Q3 2020 1847 Goedeker Inc Earnings Call
Good afternoon, and welcome 18, 47 and that occurs third quarter of 2000 and conference call, Sorry, 2020 conference call.
And as a reminder, this call is being recorded and all participants are and needless and I'll Nemo.
We will open the call for questions and answers following the presentation.
On the call today are 18, and 47 and categories C O talk more and CFO Robert Berry.
I would also like to remind everyone that various remarks, and a future expectations plans and prospects constitute forward looking statements for purposes of Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.
18, and forty-seven getters cautions that these forward looking statements are subject to risks and uncertainties.
And then he calls after results and it for materially from those indicated including risk described and the company's filings with the S. E C.
And he forward looking statements made on this conference call speak only as of today's date Monday November 16th 2020, and 18 47 and got here and does not intend to update any of these forward looking statements to reflect events or circumstances that occur after today.
A webcast replay of the conference call will be available on that you get a cruise website at www dot get a cruise dot com.
Without and I'd like to turn the call over 218, and 47 categories see Yo Doug more and for opening comments. Please go ahead and Mister Moore.
Thank you and good afternoon to everyone on the call today. Thank you for joining us and taking the time to participate.
And the third quarter financial results call.
First I want to thank my team would get occurs for their contribution to and outstanding quarter, a strong year over year growth and.
And a substantial increase and cash flow from operations and revenues.
And just as importantly processing and record orders, having record number of consumer interactions and do and most of this work on their home office environment.
We asked them to make a major pivot and how they work they met the challenge and exceeded my expectations.
Is appropriate for me to stay with conviction that I have never been more confident that get occurs is on the past and becoming the nation's largest and most profitable online retailer of appliances in the U S.
Record orders that continued to today's call point to the sea change occurring as.
And it's consumers preference to buy household appliances online is growing each day.
We are addressing a 20 billion dollar industry is the only pure play appliance online retailer listed on a major exchange.
Over the past year, we have been investing and and people processes and systems.
While developing a world class advertising and marketing platform in order to continue to drive significant revenue growth and dramatically increase our market share.
My vision is this to grow get occurs to a billion dollar revenue company over the next five years and and that process become the largest most profitable online retailer of appliances in the U S.
We intend to grow that billion dollar size organically, we intended to grow organically.
We are and positioned accelerate that timeline upon the completion of the pending acquisition of appliances connection.
We will provide more details on this acquisition on a special update call later this week at.
At the clothes on market on Wednesday.
Let me make a few points on this call to set the proper framework for our bullish view of get occurs.
Through our E Commerce business model, we off and online marketplace for consumers looking for top brands for service and value and shopping for nearly any household appliance product needed.
We have built a large online selection of products and we were able to offer this vast selection because our model requires minimal inventory and our logistics and infrastructure is tailored to the unique characteristics of our market.
We enjoy strong relationship with most national and global apply and suppliers and we have built a technologically advanced online sales and infrastructure platform.
It gives us the capacity to scale for enormous growth.
The deliberate experienced and overall customer service, we offer our shoppers are central to our business, we tightly manager inventory and warehouse space by primarily purchasing inventory only after a sales been made through our website.
This allows us control over the entire process, while still providing customers timely delivery times and.
About 90% of our appliances flow through our warehouse well almost all furniture is drop shipped to the customer.
We offer roughly 22000 apply and skews from all mainline original equipment manufacturers. These include Bosch Whirlpool G E Maytag algae, Samsung sharp kitchenaid among others.
We sell all major home appliances, including refrigerators ranges ovens, dishwashers, microwaves, freezers washers and dryers and these appliances account for 80% of our revenues.
Overall, and this past quarter, we generate a 10% net sales growth rate year over year and the third quarter.
With constrained supplier inventories, preventing the doubling of that revenue number achieved and 13.4 million.
Tracking with our increased ads spend the third quarter site sessions were up 80 per cent the.
2.7 million sessions, while Britain orders grew 143%.
36.9 million.
The lack of available product meant we were only able to ship, 37% of on orders and the third quarter.
This compares to the normal rate of ships sales to orders of 80 per cent, which represents a three year average of revenues to orders.
The significant increase and orders required us to use temporary staff to supplement.
Supplement or permanent staff.
And a number of areas, including order processing phone sales customer service and accounting.
We believe strongly as manufacturers' return to normal levels on production and we received more.
Product and our our operating expenses will be in line with normal levels for the increase orders and revenue.
Investments and logistics already speeding up order processing time as we utilize.
A D I and other automated process to replace manual task.
We also saw continued strong improvement to free cash flow with cash flow from operations and proving to 7.4 million for the nine months and did September 30, this year up from a negative 700000.
