Q4 2021 American Outdoor Brands Inc Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, please stand by your American outdoor brands fourth quarter 2021 conference call will begin momentarily. Thank you for your patience said please continue to hold.
[music].
Thank you for standing by and welcome to the American outdoor brands fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. The.
I ask a question during the session you will need to press star 1 on your telephone and now I'd like to introduce your host for today's program Liz Sharp Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon.
Our comments today may contain predictions estimates and other forward looking statements. Our use of words like anticipate project estimate expect intend should indicate.
Kate suggest believe and other similar expressions is the intended to identify those forward looking statements forward. Looking statements also include statements regarding our product development focus objectives strategies and vision our strategic.
The evolution of our market share and market demand for our products market and inventory conditions related to our products and in our industry and general and growth opportunities and trends.
Our forward looking statements represent our current judgment about the future and they are subject to various risks and uncertainties.
Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings.
You can find those documents as well as a replay of this call on our website and a.
Oh, the dot com.
Today's call contains time sensitive information that is accurate only as of this time and we assume no obligation to update any forward looking statements. Our actual results could differ materially from our statements today.
I have a few important the items to note about our comments on today's call first we reference certain non-GAAP financial measures are non-GAAP results exclude amortization of acquired intangible assets stock compensation and transition costs of COVID-19 expenses related party interest income and the <unk>.
The effect related to all of those adjustments.
The reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not there and discussed on today's call can be found in our filings as well as today's earnings press release, which are posted on our website.
And also when we reference EPS, we're always referencing fully diluted EPS.
Joining us on today's call and as Brian Murphy, President and CEO and Andy former CFO.
And with that I will turn it over to Brian.
Thanks, Liz and thanks, everyone for joining us today I'm excited to share the results of our first fiscal years of public company and I'm happy to report that those results exceeded our expectations for both net sales and net income.
2020, 1 with the historic year for our company, we completed our spin off in August of 'twenty, and 'twenty and became an independent public company dedicated to building authentic lifestyle brands that help consumers make the most out of the moments that matter.
We believe that sharing a passion for building brands that allow people to pursue their outdoor adventures with especially timely.
The consumers increasingly look to outdoor activities, such as the fishing and hunting and shooting sports camping and hiking and rich.
Sponsor travel restrictions and social distancing.
And that's the continued to demonstrate and increased interest and self protection.
Some people turn to these activities for the very first time and others for the first time and a longtime.
Regardless, we are pleased and proud of that so many of them took our brands along with them on their journey.
As a result, we delivered nearly $277 million and net sales, which represents 65% sales growth for the year and 50% sales growth for the fourth quarter.
We are extremely proud of our employees, whose loyalty hard work and dedication helped us establish our new company service of our customers with consistency and deliver outstanding result, despite a year of uncertainty driven by the pandemic.
We believe the posture has ushered in an exciting new era for the outdoor industry.
The resulting in a new hire foundational level of consumer participation.
1 of their personal protection shooting sports camping hunting or fishing and each 1 of the markets and which are brands play has delivered meaningful growth.
And importantly, each has welcomed many new participants who we believe will continue to explore the outdoors and the future.
Calendar 2020 gave US 8 million, new firearm owners, nearly 8 million, new campers and over 3 million new fishing license holders.
During the fiscal 'twenty 1 of our brands, we are uniquely positioned to address the strong U S consumer participation trends.
That alignment combined with our dock and unlock strategy helped drive our strong performance in fiscal 'twenty, 1 and.
As a reminder, our brands are organized into 4 distinct brand lays defender marksman harvester and adventurer each focused on a particular consumer type.
Once the brand is docked intuit the respect of brand Lane, we begin to unlock its true potential by leveraging the lanes resources, including marketing and E Commerce, and new product development, allowing the brand to begin its transformation from niche to known.
Our doctor and the launch strategy drives growth and in fiscal 'twenty, 1 and it delivered results.
The docking and locked helps us develop new products within existing markets, allowing us to take market share.
And in fiscal 'twenty, 1 we expanded our bubble line of fishing accessories to include shares stainless steel pliers hook instructors and on a pro series of lithium ion cordless electric fillet knife.
