Q4 2020 1-800-Flowers.Com Inc Earnings Call
[music].
Welcome to one 800 flowers.
Full year, 2024th quarter I told your results conference call all participants will be in listen only mode did you datasets that basic teleconference, especially by pressing star Kate So like I say route.
After today's presentation, there will be an opportunity to ask questions.
Asked the question that press Star then one I gotta catch bounce out [noise].
Please note. This event is being recorded I.
I would I like to turn the conference over to tell the Tito.
Senior Vice President Investor Relations and corporate communication. Please go ahead.
Okay.
Good morning, and thank you all for joining us today to discuss what are your floors on coal [laughter] financial results for fiscal 2024th quarter and full year.
Those of you know she is a copy of our press release issued earlier. This morning, we started the access at the Investor Relations section of our corporate website at <unk>.
Dot com.
I'll call today, we'll begin with brief opening remarks.
Well to your questions.
They will be personally KFC Hill, and Bill Shacey helpful.
Already give it to remind everyone that some of the statements. We will make today maybe forward looking within the meaning of the private Securities Litigation Reform Act like piece by default.
These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements.
For a detailed description of these risks and uncertainties. Please refer to our press release issued this morning, I suppose or as you see filings, including the Companys annual report on form 10-K quarterly reports on form 10-Q.
In addition, this morning, we'll discuss certain supplementary financial measures that were not prepared in accordance with generally accepted accounting principles.
Reconciliations of these non-GAAP financial measures the most directly comparable GAAP measures can be found the tables accompanying the company's press release issued this morning.
The company expressly disclaims any intention or obligation to update any other forward looking statements made on todays call. According to the next call. The press release issued earlier today already Macheski she filings, except as maybe otherwise stated by the company.
I'll now turn the call over the course Mccann.
Morning, everyone. Thank you all to join this morning, I'd like to be good by acknowledging all of our associates across the company for their dedication and hard work and helping our customers to stay connected and expect express themselves. Despite the unprecedented challenges brought on by to cope with 19 pandemic.
I am grateful and proud.
Record revenue and profit growth, both the fourth quarter and the full yeah. There is a testament today with us and demonstrates the effective execution of our strategy to engage with our customers and drive sustainable long term growth.
As we noted in our call at the end of April through the first three quarters of the year before the impact that the pandemic, we achieved solid top and bottom line growth as well as strong growth in our customer files.
This reflects our ability to leverage our business platform, including our Allstar family of brands I'll focus on innovation and technology and product development digital marketing experience and expertise and our dedication to providing a truly exemplary customer service.
Well, yes, it Q4 of them. This momentum when she was further accelerated by the impact the pandemic as customers increasingly turn into a trusted brands and innovative products to help them remain connected and express themselves don't have fairly difficult period.
As a result already strong customer demand levels rose dramatically across how floral and gourmet gift brands.
Got it may opposing gift basket segment revenue for the quarter increased more than 112% as products and product collections that had already been showing strong growth became the go to purchases for our customers.
Products like the Harry <unk>, David call. It May line of prepared foods from Shopko do we boards to complete family meals. The popcorn factories tens was pop featuring relevant means like a socially distant hub.
Troubles cookies sentiments collection.
<unk> sentiment for every moment such as here for you great job you're also.
And Sharis berries, which continues to perform ahead of expectations.
These products along with the expanded offerings [laughter] from one end onto baskets simply chocolate and what we've basically.
Our custom is softer then need to connect and express themselves for both holidays and everyday occasions throughout the quarter.
Our focus on operational excellence without full display during the quarter as we expanded our production and fulfillment capacity to meet the rising customer demand levels, while concurrently adapting our facilities to protect the health and safety about associates offenders and our customers as well.
His old even while absorbing increased operating cost associated with the pandemic, we achieved record segment contribution margin for the quarter.
And our consumer floral business during the quarter. The one at a bunch of flowers brand benefited from strong growth for the Easter and mothers day holiday period, combined with increasing demand everyday occasions, such as birthday anniversary sympathy and get well.
During the quarter custom is also responded well to our continued focus on product innovation.
Including the expansion of the what do you want to flowers plants shot featuring a growing assortment of highly popular succulents and large house plans.
New compensation Roses, with heartfelt sense sentiment literally printed right on the Roes petals themselves and the launch of our new Jason will while beauty line featuring the exclusive floral creations of one of the hottest fashion trend centers on the seen today.
As a result, we achieve strong revenue growth of more than 46% during the quarter.
And further expand into one 800 flowers brands market leadership position.
This growth combined with enhanced operating leveraged enabled us to more than doubled segment contribution margin compared with last year's fourth quarter.
Yeah Bloomnet business.
The quarter, we continue to focus on providing a broad range of programs and services to help out local florist members weather very challenging environment.
For example, in addition to waving membership fees for the month of April we provided flowers with information and assistance related to state and federal support programs.
