March 3, 2019
Today, I have some exciting news: I am featuring my first guest writer, Jake Salpeter!
Jake has kindly summarized and shared his notes from a phone call he recently had with Investor Relations at good natured Products (GDNP). Now I want to emphasize that I have yet to do this with any of the companies I own. And further, Jake will be the first to acknowledge that he has very limited experience analyzing companies.
Jake was simply interested in good natured Products, wanted to learn more before he invested, so he scheduled a call with IR. Anyone can and should do this (myself included). Jake shows how easy it is.
Lastly, I frequently tell people that the #1 best thing I ever did as an investor was write about my ideas. This blog has made me a much better investor than I should be. If you think you might be interested in writing a piece as well, please reach out to me!
I hope you enjoy these notes as much as I do. Thanks again Jake! If you would also like to see what the CEO had to say when I emailed him last year, check out my post here.
good natured Products Call with Caleb Jeffries
by Jake Salpeter
The morning after subscribing for ‘Investor News’ on the good natured Products (GDNP) website, I received an email from Caleb Jeffries, the VP of Investor Relations at kin communications, letting me know that if I wanted a corporate update on GDNP that I could call him. So, I decided I would give him a call and just ask him to give me a small rundown on GDNP. Here’s what he had to say.
Overview of GDNP
GDNP, formerly Solegear, was formed in 2006 as a science project, until Paul Antoniadi, a former Best Buy executive, now GDNP’s CEO & director, helped it go public. GDNP is a North American, earth friendly, company focused on producing bioplastic based rigid packaging with a focus on the food industry. Currently, petroleum based products are produced with additives that are harmful not only to the environment when they (eventually) decompose, but also to the people who consume the products that are packaged in these plastics. Caleb alluded to an anecdote of grocery store rotisserie chicken, saying that the heat and oil of the chicken is enough to allow these harmful additives to release from the plastics and enter the food. So, it is safe to say that not only does GDNP care about our environment, they are also very socially conscious, which to me is equally as important.
Current Operation
In addition to GDNP focusing on food products (100+ products), they also have a smaller range of home and business products (35+ products), which are all made from 90-99% plant based materials—the remaining 1-10% is not petroleum based, but rather a clay which allows them to keep their prices lower to remain competitive in the market. GDNP has a large assortment of products and is continuing to grow with new products, however, each new product mould can cost between $30,000 to $50,000 which is why they also focus on acquisitions to help them grow, for example, the acquisition of bioplastic divisions of companies in the U.S. such as LINDAR Corp. and Ex-Tech Plastics (good natured Products (TSXV:GDNP) is Making Packaging Environmentally Friendly. Nov. 1, 2017. Small Cap Power.). Caleb says that “these acquisitions were cheap in comparison to where it brought the company,” allowing the company to deploy new products using the existing assets from the companies they acquired.
Customers
Caleb told me that GDNP focuses on three pillars for their customer base—national, regional and small business.
- Small Businesses – The margins for small business accounts are much higher since the small business market is very underserviced and relies mostly on petroleum based products with little to no innovation. In fact, GDNP actively searches for small businesses through low cost marketing tactics, such as sending out two sided cards, which has resulted in decent traction.
- Regional & National Companies – GDNP will (obviously) still try to get their products into larger regional and national companies such as Costco or Walmart, which they currently do, but it is a slower process on a larger scale. Caleb alluded to the fact that they may get a contract with 1 large company, but it will usually only be 1 product on their shelves at first, and over time more products can be rolled out. The unique aspect of the regional and national customers is that GDNP can also go to a third party packaging company without going straight to the big company (ex: Targeting Kirkland versus Costco) which just allows for more points of entry into certain markets and companies.
As for actual retention of these customers, Caleb made it seem that most customers become repeat customers, which is not only a testament to the quality of the products, but also to the way GDNP conducts business, especially with smaller businesses.
Products & Manufacturing
Because GDNP is in an emerging industry, they are heavily focused on innovation, which automatically puts them at an advantage in an industry lacking in innovation. However, innovation for GDNP can range from new products to innovations to their current packaging, such as increasing stackability of their single serve products. They also have innovative recycling programs in place with some of their customers to grind down the products and recycle them.
In addition to selling their products, GDNP also sells their bioplastic rollstock sheets to companies that want to use their technology. These sheets are all mouldable in any standard mould and protected as their intellectual property.
GDNP does not actually own a manufacturing centre for their products, but instead it is contracted out. Upon hearing this, I immediately questioned the overall sustainability of the manufacturing of GDNP’s products, since the entire cradle to grave process of these products is important to consider when evaluating a sustainable company. Caleb was quick to explain that although GDNP does not own any manufacturing centres, all of their manufacturers are actually shareholders in the company, and therefore, are committed to the vision and values, such as X Tech in Illinois.
Caleb was also able to reassure me that they have the manufacturing capacity to deliver on problems and that they do not have any current scale issues.
Competition
I initially assumed that other bioplastic companies would be the major competition for GDNP, however, Caleb said that it is actually the petroleum based plastic companies that are their biggest competitors since the industry has been stagnant for so long. In some cases, GDNP’s prices are more expensive or on par with the prices of petroleum based plastic products, but in general they are usually less expensive. Additionally, with the cost of materials declining, profit margins will continue to grow. When asked about whether or not GDNP will eliminate the 1-10% of clay from the products when the prices continue to drop, Caleb said probably not because it is mostly used in the more rigid products such as the recycling bins and office equipment and wouldn’t change much to eliminate them.
Other bioplastic companies are still competition, but Caleb brought up the fact that most other bioplastics on the market melt, but GDNP’s innovation has allowed them to have products that are more durable and higher quality, giving them a strong foothold in the bioplastics market.
Moving Forward
Caleb admitted that bioplastics aren’t the solution to the environmental damage caused by plastic because we over package our food products anyway, but it is a way better alternative. He said that we can look forward to lots of growth in all three customer segments, chasing the right businesses to acquire, and rolling out more high volume products for high volume contracts. He said that GDNP just needs to gain some significant traction and distribution with their current products.
He said that the change to bioplastics from petroleum products is already happening, and retail-giant Walmart is one of the larger companies spearheading this movement, surpassing WholeFoods in terms of sustainable packaging.
Finally, what everyone wants to hear, Caleb said that GDNP “would hit a point of break even/profitability between $10-14M in revenue. The reason for the range is because their R&D costs can range depending on how many new [products] they are manufacturing over a given quarter. The company is moving towards this point and management believes they will see strong growth in 2019 based on their current pipeline and signed contracts.”
My Take
Honestly, I am very excited by this company. Not only do they care about making money to support their own profits, they seem to be inextricably related to environmental and social well being and sustainability which gets me super excited to learn more about this company and invest in them. Caleb was very enthusiastic when talking about GDNP and spoke highly of Paul Antoniadi. At the end of the day, I suggest taking a look into this company for yourself and seeing how they could be at the forefront of the bioplastics food packaging industry in the near future.
Big shout out again to Jake for taking the time to put that together.
If you’d like to see prior blog posts, check out the archive here. If you have any comments, questions or otherwise, shoot me an email at anytime and I’d love to have a discussion!
Cheers,
Zach
“We make a living by what we get. We make a life by what we give.”
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