These new products helped drive Bubba of revenue growth in fiscal 'twenty, 1 of over 73 per song.
Second dock on the law provides some of our existing brands with access to entirely new product categories.
In fiscal 'twenty, 1 we rebranded U S T from its origins and lower E. S. P camping accessories, 2 of camping lifestyle brand and.
And we introduced new higher ASP products, including tense air mattresses, and sleeping bags, which represent our largest category.
Third dock and the law allows us to enter new and large consumer markets and fiscal 'twenty, 1 we identified and unmet need and a harvester brand Lane. So we developed and launched meet your maker of new brand developed internally that placed us in the $10 billion meat processing market and became a multi million dollar revs.
A new brand within its first 9 months.
Lastly, Doc and the law provides access to new distribution channels and fiscal 'twenty..1 we expanded Jujuy man from a single line of tree saws for hunters to a brand that offers a full range of land management tools popular with homeowners.
These products are now available and beginning to gain traction at home and hardware stores.
Docket on lock live at the heart of our new product development pipeline, new products, which we define as any new skus introduced over the prior 2 year period represented over 35 per cent of our net sales for fiscal 'twenty 1.
Our new product pipeline remained robust throughout the year and and the fourth quarter, we introduced new products across all 4 brand names and let me hit a few of those for you.
And our defender Lane, we launched the Crimson trace and see them on 301 of Universal laser and tactical light system and.
And I'm Oxman Lane, we launched our new tipped and nope rope pull through of Bowl cleaners, and the Caldwell ear of 500 targets down which complements the full line of air of 500 targets, we launched last year.
And our Harvester Lane, we launched 2 old timer brand electric fillet knives, and 1 quarter and 1 of lithium ion cordless.
We also launched a full assortment of queen in each grip workflows, which complement our new and expanded line of women and land management tools.
And and the adventure of Lane, we launched the Bubba Pro series of electric Fillet knife, which integrates our brushless motor technology, and our advanced lithium ion technology.
We also introduced our bubble fishing line nipper, our product that spans freshwater saltwater and fly fishing markets.
And during the quarter, we put the finishing touches on a number of new products, including 2 major products that will represent bubbles the entry into several new product categories and fiscal 'twenty 2.
Stay tuned we'll be unveiling most of these exciting new products next week and I cast the fishing industry's premier Tradeshow.
We believe many of our brands have significant untapped potential for long term growth and our doctor and unlock platform has been built to manifest that potential.
Our brands certainly aligned well with the consumer trends, we saw on fiscal 'twenty, 1 but at the same time. We believe our results were also driven by our ability to capitalize on that demand in several ways.
First we benefited from significant strategic investments, we began making and our e-commerce capabilities long before the pandemic began we established websites for each of our key brands, which positioned us to successfully meet the consumer wherever they shop, whether online or in store.
This allowed us to establish new consumer relationships and increase existing consumer engagement.
It also allowed us to respond effectively to increase demand across our brand portfolio.
And as a result, we grew net sales and our e-commerce channel by over 100% and fiscal 'twenty, 1 including sales by our e-commerce customers and our own direct to consumer sales as consumers shifted towards online purchases.
At the same time net sales and our traditional channels grew nearly 49 per song.
Our strong e-commerce and traditional channels are both very important since they allow us to capture of consumer demand no matter what channel it comes through.
Second we benefited from earlier investments and our supply chain of distribution capabilities and our teams here and in Asia did a great job and continue to do a great job navigating supply chain constraints and port congestion.
As a result, we heard from a number of customers that we did a better job on our competitors of keeping products on their shelves.
Lastly in terms of bottom line performance, our supply chain team did a great job here as well managing material cost increases and freight expenses and high demand environment.
It's also important to note that we benefited from the absence of costs related to multiple industry trade shows and travel cancellations and fiscal 'twenty..1 important investments that are a necessary part of a more normalized selling and marketing environment.
The fiscal 'twenty, 1 with an extraordinary or 1 that delivered unprecedented challenges and unforeseen opportunities.
During that time, we successfully prepared for and became a new public company and delivered tremendous growth and profits and a year that we believe established and outdoor Renaissance for the consumer.
