Source: Company Presentation, February 2022
iFabric had its roots as far back as 1990 as an apparel business but in 2008 started to focus on developing technology to improve apparel in all sorts of different industries, from medical to consumer. The company eventually went public in 2012, with its textile technology focused on the medical market. The core of the company’s business is developing, testing, and distributing chemicals that they use to treat primarily fabric, with increasing applications on other surfaces. The company’s intimates line has generated decent returns but, like many retail brands, saw a falloff during COVID with a subsequent bounce back in 2021. The company renewed its Maidenform license for two years in December 2021, committing the company to the business line for at least the next couple of years.
Operationally, the company has research & development locations in Japan and China and has outsourced most of its production without long term contracts, primarily with one key manufacturing partner. The company has also outsourced its warehousing and fulfillment functions, making it a very lean operation, but requiring a focus on supply chain management. The company traditionally operated with its intellectual property as a trade secret. With the increase in focus on its product due to COVID, the company has started the patent development process for several of its formulations, notably Protx AV and AV Guard.
Industry/Market Overview
The company estimates that the global anti-microbial market was roughly $8.5 Billion in 2020, increasing to $11.5 Billion in 2027 based on a Researchandmarkets.com study. The follow-on effects from the COVID pandemic are likely to provide a tail wind as well with an increased focus on anti-bacterial and anti-viral, not just in apparel but on many other surfaces that require treatments like iFabric can offer.
Competition
The company’s biggest competitor is silver. Silver has been used since the 1950s and has a very strong anti-bacterial effect on apparel and textiles. The issue is that it is not necessarily the most environmentally friendly application. Run-off from dye houses that utilize it in their manufacturing are increasingly running into legal issues in Europe. With sustainability continuing to be a focus for companies, it is more than likely that this risk will expand to North America and other markets. iFabric does not use silver for any part of their treatments. There are other topical anti-bacterial & anti-viral providers which iFabric competes with.
iFabric is also starting its own brand of apparel, which will potentially bring it into competition with some of its customers like UnderArmour, Lululemon, North Face and the private labels for Walmart & Target.
Management / Board
iFabric utilize co-CEOs with Hylton Karon as CEO of iFabric and Giancarlo Beevis as CEO of IFTNA, the intelligent fabric division. This structure illustrates the importance of this division to the company as it has been and will be to the company’s anticipated growth driver. Mr. Karon owns 64% of the company so has a vested interest in its continued success.
The Board includes both CEOs and iFabric’s CFO, Hilton Price from the management team. It also has two members with experience in medtech and life sciences. Chairman Dr. Mark Cochran is the Executive director at John Hopkins while Cameron Broome has over 25 years of experience in the life sciences, including being CEO of Microbix. Long time director (from 2011) Mark Greenspan recently retired from the Board, who appointed Rich Macary as director on February 8, 2022. Mr. Macary brings substantial financial experience in the biotech and medtech areas.
Next Steps
iFabric has a lot of optionality to lever its solutions into new business lines. The biggest potential catalyst for the company is its US Environmental Protection Agency (EPA)claim. An EPA claim will allow the company to make medical claims on its products, which will both open up new potential lines as well as giving a marketing tool for the company and its partners on existing lines. The company started this claim five to six years ago and has had constant communication with the EPA in developing the standard to allow iFabric to make its claim. There is currently no other company with a Next Generation claim in place, which would give iFabric a substantial leg up on its competitors. In a press release from iFabric, the company disclosed that the EPA committed to getting approval for its claim in Q1 2022. These types of government timelines are tough to commit to, but iFabric was clearly quite confident in this communication to release a press release on the topic. The technology is already in products the company sells so this will allow additional marketing and potential volume scaling. It should improve pricing power as well, on top of potentially commanding a premium in specialty areas like medical clothing applications.
