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Reborn Coffee (REBN) Aims For $6 Million IPO –

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A Quick Take On Reborn Coffee

Reborn Coffee, Inc. (REBN) has filed to raise $6 million in gross proceeds from the sale of its common stock in an IPO, according to an amended registration statement.

The company sells a range of coffee and related products in the United States.

The IPO appears priced for perfection for this little company generating high operating losses.

I’m on Hold for REBN’s IPO due to excessive valuation and high business transition risks, although the low nominal price of IPO shares may attract day traders seeking volatility.

Reborn Coffee Overview

Brea, California-based Reborn was founded to source and sell coffee products through corporate owned locations and franchisees.

Management is headed by Chief Executive Officer Jay Kim, who has been with the firm since inception in 2014 and was previously founder of Wellspring Industry, a company that created the Tutti Frutti yogurt retail concept.

The company’s primary offerings include:

  • Coffee beans

  • Pour-over packs

  • Cold brew coffee

Reborn has booked fair market value investment of $9.7 million as of March 31, 2022.

Reborn – Customer Acquisition

The firm operates corporate owned retail locations and kiosks and sells to consumers as well as through a B2B channel to corporate customers.

Reborn has planned to begin franchising its concept in California in 2022.

General & Administrative expenses as a percentage of total revenue have varied as revenues have increased, as the figures below indicate:

General & Administrative

Expenses vs. Revenue

Period

Percentage

Three Mos. Ended March 31, 2022

30.7%

2021

67.7%

2020

46.8%

(Source – SEC)

The General & Administrative efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of General & Administrative spend, rose to 1.6x in the most recent reporting period, as shown in the table below:

General & Administrative

Efficiency Rate

Period

Multiple

Three Mos. Ended March 31, 2022

1.6

2021

1.0

(Source – SEC)

Reborn’s Market & Competition

According to a 2021 market research report by IBISWorld, the U.S. retail market for coffee would be an estimated $46.2 billion in 2021.

This represented a 2.6% year over year growth forecast.

Historically, the U.S. coffee market grew on average about 0.4% from 2016 to 2021.

Below is a chart showing the historical market size trajectory since 2011:

U.S. Retail Coffee Market

U.S. Retail Coffee Market (IBISWorld)

Also, demand for pure coffee has softened as consumer tastes have shifted toward premium coffee and specialized blends and related products.

Major competitive or other industry participants include:

  • Dunkin Donuts

  • Starbucks (SBUX)

  • Peet’s Coffee

  • Independent coffee houses.

Reborn Coffee Financial Performance

The company’s recent financial results can be summarized as follows:

  • Growing topline revenue

  • Considerable operating losses

  • Higher cash used in operations.

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Three Mos. Ended March 31, 2022

$ 753,150

93.6%

2021

$ 2,280,072

187.5%

2020

$ 793,088

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Three Mos. Ended March 31, 2022

$ (575,332)

-76.4%

2021

$ (2,563,677)

-112.4%

2020

$ (1,056,456)

-133.2%

Net Income (Loss)

Period

Net Income (Loss)

Net Margin

Three Mos. Ended March 31, 2022

$ (565,112)

-75.0%

2021

$ (3,440,401)

-456.8%

2020

$ (1,068,766)

-141.9%

Cash Flow From Operations

Period

Cash Flow From Operations

Three Mos. Ended March 31, 2022

$ (485,757)

2021

$ (1,949,820)

2020

$ (884,927)

(Glossary Of Terms)

(Source – SEC)

As of March 31, 2022, Reborn had $183,191 in cash and $4.0 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2022, was negative ($2.5 million).

Reborn Coffee’s IPO Details

REBN intends to sell 1.2 million shares of common stock at a proposed midpoint price of $5.00 per share for gross proceeds of approximately $6.0 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest to purchase shares at the IPO price.

As part of the S-1 filing, a number of existing individual investors have registered 1.8 million shares for sale.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $59.1 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 9.3%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

…we currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures, opening new company-owned retail locations, as well as developing our franchise program. We estimate that the average development cost of a company-owned store location is $150,000, and therefore we anticipate that we will use approximately $3,000,000 of the proceeds of this offering to open 20 new company-owned retail locations. Even if we do not consummate this offering, we intend to open 10 new company-owned retail locations by the end of the second quarter of 2023 by raising the requisite funds (i.e., approximately $1,500,000) through private or public offerings, or a combination of both, although there is no guarantee that it will be successful in doing so.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says the firm is not subject to legal proceedings that would have a material adverse effect on its financial condition or operations.

The sole listed underwriter of the IPO is EF Hutton.

Valuation Metrics For Reborn Coffee

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

Measure [TTM]

Amount

Market Capitalization at IPO

$64,399,725

Enterprise Value

$59,061,157

Price / Sales

24.35

EV / Revenue

22.34

EV / EBITDA

-20.97

Earnings Per Share

-$0.28

Operating Margin

-106.53%

Net Margin

-139.09%

Float To Outstanding Shares Ratio

9.32%

Proposed IPO Midpoint Price per Share

$5.00

Net Free Cash Flow

-$2,543,505

Free Cash Flow Yield Per Share

-3.95%

Revenue Growth Rate

93.65%

(Glossary Of Terms)

(Source – SEC)

Commentary About Reborn Coffee

REBN aims to go public to fund its corporate expansion and location growth plans.

The company’s financials have generated increasing topline revenue, substantial operating losses and higher cash used in operations.

Free cash flow for the twelve months ended March 31, 2022, was negative ($2.5 million).

General & Administrative expenses as a percentage of total revenue have varied as revenue has increased and its General & Administrative efficiency multiple was 1.6x in the most recent reporting period.

The firm currently plans to pay no dividends on its capital stock.

The market opportunity for coffee and related products in the United States is large but is growing at a low rate of growth.

EF Hutton is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (65.4%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

The primary risks to the company’s outlook are its transition to a franchising model and continued growth outside of its California state base as it seeks to grow its business operations.

As for valuation, management is asking IPO investors to pay an Enterprise Value/Revenue multiple of 22.3x, an extremely high multiple for a tiny company generating little in the way of sales.

The IPO appears priced for perfection for this little company generating high operating losses.

I’m on Hold for REBN’s IPO due to excessive valuation and high business transition risks, although the low nominal price of IPO shares may attract day traders seeking volatility.

Expected IPO Pricing Date: To be announced

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