Looking ahead to fiscal 'twenty, 2 we plan to build upon our new consumer relationships supported by a strong brand portfolio of robust lineup of exciting new products and and established E. Commerce platform that will allow us to deepen our insight into the behavior of our consumers.
Well, we do that we will work diligently to leverage our platform monitoring and managing the risks that are likely to remain on our environment throughout the year, which include supply chain constraints, increasing raw materials and freight costs and ongoing tariffs.
And we looked at the longer term we are excited about the large number of new consumers that have entered many of the markets where our brands play.
In addition to that we believe many of our brands have the authenticity of the potential and the ambition.
The market to be on the outdoors.
So we have developed the pathway that will expand our total addressable market and take our brands from niche to known fueling our growth and 4 ways number 1.
Increasing our market share by launching new products within existing categories.
By entering new large product categories, where our brands have permission to play.
3 by entering entirely new consumer markets that increase our total addressable market opportunity.
And number 4 by broadening our distribution by Onboarding, new customers that reflect our brands expanded permission to play.
On a combined basis, we believe the strategy will support organic sales growth at a compound annual growth rate of between 8% and 10% over the next 4 to 5 years exclusive of any acquisitions.
That implies that the low and that we have a plan to more than double the size of our business organically since the separation and August 2020.
And we believe that growth is just the beginning.
As we work to achieve that growth, we will continue to focus on delivering long term profitability, our investments and product development and marketing and distribution infrastructure have resulted in a platform with largely fixed costs, helping us deliver record profitability in fiscal 'twenty, 1 as our net sales group.
As a result, we believe this platform has the ability to deliver EBITDA margins and the mid to high teens over the next 4 to 5 years as well.
We could not be more excited about our future. We are proud of the foundation, we've established and our first year as the public company and we are poised to build on that foundation setting our sights on future growth and taking our brands from niche to know.
With that I'll turn it over to Andy.
Thanks, Brian and I am happy to share our full year, and Q4 results, which showed significant growth and net sales and adjusted EBITDA as well as strong free cash flow generation.
Net sales for the year were $276.7 million compared to $167.4 million and the prior year and increase of over 65 per cent.
This increase was driven by higher overall demand and the outdoor products market combined with the consumer preference for the 20 brands across our portfolio.
In fiscal 'twenty, 1 over half of our brands grew net sales more than 50% over the prior year and 6 of those grew net sales and the triple digits.
Net sales in Q4 were $64.5 million and increase of approximately 50% over the prior year quarter.
We saw growth and nearly all of our brands and similar to the last 2 quarters, our 4 highest selling products and Q4 represented each 1 of our 4 brand lanes.
Our fiscal 'twenty, 1 gross margins were 45, 8% of 340 basis point increase over the prior year.
The increase in gross margin percentage was driven by favorable product mix and lower promotional spending offset by sales of discounted slower moving inventory that I've mentioned on earlier calls.
For the full year GAAP operating expenses were $103.3 million compared to $183.8 million last year.
Our fiscal 'twenty operating expenses included a goodwill impairment charge of approximately $99 million.
If we exclude that impairment than operating expenses increased on a year over year basis by $18.5 million or 21, 7%.
The increase was driven by $11.2 million of variable selling and distribution costs and approximately $4.4 million of compensation related expenses, both of which resulted from our higher net sales.
These costs were netted by a decrease and intangible amortization of $2.6 million and approximately $1 million from facility consolidations that we completed in fiscal 'twenty.
Non-GAAP operating expenses for fiscal 'twenty, 1 were $83.6 million compared to $64.2 million last year.
Non-GAAP operating expenses exclude intangible amortization stock compensation and certain nonrecurring expenses as they occur.
GAAP EPS for fiscal 'twenty, 1 was a dollar and 29 cents as compared with an EPS loss of $6.88 last year.
Again fiscal 'twenty EPS was significantly impacted by the goodwill impairment.
Our fiscal 'twenty, 1 non-GAAP EPS was $2.32 as compared.
Per to 23 cents last year.
These figures are based on our fully diluted share count of approximately 14 million shares.
Full year, adjusted EBITDA was $47.3 million and fiscal 'twenty, 1 and increase of approximately 285% over the prior year.
