U-Vend, Inc. (OTCQB: UVND) is a consumer products and automated retailing company specializing in the creation, marketing and sales of unique ice cream and related food products which are distributed to retail markets throughout North America utilizing traditional channels and "next-generation" self-serve electronic kiosks. The Company’s kiosks leverage partnerships with numerous national consumer product companies to deliver new and innovative customer experiences.
We are valuing UVND using 3.0x EV/S multiple, applied to our FY19E revenue estimate of $12.8 million. This derives a target price of $0.45.
- UVND’s 9M16 revenue increased 75% YoY to $1.1 million compared to $0.6 million for 9M15
- Company’s diversified multi-channel revenue segments include professional sports-themed brands, wholesale distributors for Mini Melts and digital advertising
- Mini Melts are in 145 vending units in over 125 locations across the west coast of the United States
- UVND is the creator of Major League Baseball (MLB) ice cream
- Company contracts industry leader Wells Enterprise to manufacture MLB Ice Cream Products
- Company’s management team has extensive industry experience with major billion-dollar consumer brands
- UVND’s unique platform to integrate sports and ice cream should be a big win for UVND and its shareholders
- U.S. Ice Cream market is expected to reach $15.6 billion by 2020
UVND’s 9M16 revenue increased 75% YoY to $1.1 million compared to $0.6 million for 9M15. The Company’s diversified multi-channel revenue segments include professional sports-themed brands, wholesale distributors for Mini Melts and digital advertising. Currently, the Company generates its revenue from wholesale distribution as well as direct to retail of Mini-Melts across Southern California and Las Vegas. In spring 2016, the Company signed an exclusive partnership with Major League Baseball (MLB) to produce Major League Baseball ice cream. This deals should add enormous revenue growth in FY2017 and beyond.
Figure 1: UVND Revenue Projections
The Company’s mini-melt products are sold through self-serve kiosks and ice cream freezers placed in retail locations. The increase in revenues for 9M16 is attributed to the increase in additional electronic kiosks (digital screen vending machines) installed. The Company increased its electronic kiosk placements to 140 as of September 2016, compared to 118 in September 2015.
Figure 2: Mini Melt Digital Vending Kiosks
In addition to generating revenues from electronic kiosks, the Company started a new program in the third quarter: the “Grab It-Taste It Love It” merchandiser program. The program is aimed at high-traffic establishments such as convenience stores, fast food locations, and gas stations that are not large enough for vending machines, but will support the addition of lower cost, high-margin product sales such as an ice cream freezer, which provides the Company with a significant market opportunity. Currently, the Company has established 120 locations in southern California and have set a target of 500 locations by the end of 2017.
Figure 3: Grab It-Taste It Love It” merchandiser program
High gross margins on both programs and the addition of merchandisers and digital vending kiosks across the U.S. in 2017 should significantly increase the Company’s revenue. The digital electronic kiosks provide the Company with an additional revenue stream for digital advertising. UVND plans to provide brands an advertising platform using the electronic display screens of the kiosks. The Company’s digital advertising strategy should start in 4Q17 and we expect revenue and gross margins from this segment to increase in conjunction with an increase in electronic kiosks installed.
UVND is the producer of Major League Baseball ice cream. Exclusive agreement with MLB is expected to add enormous revenue growth in 2017 for UVND. The market value of MLB is close to $5 billion and this exclusive agreement uniquely positions UVND in an established market with strong fan support. The company signed a three-year agreement with MLB. According to Mintel Research, the U.S. ice cream market was $11.4 billion in 2015. With sales of ice cream in the US forecasted to continue to grow, this exclusive deal provides UVND to corner a large niche in the industry.
The Company plans to launch its MLB premium ice cream products at the start of the MLB season in Spring 2017.
Figure 4: MLB Ice Cream Product
Baseball and fans across the country will be able to purchase baseball modeled premium ice-cream products, each sold with an MLB team-branded collector bat. These ice-cream products will be available from convenience and national retail stores across the U.S. In addition, the Company also plans to add the MLB team-branded ice cream products to its growing high-traffic, strategically placed self-serve kiosk network.
The company’s novelty ice cream products come with sport collectibles that are used to participate in the fantasy sports marketplace. These sport collectibles are in the form of team branded MLB branded baseball and baseball bat. These sports collectibles will have unique barcodes that can be used to register online on fantasy sport websites that allow customers to trade sports players with nearly 60 million people in US and Canada that play fantasy sports; providing the company with potential big returns.
Company contracts industry leader Wells Enterprise to manufacture MLB ice cream products. UVND has secured a contract with Wells Enterprises, the third largest ice cream and frozen treat manufacturer in the U.S., to manufacture its ice cream products for MLB. The company has identified 30 distributors across the country to deliver MLB team branded ice cream products.
