Q4 2020 1847 Goedeker Inc Earnings Call
Good afternoon, and welcome to 18, and 47 categories fiscal year, 2020 Conference call. As a reminder, this call is being recorded and all participants are in listen only mode. We will open the call for questions and answers following the presentation at the name and should require operator assistance. During the conference. Please press star zero on your telephone keypad on the call.
Today, our 18, and 47 category C E O Dunmore and CFO, Robert Barry I would also like to remind everyone that various remarks about future expectations plans and prospects constitute forward looking statements for purposes of the safe Harbor provisions under the private Securities Litigation Reform Act of 1990, 518, forty-seven Gallagher cautions that.
These forward looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated including risks described and the company's filings with the SEC.
Any forward looking statements made on this conference call speak only as of today's date Monday March 29th 2021 and 18 47 category does not intend to update any of these forward looking statements to reflect events or circumstances that occur after today.
Webcast replay of the conference call will be available on <unk> website at www dot categories Dot com with that I'd like to turn the call over to 18 and 47 get of course C. E O Doug more for opening comments. Please go ahead Mr. Moore.
Thank you Alex and good afternoon to everyone on the call today. Thank you for joining us and taking the time to participate and our 2020 financial results call.
I want to first thank my team and get a crews for their handling of record orders and customer interactions and doing most of that work from their home office environment, while still helping us deliver a substantial increase in cash flow from operations and 2020.
We asked our team to make a major pivot and how they work and the amount of work they do and they met the challenge and exceeded all expectations.
Let me state with conviction I have never been more confident that get occurs is on the path to becoming the nation's largest and most profitable online retailer of appliances and the U S. As.
As we change the way American shop for appliances.
We are still in early in the early stage of addressing a $20 billion industry as the only pure play appliance online retail and listed on a major exchange.
We are executing on our proven D to C model of current investment drive and scalable growth.
Over the past year, we've and investing in people processes systems, while developing a best in class advertising and marketing platform and.
In order to continue to drive significant revenue growth and dramatically increase our market share.
My vision is this to grow get occurs to be $1 billion revenue company over the next five years.
While we initially intended to grow that billion dollar size organically, we are positioned to accelerate that timeline through the pending acquisition of appliances connection, which means remains on track to close and the second quarter.
Well its appliances connection and get occurs have shared parallel success and site sessions and order performance in the month since the acquisition agreement was announced and we're excited for the expected rapid growth of our combined companies post closing.
Let me now 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 offer and online marketplace for consumers looking for top brands service and value when shopping for nearly any home appliance product needed.
We have built a large online selection of products and we are able to offer this fast selection.
Because our model requires minimal inventory.
And strong supplier relationships.
And our logistics and infrastructure is tailored to the unique characteristics of our market.
The delivery experience and overall customer service, we offer our shoppers are central to our business.
We leverage on inventory and fulfillment assets true and efficient inventory acquisition strategy.
About two thirds of our appliances flow through our fulfillment center, while almost all furniture's drop ship straight for the manufacturer to the customer.
We offer roughly 22000 appliance skus from virtually all of the leading brands, including Whirlpool Kitchenaid, Samsung Bosch G Maytag, LG sharp and luxury brands on top of those premium brands.
We sell all major home appliances, including refrigerators ranges ovens, dishwashers, microwaves freezers washers and dryers.
Sales of appliances accounts for more than 73 per cent of our revenues and 2020.
Overall, we generated $15 eight per cent net sales growth year on year, and 2020 Pant.
Pandemic, driven industry wide supply interruptions and shortages significantly produced product available to ship.
The lack of available product meant that we were able to ship only 45 per cent of our orders last year. This compares to an average rate of shipped orders of 80 per cent for the three years prior to Covid.
How do we ship to historical rates, our total shipped orders would've increased by 42 million to $97 3 million for the year, which would have been up 104 per cent compared to 2019.
Written orders nearly doubled to $123 2 million last year, driven largely by our increased AD spend which helps to fuel nearly 10 million site sessions at <unk> 57 per cent from $6 3.002 million 19.
The significant increase in orders require us to use temporary staff to supplement our permanent staff and order processing and phone sales customer service and accounting.
