I feel many new holders are unaware of this supply agreement, so I thought another thread is necessary considering it was announced 1.5 years ago and almost all discussion is surrounding Coles and Blackmores partnerships - ignoring a large % of revenue of which has yet to be recognized.
If you are new to FIJ, Id recommend first reading the Q3 / Q4 Catalyst Thread for a business summary and outlooks. This thread only discusses this supply agreement, you will miss where this fits into the bigger growth story that is FJI.
$3.5M Supply Agreement signed in 2019 with Pathway International (Leading Australian Supplier)Key Details:- $3.5M minimum Noble Kava Extract (Expected minimum quantity)
- 3 year duration (Revenue to be heavily recognized in years 2 and 3 of the agreement - Late 2020/2021/Q1 2022)
- Initial term of 3 years with automatic two successive 3-year terms if the agreement is not terminated.
- Pathway International customers include Blackmores, Sanofi, Swisse and Vitaco.
Analyst Perspective: - Hardly any of the revenue from this supply agreement has been recognized. As we are almost exactly 1.5 years through the 3 year term, I imagine this is due to Pathway International not selling enough product or Covid-19 interference.
- Although this is the second year of the agreement, with MD&A commentary suggesting the majority of the agreements revenue will be recognized in years 2 and 3.
- If we assumed that all revenue that FIJ have reported until this point was from this agreement (comical assumption, but for sake of conservative analysis) it would amount to $822K, that would mean $2.68M is still remaining to be recognized over the next 6 quarters that the agreement is in place.
- ***** This equates to an average of $446K per quarter average. Thats before Coles, before Blackmores. *****
What does this mean for the next 6 quarters of revenue? Coles + Blackmores + Pathway International -
Major Revenue catalysts to occur over the next 2-4 quarters. If we approach $750K-1M quarters, without any China distribution agreements that are currently being explored, this is worthy of a rerate. This is a great time to look at this stock.
Potential Risks:- If Pathway International do not reach this minimum quantity, the revenue expectations are not realized. This is where we look towards management to see what they are saying.
Management, Discussions and Analysis Commentary on Quarterly s regarding this contract: The below are excerpts of every piece of commentary regarding the Pathway contract on 4C's thus far:
-
30th April, 2019: "During the quarter, the Company signed an exclusive three-year wholesale distribution agreement
with leading Australian ingredient supplier, Pathway International Pty Ltd, to supply its high-quality
noble kava extract. The agreement was signed in addition to FIJ’s usual operations and stipulates it will supply increasing
minimum amounts of kava extract over the three years to generate a minimum of US$3.5 million in
revenue for the Company. "
-
24th January, 2020: "• Favourable demand from Pathway International, the leading supplier of innovative, high-quality ingredients
to the complementary medicine, personal care and pharmaceutical industries.
- Revenues for the quarter were $147,000 a 237% increase from the prior corresponding period ($62,000 in
Q2FY19). This was driven by an increase in revenue from the commencement of the rollout of ingredients supply
to Pathway International, while early gains were witnessed from other recently announced retail activities and
new distribution agreements.
- 22nd April, 2020: "Continued favourable demand from Pathway International, the leading supplier of innovative, high-quality
ingredients to the complementary medicine, personal care and pharmaceutical industries.
- Fiji Kava Founder and CEO, Mr Zane Yoshida said: “In line with our previous announcements, we're beginning
to see a positive trend in sales as our partner and retail agreements go live. We're buoyed by the rising trajectory
in sales and anticipate this early momentum to continue as brand awareness grows and our products become
more widely available across our retail and online channels.
- Revenues for the quarter were $232,304, a 491% increase from the prior corresponding period ($40k in Q3FY19).
This was driven by increased momentum from ingredients supply to Pathway International, plus steady gains
from other retail activities and distribution agreements.
-27th July, 2020: "Revenue growth from ingredient supply to Pathway International, the leading supplier of innovative,
high-quality ingredients to the complementary medicine, personal care and pharmaceutical industries.
-"In addition to our retail strategy, we're also seeing positive momentum from our agreement with Pathway
International. This continues to be a key contributor to our revenue and will remain an important factor in
unlocking the value of our noble kava
- Revenues for the quarter were $367,616 a 57% increase over the prior quarter (Q3FY20), and a 1,205%
increase from the prior corresponding period ($28,151 in Q4FY19), driven by an increase in revenue from the
Pathway International agreement and by the launch of Fiji Kava’s Functional Noble Kava product ranges into
Coles supermarkets nationally in Australia.
Conclusion:
From commentary in the initial announcement suggesting years 2 and 3 of the agreement will be when most of the revenue will be recognized, and the additional commentary from previous quarterly's suggesting an exponential growth and revenue recognition from this agreement in particular, I
am expecting Q3 and Q4 of 2020 to see FJI into the $600-750K+ revenue reported alongside the Coles partnership revenue. As soon as the market realizes the extremely strong exponential growth trend unfolding at FJI's feet, it will go through a major rerate. Add a China distribution agreement if the MOU results in such? Then FJI is truly off to the races. There is not a better time to be looking at FJI.
As always DYOR, not financial advice. GLTAH.
(20min delay)