And as we head into the key mother's day period, we work closely with Florida throughout the country to help them navigate the pandemic impacts so they can safely expand their fulfillment capacity and achieve a much needed boosted that business.
The strong performance of the 100 follows Brad helped us deliver significant order volume tough florist during the mother's day period and throughout the quarter.
As a result, Bloomnet grew revenues nearly 11% during this very challenging period.
During the quarter. We also launched several new programs to help out florist, including on demand personalize greeting cards that enabled us to achieve additional revenue on orders from one 800 flowers.
For reality now a digital digital learning platform for continuing education, and Blue networks, a question cost savings and profit enhancing programs.
These programs among others are designed to help out florist members, whether the common pandemics crisis and grow that business is profitably going forward.
Well Bloomnet segment contribution margin for the quarter was impacted by the actions. We took during the period to help out florist, including the waving of membership fees in April we are confident that it will bounce back during the current fiscal first quarter.
Now before I hand, the call over to build to some further details I'd like to point out the strong performance and growth in our customer file.
The first three quarters of fiscal 20, we achieved solid growth from existing customers, along with more than 10% growth and new customers.
This reflected the trust custom is having a great family of brands, the expanded product or the product offering a truly original products designed specifically to help them express themselves and the evolution of our marketing messaging messaging crafted to be more relevant to engage directly with our customers in a two way dialogue enter.
Focus on the experience of connection.
These factors positioned us well as we entered the fourth quarter, enabling us to respond effectively to rising customer demand and interest as a result, new customer growth accelerated dramatically during the quarter driving full year, new customer growth to more than 30%.
Growth in our passport loyalty program and in multi brand customers are best performing cohort was even stronger.
These trends along with strong demand for existing customers have continued into our current fiscal first quarter and bode well for the upcoming holiday season.
Lastly, we're very pleased to have completed our acquisition of personalization mall Dot com earlier this month.
You can say this took us a while to get this one doesn't having tried originally to acquire Pmall all the way back in 2016, and we're very pleased to have closed the acquisition well ahead of the key holiday season, with that business up and running and already growing nicely on a year over year basis.
The addition of personalization mall throughout all star family of brands on our unique business platform significantly enhances our ability to help our customers engage and stay connected with the important people in their lives.
Like our market leading positions in floral and gave in gourmet foods, the broad assortment of products and personalization processes offered by Pmall makes us a leader in the growing growing market from personalized gifts.
As we head into our fiscal 21, we are well positioned to meet the unprecedented challenges of the current environment with the combination of strong growth momentum in revenue and our customer file.
The proven limited ability of the unique operating platform that we've built out the various product line and the deepening relationships, we have with our customers.
We continue to be laser focused on our vision to engage with our customers to inspire more human expression connection and celebration.
Sentiments at the current environment has taught us a now more important than ever.
Now I'd like to turn the call over to Bill.
Thank you, Chris we're very pleased with our strong results for the fourth quarter and full year and with the considerable momentum that we have carried into fiscal 21.
Fiscal 2000 was an exciting challenging and ultimately very successful year for our company.
The past 12 months, we're booking on the acquisitions of show it varies in August the year ago.
Our acquisition of PMO earlier this month.
These acquisitions illustrate the strength of the unique business platform that we have built one sharis berries, a smaller tuck in where we acquired no hard assets infrastructure personnel, and where we're able to leverage our existing operating infrastructure to reposition the brand and grow its top and bottom lines ahead of even our own expectations.
And the second PMO, a great new extension of our product offering that it's a whole new set of capabilities to our platform and instantly makes us one of the leaders in the personalized products.
Customers tell us they are looking for to help them connect and express themselves.
In both cases, we see significant opportunities to accelerate the growth of these businesses by leveraging our cost friend marketing and merchandising, our digital marketing experience and expertise our technology platform and I'll fulfillment network.
Breaking down some of the key metrics for the fourth quarter in the year.
Our revenue growth through the first nine months of the fiscal year with a solid 8.3% and we were building momentum as we approached our fourth quarter with double digit growth in Q3.
Then the pandemic it our E commerce revenues drove rose dramatically.
Total consolidated revenues grew 61.1% to 418 million in the fourth quarter and grew 19.3% to 1.49 billion, but here.
This reflected solid growth across all three business segments for the quarter end the year with gourmet food and gift baskets up 112.3% 453.8 million in the quarter and 21.1% to 785.5 million for the year.
Consumer flow up 46.5% to 234.1 million in the quarter and 19.2% to 593.2 million for the year.
And bloomnet growing 10.7%, according to 30.2 million and 8.6% to 111.8 million for the year.
Consolidated gross profit margin for the quarter was 40.5% essentially flat compared with 40.6% in the prior year period and for the year consolidate gross profit margin was 41.8% down slightly compared to 42.1% in the prior year.
As we've mentioned on previous calls the low margin for the year, primarily relates to high seasonal labor and a more promotional environment back in our Q2 holiday quarter.