An additional benefit to the company’s claim is that its products are created to a higher standard than the EPA – AATC100 standard. As an example, for commercial scrubs, this assumes they are washed at an industrial cleaning standard at 135 Celsius and will pass a 100-wash test. The end customer in this case, the laundry industry (K-Bro as a Canadian example), only use scrubs for six months, with only one turn per week. This means iFabric treated scrubs rate at four times the current normal use rate, making the textile fabric the limiter, not iFabric’s treatment.
iFabric has partnered with a company, Charismatic, to do a clinical trial of its gear. Charismatic is a maker of scrubs and has invested $1 million into the company as part of the clinical trial. It was originally scheduled in 2021 but was delayed due to COVID. It is now starting in February 2022 with a focus on anti-bacterial, but with the potential to apply it anti-virally as well. The key purpose is to address Hospital Acquired Infections (HAIs) which can occur when going into a hospital for other reasons due to contamination. During COVID, hospitals have been operating at an un-naturally and un-economical state of cleanliness. The company does not feel that this will be sustainable in the long term so the trial will be conducted during a more normal cleanliness level. The trial is expected to take about 4 weeks to conduct with another 4-6 weeks to document and submit, giving a good test of its effectiveness.
iFabric continues to partner with leading apparel providers such as UnderArmour, Lululemon, Target and Walmart. An example of how lucrative these deals are is its deal with the North Face, a subsidiary of VF Corp. They have partnered to create Durable Water Repellant (DWR) clothing, which needs less washing so lasts longer while being C0 Carbon Free. According to management, North Face uses one hundred million feet of fabric a year with costs of $40 million for this fabric. It does not take much for even a small portion of this to move the needle for iFabric.
iFabric is also launching a private brand in the first half of 2022. Management does not expect this to cannibalize its current roster of businesses but expects to see higher margins because of having it all under one roof. They intend to market it as a day-to-day brand rather than a lifestyle brand, which seems closer to a private label-type product.
Finally, iFabric is branching into areas outside of textiles. The company has partnered with Tumi, part of the Samsonite luggage group, to develop material for their products and with Spring Mills for use of its products in home furnishings. They also conducted a test on Holland America cruise lines to test its products resistance to noro-viruses, which can be quite common on cruise ships.
Valuation
Financially, the company has some seasonality to its revenue, with a dip often occurring in Q2 (January to March). The company’s sales funnel normally leads its revenue realization by about a year. iFabric works with customers a year in advance to embed its technology in the design and manufacturing processes with its customers; this is simplified for its own line understandably. This does give management a good idea on revenue projections a year out to ensure its operations can meet requirements. For example, iFabric’s deals with both Tumi and Spring Mills are not generating revenues until 2022. The company is also not factoring any impacts from a successful EPA ruling in its projections. There is some customer concentration as 63% of revenues in 2021 (58% in 2020) relate to its top 3 customers, along with 76% and 77% of its accounts receivables.
The company’s recent Q1 saw a steep drop off in revenues from 2020. However, 2020’s numbers were skewed by a very large one-time order for masks associated with the COVID pandemic; without those, the company saw a nice jump again in its normally occurring revenues, while posting positive EBITDA and no real cash burn.
The company has a strong balance sheet, with $20 million in working capital and $8m in cash available, along with an unused $3.75 million operating line. The company raised $11.5 million in February of 2021 at $3.90 CAD per share with warrants at $4.60. This has allowed the company to avoid any further capital requirements going forward. This, combined with a low float due to the 64% insider ownership, makes for a very low average volume. The company recently hired an investor relations firm to help it gain better traction with investors both in Canada and in the US with its OTC listing.
If we look to the metrics, on the surface the ratios are not particularly cheap. This does not factor in the substantial growth that the company has seen over the last year and leading into 2022. The company has transitioned into relying more on the intelligent fabrics than earlier in its history, which are bringing higher margins and cash flow. Even with a down Q1 in 2022 (as noted above), we can see that the company is hitting an inflection point of profitability and revenue generation.
| 
