Mohawk Group Aims For $58 Million IPO

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About: Mohawk Group Holdings (MWK), Includes: ELUXY, HELE, NWL
by: Donovan Jones
Summary

Mohawk Group has filed for a $58 million U.S. IPO.

The firm develops and sells consumer packaged good products using its AIMEE proprietary intelligence system.

MWK has achieved promising growth in recent periods.

Quick Take

Mohawk Group (MWK) has filed to raise gross proceeds of $57.5 million from a U.S. IPO, according to an S-1 registration statement.

The firm is a brand incubator for technology-enabled consumer goods.

MWK uses its proprietary intelligence technology to optimize its product development and marketing decision process.

Company & Technology

New York-based Mohawk was founded in 2014 to utilize AI and machine learning technology for the identification, incubation and autonomous marketing of brands in the consumer-packaged goods [CPG] sector.

Management is headed by President, CEO and Director Yaniv Sarig, who was previously Lead Engineer - Financial Services at Coverity.

Mohawk has developed the Artificial Intelligence Mohawk e-Commerce Engine [AIMEE], a proprietary software technology platform that utilizes AI, big data and machine learning algorithms to identify market opportunities as well as autonomously market and sell products.

Below is an overview image of some of the company’s products:

Source: Company registration statement

Mohawk has developed the brands hOme, Vremi, Xtava and RIF6 whose products span across the home, kitchen and environmental appliances, kitchenware, beauty-related products and, to a lesser extent, consumer electronics product categories.

Investors in the firm have included Asher Delug and Maximus Yaney. Source: Crunchbase

Customer Acquisition

Mohawk Group markets its services through online channels and e-commerce platforms, with a primary focus on Amazon, Google and Facebook advertising.

Sales and marketing expenses as a percentage of revenue have been dropping as revenue has increased, per the table below:

Sales & Distribution

Expenses vs. Revenue

Period

Percentage

To March 31, 2019

52.0%

2018

54.9%

2017

73.9%

Sources: Company registration statement and IPO Edge

The sales efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of sales & distribution spend, was 0.4x in the most recent year, as shown in the table below:

Sales & Distribution

Efficiency Rate

Period

Multiple

To March 31, 2019

0.4

2018

0.9

Sources: Company registration statement and IPO Edge

Market & Competition

According to a 2019 market research report by Zion Market Research, the global consumer IoT market was valued at $46.6 billion in 2018 and is projected to reach $143.5 billion by 2025.

This represents a very strong CAGR of 17.4% between 2019 and 2025.

The main driver for this expected growth is the increase in the number of IoT-based consumer applications, including smart homes, security systems, wearable tech, and personal assistants.

The Asia-Pacific region is projected to grow at the fastest rate due to rapid urbanization and industrialization in developing countries such as China and India.

Major competitive vendors that provide automation and ideation services for e-commerce platforms or CPG include:

  • Amazon (AMZN)

  • Helen of Troy (HELE)

  • Newell Brands (NWL)

  • Frigidaire (OTCPK:ELUXY)

  • Trademark Global

  • Jungle Scout

  • Helium 10

Source: Sentieo

Financial Performance

Mohawk’s recent financial results can be summarized as follows:

  • Growing topline revenue and gross profit

  • Fluctuating gross margin

  • Increased operating and net losses

  • Growing cash used in operations

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

Total Revenue

Period

Total Revenue

% Variance vs. Prior

To March 31, 2019

$ 17,846,000

24.7%

2018

$ 73,729,000

102.2%

2017

$ 36,459,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

To March 31, 2019

$ 6,671,000

92.4%

2018

$ 25,983,000

90.0%

2017

$ 13,678,000

Gross Margin

Period

Gross Margin

To March 31, 2019

37.38%

2018

35.24%

2017

37.52%

Operating Profit (Loss)

Period

Operating Profit (Loss)

EBITDA Margin

To March 31, 2019

$ (7,132,000)

-40.0%

2018

$ (29,429,000)

-39.9%

2017

$ (22,593,000)

-62.0%

Net Income (Loss)

Period

Net Income (Loss)

To March 31, 2019

$ (8,389,000)

2018

$ (31,823,000)

2017

$ (23,067,000)

Cash Flow From Operations

Period

Cash Flow From Operations

To March 31, 2019

$ (11,923,000)

2018

$ (30,345,000)

2017

$ (28,759,000)

Sources: Company registration statement and IPO Edge

As of March 31, 2019, the company had $13.0 million in cash and $55.9 million in total liabilities. (Unaudited, interim)

Free cash flow during the twelve months ended March 31, 2019, was a negative ($32.6 million).

IPO Details

Mohawk intends to raise $57.5 million in gross proceeds from an IPO of its common stock, not including customary underwriter options.

Per the firm’s latest filing, it plans to use the net proceeds from the IPO as follows:

We are undertaking this offering in order to access the public capital markets and to increase our liquidity. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. We intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the net proceeds to acquire, invest in or license complementary products, technologies or businesses, including for our proposed acquisitions of a home décor company and a personal health care company.

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

Listed underwriters of the IPO are Roth Capital Partners, A.G.P., and National Securities Corp.

Expected IPO Pricing Date: To be announced.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.