1) NBEV is a roll-up of poorly performing brands, that have been poorly integrated and executed.
New Age Beverage (NBEV) has acquired brands that were doing approximately $320 million at the time of acquisition (Xing Tea, Bucha, Coco Libre, & Marley). Post closing, core brands are at a run rate of $48 million and recent acquisition, Morinda, is already seeing a weak Q1 (Q4 Investor Call 03-29-19). NBEV blamed Q1 softness on Chinese government crackdown of MLM companies.
2) Recent Q4 results and 1Q19 guidance demonstrate significant deterioration in both core business and highly touted Multi-Level Marketing company.
Q4 core business was flat YoY, with $11.2 million of net revenue (10K states Morinda had $3.8 million revenue – Link) despite the robust cash position, which should have solved “inventory problems.” This calls into question: Were company challenges due to working capital constraints? Or, more likely, does the company have irrelevant brands that are not in demand?
Q1 guidance of $60 million in revenue implies that the most recent acquisition (Morinda) already is in a downward trajectory (Q4 Investor Call 03-29-19).
3) Highly anticipated US launch of CBD-infused beverages now likely delayed until 2020, reversing previous guidance made in Q4 2018 and Q1 2019.
Management made the following comments about launching CBD, yet management has stated CBD shouldn’t be modeled in results for 2019:
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“CBD and Health Sciences products in production for launch before Christmas” (November 14, 2018 Q3 Press Release – Link)
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“Will the Marley and the other CBD-infused beverage portfolio launches have a material impact on our financials in 2019? The answer to this is yes.” (Greg Gould Docklight Call January 16, 2019 – Link)
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“So, when will we see the products on the shelves and where we’ll see them? The answer is in time for the major spring reset for key regional retail in the states that allow sales, which only really happen in March and April” (Jay Barrow Docklight Call January 16, 2019; Time Stamp 12:50 Bloomberg Call Replay) (Source: Bloomberg Transcripts)
Most recently on the Q4 earnings call and 10K, management reverses previous position to state that no CBD revenue should be modeled in 2019, implying they do not expect a material impact until 2020:
- “I wouldn’t put any [of] the CBD in the modeling from our North America, from our US business in ’19, because I think it’s just too complex..” – (Source: Bloomberg Transcript) (Q4 Earnings Call March 29, 2019; Time Stamp 51:28 – Link)
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“The Company does not intend to distribute and commercialize its CBD product line in the U.S. until it believes it can do so in conformity with applicable laws.” (Company 2018 10k – Link)
Docklight Agreement
Furthermore, NBEV’s CBD agreement with Docklight calls into question if NBEV can achieve favorable economics when & if they sell product. Under the agreement, Docklight receives 50% of gross profit, handicapping NBEV in a significant way.
4) CEO Brent Willis says he will be selling stock.
CEO states he will be selling shares to meet tax obligation (Q4 Earnings Call March 29, 2019; Time Stamp 1:00:00 – Link).
5) We estimate a Sum of Parts Valuation of $1.57/share.
- 2019 Morinda EBITDA of $15 million at 2x EV/EBITDA, $30 million. EBITDA should be down vs 2018 due to higher cost structure (sale/lease back). This is comparable to other MLM companies who operate the majority of their business outside of the US (NHTC).
- We generously estimate the core business should be valued at 1x revenue: $48 million
- We assume $40 million in net cash (assuming payments to former Morinda shareholders and +$12 million from Japan HQ sale)
Source: Company 10k
Conclusion
We expect the NBEV’s revenues to decline in 2019, with actual results coming in well below guidance. We question how investors can trust guidance, when the company has consistently missed even the low end by a wide margin. The CEO is selling shares and 2019 is off to a slow start, given Q1 guidance.
The initial move in the stock last year was driven by speculation, with the dust settled, we see that investors were far too optimistic. The company still has not released CBD-infused beverages in any US states and is not building CBD into their models this year. Further, the company is heavily concentrated in one product (Tahitian Noni) with the majority of sales abroad. In light of bleak growth prospects, we believe the company is worth $1.57/share.
Disclosure: I am/we are short NBEV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have a bearish position on NBEV through put options.
All research and information has been provided on a best efforts basis, and author makes no warranties or guarantee as to completeness and accuracy thereof. Investors should rely on their own due diligence for investing decisions. We spend great effort in our due diligence process. We make investments based on our conviction in our due diligence process.
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