Operating expenses as a percent of total revenues in the quarter, excluding the impacts of on nonqualified deferred fallen K compensation plan the costs associated with the closing of the having David retail stores and our acquisition of with Pmall improved 960 basis points at 35.4% compare.
45% in the prior year period.
For the year operating expenses as a percent total revenues, excluding the aforementioned costs improved 270 basis points to 35.8% compared with 38.5% in the prior year.
This improvement reflects the strong growth for the quarter end the year combined with enhanced operating leverage including marketing efficiencies.
The combination of these factors resulted in adjusted EBITDA for the quarter 32.5 million, representing an increase of 35.2 million compared with adjusted and adjusted EBITDA loss of 2.7 million in the prior year period.
Adjusted EBITDA for the year increased 57.8% to 129.5 million compared with 82.1 million in the play here.
Adjusted net income for the quarter in the year excludes the cost associated with the closing or hiring David stores and the acquisition of Pmall.
For the quarter adjusted net income was 15.1 million or 23 cents per diluted share compared with a net loss of 8.3 million or a loss of 13 cents per share in the prior year period.
For the year.
Adjusted net income increased 86.9% to 65 million when 98 cents per diluted share compared with 34.8 million or 52 cents per diluted share in the prior year period.
On a segment basis adjusted contribution margin for the quarter and full year were as follows.
Gloomy food and gift baskets, excluding the cost of closing the hiring David stores increased 322.5% to 15.3 million for the quarter compared with a loss of 6.9 million in the prior year period.
For the year adjusted contribution margin in the segment rose, 40.7% to 115.8 million compared with 82.3 million in the prior year.
The significant increases were driven by strong E commerce demand and enhanced operating leverage which more than offset the additional operating costs and inefficiencies associated with the pandemic.
And our consumer floral segment contribution margin increased 129.3% the 40 million for the quarter compared with 70 million in the prior year period.
For the year contribution margin increased 48.6%.
73.8 million compared with 49.7 million in the prior year.
These increases reflect strong revenue growth and enhanced operating leverage including marketing efficiencies.
Bloomnet contribution margin for the quarter was 7.6 million compared with 9.3 million in the prior year period, reflecting the impact of the pandemic and managements decision to waive fees and offer reduced pricing to floors to help them. During these challenging times.
For the year Loomis contribution margin was 35.1 million up slightly compared with 34.7 million in the prior year.
Terms of corporate expense.
For the fiscal fourth quarter corporate expense, including stock based compensation, but excluding the onetime cost associated with the acquisition of Pmall was 33.3 million compared with 24.3 million in the prior year period.
For the year corporate expense, including stock based compensation, but also excluding the onetime costs associated with the acquisition and Pmone was 104 million compared with 91.6 million in the prior year period.
The increase in corporate expense for the quarter end the year was primarily related to increased incentive compensation and additional expenses related to the pandemic.
Regarding free cash flow.
We generated free cash flow for the year of 104.7 million.
There were 45.5 million in the prior year.
The significant increase in free cash flow reflects the strong operating results as well as favorable working capital.
Turning to our balance sheet.
At the end of our fiscal year, our cash and investments position was 240.5 million.
Inventory of approximately 97.8 million was in line with our expectations.
Our term debt balance net of deferred financing costs was 92.6 million and we had zero borrowings outstanding under the working capital line within our revolving credit facility.
As a result total net cash at the end of the year.
Was 148 million.
As we announced earlier this week, we've amended credit agreement with our syndicate of banks led by JP Morgan Chase.
The amended agreement added an incremental 150 million a borrowing capacity to our existing credit facility to a combination of an incremental term loan of $100 million.
And an increase of 50 million you know revolving credit facility.
Regarding guidance for fiscal 21.
Due to the significant uncertainty and the overall economy late in the ongoing pandemic, we're not providing guidance for the full fiscal 2021 year at this time.
However.
Regarding the current fiscal first quarter.
Based on the strong growth momentum we have carried into the first two months of fiscal 21 combined with the anticipated contributions of our recent acquisition of Pmall, We expect to achieve total consolidated revenue growth for the first quarter in a range of 40% to 45% with 30% to 35% organic growth compared with the prior year period.
This reflects expected E commerce growth of more than 70% somewhat offset by.
By lower wholesale orders and reduced retail revenues well, so I think our decision to close the Harry <unk>, David retail stores in fiscal 2020.
In addition, we expect to be anticipated strong revenue growth combined with continued operating leverage and the contributions of people will enable us to drive adjusted EBITDA for the quarter to breakeven or slightly positive compared with a loss of 11.3 million in last year's first quarter.
Regarding our fiscal second quarter.
While there remains considerable uncertainty and the overall economy, we expect the strong E commerce demand momentum that we are experiencing will continue into the key holiday season.
Second fiscal quarter.
In addition, we anticipate solid contributions to revenues and profits from the Primo business.
Our second quarter.