Fiscal 'twenty, 1 adjusted EBITDA margin was $17.1 per cent compared to 7.3% and the prior year and was favorably impacted by 3 things.
First the significant increase and net sales and the resulting leverage of our fixed costs.
Second the absence of promotions and the market and third reduce travel and the absence of in person trade shows driven by the pandemic related restrictions.
As we've mentioned on prior calls the spinoff changed the accounting treatment of our Missouri headquarters from a finance lease to an operating lease.
And the full year of being treated as an operating lease adjusted EBITDA would have been approximately $700000 lower at $46.6 million or 16, 8% of net sales.
Looking ahead to fiscal 'twenty, 2 and beyond that annual cost will be treated entirely as rent expense.
Turning to the balance sheet and cash flow.
We ended the year with $68 million of cash and no borrowings on our line of credit on.
Our full year cash from operations was very strong at $33.3 million and was netted by cash outlays for Capex and patent costs of $4.2 million in line with our expectations.
As a result of free cash flow for the year with about $29 million.
Our balance sheet is incredibly strong at this point and we believe it is adequate to support our investments and organic growth as well as any tuck in acquisitions, we may choose to pursue.
Now, let me turn to a discussion of our it infrastructure.
Youll recall that our spinoff last year included a 2 year transition services agreement with our former parent company.
Debt agreement provides for 2 years of full <unk> support while we stand up our own independent a O U T platform.
As a result, our spinoff strategy has always included a goal to set up our it infrastructure.
Truck share by August 24th 2020.2.
By way of and update I'm pleased to report we have in place and extremely capable and experienced I T leader and team who have developed of tailored business wide I T strategy based on a platform that has been chosen and designed to meet our company specific needs now and into the future.
This is an exciting investment for us as we look to enhance our analytical capabilities and prepare our company for future organic and inorganic growth.
We estimate the implementation cost of this project will be approximately $8 million by the time, we go live a little over a year from now and fiscal 'twenty 3.
We expect the capitalized $5.4 million of that cost and incur the balance of $2.6 million as 1 time operating expense.
Let me provide a bit of detail about the cost impact specific to fiscal 'twenty 2.
Capex spending in fiscal 'twenty 2 from it.
And we'll be about $3.5 million.
And 1 time operating expense and fiscal 'twenty 2 for I T.
It will be about $1.6 million.
In addition to the $1.6 million of onetime expense. We will also incur duplicative expenses of approximately $1.2 million as we run both the existing and new platform side by side prior to the go live date.
We will treat both the $1.6 million and the $1.2 million is nonrecurring transition cost when calculating non-GAAP operating expense and.
And adjusted EBITDA.
Turning now to Capex outside of the <unk> project, we expect to spend approximately $4 million to $5 million and capital expenditures in fiscal 'twenty 2.
Mainly for product tooling and trade show booths for industry shows.
To recap our total capex for fiscal 'twenty, 2 including I T and all other capex is expected to be $7.5 million to $8.5 million.
Turning to inventory, we ended the year at $74.3 million of inventory up a bit sequentially from Q3, but somewhat below our expectations.
Youll recall last quarter, we said, we expected inventory to increase and support of new product launches and in order to mitigate supply chain risk, especially for high volume Skus.
Unfortunately supply chain constraints and port congestion hampered our ability to build inventory to our preferred levels.
That said our team is focused on overcoming these hurdles and.
As we work to build up our inventories and fiscal 'twenty, 2 and support of new product launches and to increased safety stock levels to mitigate these risks.
Finally, we ended the quarter with no outstanding bank debt and the full capacity available on our $50 million line of credit.
This facility provides an additional $15 million of availability under certain conditions.
Our cash balance combined with our line of credit capacity provided us with over $125 million of available capital at the end of fiscal 'twenty 1.
Brian and I continue to see a high number of acquisition targets coming to market.
We also remain very disciplined and our approach when assessing these opportunities.
Our strategy remains focused on finding brands that complement our current portfolio and have runway for growth.
Operate and large total addressable market and.
And allow us to apply our dock and the lock strategy to build value for our shareholders.
Okay.
Now turning to our guidance.
We estimate that net sales for fiscal 'twenty, 2 will be and the range of $280 million to $295 million.