And the year ago period.
At this time I'd like to hand to call over to Bob Barry for more detailed review of our third quarter results Uhm.
Thanks Dog and good afternoon, everyone.
It does mentioned on net product sales with 13.4 million for the third quarter.
Which is and increase at 10.1% year over year.
Driven primarily by increase that's fine.
Our cost of goods sold was 11.3, Meg and for the three months as compared to 10.2 million Miss free months of 2019.
That's an increase of 1.1 million or 10.6% and.
And lined with our net sales growth.
Ah cost of goods sold consists of the cost of the product.
Plus the cost and delivery and where applicable installation and hollaway net is promotional rebates and other incentives from vendors.
Gross profit was 2.2 million to the third quarter or 16.2% of total revenue basically line with the 16.5% margin and the third quarter of 2019.
We estimate that revenue for the quarter with more than doubled and.
And we shipped at the historic rate of 80% of orders vs. The actual ready to 37%.
And he had a constant gross margin percentage gross profit would've also more than doubled to 4.8 million.
We believe and we'll have to continue and improvement and product availability and 2021 and and.
Expect it the ratio of ships sales to orders will improve and see your progressive.
And choose free we increased personnel expense of product ordering customer service sales and county.
Deal with 143% increase and orders.
We supplemented are on personnel was temporary employees at a higher cost.
And we estimate of 500 and $750000 for the quarter.
Significant progress is underway and reducing personnel and other expenses that were created because of the record increase and orders.
We estimate and we will have very few temporary employees by ear and.
Barber ties and expense was 1.4 million three months and and September 30th 2020.
Compared to 697 and for the three months of 2019.
That's an increase of 735000 or 105%.
The increase and spending primarily focused on driving traffic to our website.
And just dug noted earlier was site visits increasing 80%.
And orders, increasing the hundred and 43% and the quarter, we're seeing and improved advertise and the sales results from this period.
We had nonrecurring expenses and choose free for enhancement to our operations such as electronic data interchange project and logistics, both of which will greatly improve operations a future periods.
Including non-cash items, which a total of approximately $1.6 million and.
That last week for income taxes for the quarter and September 30th.
Was 4.5 million compared to a net loss before income taxes at point 9 million and the three months of 2019 and.
Excluding non-cash charges free tax net loss for the quarter would've been 3.1 day and.
To the nine months and it's September 30th.
Clearly non-cash average totally 4.7 million net loss before income taxes with $10.9 million.
Compared to a net loss before income taxes, 2.1 day and for the nine months of September 2019.
Excluding the non-cash charges net loss for the nine months and the September 2020 would've been 6.2 million.
Because of the supply chain issues for the nine months, we ship, 47% of orders vs 79%.
We had non recurring expenses and decor periods and enhancement till aspirations, such as an idiot fragile appointments and a new phone system and up.
Great and shopping cart and a cool, let's contract contractual liabilities due to a terminated employee.
Such expenses also included the temporary employees and Q3 that we needed to handle the spike and orders as I mentioned, we reducing temporary staff expect to have very few a year and.
And then nine months and we shipped at the normal shipping rates. The same gross margin gross profit for the nine months would've been approximately 10.8 million.
I said September Saturday, we had cash and cash equivalents of 12.4 million and as Doug mentioned, our cash flow and create improved 7.4 million for the first and I'd much from positive swings and the negative 700000 and.
The prior year period.
I'll know him to call back to dogs.
Thank you Bob.
I have a few more comments before we open up for question on and answers.
These comments intend to pick up where we left off on our last call and build on the significant improvements that are occurring each week.
As a leading apply to retailer are long standing reputation with vendors and customers provides a strong and competitive advantage as our order levels are rising suppliers are engaging with get occurs and a more strategic and less transactional way.
This is leading to progress towards better availability using opportunistic inventory buys and better financial support.
Extensive training and certifications occurring with our best and the industry contact centre sales staff.
This rise and professional on this also occurring and our customer service team as well.
These strikes or further augmented by best and class contact center, and marketing technology and placed in a position to offer scalable repeatable quality process.
That will be second to none in the retail appliance industry.
We will continue to make the investments and and infrastructure to support growth.
And August we announce edition of art smock, former CEO Fedex supply chain as a senior strategic advisor for logistics logistics.
Or it's already provide a tremendous help and we look forward is ongoing insightful input as we continue to scale operations and select and implement a warehouse supply chain or logistics system.
As well and have experienced at the intersection on logistics and technology.
Revise significant value as we enter a key growth face and <unk> and the quarters ahead.