We expect these factors combined with continued strong growth in our customer files were offset certain headwinds, including higher operating costs due to the pandemic lower wholesale orders from mass market retailers.
Pashley constraints at third party shipping vendors.
The potential distraction of the pending national election and of course, the uncertainties that anytime.
I'll now turn the call back to Chris. Thank you Bill so to sum up the momentum that we saw across the first three quarters of the accelerated in the fourth quarter.
Record results for the quarter and the fiscal year are evidence of our continued strong execution across our business segments. Despite the challenges brought on by the pandemic I'd like to again, thank all of our associates for their agility and that city and commitment to finding solutions to enable our customers to express.
And connect with the important people in their lives.
As we move ahead into fiscal 21, the strong momentum.
Bill throughout the past year has continued through the first too much of our Q1 and it bodes well the key holiday season in Q2.
We continue to leverage the power of our unique operating platform the strength of our brands expanded product offering innovative application of technology and the marketing and product strategies that are designed to engage with our customers to drive customer lifetime value such as our connection communities.
Oriental design and entertaining Vince.
Our strong execution and continuing momentum combined with our strong balance sheet and significant cash flows give us continued confidence in our ability to manage our business in this unprecedented and rapidly changing environment.
Thank you and we look forward to sharing our Q1 results with you in October now I'd like to open up the call Escondida to open the call it take your questions.
Thank you Cleveland now begin the question and answer session. After question May Press Star then one on your tax downtown you're using a sneak their parents. Please pick up your handset before Brexit Ricky.
He would draw your question. Please press Star then too [noise].
Our next Wednesday comes from Dan <unk>, What's the benchmark company. Please go ahead.
Yeah. Good morning, Thanks, Chris your commentary around the holiday season sounds incrementally more optimistic I know you guys always start off conservative, but just to be clear.
It sounds like even with the retail closures and the wholesale headwind you're expecting I just want to make sure. We got this right organic growth so ex pmall and the holiday period, and if that is the case.
Can you just talk about what you're seeing that gives you confidence.
In in kind of making that statement.
Turning back to that.
Yes, I think in your interpretation of my comments, who are accurate well what we're seeing is the continued momentum in our business.
Really the continued momentum that we're seeing on the E commerce side of the business and really supported and sustained by the strength that we continue to build and see from a customer files no what was saying new customer growth what we're seeing in the behavior of the new customers even since the pandemic. So new customers, we acquired really since the March.
Hi period, that'd be hevia metrics, so looking better than average a and so all of those things coupled with the product categories. We have the operating capabilities. The job that the team has done to two weeks to adapt our facilities into this covert operating environment that we're in a really gives us car.
And as that won't be able to handle the demands moving forward into the quarter.
Can you go a little bit more into some of those kb eyes around the new customers. A if you wouldn't mind I mean at least what you're willing to share you know how many of those new customers are coming to multi brand or at least is the greater than sort of what you've seen historically are you seeing significant repeat usage in the September quarter.
Her or anticipation of such relative to prior just anything around color there would be super helpful. Yeah. So while we don't break out specific metrics around those what I can say is that we're continuing to see a first and foremost as I highlighted in his remarks Oh.
Good performance from existing customers as well as accelerated new customer growth.
And what we're seeing happening with that is we're seeing several different things, we're seeing an increase in multi brand customers.
As a percentage of total customer base, we're seeing a higher conversion of new customers into our passport program.
We're seeing past the existing passport program become a higher percentage about daily and monthly.
Customer activity on revenue streams. So we're seeing an increase so overall throughout the year, but even as I pointed out from a short term perspective, even if I was just look back to the March time period, an increase in weeks for and again, it's going to be slight because as a short time occurred but trending increase in frequency and retention rates.
So all of the behavior metrics, we track all showing positive right now which gives us the confidence that besides the demand that we're seeing out there on new customer growth the sustainability of a customer base bodes well for not only the upcoming holiday season, but beyond that as we go forward.
Got it that's really helpful. And then just last one for me and I'll, let others jump in here.
Finally with elevated levels of demand you know this is I'm sure you weren't anticipating 60% growth quarter, a in the June quarter, but it's just kind of continues we know that you had some expanded distribution plans on tap and obviously cobot probably put those on hold.
Are you able to get anything done prior to holiday period to improve some it to get some efficiencies or is it going to be kind of you know just you have sufficient network capacity now to handle the demand and then once you get through the holiday period, you know look too.
To go after whether its national coverage or a improved or you know.
Teaching from hubs.
Yes, I think as we looked at our distribution network and you're right. The plants, we have to continue to expand that and enhance the operating leverage of those facilities.
Does continue and there are things that we have made progress since last year that will help us for this year. There was some things that we actually had to put on hold and then keep in mind that were also dealing with the increased operating costs of <unk> operating in a socially distant manner, but what did that said I think go in pretty good position as we go.
But that is holiday.
