Q1 2020 Earnings Call
[music].
To the Mohawk Group Holdings Inc. Q1 earnings support calls this time all participants are in a listen only mode. After the speaker presentation. There will be question and answer session to ask a question. During this session. Please press star one on your telephone if you require any further assistance. Please press star zero I'd now like to hand, the conference over to your speaker illegal.
Ski please go ahead.
Thank you for joining us today to discuss Mohawks first quarter earnings results on the call. Today are you on Easter week whole founder and CEO and Fairbreeze, Some might chief financial Officer, a copy of today's press releases available on the Investor Relations section of Mohawks Web site at Mohawk GP Dot com.
I would like to remind you that certain statements. We will make in this presentation are forward looking statements and these forward looking statements reflect mohawks judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting mohawks business.
Accordingly, you should not place undue reliance on these forward looking statements for a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included in our first quarter.
The earnings release, as well as our filings with the FCC.
We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information future events or otherwise. In addition, the company may refer to certain non-GAAP metrics on this call.
Explanation of these metrics and a reconciliation of non gap to U.S. GAAP metrics can be found on the earnings release filed earlier today with that I'll turn the corner over to you need.
Thank you Andrea and good afternoon, everyone.
Thank you for joining us today for this call.
Well, that's the first and foremost thank our entire team anymore or all the hard work during the last several months many of whom I've been working remotely during this challenging time.
[laughter] keeping our people save continues to be our number one priority over.
I would also like to thank our vendors suppliers and other business partners, who have been incredibly supportive and helping us to ensure we have business continuity.
For those on the call we hope to you on your family and loved ones are facing huh.
Well the 19 has been a clear reminder, to all of us and we can ever take a reality for granted and they don't end up fragile mindset is essential to adopting kinds of crisis.
Mark vision is rooted in leveraging data and supply chain agility to quickly adapt to market need without limiting ourselves to a particular category of products.
The events of last month run important opportunity to put our business model in our culture to attack.
I'm very proud of that up the ability that our team has demonstrated through this crisis.
We announced last week, and we've launched a new consumer brand called harmonics commit the demand for personal protection product.
Identifying through the data that type of products consumers' needs during a pandemic and let them a feed in a kids have a black Swan event of this magnitude on market research wanted to within any will use more developed midmarket side and competition and to find white spaces in the market, which nevertheless was very very useful.
It's on our supply can side marketing in operation. That's with reaction was required to identify the white partners and set a roadmap for product for our new brand.
Well I lost you have only for the top priority for the company. We also recognize that we have the ability to assist those in great need for BP personal protection equipment and have dedicated a cross functional team to this effort.
I want to thank the members of the team for working around the clock to help with the effort, we are making to secure product for the many many a central worker than others, where we need.
The company involved in manufacturing importing and selling products across various categories.
We believe we have all the moving pieces are required to assist in the current situation.
It is therefore responsibility to step up and everything we can to join the fight against Koby 19, and we will continue to do so you know when it is commercially viable for a company, while maintaining strong ethics and responsibility.
Probably not but also play an accelerating rolling in our company's core model you comments is dramatically forward and its adoption, whether it's through our own and operate and Brian or through our mounted that business. We believe that the capabilities that we've been building are now more than ever incredibly valuable.
With our main channel Amazon seeing massive growth in demand for services, our sales of accelerated as we announced an increase of approximately 43% revenues during the first quarter of 2020 versus the first quarter of 2019.
I think all of you platform in and supply chain integration with Threepl warehousing partners proved invaluable during the first tribute to the pandemic as we were able to maintain high levels of service and delivery, where other logistic services, so disruption and delays in delivering items to consumers.
As we announced in our press release earlier today, we're continuing to witness an acceleration in our growth in April.
We closed April and approximately 75% growth versus the same off last year, while seeing improvement in overall contribution margin as well.
At this time pending any unforeseen events or disruption, we maintain an expectation of the company was real positive adjusted EBITDA in Q4 of this year as well in Q1, two or three as well in Q4.
Given the uncertainty surrounding probably 19, we put forward. These estimates caution in goes on the call or reading the statement, but MCO global events or other unforeseen incidents related to koby 19, including further supply some disruption could interfere with our plants.
From a strategic perspective Muslims management has convinced that means that they expect to secure profitability and adjust adjusted EBITDA level, while maintaining healthy growth.
We've built an incredible company in a powerful supply chain and technology platform in the last few years.
Now more than ever our execution, our model is essential to our mission of building the CPG company of the future.
I want to thank our entire team for all the hard work and dedication we've shown through the years.