With net sales and that range, we would expect full year GAAP EPS and the range of 1 dollar to $1.24.
And non-GAAP EPS and the range of $2 and 2.
To $2.26.
We would also expect adjusted EBITDA of between 15% and 16% for the full year.
In fiscal 'twenty, 2 we expect to see a resumption of selling and marketing activities to more normalized levels compared with the absence of those activities during the pandemic related restrictions of fiscal 'twenty 1.
As a result, we plan to incur costs in support of increased business travel and costs related to trade show participation, including Ikaes next week, and Florida and shot show next January and Las Vegas and.
In addition to this activity, we expect to see some level of promotional activity returning to the market as well.
Finally, we expect our effective tax rate will be approximately 25% and our fully diluted share count will be about $14.5 million shares.
With that operator, we're ready to open the call for questions from our analysts.
Certainly and ladies and gentlemen, if you have a question at this time. Please press Star then 100 Touchtone telephone. If your question has been answered and you'd like to move yourself from the queue. Please press the pound key.
The first question comes from the line of Eric Wold from B Riley Securities. Your question. Please.
Thank you good afternoon.
Couple of questions. If I may I guess, just first off.
He is looking at the fourth quarter, specifically of the e-commerce mix versus retail drops materially year over year versus the fourth quarter of last year and let me.
And the timing of shipments and the impact of kind of the retail economy picking back up or the or Theres something else there and how should we think about that.
And that mix shaking out and in fiscal 'twenty 2 relative to the 40.60 split last year.
Hi, Eric It's Andy Great question. So when you look at Q4 over Q4 last year Q4 was when the pandemic was starting to affect sales.
We had noted last year and the and the earnings call. There were some anomalies with orders during that timeframe and.
And kind of.
Brick and mortar retail and E. Com I think if you look at the trends over the quarter. We started Q1 and 50.50 kind of of almost 50.50 split between E Com and traditional went back to 1 third 2 thirds in Q2 and that's what you saw in Q4 as well Yeah. I mean this is Bryan Eric certainly we saw.
Our year over year are very much just many more stores open at this point I also think the retailers have have been doing a lot of a hurry up offense to to get their own retail storefronts up to speed online as well.
And those would be captured as part of our traditional sales channel. So I think some of the customers that we have there have done a really good job getting up to speed, obviously more doors are open.
<unk> 2 I think last year, we had set of 1 point that we were tracking over a thousand retail doors that were closed and so I think it's just the economy opening back up and and in general.
Perfect and then the second question kind of a 2 parter on the supply chain.
You know what initially that the.
A lot of your retailers the customers know you did a better job and some of your competitors keeping products on shelf as I assumed translated into.
The market share gains and the period any specific categories. This would be reflected in and how do you think that that dynamic changes, possibly as you know the supply chain and you.
Possibly catches up and then on the supply chain and specific to you.
Was there any impact on your ability to get product out there or is that true merely the safety stock issue.
On the inventory and then kind of what have you assumed in the guidance around the supply chain and thank you.
Yeah I can start Eric this is Brian.
So first of all of our team did a fantastic job navigating some of the complexities that we were all introduced with here on our fiscal 'twenty 1.
And we we definitely rely more upon her insights into P. O S and strengthening of that chain that I've talked about before between Pos and inventory planning.
Are we of our own analytic team and house here and we bought ahead, we started it and see some of those trends and we wanted to make sure that we had sufficient safety stock here.
And I think we benefited from that we certainly like you said, we took share during that period and like I said, our competitor or not of competitors, but our customers noted that we we have done so and then looking forward you know Andy made of mentioned and he can probably chime in too.
You know, where we ended Q4 they were below our expectations. When it comes to inventory levels. So part of that is a strong sell through demand has outstripped supply and some cases.
But we haven't seen you asked the question about like product categories of our by brand, we haven't necessarily seen pockets within our portfolio where we're.
And we're missing the Mark I think it's just across the board with our portfolio.
Given the strong demand. It's just demand is very strong right now and anything you want ahead of I mean, the only thing I would add is kind of going forward, we plan to invest to make sure as Brian mentioned to mitigate supply chain risks invest in inventory of those safety stock level of especially those of those high a high turning skus.
Perfect. Thank you both.