Additionally, the appointment on logistics veteran Jacob <unk> is our new V. P of logistics on October further strengthens our team as we expedite our preparations for significantly increasing order volume and capitalize on untapped opportunities to partner more deeply and a real time.
With global manufacturers of supply are appliances furniture, and home goods as contributions been immediate and it's a key part of our path to profitability and scalability.
Looking for their five key components to our growth strategy.
One we have partnered with nasty, a credit and the advertising and market and agencies more efficiency utilize our.
Increasing advertising dollars and a gross sales through our website and call center.
And near term results or record advertising to sales ratios more efficient and then had previously discussed model.
Put a fine point on it and the fourth quarter and the first 45 days halfway through.
We are seeing an increase of 78% and sessions, but 240% more and orders.
And our daily order average has moved to $440000 per day vs 126000, just a year ago.
That puts us on pace and these 45 days for almost $20 million and written orders against the less and $6 million and written orders last year at this time.
And drops are Ada S ratio to 3% vs, 5.2%, a year ago and she recall and some of our discussions we pointed to the advertise to sales ratios a key component that if we could keep that ratio below 4.5% and drive the kind of volume that we just discussed that we would be and a strong position to create profitability.
Number two commercial market expansion today, we have directed all marketing efforts towards the consumer.
With remodel as a new home construction.
On the horizon is a growing demand for 2021 and beyond and there's a huge opportunity for us to market the home builders contractors.
And interior designers, who were making are influenced and the purchasing decision for many consumers.
We believe that are low price business model would be well received by the market traded substantial revenue opportunities and more for more repeat business.
Evidence of unmet demand and market need is ongoing with large commercial sales occurring organically each week through our website and contact center.
And supply improves we will move forward and 2021 to increase our market penetration of this important segment of the household appliances market.
The third point, we intend to expand category management and vendor collaboration.
We have we have had extremely productive meetings with four vendor partners and the last 90 days with initiatives and E D I direct purchasing expanded product and offerings and prove programming.
Closer to customer supply chain options opportunistic inventory buys promotional planning.
And navigating and lack of product supply and understanding the teacher availability.
We're just getting started here with our vendor community.
Four I want to point to a warehouse and shipping optimization, we are implementing a series of and issues with key vendors to increase shipping speed the customers cut costs and increased margins, we plan to pick up product for manufactured warehouses and selectively use inventory buys to reduce costs.
With access the vendor warehouse operations, we expect to take advantage of buying opportunities and capture time sensitive customers more frequently.
As I said Jacob Gatehouse is Fahrenheit and this work and we continue to get guidance from art Smart.
And five and this is an important and important wanted to remember.
We will ride the sea change a wave on online retail.
Those of you who looked at the Wall Street Journal Schwandt and saw page one article, citing mckinsey his belief that in the past three months the pandemic is.
Has created a process of adopting E commerce that would've taken 10 years this directly affects our capability and our ability to scale rapidly and we are bullish.
Bullish on that reality being a permanent and see change and how people buy appliances.
Big ticket online retail continues to grow significantly as product orphans and shopping experience are superior to the vast majority of brick and mortar shopping.
Our continued key investments and people processes and systems.
Will grow our customer base and we believe we are well positioned to benefit.
From the growth and online retail.
Last I just a reminder, we will be hosting and another call. This week Wednesday after the market closed to provide and update on the appliance connection acquisition, we announce and late October.
So on this call if we could limit our conversation too and questions to the questions regarding the performance of dedecker in the third quarter and beyond I would appreciate that and closed and I want to thank our shareholders for their support and 18 47 and <unk>.
And our long term vision of building a billion dollar enterprise.
And with that I would like to know open to call up for questions.
Ladies and gentlemen, and in order to ask a question you will need to press Star and then one on your telephone keypad again, that's star one.
At least and if I were we compiled the Q&A roster.
And again, ladies and gentlemen, and order to ask a question. It is stark and then one on your telephone keep on.
We do have a question from Mckelvin horny from already capital management. Your line is open.
Yeah, Hi, Thanks for taking my question.
And kind of new to the story is there any seasonality to your business.
Yeah remarkably uhm the total set and this is Doug more of the C E O and <unk>, there's not that much seasonality, you'll see some cooking that spikes up sort of from this time period through so the Christmas holiday and you'll see some refrigeration and freezers and.
With an uptick in the May June timeframe due to the kind of activities around the kitchen and the rest of these things are really almost evergreen and their demand appliances break every seven years, you just don't know, which one of the seven years, it's gonna break in it's it's anti cyclical it's anti it it it really is not.
Subject to very much seasonality and at all it's and endless parade of demand and with a rising demographic rising population millennials by and more homes.