Yes, Okay, great certainly, yes, they yeah, Dan certainly on our trend lines on E Commerce very strong in the fourth quarter. We've seen them you know rollover into the first quarter of this year.
On that.
These are obviously during times when.
You know when we're comping against overall demand. That's what you know that's much lower we're able to even with the challenges of social dispensing and some of the inefficiencies we haven't in Oh. That's a result of that we're still able to produce the product at the park out the door lots of stories out there about challenges what capacity with third you know with the third party carriers.
You know with the U.P.S. is fedexs and U.S.P.S. of of the World. So we have all these as potential headwinds, but we think our E. Commerce demand is going to be strong working very hard on producing product early on to make sure that we have a product that you know to to fulfill.
That demand by the watch challenges and headwinds as we head into Q2 and as you know reflective of those challenges and headwinds as bill pointed us just because of one of the benefits that with getting the benefit so were seeing as well as others. Because it took tectonic shift from offline to online so that muted growth in E. Commerce is benefiting us he has put us in child is on.
The distribution channel, but those that's you know those are the things we have to manage through.
Do you guys I connect it has a quick follow you have any alternatives for last mile better cost efficient if you needed to use them.
Yes, we have a very flexible model in place so yes.
Okay perfect. Thanks, very much for all the color guys appreciate it.
Two.
Your next question comes from Michael Kupinski with Nibble capital markets. Please go ahead.
First of all congratulations on your extraordinary quarter.
Just a couple of quick questions here just following up on Dan's question with the substantial growth where there any issues that are rose from that type of revenue growth any issues you feel need to be addressed to support the prospect of elevated revenues or future growth or maybe that have limited. The extraordinary performance that you had in the quarter.
So I think Michael the extraordinary growth, yes, pose some challenges and that's one of the things that you know I'm extremely proud of is how the team responded to that.
How to team responded from a number of different funds. They see preparedness and response team that we put in place led by our general Counsel, what made up of operations people from across the company managing first and foremost at health and safety of all of our sole suits our vendors our customers, but then saying okay. Now how do we operate in this environment. So they would.
Well just for the response that they had to get us up to speed to get us to the point, where we're performing right now.
I I am just I just think there's been tremendous so we sold challenges has been thrown at US we've responded well to those challenges and we think we're well positioned going forward.
So in other words, you don't feel like you left any revenues all the table it sounds like you're rose to the occasion so to speak.
Correct, Okay, and then in terms of just the integration process for personalization mall can you kind of give us. Your talks about you know I know that you have identified opportunities and you know given the size of the Oh facilities, there, but I was wondering in terms of cost synergies with somebody or the brands, where do you start implementing.
All of those opportunities.
First and foremost out you know we're thrilled to have completed this acquisition.
And it really is you know as bill pointed out earlier, if you look at two acquisitions, we've done in the past 12 months very different no sharis berries was or kind of a tuck in just taken put it on completely on top about platform personalization mall is really a category extension for us putting us into another leadership position.
Now our leaders in Florida with leaders in Gourmet Foods and now we're a leader in personalization products, which is a nicely growing markets and the teams that comes with personalization malls, just a fantastic team I know that mentioned we looked at this business back couple of times, but certainly back in 2016 and always came away very impressed with the.
Management team that I think they're doing a fantastic job. So clearly this is more about focus for us on growth synergies are really product category extensions.
And and really that's where our focus is right now getting the business onto our platform, making sure that for this holiday season were able to expose our existing customer base to Pmall product line, a few more customer base to the rest about brands are making sure that we're implementing the passport program across all of our brands Cross promotion and cross.
<unk> marketing capabilities, that's where the focus is right now for the short term of cost from a long term perspective, we'll always be looking at how do we continue to get opex synergies out of our combined efforts.
Thanks for that color and I was just I'm wondering in terms of personalization law I know that you kinda give us some thoughts about how it's performing the quarter just backing out the the you know the pro pro forma <unk> guidance I guess, if you want to look at that way can you just tell us about the revenue growth you indicated year over year in the fiscal first quarter.
And just tell us what that might be and then you indicated that it would be profitable can you give us more margins in the quarter and then I think when you. When you purchased could you kind of gave us some thoughts about what personalization mall had done in terms of revenues and cash what contribution do you anticipate that businesses in such a.
Position that it will grow from those metrics that you provided earlier.
And Michael This is built on <unk> as Chris mentioned, we're very pleased with closing. These you know the transaction we saw.
People since it is we opened up you know there year over year revenue growth has has been nice and we're pleased with it since we closed on August Threerd, we've seen some nice year over year gains on the topline I remember the seasonality you know of this business is pretty consistent with a with the seasonality of.
Of all enterprise business with a little less than 50% of the revenues being in the second quarter and then second biggest quarter is there is the June quarter. They are contribution margin positive in all four in all four quarters, you know of the year. So that's a that's a great add we think in some de Seasonalized <unk> our business to some.
To some degree.
As we outlined early on this.
