. And then in addition to Taiwan Vinegar and another exciting thing that is just developing is now we're now bringing hemp-derived products to Japan. And so this is something that we've been working through approval process and regulatory aspects and product development. And so this is just happening now. And so we're extremely excited about that. Yes, so -- see, we also anticipate announcing additional acquisitions in Q3, which obviously we're in and so we've been in talks with various companies and people and things and so these 2 that I just mentioned, there will be additional ones we believe in this quarter that we'll talk about later obviously and you'll hear and see the press releases as these things developed further.

So we expect to bring to market. In addition, I just mentioned the hemp products around Japan but also here in the U.S., this chewable nutrition, we're excited that we're working with Dr. James on additional hemp-based products. But also in association with Khrysos, we're looking at bringing on and what we anticipate bringing on core tincture products, for instance, and then also at Khrysos, we've talked about on these calls Dr. Dundore's incredible help around bringing on hemp-derived coffee through CLR. And so we anticipate bringing hemp-derived coffee into Youngevity, the direct selling space, also the retail space some time at the end of Q3 and into Q4. And so that's exciting as well.

Something else that we've been working on is lessening our dependency on the U.S. market around direct -- in the direct selling division, and we've talked about that on these calls and we've talked about the infrastructure that we've developed over the past couple of years internationally, and we've talked about it even on this call. And so in lessening our dependency on the U.S. market, it doesn't mean that we don't intend to continue to grow the U.S. market but we intend to grow the rest of the world also and at a faster rate because it represents such a huge opportunity. And so this has been a priority. In 2017, 91% of our direct selling revenue was derived from the U.S. and just 9% was international.

And it has been that way for quite a while, Youngevity, the direct selling division is now going on 22 years old and is 22 years old. And so that had been relatively constant until recently, in 2018, 84% of our U.S. sales that of our sales have been derived through the U.S. and 16% internationally. In 2019, in Q1, we derived almost 17% from international markets and in Q2, we derived just about 18% from international markets. And we still are targeting by the end of this year about 20% of our direct selling revenue will be coming from these international markets. So a lot going on around the direct selling division as well. And so what I would like to do now though is bring Dave back on to talk about the coffee segment.

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [9]

--------------------------------------------------------------------------------

Thank you, Steve. I appreciate that and at one point on Dr. Rouse, I had a good conversation with him this week and he is -- he really is somewhat of an expert in the hemp-based products and the whole cannabinoid system and a strong believer. So we have been really looking for someone to kind of lead this marketing of not only HempFX, but other products that we're working on. And he has an unbelievable sales track record of both directives and influencer big, big building blocks in QVC and so forth. And one of the products that he's really latched onto is our HempFX line, the promotion of it. And then the creation of other products, leveraging our capabilities, our newly acquired capabilities at Khrysos so that we can ultimately really begin to leverage that end-to-end processing and then actually the production of products that Dwayne touched on himself. Obviously, the coffee business had another really strong quarter.

We're pleased to see its growth. Green coffee was a big part of it. Green coffee year-over-year was up 60%, '18 versus '19 is what I'm comparing. So as 60% increase, almost $13.5 million. So very, very significant. But we have experienced growth in other parts of the business. Everyone knows that we're very focused on our brick pack business with our own brands that being Café La Rica and newly acquired Espresso Brand called Café Cachita. Our strategy there was to have kind of lower price leader in Café Cachita come in that would be a promotional brand to help drive the sales of Café La Rica, so we didn't have to be discounting what we consider our premium brand. And this strategy works very nice for a company called Bustelo -- Pilon and Bustelo, which was acquired by Smuckers about 4 or 5 years ago. And so being able to employ a strategy that we know works is now already starting to play -- pay dividends. And we really just acquired Café Cachita this year so in 2019, and already, we're seeing our brick pack's unit sales up over 10% year-over-year. And we expect that to continue to accelerate. We're also getting movement on our K-Cup business, it was up 5%, and we have newly acquired a 4-corner bagging machine. This 4-corner bagger is really focused on what's going on in the trend and retail right now.