We believe as manufacturers' returned to normal levels of production and we receive more product our operating expenses will be in line with normal levels for the increased orders and revenue.
Investments and logistics are already speeding up order processing time is we utilize E D I and other technologies and other processes to replace manual tasks.
And as a matter of factors catch production up to consumer demand. We believe that get occurs will quickly return to normal shipping trends and our upcoming acquisition of appliances connection will further strengthen our ability to meet the increasing demand more efficiently.
With the near term loan b on supply constraints, creating a clear path to profitability.
I'll now hand, the call over to Bob Berry, our CFO for a more detailed review of our financial results Bob.
Thanks, Doug and good afternoon everybody.
Firstly I'd like to discuss the restatement we filed today.
Like many other companies that sell their products almost exclusively on line.
Concluded that we should accrue a liability for potential sales taxes and <unk>.
Might be payable to the states and which we sell our products.
We made this choice upon further review of the U S Supreme Court's decision and South Dakota versus way fair.
Which determined that states may require remote sellers to collect sales tax under certain circumstances.
With fish and bind we restated our 2019 financial statements to reflect and accrual for sales taxes that might be assessed by the states where we sell.
We will also restate, our 2019 and 2020.
Second and third quarter results reflect the accruals.
All the changes resulted into crude noncash charges of $2 $9 million and both 2019 and 2020.
Now turning to our full year results as Doug mentioned, our net product sales were $55 $1 million and two.
2020, or 15 per se.
And 15, 8% year over year.
Driven primarily by increased AD spend and a sea change shift in consumer buying preferences.
Doug also mentioned, we estimate that had product and available we would have generated an additional $42 million and revenue last year based on our historical rate of shipping 80 per cent.
What is ordered by our customers.
And would have resulted in a 104% increase in revenue and 2019.
The industry wide lack of supply has significantly impacted our cost of goods sold as well as operating expenses, which were higher relative to revenue.
Lack of available product resulted in lower rebates and other financial incentives from suppliers.
This product becomes more available at pre COVID-19 levels cost of goods sold and operating expenses will be right sized for our sales.
The good news is our key manufacturers tell us that they expect production will be approaching near normal levels by the end of the second quarter.
Cost of goods sold were $47 9 million for the year, 2020 as compared to $39 six for 2019.
It's an increase of $8 3 million or 21%.
Gross profit was $7 3 million in 'twenty versus <unk>, or 13, 2% of revenue compared to $8 million or 16, 8% of revenue and 2019.
Personnel costs were $6 6 million in 'twenty versus two 9 million and 19.
And as a percentage of orders so personnel costs fell to five 3% of waters versus six 2% from 2019.
Advertising expenses, which include the cross marketing their products were $4 9 million for the year ended 2000, and 'twenty as compared to $2 seven and 2019.
Michigan and advertising expenses as a percentage of waters.
And a decline in 2020 to three 9%.
And to four 4% and 2019.
And can credit card fees were $1 8 million versus $1, two and 20019 2019 and.
As a percentage of orders these fees were $1 five per cent of orders and 'twenty versus one 9% and 19.
Operational results and 'twenty showed a loss of $14 4 million.
Our estimated operating loss would have been $1 4 million.
<unk> 9 million for pre Covid rates are shifting and gross profit and.
And approximately $4 million and nonrecurring and SG&A.
Including non cash items totaling approximately $4 $8 million.
Net loss before income taxes for the year ended December 31, 'twenty was $20 9 million and that's good.
And to a net loss before income taxes of $5 seven and 2019.
Excluding non cash charges pretax losses for 'twenty would have been $17 6 million.
As of December 31, 'twenty, and we had $9 9 million of cash, including unrestricted appoint and $9 million and restricted of nine.
And in advance of our pending acquisition of appliances connection.
We chose to move quickly to buy more appliance inventory to meet the rising online demand and completed a $4 6 million financing in March to facilitate increased inventories.
Finally cash flow from operations improved to $5 4.002 million 20, that's a positive swing of $7 1 million from the negative one seven and by 2019.
Favorable cash flow, including included a $3 $8 million increase and inventory.
I'll now hand, the call back to Doug.
Okay.