We're looking to make 2020, a turning point gear for more group.
Finally, I'd like to thank the dose for his tenure at Mark as Marcio in the past years.
We're excited to welcome from what they see starting June 1st as our new CFO, who will be concerned Jen.
We believe that cultivating our executive leadership of the operational level in Asia as an important strategic investment for the company.
From our drink them off over 18 years of experience in consumer product development operations and supply chain management in China.
His strong technical background electro mechanical engineering, as well and senior management experience, which includes the we're seeing teams of up to 200 employees across product development sourcing and procurement quality control make him an ideal choice to run our operations Department.
We're thrilled to bring per month leadership to our executive team.
With that I'll pass it onto a brief to discuss our financial results.
Thanks, and even the good afternoon everyone.
Before discussing our results I also want to take the opportunity to place the first responders healthcare workers and medical provider score on the hotlines. So the good 19 bottle and our thoughts or with those that have been back to the of course.
I'd first like to note that we have other companies decided to provide monthly revenue information as it could be 19 situation create significant uncertainty for outsiders after its impact on our business.
Providing such information will get better visibility.
We plan on providing the monthly revenue results through Q2, and we'll reevaluate the need for monthly results in Q3.
Now moving to reviewing the operational performance details of our first quarter for the first quarter 2020, net revenue increased 43.6% to $25.6 million from $17.8 million in a year ago period and was in language or positive pre announcement in early April.
The increase was primarily attributable to increased direct sales volume.
8.1 billion or 47.7% growth.
Existing products as well as new products launched in the second half of 2019.
Our Q1 performance also benefited from the accelerated shift to online spending that began in mid March with outbreak of moving 19, even as overall consumer spending experienced a pullback due to the pandemic.
Following a 62% you over your increase in March net revenue the trend picked up pace as we moved into Q2 with April 2020 that revenue, increasing approximately 75% versus April 2019.
Gross margin for the first quarter increased 280 basis points from a year ago to 40.2% and was up 160 basis points on a sequential basis, excluding the write off of expired inventory products that impacted the fourth quarter.
The year over year improvement in gross margin was due to improved product unit economix in our sustained products as well as lower price promotions at coupons on our launch products.
As mentioned on our last call. We're now reporting our net revenue by each phase of our owned and operated products. As a reminder, they are launch sustain and managed msas liquidation and other we defined the launch phase, which on average with which on average last approximately three months.
As the period of time, where we are investing aggressively too.
Marketing spend being pricing coupons, Brent rebates or advertising that had a negative contribution margin on the product in order to gain a food holding the marketplace as defined contribution margin is revenue minus all of our variable costs.
After the launch phase products are expected to enter the sustained phase we target that these products will have a positive contribution margin of 10% Omar.
Our target contribution margin can be impacted by charges related to access inventory exceptional logistics charges related to Amazon and Fedex or you guess relationships and all applying the status to NIM to made a few.
Finally for products that are do not reach sustain or that we decide to exit the move to our liquidation face. The other categories include metastases liquidation and other.
For our first quarter 2020, our sustained revenue was approximately 16.9 million versus first quarter 19 sustained revenue of 13.3 million.
For Q1 2020, our launch revenue was approximately 6.2 million versus our Q1 launch revenue of 2.7 billion in Q4 lunch revenue itself was 3 million on a trailing basis.
Q1, 2020 were launched 16 products, which is less than you expected 20 products, primarily due to cobot 19 related delays.
The increase in lunch revenue in the quarter was also due to leak launches in Q4, which steel were in their launch phase in Q1.
Our Q1 2020, SaaS revenue was approximately 0.4 million versus our Q4 SaaS revenue is your 0.3 and do a 0.5 in Q1 2019 highly Q1 2020 liquidation and other revenue was approximately 2.2 million versus our Q4 liquidation and other revenue of 2 million and 1.3 million.
In the first quarter of 2019.
Our overall Q1 2020 contribution margin was negative 2.9%.
An improvement versus the prior year, 4.5% and the Q4 2019 of 6.6%.
And our sustaining contribution margin was 6.4% versus the prior years zero negative, 0.8% and the Q4 2019 of 5.8% the year over year improvement was driven by significantly improved unit economy and margin expansion on our sustained revenue, which more than offset the margin drag from.
The increase in lunch revenue.
On a trailing quarter basis, the improvement towards probably driven by the liquidation phase as our Q4 results contained impacts of certain inventory write offs I would note or sustain contribution margin was impacted as we incurred onetime costs related to the opening of our additional warehouses. We are now at nine up.
