Youngevity International Inc (fka YGYI)

[premiumjavacoffee]

Youngevity's CLR Roasters Inks Deal Worth $250 Million
https://seekingalpha.com/article/4192657-youngevitys-clr-roasters-inks-deal-worth-250-million?dr=1

Spencer Osborne
Growth, value, special situations, momentum

Summary
Company announces huge coffee deal.

Coffee is quickly encompassing a larger part of Youngevity business.

A deal like this should garner analyst and institutional attention.



About two weeks ago, I penned an article titled, "Is It Time To Look at Youngevity Again?". In that article, I outlined my thesis of what has always attracted me to the company. Youngevity (YGYI) is known as a direct selling company with retail lines in several categories, but it has always been the coffee side of Youngevity that I found compelling. In my last article, I stated the following:

The reason I like Youngevity is not tied to the direct selling side of the business, but rather the coffee business, CLR Roasters, which the company has built from the ground up. Some may think of the Youngevity network marketing model as the main thrust of an investment with the coffee business being a cherry on top. I look at it the other way around but will admit that seeing my thesis come to fruition will take time. It has long been my belief that the coffee business could ultimately be the major contributor to the bottom line or a candidate for a spin-off into a public company of its own.

Today, CLR Roasters announced what could be a huge step in its business, and what will clearly be a big revenue generator for Youngevity. CLR Roasters has inked a deal worth $250 million over the next five years. Starting in just 5 months, CLR Roaster will be filling orders of 41 million pounds of green coffee annually for 2019 through 2023. As if that is not big enough news, consider this. The $250 million valuation is based on today's coffee prices, which happen to be at a three-year low. As coffee prices begin to grow, the value of this deal will also grow. The deal is tied to pounds of coffee, which are bought at prevailing futures prices on a quarterly basis.



This deal is predominantly for high grown washed coffee, but also includes utilization of organic coffee, Fair Trade Certified, Rainforest Alliance Certified, SQF Certified, etc. Essentially, the buyer is making full use of all of the certifications that CLR Roasters made the time, effort, and investment to acquire and qualify for. In my opinion, this certification legwork by CLR Roasters is one of the compelling reasons that this deal was able to be made.



If you take the time to break down the numbers, you can see how compelling this $50 million per year deal is. In 2017, CLR Roasters did $23 million in revenue, which accounted for about 14% of the overall revenue of Youngevity. The company is on a pace to do well over $30 million in coffee revenue in 2018 based on organic growth and deals such as a private label deal worth $5 million. Simply stated, the company was on a pace to put up revenue growth of 40% or more even before this mega-deal was announced. The year 2019 is shaping up to be a very good year for Youngevity's CLR Roasters. With $50 million from this new deal on top of at least $50 million (conservatively) in other growth, CLR Roasters and Youngevity could be on the cusp of putting some massive year over year revenue gains on the books.

This is the type of deal that I wrote about when I first covered Youngevity a few years ago. At that time, I saw the foundation that CLR Roasters was creating. Acreage, plantations, drying facilities, processing facilities, roasting capacity were all being geared toward a sales volume that was orders of magnitude higher than what the company was selling at the time. With a deal like this, the company has essentially taken its coffee business into the big leagues, and that is not a joke considering that CLR Roasters' Cafe LaRica brand is the official coffee of the Miami Marlins professional baseball team.

What I saw way back was a proposition that could see CLR Roasters as a prime spin-off candidate under the right circumstances. With revenues of over $100 million a year in the not too distant future, that scenario could become a reality in the next 24 months or so. Even if a spin-off does not happen, the stability CLR Roasters offers Youngevity can allow overall expansion with the knowledge that a solid coffee business is part of the foundation.

These days many direct selling companies that are publicly traded have market caps which are multiples of annual revenue. The Youngevity market cap is about half of its revenue. Youngevity is growing its EBITDA, growing its business, and getting closer to profits. At some point, Youngevity needs to get a valuation commensurate with its peers. A deal that brings in an additional $50 million per year for the next 5 years seems to be a great starting point to drive better valuation. The Street has about 5 months before containers of green coffee start shipping and the revenue coffees begin to fill at impressive levels. At current stock prices and with considering the magnitude of this deal, Youngevity is a bargain. Two weeks ago, I posed the question about whether it is time to look at Youngevity again. Today, the answer seems logical and simple. YES! Stay Tuned!