Yes, Thank you Eric.
Our next question comes from the long and it was Scott Stanford from C. L. King Your question. Please.
Good evening and thanks for taking my questions.
Hey, Scott.
Going forward could you just walk us through what you expect seasonality to be on a quarterly basis, just to help us model of a little bit.
And the fourth quarter versus the typical third quarter and or the first versus the second and just maybe walk us from that given this is the first time that we've been around the block and <unk>.
The earnings perspective, the progression.
Sure Hey, Scott This is Brian so I'll start and Andy can chime in.
So if you look back historically.
Pre FY 'twenty, 1 typically our Q2.
And that's been our highest quarter.
This last year and FY 'twenty, 1 and we saw that shift a little bit. Obviously, there was a lot of pent up demand as stores started to reopen and Q2 and Q3 and so actually our Q3.
<unk> was our peak and FY 'twenty 1.
I'd say going forward, we're we're expecting that a similar hump.
Between Q2, Q2, and Q3 some of our retailers too we had talked about returning to a.
Some level of promotional environment, we do have some promotional skus.
And that we do utilize and those can shift sometimes between Q2 and Q3, but overall that's kind of the hump that we're talking about so whether it's going to happen in Q2 Q3 too early to tell but I would say between those 2 quarters Youre looking at the biggest help for the year Andy anything you went out.
Spot on.
And so and then from Q3 of the Q4.
A similar cadence here.
Or something along those lines.
Yeah. So again, if you kind of go back historically when you look at kind of between fiscal 'twenty 'twenty, 1 and it is that hump and it starts to drop from Q3 back to keep the into Q4.
Yes.
Yeah, I guess I'm, just trying to figure out.
And at least for this quarter also.
You lost sales opportunities because of the lower inventories that you talked about weather.
Whether it happened this quarter and if it happened and the third.
Kevin stance.
It sounds like obviously, it's kind of of haven't been going forward and nothing dramatic but you have to work through it but can you just compare Q3 versus the Q4.
Yeah, I think 1.1 stat that you can pick up in the 10-K is the increase year over year as of April and backlog and so our backlog at the end of last April was $1.8 million and that rose to $15.2 million at the end of.
The fiscal 'twenty, 1 so I think that's a good indicator of that that's kind of 2 fold that that's both future future dated.
But it also has a decent chunk of.
Orders, we could have shipped if we had the inventory on demand and the carryover.
Got it and just last question on the guidance.
I appreciate obviously the.
Oh It was the perfect storm of lack of expenses and.
Oh, sorry on travel and not flying anywhere and then youre getting interesting incredible sales throughput but.
And going forward and is.
Is there any other items in there and now that you had talked about.
And we're going back from a little bit more of a traditional.
I guess, the retail versus E. Com I don't know that E com generates higher margins is that.
Baked into your guidance as well.
Yeah. This is Andy again, yeah, our guidance really contemplates all of that you know obviously, our model kind of looks at both E. Com traditional you are correct, we've said that in the past debt.
E Comm margins are generally higher because of the fact that direct to consumers and there.
And then yeah go on in fiscal 'twenty, 2 we plan on investing and travel trade shows.
And other really brand investments we saw some really good investments that we made in fiscal 'twenty, 1 and and we're going to continue to invest for our long term growth yeah, Scott if I could add to this is Brian.
You know we made the comment before we want to be wherever the consumer expect expects to find us and so certainly in FY 'twenty..1 there are increasingly going online and like I had said some of the traditional customers have have done kind of a hurry up offense to put out their own sites and make sure that they have that capability.
So again, we want to continue to be where the consumer expects to find us direct to consumer is also a big part of E. Com. We continue to believe that were and the early stages of seeing that growth. So I would expect that that would continue for us as well.
Got it thanks a lot.
Thanks, Scott and Scott.
Thank you. Our next question comes from the line of Mark Smith from Lake Street Capital. Your question. Please.
Hi, guys I first question from me is just just clarifying right and looking at the transition cost that 19 cents that is fully the transition and the ICT infrastructure correct.
That is correct. If you do the math Mark the 19 cents is roughly that $2.8 million that I talked about so it's about 1.6 of 1 time, and then $1.2 million of duplicative costs.