Older older folks want and his age gracefully and their homes. We we think it's even more bullish than perhaps at any point and the last 10 years.
Okay and.
And it regarding your drop.
Shipment business plan.
<unk> agreement you have with the manufacturers uhm.
I don't want to just throw in the amount of like subduer or somebody to.
Do you have contractual agreements to the day you have to show a certain number of their products or.
Pretty much open.
Well the good news is whoever we were doing business with last year and last quarter and the quarter before that we're doing double and triple the business that we did before so there really is not I think in general you know you've got to reach a certain threshold. The the individual mom and pop retail would have to buy totally through distribution, we do a mix of straight from the from the Madam.
Facture as well as and distributor products as well, so and he's or agreements, they're not true contracts just to be Claire vs or trade agreements okay.
Okay. Thanks, so I'll get back and for sure.
Thank you.
Our next question is from Mitch fitter with he just capital your line is open.
Hey, guys I was just wondering and have you talked about how are you going to finance that the acquisition.
And which.
[laughter], so <unk>, we're gonna all questions about it and plans to connect with we'd like to defer to that call. The and that is just gonna be two days from now so please come back on that call and we'll be happy to put that in the context that would've gotten us to this point of that on that call. So is there perhaps another question regarding the the <unk>.
<unk> third quarter results are for that model.
I was wondering your impression of how the the stuck to cool off when the acquisition was announced and.
And set that it's has come and come back down Scott and I made a full circle.
Is there anything you could say to the shareholders, who bought stock and much higher levels.
Well again, I'm not a stock advisor and it would be inappropriate for me to see yoda to kind of provide that advice you know I think they're they're working theories on all that I. Just don't have on that I would feel was worth sharing that would help you with insight on that particular question.
Okay. Thank you.
Sure.
And again, ladies and gentlemen, it is star and then one ticket for a question.
We have a question from Bradley donor with kind of a large security skewer line is open.
I was wondering if the revenue that we seem to have <unk>, either lost or postponed if you will and Q3 due to the logistics supply-side logistics will we get 100 per cent of that made up and future quarters or would we lose a percentage of that going forward and.
And that's a great question, we'll lose a percentage that but you know it's remarkable the staying power of customers waiting for this product because <unk>. The answers are getting most places are similar to ours. So I mean this is really a <unk>.
Universal problem for suppliers, Uhm, we routinely and <unk>.
We learned recently just as a side that 455 of our orders, we're not gonna be produced until <unk>.
Much later than had been anticipated we communicated with those five 455 folks.
And we recovered and save most of those order so even in cases, where that timeline has been stretched into more than half a year.
A fair a fair number of people are willing to wait and and we <unk>, we felt better and basked goods.
So we we tend to have slightly more patient customer because they tend to be it's more of a remodel types and address customer someone who's had a refrigerator and needs to go get a refrigerator and they would've fallen out of the queue. A long time ago. Historically, we've we've ship 80 per cent of what we sell on what we'd take money for and when we we call. It written.
Order and when we take cash or credit card for that and then the revenue see on our piano is actually you wanted to shift and and she by the consumer and we think will retain a lot of that and we think there'll be an overhang that that will be beneficial we're liking to think and thank the 2021 will.
And will play above its weight and play more like a 13 or 14 month year for for most people that are in the on line space of a big ticket sales.
Well that said that pent up demand and could create and even more a significant surge and sales force them correct.
We we tend to we <unk>, we liked the way you think there and believe that that's gonna happen and Palatis has to do with not only people change and habits and how they shop online, but there's been a lot more time at home and they just can't you know.
What you hang around with you get dissatisfied with you know there's something about the phrase I can't remember, but yeah, we think there'd be lots of pent up demand and and and the remodel a strength. If you look at the strength of what you see at home depot, Lowes and their general overall business of sports remodeling and and and new home construction and all that kind of stuff I think it's just gonna be.
A heck of a couple of years.
Yeah I agree alright. Thanks, that's all I have for now until Wednesday.
[laughter]. Thank you.
And we do have a another question from Calvin Hurry and from Cory Capital Management. Your line is open.
Yeah again.
Just.
It's more of a how do people get to know you I mean, I I never heard of your company before and Oh about a week ago or so, but you know people thinking of buying a refrigerator or something but the first thing and comes to mind is best buy a home depot lowes or something like that how do you get your name out there and and and tastes people too.
Come to your website and byproducts and you guys.
But at this point, we are building a bit of a word of mouth reputation by the number of orders that were are significantly increase your every year, but you're absolutely correct uhm.
