eResearch | good natured Products Inc. (TSXV: GDNP) produces and distributes assortments of “better everyday products”, including food packaging materials, made from the highest possible percentage of renewable materials with no potentially harmful chemicals to human health and the 
environment.
On May 13, good natured closed the acquisition of Shepherd Thermoforming & Packaging Inc. as previously reported in eResearch’s March 6 article: Bioplastics Company Acquires Leading Thermoformer for C$9.5M.
Acquisition of Shepherd Thermoforming & Packaging Inc.
good natured acquired Shepherd Thermoforming & Packaging Inc. and all its real estate for $9.5 million. Shepherd is a leading thermoformer based in Brampton, Ontario, with over 35 years’ experience and the acquisition includes the assets, such as machinery, molds and a 42,000 square foot manufacturing facility,
The transaction was financed by a $6 million BDC mortgage loan and a $1.35 million in a vendor-take back promissory note. The balance was funded by a drawdown announced in June 2019 from the BDC credit facility. See eResearch’s June 28, 2019 article: Bioplastics Company Raises US$10M in Growth Funding from BDC.
“We’re very pleased to announce the completion of this acquisition, and welcome everyone at Shepherd to the good natured family,” said Paul Antoniadis, CEO of good natured.
He add, “Shepherd grows our customer base with an addition of over 75 customers, our capabilities, and our market reach into Eastern Canada and the Northeast United States”, added the CEO.
New COVID-19 Packaging Line
This acquisition allowed the Company to start a new line of business supplying the medical and pharmaceutical industry with packaging for COVID-19 testing kits and personal protective equipment such as COVID-19 medical face shields.
The Company announced agreements to ship 47 different products to 17 customers within this segment. It is expected to reach gross margins within the 35% to 45% range backed by expected sales in between $1.3 to $2.3 million.
“The entry into this new market segment allows us to play our part in the fight against COVID-19,” said Paul Antoniadis, CEO of good natured. “It also expands our growth opportunities by further expanding diversification of our product and customer mix, which is a cornerstone of our strategy.”
Updated Acquisition Terms and BDC Financing
Concurrent with the BDC financing agreement, the Company executed an amending agreement with the stakeholders of Shepherd related to the disclosed share purchase agreement.
Although the transaction close date was after May 1, both parties agreed to make the effective date May 1, when good natured would have the benefits and risks of the Shepherd business.
The vendor-financing component from Shepherd increased to C$1.3 million from C$1 million.
In addition, the Company converted $1 million of its existing long-term credit facility with BDC by issuing 6,666,667 common shares to BDC at a deemed price of $0.15 per share. good natured also issued 3,000,000 Shares to BDC with a deemed price of $0.15 per share as a loan bonus under the same facility.
The $6 million mortgage has an interest rate of 6.8% and an amortization period of 25 years, with payments commencing in October 2020.
“I would like to recognize BDC and their commitment to supporting the growth of good natured and sustainable businesses overall in Canada. Their ongoing support has made our success possible,” said Paul Antoniadis, CEO of good natured.
New C$2.8 Million Operating Line of Credit
good natured also announced it entered into a loan agreement with Comerica Bank for C$2.8 million. The operating line of credit will be used to fund the Company’s growth as well as Shepherd’s growth through the acquisition of raw materials, production molds and new product inventories.
2019 Financial Results – Revenue Up 98% Y/Y
On April 28, good natured released its 2019 results. Revenue in 2019 increased by 98% to $10.1 million compared to $5.1 million in 2018. According to the Company, the increase was mainly due to a combination of organic sales growth from cross selling, product line extension and an increase in the customer base.
In Q4/2019, Gross Profit was 33.1% versus 32.6% on a quarter-over-quarter basis and the Company also showed a slight improvement on a year-over-year comparison as 2019 Gross Profit went to 34.4% from 33.9% in 2018. good natured signaled that these numbers move according to changes in product and customer mix and they are in the expected ranges.
As for EBITDA, good natured showed an improvement from a $1.87 million loss in 2018 to a $1.45 million loss in 2019, attributed to revenue growth and cost management. The EBITDA loss reduction represented an improvement of 23%.
CHART 1: GDNP Revenue and EBITDA By Quarters (Updated with Q1/2020 Financials)
Revenue Potential of $17M-$19M in 2020
With the Shepherd acquisition closed and integrated into good natured, the Company is poised to grow revenue by 70-90% this year based on:
- good natured: 2019 Revenue $10.1 million
- Shepherd: 2019 Revenue $5.5 million
- February 5 Sales announcement: $1-$1.2 million
- March 31 Sales announcement: $0.65-$1.3 million
From these estimates, the Company could generate revenue in the $17 to $19 million range in 2020.
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The following section was added after good natured released its Q1/2020 financials statements on May 26, 2020.
Q1/2020 Financial Results – Revenue Up 48% Y/Y
- Q1/2020 Revenue was $3.1 million, up 48%, compared to $2.1 million in Q1/2019.
- Gross Profit in Q1/2020 was $1.1 million (36.3% Gross Margins ) compared to $0.8 million (37.6% Gross Margins) in Q1/2019.
- In Q1/2020, EBITDA improved by 10% to a loss of $0.31 million from a loss of $0.34 million in Q1/2019.
- Revenue is Q1/2020 did not include any revenue from the recent acquisition of Shepherd Thermoforming. The Shepherd deal closed on May 1 and the additional revenue should be reflected in the Q2/2020 financial statements.
By our estimates, good natured is still on track to generate revenue in the $17 to $19 million range in 2020, an increase of 70-90% from 2019.
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