Racial warehouses and over 50% of our sales are now delivered in one day twok customers at a lower fulfillment cost.
Fixed costs for 200, 2020 were 5.7 billion or 22% of net revenue compared to 4.8 million or 27% of net revenue in the first quarter of 2019.
0.9 million increase was driven by public company costs, such as audit fees and de into insurance our headcount at the end of Q1 2020 was 146 versus 142 at the end of Q1 2019.
The improvement in fixed cost as a percentage of net revenue from 27% to 22% highlights our ability to launch new products and grow revenue, while keeping fixed cost essentially flat.
We expect significant fixed cost reductions in the second half both of our public company costs as well as of our operational cost as we continue to benefit from the automation provided by our platform.
Adjusted EBITDA for the first quarter of 2020 decreased to a loss of $6.4 million from a loss of 5.6 billion in the first quarter of 2019, driven by public company costs.
And.
As well as.
Additional launch of new products on a sequential basis adjusted EBITDA improved from a loss of 7.6 million in the fourth quarter of 2019.
Our path to profitability is a function of more revenue, reaching to sustain phase margin expansion of or sustain products and continuing to optimize our fixed cost structure as we continue to automate to Amy and lead to continued improvement in adjusted EBITDA.
Turning to the balance sheet as of March 2020 would had $14.1 million of cash computer to with 30.4 million at the end of December 30, Onest 2019 cash receipt operating activities for the first quarter was 17.2 million compared to cash used in operating activities of 12.1 million in the fourth quarter of 2019.
Which was impacted by increased cash operating loss and increased cash usage in working capital as we increased our inventory on hand, as a result of traditional seasonality Judy Chinese new year as well as dettori for risk in Q4 2019.
And the call good night and the end liquid lead the way you mentioned the impact on the supply chain as well.
Based on historical trends, we expect that to generate cash from working capital in Q2 and Q3.
Overall cash burn was 16.3 million compared to 5.3 million in the fourth quarter of 2019 due to the significant increase in working capital spending.
Total debt as of March 31st 2020, or 39.9 million consisting of borrowing under our revolving credit facility in over $50 million term loan as compared to total debt of 37.9 million as of December 31st 2019 increases a direct reflection of or planned increased inventory.
As it relates to core and of ours as discussed on our Q4 call. The outbreak of good 19 in generally had an unfavorable impact on some of our key manufacturing partners in China.
In addition to negatively impacting work operations for team in Shenzhen, who are responsible for product sourcing and devolvement among other things.
Our key manufacturing partners in China reopened and on February 10, and kooky reached over 90% capacity early in March 2020.
In March 2020, you look at 19 outbreak became increasingly widespread in us and given its impact across the us including the temporary closures of many businesses shelter in place and other governmental regulations and despite a significant overall decrease in consumer spending we have seen an increasing demand for our products.
Across multiple categories of consumers are spending a more stronger share of their spending online.
I would note that the longer term impact on our revenues profitability and financial position is uncertain at this time, though the current trend seems to indicate that the shift to online spending far outweighs. The overall construction consumer spending and likely is a step function increase in the adoption of online shopping.
In terms of our outlook for 2020, we expect to launch approximately 10, new products during the second quarter approximately 20 in the second half.
Were slowing down our rate to launch due to the data volatility we see in consumer behavior.
Provides a more complex environment for a long process as well as our focus on reaching profitability in Q3 in Q4.
For 2020, we currently expect net revenue to be in the range of 165 to 175 million an increase from our previously stated guidance of 160 to 170 million.
It's improved outlook is driven primarily by continued growth of our existing product portfolio and the positive contribution from new products launched in 2020.
We have incorporated the potential impacts of the coded 19 in terms of inventory constraints for existing products platen delays in new product launches consumer spending contraction in overall shift to online commerce into our guidance.
Well, we we expect the the adjusted EBITDA with respect to adjusted EBITDA. We continue to expect positive adjusted EBITDA in the third quarter 2020, and now expect to achieve positive adjusted EBITDA in the fourth quarter of 2020 as well.
Driven by further improvements in our fixed cost leverage ratio and how your revenue growth due in part to the accelerated adoption of online spending.
With that I'll turn it back to operator for.
Questions. Thank you.
Certainly ladies and gentlemen, I give a question at this time puts us at star and the number one key on the telephone.
Please press the pound teacher like yourself on the Q working at Star One asked the question.
First question comes on line, Tom Forte with D.A. Davidson Your line is open.