And already, bringing that piece of equipment up and running, we were running behind on production, we were adding a second shift on our other 4-corner equipment. And adding this piece of equipment will really drive that business, and it is up 8% year-over-year as well. So we're seeing growth across the enterprise as it relates to coffee. And then our food service business, we just added a strong leader. We put a press release out on food service. We still believe that is a major growth driver. We just become the Official Cafecito of the city of Hialeah and that is 28 locations, essentially all coffee drink by all government employees in that city, it will be drinking one of our brands either Café La Rica or Josie’s Java House. We've installed not only American coffee brewers but take up equipment as well as espresso machines. So that should bode well for the continued growth of our food service business.

Dwayne, I want to bring a couple of points home to Dwayne and some of you picked up on this I'm sure, but what I want to make some of this clear. We -- one of the things that has been a huge challenge for everyone that's in the hemp-derived business in terms of both extraction and most importantly postprocessing is the amount of power that is used to drive this type of industrial equipment. We have definitely been challenged in our facilities that we'd created, which are -- which was kind of a modular building structure to get up to speed very, very quickly. We already have the equipment so we felt like we had the hard part done. We had certain challenges at the various cities from a permitting standpoint and getting all of this power to drive this business and scale it. And so if you remember on the last call what our plan was as we -- and it was partially because of these power issues as we were going to put 3 postprocessing facilities in our overall strategy. We were thinking Vegas, Florida and up in the Northeast and we were doing that because at our current facilities, we just didn't really have the capabilities from a power standpoint to actually manage it that way.

But as we were really refining our business model and as sometimes in business as you're marketing to various customers opportunities come up, and an opportunity came with this GMP facility that was a singular-use facility literally has clean rooms, a -- more power than we would know what to do with it and having this access to this particular facility got us really thinking of wow, this would be an opportunity where we could actually -- there is enough power, it's already there in the building, this was that type of building and that type of use that we could change our strategy and rather than having all the CapEx to invest in 3 facilities and then have to manage 3 facilities and have management in 3 facilities, we actually was able to acquire a building if you will, I say acquire, lease a building that could do the work of those 3 buildings without all of the CapEx that we have to invest into the strategy that we were going to employ. In terms of shipping the oil, that isn't -- it was never the issue. So now we can bring the oil into one centralized processing facility that's GMP and will be GMP certified that allows us to do the work of what 3 facilities would do. And this is how we dovetail on our strategy. Now it did put us behind a little bit in terms of the short term. So in other words, in terms of Q3 and Q4's capability, it put us behind but we were definitely struggling with the power. So by leasing this facility, which this lease has been signed, we're literally moving in as we speak.

I'm speaking to you from our coffee operations here in Florida and right after this call, I'm heading up to our division up at Khrysos and looking at the whole strategy of this facility. So in the short term, yes, we probably take -- we don't accelerate our revenue as anticipated in Q3 and Q4 as fast as what we were hoping to do. However, and Dwayne alluded to this, in terms of getting up to speed, we will be up to speed at -- by the end of this year going into 2020 at a capacity that's much, much larger than we would have expected to be able to do in 2020 regardless. So we have now leapfrogged our plans in terms of the capabilities moving into 2020 and 2021, and we're only utilizing 2/3 of this building. So Dwayne alluded to 4,000 kilos of output. In other words, just so you're clear on that, 8,000 kilos of crude or hemp, right, coming in. That 8,000 kilos of raw oil that we would produce from the farmers of oil can convert to 4,000 of sellable products at current prices, at that level of production, you're talking about the ability beyond $100 million, now closer to $200 million of annual revenue possibility, which really we didn't have mapped out until 2021 or '22.

