Generation Next Franchise Brands
Chairman: Nick Yates
CEO: Arthur Budman
About: Generation NEXT Franchise Brands, Inc., based in San Diego, California, is a publicly traded company on the OTC Markets trading under the symbol OTCBB:VEND. Generation NEXT Franchise Brands, Inc. is parent company to Reis and Irvy’s, Inc., the world’s first robotic frozen yogurt vending kiosk, 19 Degrees, a corporate-focused frozen yogurt robot brand and Generation NEXT Vending Robots, its newly established owner/operator model. The Company has sold over 600 franchises throughout the United States, Canada, Australia, Israel, Puerto Rico and the Bahamas, and continually looks to partner with like-minded entrepreneurs who share its vision.
WSA: Good day from Wall Street, this is Juan Costello, senior analyst with the Wall Street Analyzer. Joining us today are Art Budman, CEO for Generation NEXT Franchise Brands along with the company’s Chairman, Nick Yates. The company trades in the U.S. here over the counter ticker symbol VEND. Thanks for joining us today gentlemen.
Nick Yates: Hi Juan, thank you.
Art Budman: Thank you.
Juan Costello: So starting off, please provide us a history and overview of the company here for some of our listeners that are new to the story.
Nick Yates: We’re essentially a developer of disruptive vending technology that uses various forms of robotics and we market and sell the products that we build now through various channels. Franchising is definitely our backbone. So today we have about 240 franchisees that represent one of our brands, Reis & Irvy’s, our newest brand.
We also license the technology to individuals and companies outside of the U.S. and very, very soon we will be owning and operating this technology ourselves. In addition, we also have another subsidiary called Fresh Healthy Vending. Fresh Healthy Vending was a pioneer of health food vending machines throughout the U.S. We sold about 350 franchises over the course of about six or so years. We don’t sell franchises of that product any more but we do maintain a certain number of those franchisees through the network.
WSA: Great. So yeah, bring us up to speed on some of your most recent news. As you’d mentioned, Reis & Irvy’s which is a robot-staffed frozen yogurt chain, you just had a deal there in Atlanta as well as some other distribution deals?
Nick Yates: Indeed. So really, for the last two years, we had been rebuilding and redeveloping. And then of course, commercializing some patents that we purchased from a company called Robofusion. We had started to develop this technology with a company called Lancer corp. As soon as we got through the prototype stage and proof of concept, we signed a deal with the largest industrial manufacturer in the world, a company called Flex to mass-produce this for us and just in the last month, has been the first time we rolled out production unit from Flex on behalf of our franchisees. So, we’re extremely excited to now be in a position to deliver units to franchisees that we pre-sold. It allows us to recognize revenue of which we have about $50 million sitting on our books as the third revenue right now. We’re in week one right now of fiscal 2019 and are very, very excited about the fact that we’ll be delivering and installing all of the units that we have pre-sold and continuing to market and sell the products not only through the U.S. but also outside of the U.S.
WSA: Sure, yeah. So what’s the market opportunity there as far as your main product and how are you positioning the company to capitalize?
Nick Yates: As I mentioned to you franchising is the backbone. Today, we presold around 1,200 units to franchisees throughout the U.S. and of course we’ve licensed four, five countries outside of the U.S.
Franchisees purchase from us anywhere between 3 and up to even 500 robots at a time depending on the size of the franchise, the size of the territory and the terms of the agreement that we have. We’ve sold exclusive franchise territory in Miami, in Atlanta, in Orange County, the City of Los Angeles, Pennsylvania, Columbus, Ohio and we continue to do that.
And at the same time, we also have single unit and multi-unit operators out there. The franchise – the proposition for us financially is that the smallest franchise we sell, which is three units results in a $150,000 of what we call deferred revenue each time that we sell that.
And we’ve sold territories that have commitments that are up to $23 million depending on the size of them. That is the U.S. financial model and the proposition. We’ll continue selling the U.S. and so we feel like the footprint is large enough for our franchisees to be able to grow as well. It’s still very early days for us. So as we put units into the field, and our franchisees get better versed in operating them, they’ll have the opportunity to grow into those areas.
Our exclusive franchisees commit to a certain number of units from the get go and then are required to purchase a number of units from us each month or each quarter throughout the length of the contract. And so we facilitate as many locations as we can.
The same thing applies to our international partners and licensees. For instance, if somebody who bought in Australia, he commits to X number of units upfront and then he’s required to purchase a certain number of units from us each quarter until the territory is filled up so to speak and we generate revenue from all of those sales.
We don’t recognize any of the revenue until the actual units are delivered and installed. So for about every unit that we install we would generate approximately $40,000 of revenue for the company. We just started rolling out units as I mentioned to you over the last three weeks or a month there. And we have a pipeline in place to deliver up to about 250 units per month at capacity and we think we can be at capacity within the next three months, possibly four. So we would have the ability to then deliver and install very quickly the 1,200 units we have pre-sold in an attempt to recognize the $50 million that’s on our books this fiscal year, and as many future sales that we get, having the ability to deliver them even quicker before the end of the fiscal year and as we progress is the goal for us.
And you know, as I mentioned to you earlier it’s great fun for us despite from the fact that we are starting to recognize that the revenue that’s been sitting on our books for quite a long time right now and from a shareholder perspective is a very, very compelling story for us to go from a company that does, you know, $5 million in revenue to one that has the potential to go up to $100 million of revenue this particular fiscal year.