Company’s management team has extensive industry experience with major billion-dollar consumer brands. UVND’s president, Mark Chapman, has successfully led marketing teams at various billion dollar companies like General Foods and Dr. Pepper. Mr. Chapman began his career in marketing and sales with General Foods. He later worked as a director of marketing at Dr. Pepper and from 1983-1985, Mr. Chapman worked as Director of Sales and Marketing at Malt-O-Meal and oversaw revenue growth from $28 million to $87 million. He was also the CEO and founder of United Sales, Inc, which he managed for over 10 years.
The Company’s vice president, Michael W. Crone, is a veteran sales executive of the ice cream industry; with past experiences at Nestle Ice Cream, Haagen-Dazs and Wells Dairy. As a Senior Vice President of Wells Dairy, he oversaw 53% sales growth, reaching $1.2 billion in 10 years. During his 8-year tenure at Haagen-Dazs, the company increased sales from $325 million to over $700 million.
Major billion-dollar brand experience provides the Company with valuable expertise to drive the Company’s growth in a large market opportunity.
UVND’s unique platform to integrate sports and ice cream should be a big win for UVND and its shareholders. UVND’s unique market opportunity to collaborate with official sports organizations for their consumer products will provide the company significant potential in their business opportunity and expansion. In the early stages of UVND’s growth, we expect margins to be lower, but as operations improve and scale, margins should be significantly higher. The existing kiosks and ice cream freezer programs will provide the company an easy transition to its new innovative ice cream products into the market. The added brand image MLB on the Company’s ice cream products provides the company with a great opportunity to expand its business as well as improve its operating profit margins. We expect revenue to start increasing at the beginning of 2Q17 and increase significantly in 3Q17 and 4Q17, as product brand awareness scales nationally. Additionally, UVND’s business opportunity with MLB provides the company with year-round revenue generation. This should provide the company with a substantial advantage versus other ice cream companies when it comes to seasonality.
U.S. ice cream market is expected to reach $15.6 billion by 2020. According to Technavio's forecast, the Ice Cream market in the US is expected to grow at CAGR 2.09% during the period 2016-2020. According to the forecast, one of the key drivers of the ice cream industry is the demand for innovative ice cream products, growing consumption of take-home ice-cream products and the launch of new flavors. Major distribution channels include supermarkets, specialty retailers, and convenience stores.
We believe that Technavio’s forecast is in-line with UVND’s business. The Company’s innovative ice cream products with MLB branding should drive sales and increase margins. Also, by securing a manufacturing a contract with Wells Enterprises, one of the largest ice cream manufacturers, the Company is well positioned to execute on its exclusive partnership deal with MLB.
We are valuing UVND using a 3.0 EV/S multiple, applied to our FY19E revenue estimate of $12.8 million. This derives a target price of $0.45. Some notes on our model and our outlook for the company:
- We are projecting UVND to generate revenue of $1.4 million in FY16, $2.7 million in FY17, $6.2 million in FY18 and $12.8 million in FY19. We assume the agreement with MLB will significantly increase revenue growth in 2H17 and FY18. UVND’s market penetration rate will further accelerate revenue growth in FY18 through FY19.
- We believe that our FY19E revenue estimate of $12.8 million is conservative. With contracts from MLB, we anticipate the company to get additional contracts from other major league sports and this should generate additional revenue streams. Our FY19 E estimate is estimating contract wins remain at current levels
- Our model incorporates ice cream seasonality. We expect revenue generation to be stronger in 2Q and 3Q compared to 1Q and 4Q.
- Selling and General administrative (SG&A) expenses are more correlated with product sales. The model incorporates a higher SG&A expense from 2Q17 through 1Q18 with the company increasing its sales and marketing
- Our model incorporates consistent equity raises in FY17 and FY18 to finance operations and to increase product awareness and improve overall business operations
- We expect operating/net losses to decline as revenue increases and operations scale. We are projecting operating income in 4Q17
There is no guarantee that UVND will be able to successfully implement its contract obligations with MLB. There is no guarantee that these contracts will be successfully completed within the expected timeframe. This could delay revenue recognition.
There is no guarantee that UVND will be able to successfully complete a capital raise. Failure to complete a capital raise would likely slow the Company’s expected growth, along with not allowing the Company to eliminate its current debt balance.
There are established competitors in the Ice Cream Industry.There are already many established companies in the ice cream industry. Failing to meet contract obligation with MLB could potentially lead other competitors securing contracts with MLB.
UVND is currently running operating and net losses, and there is no guarantee the Company will be able to generate a profit. Given current operating/net losses and thin gross margins, there is no guarantee that UVND will be able to generate a profit.