And we also can scale from there. So we took a -- the kind of a short-term scenario so our model that we were expecting to be in revenue at this point shifts about 4 months but the capability literally triples as we move into 2020. So we think that was a really smart move in the short term. It's resolved all of our power issues and it also is a very, very impressive operation. So -- and we're bringing it up to speed as we go. Many of you may say, well what is that going to do to your guidance? Well, based on the performance of the coffee business, the reramp up our acquisition strategy and the reality that Khrysos will definitely be delivering revenue in Q3 and Q4 just not as high a level, we still feel like $200 million as a target revenue is very much in reach in 2019. And then much higher scale as we -- as Dwayne mentioned, as we go ahead and leave 2019. We should be up to the whole capacity of putting out 4,000 kilos that's on a monthly basis, by the way, entering in 2020.

And of course, in this facility, we have room to grow either by increasing the capacity of our equipment or just putting in our other equipment obviously that we are already own. So that's how we're going to be changing the guidance a little bit of a short-term scenario that we now resolved and we're very, very bullish on. But it provides us an opportunity now to really, really accelerate this business. We are seeing demand at such a high level, and we wanted to be able to capture this demand in a quicker basis and to be able to service this market at a much larger scale. And so this opportunity that we'll fully PR along with some other contracts probably this week and early next, that will help you more fully understand what we're doing, how we're doing it and why this is a very, very big opportunity for our hemp enterprise for the -- for not only the end of this year but more importantly over the next 2 and 3 years. And of course, largest growth coming in 2020.

With that, I can open up the call to questions. (Operator Instructions)

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [1]

--------------------------------------------------------------------------------

Bill Sutherland from Benchmark. Are you there? Bill, are you there? Okay. I don't hear Bill. (Operator Instructions)

--------------------------------------------------------------------------------

William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [2]

--------------------------------------------------------------------------------

Oh, I was muted, didn't realize that. Okay. So I was just talking about coffee for a second. You've spoken about how the harvest is earlier and given what's happened with pricing. So can you help us understand at least on the green coffee side where that -- how that kind of moves the revenues around quarterly? And then, perhaps a little bit on just the margin implications for your pack coffee and food service at these low commodity prices?

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [3]

--------------------------------------------------------------------------------

Yes. Let's take them in reverse order. First of all, the margin implication obviously is -- at our cost of goods, we've got kind an inflation proof a model as it is because we know for that division, we can go at the cost to grow but food service margins are the highest of any product we put out. It's in excess of 50% margins as is our retail Café La Rica product. So it bodes very well. It will be in excess of 50% margins as those business grow. And it does have a nice impact on the numbers because at our operation, we're starting to get closer and closer to higher capacities and that allows us to drop more dollar to the bottom line.

In terms of the green coffee business, very interesting, it's really shifting. So the harvester are coming in early. So -- and initially, when we were planning our modeling, we expected Q1, Q2 to pretty much do what it did. We were very, very pleased and happy about the way that, that came to be. It certainly drove profitability into the coffee segment, which we anticipated. But we expected it to continue into Q3 and then go to essentially to fall off in Q4. And really, it's going to flip around now, we're going to see Q1 and Q2 be very strong. Q3 will be not a lot of green coffee business but it will instead of it not being there in Q4, it will start in Q4. So the down quarter for green coffee will now shift to Q3 where it used to be Q4. So it's just a flip around in the business. It really doesn't affect the overall revenue for the year. And of course, if you're tracking the sale of the commodity, most experts feel like there will be a rise in that commodity's prices, which on our green coffee segment bodes well for revenue growth. We are planning 2020 of 15% to 20% of additional capacity. So we're hoping for 15% to 20% growth on top of 2019 for the coffee sector.

--------------------------------------------------------------------------------

William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [4]

--------------------------------------------------------------------------------

Right. I know you have past experience and plans in coffee. You've got the joint venture you just announced for Khrysos with the GMP plant. And obviously, started doing acquisitions again and direct selling, although I realized it's not upfront on those. So can you talk a little bit about your capital demands and allocation plans?