Thank you Bob I have a few more comments before we open up for Q&A.
As a leading appliance retail our long standing reputation with vendors and customers provides a strong competitive position.
And as our order levels are rising and suppliers are engaging with cat occurs and a more strategic and less transactional way.
Yeah on Covid related supply disruptions and this is leading to progress towards better availability, including opportunistic inventory buys and improved financial support.
One of our key Differentiators and it's our telephone sales staff and existing extensive training and certification.
Is occurring to ensure we are the best and the industry.
And this rising professionals and occurring is occurring and our customer service team as well.
These strengths are further augmented by ongoing investments and logistics and marketing technologies have placed us in a position to offer scalable repeatable quality process that are second to none and the retail appliance industry and.
And we will continue to make investments and our infrastructure to support growth.
Looking forward there are five key components to our growth strategy.
One we have partnered with nationally accredited advertising and marketing agencies to more efficiently utilize our increasing AD dollars and gross sales through our website and call center resulted in continued record orders.
Two commercial market expansion to date, we have directed all marketing efforts towards the consumer.
With Remodels and new home construction, there's an opportunity to market to homebuilders contractors and interior designers, who are making are influencing the purchasing decision from many consumers.
We believe that expanding our low price business model to this market would be well received creating.
Creating substantial revenue opportunities and more repeat business.
Three we intend to expand category management management and vendor collaboration.
We continue to forge more dynamic relationships with vendor partners for initiatives and E. D. I direct purchasing expanded product offerings and improve programming closer to customer supply chain options opportunistic inventory buys promotional planning and navigating a lack of product supply and its future availability.
We are just getting started here.
For fulfillment optimization, we are implementing a series of initiatives with key vendors to increased shipping speed to customers cut costs and increase margins.
And in January we signed a lease for a new fulfill them fulfillment center and the St. Louis area that will begin operations and the second quarter tripling our shipping capacity.
Strategic progress continues to be made with our key vendors.
And five we.
We will ride the sea change wave of online retail.
We have demonstrated that consumers are purchasing more big ticket items online and we are building the infrastructure to support the growth that we believe will accelerate as manufacturers' produce enough product to meet demand.
In closing and I want to thank our shareholders for their support of 18, and 47 Gallacher and our long term vision of building a billion dollar enterprise that changes the way Americans shop for appliances.
And with that I would now like to open the call for questions.
At this time, we'll be conducting a question and answer session.
And you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing and Mr. Keith One moment, please while we poll for questions.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Okay.
Yes.
Yes.
Well, Alex how are we doing there.
Yes.
Our first question is from Kyle Gallagher, a private Investor. Please proceed with your question.
Yeah, Hey, guys. Thanks for the call and the update.
Great to see and congratulations on the good quarter.
Just had a had a question you guys had put a.
No doubt about a.
Purchasing the extra inventory.
And correct me, if I'm wrong, but I think that note said.
The interest rate on that was something like 10% per annum.
As far as.
Should we be thinking along those types of lines.
As far as the.
Financing terms of the merger is or is there any color and I know, there's there's certain things you can and can't say, but is there any color on how you can kind of inform our investors thinking.
Along the lines of the financing there let me go straight to the deal structure. The deal structure, we put obviously is confidential, but but the deal structure.
Would be nowhere close to those kinds of circumstances. So.
We are proceeding on a very normal.
Our basis for the deal structure finance in terms of the financing and Bob I know if you want to comment briefly on the on the percentage on the on the note, but that would be perhaps and helpful. But brief please.
Well.
We had an opportunity to get this financing very quickly.
To meet the rising demand we'd had for inventories. So we just we took that rather than shopping around so it is.
And it is hard and we would pay ordinarily, but we wanted to be able to continue buying inventory and not be distracted by shopping around for better rate. So, yes, do understand it's high but that.
And that is certainly not the in the range, where it anywhere near what we're talking about from this acquisition financing.
I understood. Thanks, so much for the clarification guys really appreciate it that's great. Thanks Carl.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next.
<unk> is from Peter King County, a private Investor. Please proceed with your question.
Thanks, and so Peter St. John My question moves a brief I'm just interested.