David Graber - Chief Executive Officer – Director
Mr. Graber brings skills in both operations and finance to the CEO position which he assumed on February 1, 2017. Mr. Graber has significant experience in consumer product strategies, corporate finance, and multi-channel operations. He is currently Managing Principal of Cobrador Capital Advisors, an investment management firm focused on the consumer sector. Prior to Cobrador, Graber was Managing Director, Investment Banking at New Century Capital Partners (2011-2014) and National Securities Corporation (2009-2010). From 2006-2008, David was CEO of OKC Corporation, a manufacturer and retailer in the home improvement industry. At OKC, Mr. Graber oversaw the adoption of a national rollout plan with The Home Depot and strategic partnerships with major U.S. home builders. From 1994-2005 Mr. Graber was a Sr. Vice President and Director in the Equities Division of Donaldson, Lufkin & Jenrette and subsequently, Credit Suisse First Boston (CSFB) in New York and Los Angeles. Mr. Graber holds dual Masters of Business Administration (MBA) from Columbia University Graduate School of Business in New York City (2004) and London Business School in the UK (2004). He obtained his BA from Tulane University.
Mark Chapman - President of U-Vend America, Inc.
Mr. Chapman is a passionate corporate strategist and visionary that is driven by valuing key human fundamentals that drive short-term and long-term sustainability. Mark has had tremendous success in leading operations in the seven fundamental areas of business execution; Sales, Marketing, Finance, Production, Legal, IT and HR. He has been involved in the creation, management and launch of new products and brands which resulted in category growth that exceeded one billion dollars in multiple companies. He held executive positions in General Foods Corporation, Dr. Pepper, Mauna Loa, Malt-O-Meal Foods, Ralston Purina and American Image/Image Plastics.
Chapman has been a consultant, working with many billion-dollar brands such as, Remington Arms, Northwest Racket & Fitness, Coke Foods, Dial Corp., Belgard Brands, Del Monte, First Brands, HJ Heinz, JM Smuckers, Kellogg’s Frozen Foods, First Brands, Reckitt and Coleman, Land-O-Lakes, Diamond Aircraft, Shasta Beverage, Plochmans, and Breyers Frozen Products, Women’s Super-Fitness, PrimePay, Accuchex , Gristmill Corporation, U.S. Armed Forces, Baylor College of Medicine and Advanced Orthopedics Sports Medicine to name a few. Additionally, he played a pivotal role in several key corporate turnarounds, including; OKC/Calise, Harmony Outdoor Living Inc., Image Plastics, American Image and Sea Farms International. Mark has leveraged his 30 plus years of experience to help many companies and brands solve difficult internal and external growth challenges and develop state-of-the-art capabilities, which have resulted in tremendous productivity and profitability.
Chapman holds a Bachelor’s degree in Marketing & Psychology (cum Laude) and a Master’s degree in Psychology (Magna cum Laude) from Richmond University in London, England.
Michael W. Crone - Senior Vice President
Prior to joining U-Vend, Crone was Senior Vice President of Sales at Wells Dairy from January 2005 through March 2015, a family-owned company producing and distributing the Blue Bunny and Weight Watchers brands, as well as private-label products for several major retailers. Under his direction, Wells Dairy sales increased 53% to $1.2 billion, elevated its brand from #7 nationally to #3 and expanded product distribution to many key retailers including Kroger, Safeway, Publix, Meijer, HEB and 7-11.
From October 1999 until January 2004, Crone served as Vice President, Sales and Distribution and Vice President, Distribution Strategy and Acquisitions at Nestle’ Ice Cream Company, where he developed and implemented strategy for distribution that resulted in three successful acquisitions, with combined sales of $84.5 million, and two start-ups, all achieving economic profitability in two years. Crone grew points of distribution over 20% and annual sales 9-12% in non-supermarket channels by placing over 30,000 impulse freezers in select markets in 3 years, and successfully negotiated with Dreyers Grand Ice Cream that resulted in $23 million net profit improvement over 5 years.
From March 1991 to October 1999, Michael rose from Director of Southeast U.S. Sales to National Vice President of Sales at Haagen-Dazs Ice Cream Co., a division of Pillsbury/Diageo. He increased Haagan Dazs consumption at a 10% compound rate from 1998-2002, while driving annual sales from $325 million in 1991 to over $700 million in 1999 through developing agreements with Nestle and Ben and Jerry’s. Prior to Haagan Dazs, Michael held progressively responsible positions at Frito Lay, culminating in Division Sales Manager responsible for $100 million in sales, 500 personnel and ranked #1 in performance out of 7 divisions. Crone graduated from Stephen F. Austin University in 1978 with a degree in Business Management.