This business did historically well in excess of 150 million in about $25 million and in a contribution certainly from what we've seen so far.
We expect to achieve and hopefully exceed those numbers.
Bill can you just give us the thoughts on what the balance sheet looks like currently following the acquisition.
But the balance sheet looks like.
Okay. Following the acquisition, yes, the volume. So obviously, we spent $245 million of cash on a.
On the others in the Pmall, but.
You know as we announced earlier this week, we just closed on a new credit facility.
We added 150 million of borrowing capacity 100 million to that as you know is you know is term.
So as an net of those too you know where you know we're down you know we used in theory 150 million of all cash at that you know up towards the act acquisition, but we're borrowing capabilities as we go through yield this quarter, where we use of second quarter, where we actually use working capital we anticipate that are.
Max borrowings on working capital in the second quarter for.
Inventory build it will be about $100 million that leaves us an extra $150 million of of just access for excess borrowing capacity at that point in time, but ended the second quarter, all cash going to be very strong them, we have no borrowings under our revolver.
Thank you know bill as team has done a great job really leading the effort to put their credit facility in place. When you look at what we've done there the balance sheet that we have today puts us in extraordinarily strong position to make sure that we're looking to say how do we invest in our business growth for the future whether it's further capital investment that we might need on somebody you operating efficiencies and you'll see us.
Do that from time to time invest in some of our capabilities to enhance the operating leverage going forward or from an M&A point of view as you've seen we we continued to be very judicious and very diligent in our approach.
Looking for a very strategic and looking for businesses that we believe can you the leverage the operating platform, we've built or add to the operating platform, we build well take a combination of both and I think you know again, we're in a very strong position, we have dry powder on our balance sheet.
Continue on the direction that we haven't yet and Michael not to be lost and this is you know we did generate 104 million a free cash flow. During this past she has weakened significantly accelerated the amount of free cash flow that we that we generate so their balance sheet, we just continuing to get stronger and stronger.
Great Thanks, and congratulations Doug.
Your next question comes from Linda Bolton Weiser with D.A. Davidson. Please go ahead.
Hi, how are you.
Great. Thanks.
Well in the first fiscal quarter anything for providing the guidance, but you know on your sales line, you're going to beat consensus by more than $40 million and yet the upside to EBITDA is just about $10 million. So can you give a little more color around that is that just still the.
Higher operating costs in shipping costs in that whole thing or.
What exactly would account for the fact, the year outside any but does not even greater.
But when do we think we're actually very happy with the guidance that we gave them, where we expected everyone to be pretty pleased with the.
Both the top and bottom bottom line guidance that we provided but we all operating in a in a pandemic and we do have it we do have increased costs as a as a result of that but I think with we're driving a very nice bottom line improvement multiple that were which he did you really need to look to last quarter and the last year's improvement in Opex ratio, which was.
Phenomenal.
You know that's why you expect to continue to see from us driving that opex ratio driving that increased margin capability and that's what we're demonstrating that's what we expect going forward.
Great and then you had mentioned higher corporate expense one of those things with pandemic related higher corporate expense, what specifically would be pandemic related in that line item.
Yes. It wouldn't you know first and foremost you know as we approach our our jobs every day, we got to keep in mind, you know the health and safety of all of our employees. So across the enterprise you know yeah, we have nurses at all our facilities.
To take temperatures, we have well testing that is being you know that's being done enough facilities clan cleansing of our facilities at a very you know at a very rapid pace equipment for all our facilities to keep our you know to keep our employee safe. These all the types of expenses that worked with that we're talking about.
Running extra shifts that we had two because its social exist and labor in a manufacturing facilities et cetera.
First as Bill said first and foremost health and safety.
And then finally on you mentioned the election, maybe taking attention away from consumers temporarily with all the eyeballs that are on TV. During election have you considered perhaps looking at TV advertising.
In addition to your other digital and radio effort.
So Linda Thank you know first of all the general election, especially national elections always there's a little bit of a drag on retail sales in general now as we look at this year, while it's a potential headwind because it's so much in the face every day it might not be that much different than a regular than a regular yet we just don't know that.
As we look at you know advertising.
Really running up to election advertising rates will move up as well. So we'll always look to take our advertising and making sure were optimizing where we're getting the best performance. We had been experimenting on the flowers brand as you know in the past year or two usual utilizing television a little bit more we've been experimenting on television with Harry <unk>, David and with video.
But we will put the dollars, where we're seeing a better returns.
Okay. Thanks, that's it for me congratulations.
You're very money funds.
The next question comes from Anthony Lebiedzinski, Cincinnati and company. Please go ahead.
Yes, good morning, and the thank you for taking the question and providing all the.
Details. So I'm just wanted to circle back as far as the Cobot 19 really at a cost spill I mean, if you could.
Is it possible for you to kind of isolate that what was that for the.
For the quarter and the kind of what's the what's embedded in the guidance in terms of those costs for the first fiscal quarter.