Great. Thank you for taking my question I hope everyone's doing well stay well. So the question I had is I wanted to address what I think is the biggest splits understanding when it comes here storied investors. So that's the role of Amazon. So in particular with Amazon leaned into essentially.
What challenges to that create for Mohawk group, what opportunities to create for Mohawk group.
For me as I mentioned anything about one hey, Tom Thanks for the question.
So as as I think a lot of people on the call no.
When retail obviously being close out to a to consumers Amazon as seen incredible uptick in demand to the point where their own fulfillment warehouses.
We're literally crumbling on the load and I think everyone of them, where the Dave's I try to hire another 100000 people to work had crossed the warehouse at an anticipated to continue.
We had mark of course, you know I've I've Amazon is a large channel for us some of our product that's still rely on the Amazon logistic infrastructure were impacted by Dennis.
Obviously.
Situation that out of them with them was going through but at the same time. The investment we made on the technology side started over three years ago, when building up our own software infrastructure and and Threepl infrastructure to do our own fulfillment and with the fact that almost 80% of our revenue todays flowing through our.
Our fulfillment platform.
We were able to really kind of mitigate the.
The effect on Mohawk and continue to operate.
Pretty much in than we completely without any interruptions on the.
On the core revenue products right and so that allowed us.
Not only due to just be around there for consumers and help them with the product that they need but given that most other third party sellers, who are using Amazon logistics saw delays in shipping we add an advantage. During this period of time as our product with those shipping within the.
One or two day shipping that we that we put on to our own platform right. So.
And here again is a great example of how on one hand, Amazon being being relying on the Amazon platform has been very useful for Mohawk, but at the same foundry investment in the technology has proved.
To be really unique and positioning within a unique place to not be over the dependent as well right.
So we're not perspective, we saw significant uptick in thousand and continue to see that another thing we should mention is that.
More more coincidentally them, then actually in planning right a lot of the categories that we decided to get end because the data in the regular course of of consumerism showed.
A significant opportunity wed we saw set an item in some categories just absolutely falling off the shelves, specifically, we launched a line of freezers and chest reserves that part of our whole knobs.
Category, we saw those items really kind of flying off the shelves in a first oh.
Couple of days of of that that started with the announcement. The koby 19 was going to cause people to have to stay at home so products like that freezers products like.
The the spending desk for home office, but I'd hair tremors also the product that we had brought into the market due to more traditional kind of data showing us that we can take market share.
Massive increase in demand and sales.
During the first days it up and then you've got people. We're looking for these type of items not knowing when they can be able to go back and vitamins doors. So.
Overall, you know I think that could be 19 is still a challenging environment for for every company out there I'd say that through our investments in technology and infrastructure, we were able to navigate the situation pretty well.
The unknown is still ahead of us and so say that cautiously.
Thank you are going to step back into queue. Thanks.
Thank you and our next question comes from the line of Brian.
No what the line Global partners. Your line is open.
Great Hi, Thanks, guys.
As you expand their protective equipment and wellness market.
I'm curious I am trying to understand your comments if you use the same guidepost for example, you mixing in hand, it sorry hand sanitizer.
There's significant demand are you going to look past being the top two or three sellers. For example, and this is a way to be socially responsible while also making money on those product.
So on these type of products right. Those two initiatives that I spoke about and Mccall with a few minutes ago.
One is a more traditional core business model, where again as the data showing us.
Increased demand and in this case really.
Very low supplies right now for all these type of type of PB equipment, we on the core business decided to launch a brand our that's going to focus specifically on that and just in our traditional way I use the software and the data to zooming in on particular needs because there really with alone for example, the first part that we.
Launched is a unique kind of set of a hand sanitizers that are more portable that little patches that you can take with you pretty much anywhere.
Those are really focused on searches by consumers that are more related to on the go and travel and we wanted to bring a form factor to into the market that was unique from that perspective, and that's the first product we decided to do just again purely based on what we typically do with the data and how we bring products to market and that's again something that we will continue to do across the entire got.
Diggory at the same time as I mentioned earlier in my comments given that we have.
All the moving pieces to help.
With I would say more kind of like B to B type of business, where a lot of demand for BP in the market is out there for state government in hospitals, we we decided to allocate some resources and specifically a cross functional team that would look particularly at that opportunity and.
You know have again put in place.
In an effort to to help at Santana and again, a business sustainable way.
With this effort given that we have all the need that not all the moving pieces to go and do that sites. So we felt that it was a responsibility as well as an opportunity for us to do though and we'll continue to do that.
Demand increases both on the BBB to be but also more importantly, with our core business that we will onek Brian.