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [5]

--------------------------------------------------------------------------------

Yes. So we've -- fortunately, we've got some really great shareholders that have been with us a long time. And we've had -- we've been very, very cautious about not selling equities here at this price. We've had early morning exercises that have come in. We've got others that are coming in. And so we've been able to bootstrap it, if you will, bringing in this just the last week I believe we've got another $2.8 million of capital that essentially went to the Khrysos division. And our plans to with multiple sites in going to centralize processing and a leased facility really, really took a lot of stress off the capital needs of Khrysos, given that we own this equipment and build this equipment and it allowed us to kind of accelerate our model. And so we -- we're in some conversations and we believe we can put the capital together that we need to realize the expansion in a relatively nondilutive, if not small, dilution basis as well as ultimately over the next 60 days bringing on a senior secured lender there is very, very intrigued by the activities going on in particular in the hemp enterprise.

--------------------------------------------------------------------------------

William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [6]

--------------------------------------------------------------------------------

Okay. And -- so the -- just so we understand, the trajectory for Khrysos, you would be in the process of gaining full capacity in the course of 4Q. And is there -- is it kind of like a fairly ratable sort of process? Or is it going to be a step function? You just going to flip the switch and suddenly doing it?

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [7]

--------------------------------------------------------------------------------

No, I think when -- yes, I think Dwayne made it clear, we have an $11 million contract that was beginning June. Based on these power issues, we were trying to run it off a second shift and some of the challenge. We were able to shift that to start shipping in August and we are -- we -- through this kind of second-shift scenario, we built up enough isolate to start shipping that contract here Friday, I think, is what Dwayne said. So we've been shipping that particular contract starting in -- on Friday. We've accumulated enough of that material to the kind of this pause on this contract to allow us to take that equipment, move it into the new facility, which we're literally doing as we speak and bring that facility up and running within a couple of weeks, which catches that contract and then allows us to execute a second contract. So it really pushes off our revenue ramp-up, probably around 4 months, Bill, is kind of the timing of that, but it accelerates the back end of it like we said, puts us ahead of schedule by 2 years. So it was a small price to pay and just a very unsure scenario at any time you're trying to grow a business in entering contracts and you've got an uncertain scenario as it relates to power and capacity, that's not a position we wanted to be. And so this is a very, very big opportunity for the division.

--------------------------------------------------------------------------------

William Sutherland, The Benchmark Company, LLC, Research Division - Equity Analyst [8]

--------------------------------------------------------------------------------

It makes a lot of sense, and good luck with the move.

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [9]

--------------------------------------------------------------------------------

Okay. Any other calls? I see an -- a 917 area code. (Operator Instructions)

--------------------------------------------------------------------------------

Unidentified Analyst, [10]

--------------------------------------------------------------------------------

Dave, it's is [Tony Fitzgerald]. Just for my own edification and perhaps the others on the call with the type of ASP that you're getting there, isolates? I feel like you're getting my market price for that or do you have a special price because of the contracts and the already committed capacity?

--------------------------------------------------------------------------------

David Stephen Briskie, Youngevity International, Inc. - President, CFO & Director [11]

--------------------------------------------------------------------------------

Yes. We have -- our contract has a price built into it and it's definitely in market range. We are shifting a lot of our contracts to the demand on water-soluble, so water-soluble has a much higher margin. So we are seeing a growing demand there, which was why it was necessary to move quickly into this GMP facility with the additional processing capacity to take advantage of those stronger margins. Yes, we're definitely able to move at market. Dwayne, I think, made it pretty clear. We're at the point in the model and I'm not sure everybody grasp that, that this is a challenge plaguing this industry that's growing so quickly. And what I'm speaking of is you've got a scenario that when you've reached the end of a harvest, right, new hemp was not coming up out of the ground till the end of September, October. So we get this -- when new hemp's available, we see kind of a price compression happening because simply there is more supply. But as you near the end of the season, then you've got the scenario of higher and higher prices. So our model pretty much gives us a smooth capability of providing good margin and good pricing across the platform 12 months out of the year.

Okay. With that, we're going to go ahead and close out the call. I appreciate everyone's time. You can always write us at our IR site or davebriskie@ygyi.com, if you have any questions, and we'll get those questions answered. Thank you very much for being on the call today.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

The conference is now completed. Goodbye.