Yes.
We don't break out specific Pacific cost, but you know they were not insignificant in the fourth quarter and we were anticipating that you know.
Two throughout fiscal 2001 that they're going to continue at that level.
Got it okay and in terms of Pmall, just wanted to get a sense as to kind of how you're thinking about that as far as the plants to you eventually integrate that into the multi branded website in the.
There you can do you talked about driving growth in revenue synergies for from that but.
Can you give us a census to like the timing of when do you expect to be able to fully integrate the.
Sure. So first off first and foremost Anthony Thanks, a question, though as we look at isn't internally we call. This project ascent as we bring these businesses together.
As you know we haven't role in our integration playbook that we're managing and that we're following that Weve. You know, we really been building ever since the acquisition with Harry <unk>, David and fine tuning our playbook.
Number wouldn't rule in our playbook is don't mess up the existing business.
Especially as with employees right now on the precipice, if the holiday season.
So that's a number one thing that were challenging ourselves and challenged the team with is let's help them on their existing business before anything else with that said, we will see US you will see us promote the personalization mall brand and product line on our multi brand platform. Prior to holiday season, you will see us exposed or.
About customers into our passport program you will soon as utilizing their products for cross merchandising cross marketing capabilities to our existing customer base. So new a certain things that we will get done certainly for the holiday season, because it's all important and we have some time to do so.
But we will do so in a very judicious manner.
Got it okay. Thanks for that and then.
So obviously you know you you've had a tremendous growth in customer file in lot of.
I think up for the passport program so.
Given the accelerated shifts to E. Commerce I'm just wondering if you guys are thinking of perhaps a changing your pricing for the passport program or is there an opportunity to increase the price, perhaps or do you.
Just just something that you would not consider at that point.
Well not considering it at this point it is something that we look at from time to time.
If there are things that we start to add into the program that are all the value add items that we might then consider it but in the short term, we're very happy with where we are in their growth that is producing in the customer behavior metrics, that's producing and all of that I think really fits into making sure that we continue to position on the strength of our customer file position.
A company that we are which is a company that inspires human connection expression and celebration and as we look at that as a company with a passport program with a customer file with the company position. We are so well positioned right now and what we see is the key trends coming out of this pandemic.
The shift from offline to online and as an E Commerce Mobile Commerce company, we are well positioned for that the consumer sentiment that we've all learned as we had to go into isolation of the need to be socially connected to each other that just maintain relationships to express ourselves and even in this all.
This is.
They're all bolus of everyday celebrations.
Certainly you know I became a grandfather during this pandemic. So that was a MOIC of pipeline celebration for us and many of us half those moments.
So we're well positioned for that and the third key trend that we see coming out of this is the nest is nesting people celebrating and and expressing themselves more and more around the all in all product categories. What good for that for that nesting trend already have the food product lines decorating with floral in your home, but now with the addition of person.
Solicitation mall, because it's a whole know the product categories people celebrating nesting at all so those three those are the three key trends and I think we're very well positioned to close.
Got it and congratulations Chris on becoming a grandfather so [laughter].
Last question for me, so as far as a your appetite for additional acquisitions are just wondering if you guys have occurred target leverage ratio, perhaps that you want to be a.
So sounds like.
Obviously, you know you have added.
Additional financial flexibility with the new credit agreement just just wondering how we should think about the.
Your appetite for additional acquisitions.
Leverage ratio that you want to get to it.
Yes, Anthony as it was you know as a result of the closing of the credit facility. You know, we now have a little on the $200 million with its term that you got the 92 million, we had on our balance sheet as of yearend plus a new hundred million dollars right. We're still.
Yeah, well leverage ratio right now is the way on the too.
And so we have obviously flexibility do you know you do go up north of that I think we've always we've said in the past that we'd be comfortable with the three times leverage you know obviously, depending upon the opportunity that could always you know that could always change, but we have you know we have plenty of room from where we are you know to absorb the additional M&A.
Got it right. Thank you and best of luck.
Yeah.
Your next question comes from Dangling, Let's Blair Research. Please go ahead.
Yeah. Good morning, everybody I, just want to go back to the Pmall acquisition.
If you don't mind, because I know that during the initial stages or the pandemic. It was pretty much shut down so is it fully back up and running now or what does that stand as far as aren't getting back to full operation.
Business is pulling back and then often running now for a.
Well, it's such a two cents a Jewish Jennifer.
Probably was completely caught up by fourth of July weekends, I'd say right.
So fully operational ready for the holiday season, and you know as we mentioned earlier what was seen so far is nice year over year increases or that we're very excited about.
Great. Thank you and then you know the last six months labor environment softened dramatically here does that impact your outlook for the cost situation going into the you know the December quarter.
Yes, I think six months ago, we were.