Great. Thanks.
Can you I don't know if you can give this sort of have an idea yet do you know the 30 products that you expect introduced in the third second third and fourth quarter, how many will be from this new category.
Yeah, It's a great question.
As mentioned before.
On one hand, we have exponentially explosive data on all the demand for BP right, which is.
Quite quite.
Interesting and exciting when you're able to capture that data and you have to supply can to react quickly through it. So there's definitely an inclination to go and try to.
Take advantage of that that then momentum that's happening in that category and probably take a lot of those products will come up and other products coming in.
35 that we mentioned are going to go into that category at the same time.
Again from just mentioned earlier since there's so much volatility still end up I'd say the man for more traditional consumer goods, we want to see how things pan out in the next quarter or so.
Really kind of figure out exactly how much of those products. This year will go into the other category. So the situation is quite fluid. We're looking out a lot of opportunities across the two different sides of this equation right both be more traditional items on the day to day and the.
PV related items were convinced that obviously with homeowners in the BB. The demand is going to this strong in our opinion for awhile and that it doesn't make a lot of sense to go and again leveraging data and the supply chain that we have to quickly react to this and take market share where we can in the long run not just with the prices of course.
So again the situation still fluid were evaluating we're always prioritizing on the go based on the data.
But a significant part of that location should probably definitely end up in the under the homeowner Brent to answer your question.
One last question I'll get back into queue for breach.
Inventory Bill build was quite significant im sure that youd good amount of cash and can you talk about for the products that are driving growth in March and April are you easily replacing that inventory.
So the fulfillment side of things from a from a supply chain perspective. This is really completely back to normal now to be honest.
I indicated when we see growth across almost all of our products.
Some of them or outliers and or.
Not growing quite exploding right. So I can mention for example in your I think we're talking about it.
And over the course of confinement those products actually change it started with with Freezers and we ended up actually running out of freezers, because you ended up actually having a growth that was.
Astronomical minus compared to two standard third levels, despite or or inventory long position.
We we still ended up actually running out of inventory. So then after that you've got manufacturing cycle shipping and so on and so on which takes place and.
There was nothing you can do about that right after that and move to.
Air Purifiers and after that it move to hear triggers and after the third week confinement when people realize should become not go to the barbershop right. So.
And then after the first week of Confinements being totally board or moving to actually get out of the house. The ended up actually jumping on everything that had gardening tools in it.
So those are out layers brown exceptional basis, but for the normal.
Massive were significant growth that we've seen across all products from that shift to online.
Spending.
Thanks to our inventory in one position, we have not run out Schwartz and and we are actually able to replenish the normal rate.
Without any significant disruption.
Sorry, just one follow up to that race to that end.
Consumers and all people.
All around want another freezer another refrigerator right now to have as much food is they can.
How long does it take to build inventory back up for it.
Yeah. The real issue here is you have two separate in the increasing volume the the lift from the permanent gross of ecommerce.
So a portion of the gross that you. So for example in E Commerce is.
Massive fear of.
Of food food lines disruptions in the end and and food supply chain disruptions and therefore, I'm putting up on extra food.
That's the onetime blip on the dividend.
The second part of the increase in demand is the more permanent or some of it as it is part time or short lived but most of it will be long live that is a permanent acceleration of the online that means that the online channel will take a bigger share of the coal.
Yes, freezer markets sold every year.
You want to reorder.
For that movement not for the blip because the blip is not in the last forever and then you if you actually reordered based on the blip itself you end up actually being inventory long for long time right at the blood.
Disappear. So it's still just the challenge on the inventory side today is to always actually parse the increase in demand from the blip factor or the onetime factor versus the permanent.
Market share gain in the overall consumer spending interest reserves right. So.
It's it's not always easy.
We are.
Making a strong focus on profitability so.
Instead of carrying inventory for a long period of time.
We will actually potentially on occasion be inventory short on some products. If we don't parse the extra demand correctly between the blip and the permanent the permanent growth factor.
But overall, that's one of the advantage of being data driven that you can actually see the overall change and whether or not to the you can see afterwards that just reserves are going back down not to the level. It was before right. It's still quite Eugene exempt right not to the lowest before but still higher than before and when you see that then you can actually assess correctly.
What is the long term market share gain on line, the real consumer spending and thats on that basis that you're actually does your inventory.
Great. Thanks, so much I'll get back into queue.
Yes.
Thank you next question comes from the line of Allen Klee with National Securities. Your line is open.
Yes, Hi could you talk a little about.