Get a sense of the action items are remaining in order to close on ACI.
And especially as it relates to.
Late last year when the acquisition was announced thank you.
Yeah on thanks, Peter it's good to talk to you again.
What can I say about this.
We are proceeding with deliberate speed.
And don't foresee any true obstacles to get there I am really not able to comment on our on.
On the precision of that we continue to state as we did on this call and expectation that we will conclude that of before the end of the second quarter and I think I think.
My comments around never having been more bullish or confident should indicate that.
We're on a expedient track.
Mr Streit scapegoating takes versus net.
Great.
Okay.
Our.
Next question is from <unk>, a private Investor. Please proceed with your question.
And are you there.
Okay.
Sorry can you hear me guidance.
Eric on it this is Doug more are you there.
Hi, John can you hear me I.
And I can hear you now yes. Thank you.
Okay.
Thank you John.
Right.
Working on marketing analytics, and Rioja lots with our consumer products and we have seen increase across the board and it's something that is related to the kitchen, and the and the home and the U S. So and.
And obviously this is likely on one timeframe, which some have some stickiness for online. So my question is so 15, 8% was.
Delek us growth last year, and what was the industries and that or the areas that you compete and best buy and to agencies of the world and the industry.
<unk> a couple of things and if Youll blood. If you allow me to go here and indices broken and put more premium and luxury products and we participate a little bit and core mostly and premium and in luxury as well and but the overall market that includes all of those white goods, which are.
The traditional refrigerators stoves.
<unk> ovens ranges.
That range, depending on where the source was weather as a manufacturer of Sims consumer panels fell between kind of a negative two and a plus four and again those are panels and Warner shipments and the reported so you don't have the classic.
Register tape kind of clarity, but very small low low single digit declines are low single digit increases.
And that it didn't really.
It really took a bath the first call it five or six weeks.
Of Covid and then it rebounded the best we could with limited supply so.
And there's a significant backlog at every manufacturer and orders, it's certainly a big backlog, where we are and certainly a big backlog for appliances connection it's.
It's not necessarily a big backlog for everybody I can't really speak to the independents I don't know where those kinds of models don't really take orders. So they don't really they're not able to hold on to orders the way. The online companies are and typically you go into a retailer brick and mortar.
And you buy it if it's there you don't give them money and replacement order if it's not there because it's not predictable, but that's actual percentages and that range and expense is expected to be kind of in that.
And are close to zero range on the things that I read there there are some home improvement lags I think relative to remodeling of refinancing.
But what we shipped and what we orders the orders are really a true indication of the sea change move towards how people want to buy.
It's just too it's overwhelming the numbers on a 100% increase your orders.
On a reasonably substantial base to begin with just doesn't come out of thin air. So anyway, just sort of that's where this this sea change thought process comes and again, 100% inquiries and orders on 50% increase and sessions.
Speak said, it's they're also converting from shoppers to buyers at a much higher rate, which tells you that on.
And as changes is probably permanent.
Thank you.
Great clarification, what how the industry performed on that and 15 coinbase becomes.
Goldman Thanks, a lot.
Thanks, Thanks Erika.
Thank you we have reached the end of the question and answer session and I will now turn the call over to CEO, Doug Moore for closing remarks.
Thank you Alex and thanks, everyone, who has been on the call and as listen to our remarks, Bob Barry and myself I just want to reiterate reiterate to the group here, we feel really strongly that where that 18 47 gallacher is in a perfect position very strong position to.
And to participate.
And the and the growth of the online appliance business and we look at our strengths around scalability and.
Growth areas that we're in our superior customer service are becoming more efficient and supply chain.
And then of course, the the on track acquisition of appliances connection.
We really enjoy working with them up to this point, we see and talk to each other all the time.
We think it's going to be a partnership that really drives a accompany that just hasn't existed in our space our direct to consumer space on appliances and we appreciate your continued interest and look forward to continue to update you on the progress of 18 and 47 Gallacher and then on the progress towards Consummating, a deal and the very near future.
So thank you and thanks again for taking the time is happening.
Yes.
This concludes today's conference and you may disconnect your lines at this time. Thank you.
And you for your participation and have a great day.
Okay.
Okay.