Whereas at the start of this when we started to see unemployment climb we were thinking that there will the headwinds that we faced for seasonal labor in the past would be up would be less this year or they'd be more ample you know workforce to pull from versus you know historically, the last year, three and a half a cent on it and unemployment I think what we're seeing is there's still challenged.
As with up with hiring seasonal employees with the you know the unemployment benefits that are you know that are out there you know there's a you know there's a part of that kind of seasonal workforce that would it quite frankly as incentive to stay home.
So so there's still a challenge and with the you know tremendous demand in E commerce, well growth in demand of ecommerce.
Not only for ourselves, but for all the E commerce companies feel the skill set of manufacturing and distribution personnel, there's lot of competition for that.
Okay Fair enough and then you know what with the whole Ah stay at home kind of mindset can you give us some color or do you have any statistics on how much of your business has shifted from gifting per se to self consumption.
Sure the what we've seen a lifting no self consumption of self gifting business Oh, it's been a nice that's coming through with little lift that we've seen overall, but it's still a relatively smaller percentage about business really to core about business is people expressing connecting with others sending to other locations.
And that's you know that's really the core and where we've seen the the.
The majority of our growth.
Okay.
Thanks, everybody.
Thank you Doug.
Again, if you have a question. Please press Star then one.
Your next question comes from Alex Fuhrman, Craig Hallum. Please go ahead.
Great. Thanks, very much for taking my question I wanted to ask about the flow through of revenue to EBITDA. It looked like it was really strong here in the fourth quarter end and just looking at the guidance for the December quarter looks like you know once again, you're looking for a really nice nice flow through of of incremental revenue EBITDA on PC.
You talk a little bit about I mean, obviously, it's hard to predict exactly what demand is going to look like for the holiday season, but can you just kind of frame up for us what we should kind of think about in terms of incremental costs in margins. As you go into the holiday season, I think bill you mentioned that them some of the cobot costs, which were pretty meaningful in the fourth quarter are gonna be content.
Doing at about that level on that an opportunity for perhaps some leverage off of those costs in the December quarter or as you start to be manufacturing more and running into your own internal constraints could could those caught become more significant as it relates to the flow through down to the bottom line.
Yeah, a lot there.
Yeah, you know the challenge we have there are no there are headwinds right we were seeing rising.
Third party shipping costs were certainly certainly seen rising you'll labor labor costs, we have to absorb you know we have to absorb that and as we plan.
We will.
Take that what you did see in the fourth quarter.
And what you thought you're seeing in the first quarter is a significant leverage that we happen. Our you know operating model I. Just was 900 in over 900 basis points improvement in Opex ratio in you know in the fourth quarter, driven by that topline growth and the absorption of law. The fixed costs that we have we did see some some marketing issues efficiencies in the fourth quarter.
We do think Thats going to you know that's going to probably changes, we Chris mentioned before and you know topic came up with the national elections, and now as we head towards us.
Q2 costs are going to go up nominee TV advertising, but we assume on the digital marketing side. The cost will you know cost will increase as well. So yes, there will be in theory less flowing through as a result of that but strong topline growth will generate nice leverage within all model and Weve continue to you know look for ways.
We continue to drive more leverage in the model.
Okay. That's that's really helpful. Thanks, I hope you're all well.
Protect rose.
Your next question comes from 10 their angle.
<unk> research. Please go ahead.
Good morning. Thank you just one quick question, if I remember correctly. The U.S. full service is a pretty important partner for you guys who's been on media about some changes there and maybe some slowdown in delivery.
Can you talk about how you if you guys have seen any impact on your business from maybe changes or with the U.S.P.S.
And you know how about how those changes if their permanent might affect you guys going forward. Thank you.
So we really haven't seen much changes in our delivery capacity you out delivery capabilities as of now and you Sps is not as bigger components as you might think bill wanting to give a little color. It we have no direct relationship with U.S.P.S., it, but but Fedex you know diabetic the U.P.S. usually a U.S.P.S.
In some cases in some of their product offerings delivery mechanism mechanism delivery offerings over the last you know for the last mile. So certainly you know some of the surcharges that are that the U.S.P.S. is is going through it will be passed through to Fedex will be passed through to you know to watch the will be higher shipping costs as you know as though as.
It was all of that.
We're working very closely with our you know with our carrier partners to make sure. We Oh, we have sufficient capacity for us for the strong demand that we wrap that that we continue to see.
Thank you.
Alright. Thanks.
This concludes our question and answer session I will now I turn the conference back over to Chris Mccann for any closing remarks.
So thank you everyone. As you can see we're very fortunate as a company that we are positioned so well in front of the trends that are coming out of this pandemic as a company really that is all about focusing on inspiring human connection expression in celebration as I mentioned sentiments that we've all learned.
More important now than ever.
Current Jude is make sure you're staying connected with the important people in the loved ones in your life, where the weather benefits you I can kinda to benefit Stan thank.
Thank you and we look forward to talk due in October next earnings call.
This conference has now concluded. Thank you for attending today's presentation you may now be.
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