Mohawk Group (MWK) – The Renaissance Technologies of CPG E-commerce

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Mohawk Group Holdings Inc (NASDAQ:MWK) is SPECULATIVE!  Deloitte issued a going concern qualification raising substantial doubt regarding MWK’s ability to continue the following year.

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Q1 2020 hedge fund letters, conferences and more

High risk with an asymmetric expected reward.

Mohawk is a Google-backed technology-driven consumer products company that is industry-recognized for creativity. Insider ownership is 55%, indicating that management's interests align with shareholders.

Ranked by Inc. 5000 2019 as Fastest Growing Companies at 622. The Financial Times for 2020 ranked number 114 out of 500 for exceptional innovation and creativity in North and South America.

Consistent high double-digit top-line growth selling for an enterprise value to sales of .37. TTM gross profit of 45.04 million versus prior year of 25.98 million with the current enterprise value of 42 million.

A large SaaS opportunity exists for 2020. SaaS is now a management priority.

Revenues increased 56% to $114.50 million from $73 million for the prior year. Product launch for 2020 to double coupled with SaaS offering could see +50% top-line growth. Double the products launched in 2019. For 2020, management is projecting revenue of $160 million to $170 million, expects a positive adjusted EBITDA in the third quarter of 2020.

Description:

Mohawk Group (MWK) is a Google-backed technology-driven consumer products company. The company leverages its proprietary AI research to automate eCommerce tasks - discovering new market opportunities, introducing new brands, and managing the fast-evolving complexity of marketing. MWK sells home appliances, kitchenware, dehumidifiers, air conditioners, related products, and consumer electronics. Products sold under the hOmeLabs, Vremi, Xtava, and RIF6 brands. Online consumers buy through Amazon and other e-commerce platforms, coupled with their websites.

Before Mohawk's IPO in June 2019, Mohawk Group was one of the fastest-growing private consumer companies recording +100% year or year revenue growth since founding in April 2014. April 14, 2020 MWK ranked number 114 out of 500 in The Financial Times. The rankings include North and South America that prove exceptional innovation and creativity.

"Our proprietary AIMEE software ideation platform allows us to bring research-driven products directly to consumers quickly and we have a significant opportunity to continue scaling our portfolio and SaaS offerings as consumer online spending habits continue to shift." CEO Y Sarig

Founded= 2014 ; Employees= 156 ; CEO/Founder= Yaniv Sarig

Market Cap = 37.87M ; Enterprise Value = 42.64M ; Cash per share = 2.01 ; Debt per share = 1.97  Shares outstanding = 17.74M ; Float = 4.99M ; Revenue (ttm) = 114.45M ; 52 Week Chg = -78.60%

Mohawk Group

MWK develops proprietary technology, AIMEE™.  AIMEE leverages millions of data points during the customers' decision-making and buying process. Artificial intelligence from AIMEE discovers new products and creates an optimal selling process.

AIMEE™ (AI Mohawk E-commerce Engine) is an E-commerce platform that grows Mohawk's owned and operated consumer product brands. Mohawk began Q1 2020 selling AIMEE™ as a SAAS offering. A rigorous data-first approach, coupled with their proven technology and collective experience, generates actionable executable opportunities. Google Ventures's investment and interest in Mohawk is not an eCommerce consumer product vendor. The more in-depth story is their proven technology.

Slides are taken from January 2020 Investor presentation prepared by Mohawk.

Mohawk Group

AIMEE™ = Research + Financials + Trading

RESEARCH = AIMEE explores online channels to discover opportunities for new and existing products. NLP (Natural Language Processing) used to analyze customer feedback. This customer analysis delivers insight into product improvements. Further, AIMEE™ uncovers trends by monitoring the features and functionality of the top-selling products.

FINANCIALS = AIMEE™'s tracks new product planning, financial projections, inventory, media expenses, real-time income statements, and more.

TRADING = AIMEE™'s automates marketing strategies and improves with each iteration. The result is an algorithmic solution to maximize product sales.

For more information and a video demonstration visit Mohawk Group.

MG

Operating results discussed on the March 10, 2020, year-end conference call.

For the fiscal year ended, 12/31/2019 revenues increased 56% to $114.50 million from $73 million for the prior year. Thirty-two new products versus eleven for the previous year. Eighteen new products launched in the fourth quarter of 2019. Revenue increasing by 26.6 million or 30% compared to the prior year's fourth quarter. In Q4 2019, 18 new products, though the majority in late December versus three for Q3 2019.

The fixed cost for 2019 was 19.3% as a percentage of revenue or $22.1 million versus 28.70% or $21 million in 2018. The automated business model led to improvement as a percentage of revenue. EBITDA for the fiscal year 2019 improved to a LOSS $19.5 million from minus $28.6 million loss in 2018.

The year 2019-year end cash balance was $30.4 million versus December 31, 2018, a balance of $35.7 million. Operation cash affected by inventory increase from Chinese New Year and potential tariffs. The debt was $37.9 million from a revolving credit facility and a $50 million term loan as of December 31, 2019. Compared to the debt of $30.1 million at the end of the third quarter of 2019. The expected change reflects a planned increased inventory.

A separate SaaS revenue line item reported in future periods. CEO Yaniv comments on their SaaS opportunity.

"very,very excited about the SaaS opportunity, it is - and it's very much of high priority for us

We're having active conversation and negotiations with approximately 46 different companies across a variety of product categories that include large - larger brands and some digital native brands.We already signed a couple of contracts in the first two months of the year. And we really are going to continue to invest in the side of the business and expect to see the base picking up in Q2 and beyond. So very much a priority. We're investing in edge. We've made again a few changes to our product and offering and on the conversations,  we're having so far is exciting."

Management expects 20 new products in the first quarter of 2020. And double the products launched in 2019. For 2020, management is projecting revenue to $160 million to $170 million, expects a positive adjusted EBITDA in the third quarter of 2020.

Conclusion:

I'm bullish on speculative Mohawk Group. They push past the auditor's negative opinion with their double-digit growth, unique proprietary artificial intelligence coupled with management's industry expertise.

MG

Future dilution is possible to secure management talent and finance growth. However, the predicted value is an asymmetric payoff: short term, contingent on corona's impact on timely manufacturing and new product launches. The fiscal 2020 goal is to reach positive EBITDA.

Long: MWK

Article by Shadow Stocks

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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