How do you think about the revenue run rate.
To get to to be sustainable.
Profitable.
Perhaps if you could address this in terms of contribution margin and fixed costs I mean, the way I looked at it from what you just said now.
You said, a 5.7 million fixed costs. This quarter and then I don't know if you assumed a blended contribution margin of if I made up 8% that would imply around 71 million of revenue.
Got you. There is is that the way you think of it or is there. Some other way that we should we should be thank you. So yes that thanks, Alan for the question had to.
Are very important question so.
Remember that our blended contribution margins actually made of or it is impacted negatively by the number of parts that we launch right.
And as you saw a force in Q1.
We actually launched a massive number of new products and we also had all of the ones that were launched in December which was also extremely north. So we launched a record number of products in Q1, right that'd be great very significantly year cmes.
And so by the changes that were doing here is slowing down a little bit on the new launches, which will improve so the overall cm and then on the sustained cm itself, you're gaining nail with the new warehousing platform that we implemented throughout Q1.
And the new deal that we signed would you PS three weeks ago now four weeks ago that is now fully operational.
99.9% of or goods right now were shipped by U.P. us.
Are you going to see margin expansion, starting to actually happened quite a bit.
That that was the one of the intention of moving to the new operational flow.
Thats on the cm side. So you can see SCM expansion on sustain and because the port the proportion of sustained to the overall revenue will increase, especially with the acute in Q2 in Q3 being or seasonally high.
Numbers will start actually seeing a bigger cm positive cm contribution dollars.
The same time as I indicated.
One of the benefit of the platform is as we automate things. It allows us to then go back down on our investment in fixed cost because we automated a new portion of the platform for example, so.
Our fixed cost is actually going to go down from the 5.7.
Not so much in Q2, a little bit in Q2, but not much but more significantly in Q3 in Q4, and it's also linked to the fact that it's a one year.
So June 14 will be a one year of public company listing and that means that there were some costs that you actually paid on the first year that are extremely high that can go down.
Because because you're not missing.
The same company anymore I'm thinking of General insurance for example, where your rates are extremely high on the first year and then go back down quite significantly on your too.
Starting on your two so our fixed costs will go down as well. So you have the called the combination of.
Its margin expansion on the cm business on the on the margin expansion on the stain business.
Okay higher proportion of sustain business in the total number of self total amount of cells and lower fixed cost as well and thats. The way you actually get to the profitability level in Q3 and Q4.
That's very helpful. Thank you.
Please.
Turning to your third party logistics some.
Opportunity to sell to others.
First off.
How do we think about of how big an opportunity and if you've had any traction there and then second Im just what you just said of Youre going to benefit with your new deal with you PS It's interesting because the I'd like to companies I cover that does actually due to warehouse and logistics for E. Commerce and then if you just look at Amazon.
There are costs are going up significantly took to provide because of what they have to do with social distance seeing and safety measures.
And I was just wondering is there risk that those higher costs of them running their businesses could get.
Passed along to you.
So I'll I'll take the cost side, and then you will talk together to the to the society perfect I works anyway, Okay great.
On the call on the cost side.
So the advantage of our platform is that.
We are sure Youre distributed on the warehousing side, but Thats, where you have most of that extra cost because of social distancing, having less workers in the in the warehouse and so on its one but we have the benefit of actually having out of the nine warehouses.
Those are actually supported by six different companies right.
So we can always actually and of course to the rules are actually different state by state the situation of the Qubits into of the covered 19 is different by state by state and all of those elements actually play into having a different.
Implementation of the social distancing and meeting has for extra workers and not so.
The carrying on extra cost carried by our providers is not as significant the second reason as most of the revenue that we actually drive to our DM platformone fulfillment.
Work.
What we call oversized they're very simple from a logistics from a warehousing and pick it back process. It is not a complex process, where you have one person or multiple people going into multiple aisles crossing each other and so when it's all right. When you buy your humidifier the orders for demystify you one person.
Those gets to the Unifire puts the puts the label on it.
On the on the on the on the deck ready to be picked up by you've yes.
Very little interactions with multiple people. So we don't have actually those extra costs and social dispensing because by definition the type of products that we sell our actually already being carried by a single person into single out by so that's that's the reason why we're not suffering from from that and then finally.
The indicates of yes of course, there's one person in the truck so the cost of U.P.S. and itself is actually not really going up.
But yes is.
Very very happy to actually pickup or increased volume right, we shipped through SBM last year.
Of ourselves through our own fulfillment network, approximately 1.4 million orders individual orders.
And we had shipped the year before.