People have shop somewhere else before we we get a chance to talk to them and that's the way we like it that's why our advertise a sales ratios are so low and the acquiring customers is such a low percentage. What we do is we do Middleton bottom with a final marketing which means.
When they get a lot closer to understand exactly what they want to buy that's where we do the bulk of our marketing having said that we buy keywords that are related to appliances, but uhm.
<unk> for many of our customers and they are hearing about us for the first time and.
And what they like when they do that is and you know what they do is when they.
A copy and go see our site they like our website and he didn't navigate for one a few companies, whether it's brick and mortar or any online and fact, we do this more than anybody will talk to you on the telephone and we won't keep you waiting you know hours on in a lot of that temporary expense. So we had was built on people answering phones, because we think there's still.
And a big ticket world combination of high Tech, which get you on the web and then the high touch of talking to people on the phones is really winning combination. So that's you know hopefully you'll be <unk>, you'll be a consumer and then we'll start to build a brand from there with a word of mouth and repeat business, but you know what that by and cycle seven years Uhm you know, we're not and the blogging business you know we don't.
Need to tell people. This this season and think about cooking at home and it'll be exciting and hope there's gonna be a sale there when do you want a stove or or a refrigerator and you've gone to best buy home depot lowes or manufacturers' site.
And we show up and that top two three consideration set.
You copy and paste, it and within seconds weird equal value of better value than what you've seen at the other sites and that's been our that's kind of our secret sauce HM.
HM.
Okay and are you can provide the call and number for the call on Wednesday.
Yeah, We're gonna issue a press release ahead of time, well ahead of time to make that happens to the people and on what to do it'll be very similar format to this will be utilizing a presentation deck that will make make public and uhm allow people to follow the story and that way, but yeah, we'll definitely do that and and thank you for show and interest and that as well.
Okay and <unk>.
And this was a big acquisition and <unk> for you and looking for anything else or is this good for awhile.
But we don't have we won't have you're talking about anything like that until maybe Wednesday, but we we believe that our plan and when it was 100 per cent organic and we still believe in that and the order flow from this model is is go in exactly to plan with the exception on the supply being interrupted and a and incredibly difficult way, but everything else about that we said.
We'd go spend more money on advertising, which will create more sessions, which great more orders and we would do it and a ratio that appropriate to make money, we did all that and.
Proof of that is better cash flow because you order flow was there the revenue flow will come and the <unk> the expense ratios will drop as we.
And get much more close to the historical cycle time for in order to be shipped to a customer. So anyway. Yeah. We were we made those comments without any belief that acquisitions with our path to get to our objective of a billion dollars and to be the most profitable online.
Retailer appliances and the U S.
And finally, how much the stock to insiders and the board of directors on.
Bob you may want to handle that one I I don't I I I make a pretty good guess, but you're the CFO and can be more precise.
The chairman and one of the directors and I believe this is like twenty-three and 15% respectively. The Russell under a lockup agreements and it can't be sold to a year after the I P O.
The.
Officers have option agreements and I personally on some chairs.
And I believe those with two major stockholders insider stock or see former owners of the business, Steve and might get occur collectively on I believe 17 per cent of the company and.
And they were not on the board, but they on former owners and then like you had a question about the number of shares of stock as well and did you just did the percentage of their Bob and where you're looking for a more nominal number and that question.
Well, how many shares outstanding and fully diluted.
Four 6 million and 111003 hundred.
There's no no warrants or options or anything.
There are some stock options to management and there are warned 55000 and wants to the underwriters okay.
And it was pretty clean capital structure.
Okay, Yes, yes, that's true silver 50 percentage held tightly.
Tightly held.
You would say.
Yes, I ended by traditional measures, yes, that's right.
Voters at 1.1 million chairs.
Oh gosh.
<unk>.
Okay, Alright, I'll I'll look forward to the call on Wednesday, and thank you.
Alright, and look forward to have any join us. Thank you.
And the goodness star one to two free questions.
Okay. Mr. <unk> there are no more questions. So I'll turn the call back over to you for any closing remarks.
Thank you very much and again, thanks for <unk> those of you that participate on the call as you can tell and and.
Hopefully the words I've spoken about various broke and we continue to be entirely excited by this opportunity that <unk> has put into the marketplace and we couldn't be more pleased that the market has reacted well by ordering that record numbers and providing us with cash flow that as well and excess of last year, we will be speaking as we sat.
On a separate call exclusively to the appliances connection agreement to purchase them on on Wednesday close of business and again, we thank you for your time today and look forward to continuing on our dialogue and.
And so we take on the future as a company that's bent on becoming incredibly successful. So thank you and we'll talk to them.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you me now and disconnect.
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