Art Budman: And just to add, once the units are installed, we receive a 12% recurring revenue royalty.
WSA: Oh, great, and so yeah, do you guys think that the U.S. is grasping this trend of automation?
Nick Yates: There’s no doubt about it. In fact, the best way to respond to that question, Juan, is that the locations that we secure on behalf of our franchisees to place these units seems to have a very general theme right now. And that is they’re all looking for ways to go rent floor space with equipment that is unattended and automate it for the sake of improving the experience the customers have and at the same time, you know, getting a return on investment for a very, very small amount of foot space. So we are having a tremendous luck right now introducing ourselves to locations whether it be a trampoline park or a college or a hospital all the way through to some of the biggest retailers in the country who are very, very set on this unattended retail space. So we think the timing is perfect.
WSA: Yeah, especially with the real estate prices so high right now, people are looking for cheaper options…So in terms of some of the other goals and milestones, is there anything else we didn’t cover that you’re hoping to accomplish over the course of the next 6 to 12 months?
Nick Yates: Yeah, first priority as I mentioned to you is recognizing the revenue that we have sitting on our books for many, many reasons. But for the sake of shareholder value, we will continue licensing the product outside of the country. One new category or division of the business that’s about to launch is our own corporate owned stores if you will. And we’re pretty excited about that as well.
And the only other thing that I would mention to you is we have in very, very premature and early stages, started to conceive our next product, which will be another vending robot that dispenses a different type of consumable. We think it fits in perfectly with what we’re doing right now. And we think this new technology can sit side by side with the frozen yogurt and ice cream technology already created. And we hope to have more information about that coming up probably in the next 90 days. And we also hope to have the product fully developed and ready to commercialize within about 12 to possibly 18 months at the very latest.
WSA: Sure. And perhaps you guys can talk about your background and experience and you know who the key management team is?
Nick Yates: For sure. So I can tell you that I’ve been in the vending space to one degree or another since I was 17. I’m 42 now, so about 25 years. I was the pioneer of not only Australia’s but the U.S.’s health food vending company. No one had ever done that before. And I’m pretty sure my skill set is revolving around generating a way to reinvent vending concepts for the sake of franchising them and operating them. I think, Art, you could share a little bit about your background and then we can talk about some of the other people here if you like.
Art Budman: Yes, definitely. So my background is in finance and operations. I originally cut my teeth at Ernst & Young. Spent 10 years there as the senior manager in the audit department and left there and worked at a number of technology companies that raised capital for and took public, built up and sold. And I own several companies myself. I was introduced to Nick about four years ago and we really complement each others’ strength with Nick’s being in sales and marketing and mine being in finance and operations.
WSA: Sure. And so in terms of investors and the financial community, what are some of the key drivers there that you wish perhaps they better understood about you guys?
Nick Yates: You know, I think we’re the first company to take on the category of automated and robotic driven vending products. We have four very broad and secure patents, utility and design patents that we can expand on that allow us to not only dominate the frozen yogurt and ice cream unattended robotic vending space, but added to that with other products that dispense other consumables, that’s our goal. We are putting in place, right now some independent individuals and board members that will help, I think, bring a little bit more credibility to the company, also introduce auditing and compensation committees for the sake of checking off the things that are required for us to up-list this company to a more senior exchange.
That would definitely be one of our priorities right now. And if you’re a shareholder, we are in as I said to you, week one of fiscal 2019 right now, we have $50 million of deferred revenue on our books. We have about $130 million or actually about a $150 million of contracted commitments in one form or another. And we’re on the cusp of launching our next product, that we will replicate exactly what we’ve done here with – as far as franchising, licensing and complementing our own corporate operations. So, it’s a great time to be a shareholder. It’s a great year ahead of us in respect to all of those things and we couldn’t be more excited about the fact that we finally got here. It’s been certainly challenging, the last couple of years, getting here. But we kind of feel like we’ve jumped some major hurdles and we’re ready to rock and roll.
WSA: Well, great and so once again, joining us today are Nick Yates, Chairman for Generation NEXT Franchise Brands along with the company’s CEO Art Budman. The company trades over the counter ticker symbol VEND, currently trading at $2.29 per share, market cap is north of a $150 million, and before we conclude here gentlemen, to recap some of your key points. Why do you believe investors should consider the company as a good investment opportunity today?
Nick Yates: I think if anything that the brick and mortar franchising has recently encountered quite a few problems. The most obvious being the increase of minimum wage. So we are developing technology that allows brick and mortar concept to become unattended for the sake of placement in a massive variety of different locations where the customer is already evident and the foot traffic is already there for the sake of generating a return on investment.
And you know, I think, as far as innovation is concerned, I think we’ve aligned ourselves with a tremendous assortment of partners to help us not only develop the technology, but manufacture it, deliver it, install it and support it on a nationwide basis that will certainly give within the U.S. and also outside of the U.S. for our licensing partners. So that would be my answer.
WSA: Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. And we’d like to thank you guys for taking the time to join us today and update our investor audience on VEND. It was great having you on.
Nick Yates/Art Budman: Thanks, Juan, we appreciate it. Thank you.