Less than 600000.
Everybody wants that growth.
And that's the reason why you were actually having purchasing power, which we benefit from there's still make money towards that.
That's a less of the more they were making less margin with us than they were doing before because they have a volume gain with us.
That's on the cost side I'll, let Danny respond on the on the the uptake from a soft perspective.
Thank you for risk.
So yeah in terms of in terms of offering the platform as a service and particularly when it comes through the the fulfillment.
I think as mentioned the independence of the logistics platform of Amazon coupled with also the optimizations we've done.
Around the categories that are what we call oversized is giving us a unique advantage right I mean, I think we talked about it in the path, but one of the challenges that a lot of the other logistics platform and infrastructure have as when they are asking too.
Warehousing ship larger items, they're doing that basically the cost of a lot of smaller items that they could potentially having their portfolio and therefore the prices typically will overtime is that im shipping through the Amazon to be platform or other competing logistics platforms are quite high and for the strategy on board.
Taking here is.
As you can see also from our.
A roadmap on the product right, we've gone to significantly higher sized categories and we've optimized our fulfillment platform to be very very cost efficient in fact, typically most cost efficient than other competitors. When it comes to oversized product and so from that perspective, the strategy of going after.
The fast revenue in this category is going through initially probably put a lot of focus on these type of December categories as well so companies out there who are selling furniture appliances.
Okay and some other industrial items that are typically larger size we have.
Sorry, I am very compelling.
Value for them just purely from a unit economics when it comes to shipping their items right and so what we're doing is we're focusing on these companies first given them not just the fulfillment off of the other capabilities that the platform given right, including the automation the marketing, but when that anchor of unit economics that is quite strong in.
And should give us.
Viewed advantage over at anyone out there we're going out there right. So that they were competing against when the service and so between that the ability to fulfill prime we think that.
With this focus will be able to bring yen.
Sellers and vendors on ecommerce platforms that we want to benefit from that and whats very unique about the way. The business is bill is that with the two legs that we have our owned and operated and the third party the third party SaaS customers.
All of them flow through the same logistics infrastructure, right, which gives us economies of scale because as we put in more and more revenue on the platform, whether it's our owned and operated or through SaaS, We're able to continue to increase the volumes and continued to keep an appetite from the different players on the logistics last month fulfillment side to give us better.
In better rate, which would then should then hopefully effect both the contribution margin on our own products as well as somewhat partners right. So it's a volume play I think that we are already mark itself. What its owned and operated business is already a significant player in terms of the volume and any client that we would add on the SaaS.
Slide.
Should help us on both sides of the business both in our when an operated cm, but also in offering them better value as we continue to negotiate better pricing.
Thank you very helpful. My last question is have there been any changes in the metrics of the success rates of your launches in the average revenue per product sold.
So the average revenue per product sold is actually a of obviously a vulnerable to the products that we sell in and we launched a you know a line of JV to five years, some chest freezers products like this which are of course, how your value or ticket items from a price perspective.
When it comes to success ratio were.
When you analyze all of for the products that will launch from December all the way through end of March of a significant majority of them more still actually in luxury. So it's too early you actually give an update on the success ratio in sort and so on.
And we'll we'll provide.
Better visibility actually to the success ratio. The Q1 launches for example, when we get to announced in Q2 numbers in late July early August but by then.
Neither are they move to sustain or they actually moved to liquidate, but then we have actually completed the entire cycle by them right.
Okay. Thank you so much.
Yes.
Thank you operator next question comes the line of Matt Koranda with Roth Capital Partners. Your line is open.
Hi, its skus stepping on for Matt.
Congrats on the quarter.
First so you guys raise the guide by 10 million.
And you talked about April being up 75% after March being up 62.
Kind of help us understand the building blocks to that guide.
Is that just partially you know demand falling as consumers come out of locked down.
Or is it also like like how do you tie that also to like the new product launches.
Yes so.
First of course, as we're going to launch less products.
Overall, right I mean, we're on pace to actually launch.
Seven products six products to seven products, a month right and were really.
Looking at down for the moment until we see more stability in the data itself right.
And we don't know how long it's going to be so we're taking a very prudent and cautious approach from that perspective, and and saying we for the moment for the rest of the year, we're planning on our on AWS slowed down.
Number of new products, we may very well actually decide to or have the opportunity to accelerate should the market conditions change right, but of course, nobody knows how to good situation is going to impact us in the rest of Q2 Q3, or even Q4 right.
So we're taking a cautious approach to that so that's actually.
The negative view on the top line on the other side as we said I mean right now we're seeing.
Significant acceleration in cells as you noted the you know 75% in April. So if you were tickets that straight line into those guys are growing 75% or they're increasing only by 10 million because we don't know with it we know that a portion of that 75% will stay once the flip side.
Things.
Disappears once retail stores open though the other thing that we actually knew as well is that the adoption of online spending will remain so as consumer spending will increase overall during their spending soon will lead to consumer will increase your spending overall, a bigger share of it will will stay online.
How much we don't know yet.
So there's a lot of uncertainty, which we baked into that number.
And.
And and came to a lot of very strong positive factors.
Some short term so under long term like the adoption of online.
Like our advantage on on fulfillment and delivery dates for example.
And and some negative with slowing down the rate of growth of new products and that's the reason why we up we came to that 165 through increasing or topline guidance by 10 million and we'll provide in due course, the revisit if need be.
When we announced Q2 in Q3.
Got it that's fair enough. Thank you for walking us through.
And kind of just.
On the Threepi and software.
Manage hsas and then Threepl.
Are you seeing any of your customers just go straight.
I wonder using that FDA, just go straight to mohawks threepl, rather than going biomass shops, how do you think about that.
So.
The operating is somewhat related right like you I when we offer the SaaS managed service right.
Filament, either or not part of it right.
When you look at smaller categories of items. For example, they are trying that would be more on the make upside right.
We would advise them too.
Take our managed SAS offerings, but net leverage the Amazon network and MBS network unless there was interruptions there because of could be 19, we would we would advise them to use all our other modules, but not use the fulfillment because.
But do you have a lot and we don't we don't Intelli, yet have an advantage or will have in fairly forget a time on the fulfillment costs right and so I'm really it depends a lot on the nature of the manifest client where in some cases, we would offer them all the modules, including fulfillment in some cases it might be just for some product.
So it's a bit of an iconic art approach, but as I mentioned before.
Because of the.
Quite obvious advantage on the unit economics would be overtime. We're looking in terms of focus right now to look a little more of these type of a of company than and then of course, if others come in and I'm interested in the offering regardless of the fulfillment and we'll look at them as well, but from an outbound perspective, our focuses more on.
Those larger oversized categories as an account.
Yes, so those thanks.
Hello.
Thank you and our next question comes on the line.
Currently available for your line is open.
Great. Thanks, a follow up question for me and then everyone stay well so on their earnings call. Another innovative tech companies Shopify suggested that covert 19, essentially move this 10 years in the future from a technology standpoint would you agree and how is that beneficial to look good.
When you say from a technology perspective, I assume you mean from a from a consumer perspective right adopting the technology of E Commerce.
Is that right, Tom and I get that question correctly, well well both from an adoption standpoint and.
Because of the increasing importance of digital.
From a technological standpoint, it requires companies to be more technologically advanced.
Yes, I don't know that makes sense, yeah, I mean, I would say that I agree it very much when the statement I think we'll continue to see an acceleration of of ecommerce adoption and you're right on both sides rights consumers.
Who are definitely on the fence previously.
We'll probably again make the effort of adopting online and once once that effort as achieve and the convenience of online is something that shows up on their door and you'll have to go to the stores anymore. We certainly believe that there's going to be a leap forward in that adoption of the consumer side when it comes to the business side right the company's concern.
We bought a company.
We also see let us quite a benefit from our guys as them a lot of CPG companies that in the path to maybe a slower.
Kind of like approach to Digitalized himself and become.
Better suited for online are going to seek to accelerate that now a lot of them all going to look at ecommerce has a more critical.
Path for their future that they need to.
Adapt to and I think that when it comes to a managed SAP covering.
This this should be an opportunity for us if we execute well to offer them solutions that I.
Thank you.
Uniquely for US we're positioned to really offer solutions that are kind of turnkey end to end as opposed to.
Just the software and I think that that could become an advantage as more consumer companies look to again become better and E commerce. So hopefully.
Again, all depends on our execution, but on both ends I think that market is really at the right play for the right time wed either its own operated business.
Leveraging the higher demand of consumers for online products as well as on the CPG side of companies that have been doing well in retail looking to accelerate now they're going to believe them online.
If you could well could become.
Significant partners on the on the managed outside.
Thanks for taking my questions.
Thank you Tom.
Thank you and I'm not showing any further questions at this time I'd now like to turn the call back your speaker.
Thank you everyone for if M&A I appreciate the depend on the call and now we will reported speaking to you again in the next earning calls thank you.
Thank you ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
Everyone have a coupon.
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