Okay, and then as we look at you know should we expect a little bit of that to continue to roll into fiscal 'twenty 3 before the full transition and August.
Yes, yes, that's the that's a great assumption so I would expect the duplicative to start to ramp down and so those of the types of things, where we as we as we get closer to that go live date, we're using less and less of the the.
The transition services agreement and more of our own it infrastructure.
Okay.
That's great and then.
Just looking at the you know you've talked a little bit about the promotional environment can you just kind of rates, what you're seeing today and the promotional environment basis versus kind of what you're expecting to kind of ramp later in the year.
Sure.
Brian Mark we're not seeing a whole lot to be honest with you at this point, what we're going off of is what we've heard from our customers and what other other public companies, who happen to be our customers have talked about.
So and and they've sort of alluded to a there of calendar year of calendar year call. It Q3, and Q4, maybe part of that and their Q2.
But we're not seeing a whole lot of that right now I think the the demand remains robust.
But for US we could see that later in the year and again I'm just going off of what our customers are planning at this moment.
Okay, that's fair.
And then looking at distribution channels.
We've seen some U S T stuff at Costco can can you talk about.
Increasing distribution and maybe any positive impact that that has had over the last year.
Sure Yeah, I'm glad you asked Mark it's Brian.
Yeah, we've seen a tremendous acceptance for our brands as they've continued to marched on the path of of niche to known using of our dock and lock formula. So yeah. We're we're showing up now and we man of showing up and home and hardware stores, which is great. As we addressed a lot of the broader land management tool category, which is very large.
Obviously, you mentioned the U S T getting into some of those distribution channels like Costco and and even places like Rei.
Which is fantastic and even some of our bubble products are making their way into other distribution channels as well some of the home and hardware and some cases, even be pulled into the kitchen and so I think we will see a continuation of that across our brand portfolio that will be excited to share with you going forward.
Perfect day, and the last 1 from me you know the the guidance I assume does not include any acquisitions.
But can you just talk about what you're seeing out there on the M&A front today.
Sure Mark this is Brian.
We are we are seeing a lot of M&A are there I've I've been I kind of started and mergers and acquisitions and investment banking with and advisor for a period of time and I thought I saw a lot of M&A. When I was an investment banker now on this side, we're just seeing a ton of volume right.
And.
In particular founder of sellers that are coming to market and.
And I think 1 of 2 reasons number 1 they did see a nice pop last year.
And we've got a pretty good sense of who performed well before that.
And who maybe saw an uptick of slight uptick due to COVID-19 and their particular categories and then the second is for tax reasons I think that some of the founder of sellers.
And are expecting or maybe preparing for if there is the change in tax code.
That they are going to be hit with higher tax rate. So they're trying to beat that and getting to market sooner and with that said. There's also a lot of competition for these assets, which has created a higher valuation I'd say floor, it's not uncommon for us to see deals done and in the double digits low to even teens and some cases.
So we're like Andy said in his prepared remarks, where Meg remaining very diligent making sure that we're finding the right deal it fits our criteria and.
And it's out there, but again, we're going to remain very very diligent.
Alright that sounds great. Thank you guys.
Yeah. Thank you Mark.
Thank you once again a couple of questions. Please press Star then 1 our next question comes from the line of John King from Cowen Your question. Please.
This is Christian on for John and Thank you for taking our questions.
Could you provide us some sort of like puts and takes around the gross margin drivers for fiscal 'twenty, 2 and now that you touched on.
And some anticipated input and and tariff costs as well as what you've commented on on promotions and yeah.
Freight and inventory levels.
Hi, Chris debt, it's Andy Great question, so margins going forward.
You know our guidance.
Assumes really no change and tariffs wheat, we don't certainly don't know of any anything come down to the pipeline on that.
With respect to kind of on.
There are pieces of the margin.
And Brian mentioned.
Later in the year some additional promotional costs those are baked in and when you look historically kind of fiscal 'twenty into 'twenty 1.
We've been kind of typically in the mid forty's with respect to margin percentage.
Okay great.
And then just touching on the Capex with the big hike that's coming this year.
Can you kind of talk broadly how you sort of anticipate the runway run rate over the next several years for Capex, maybe as a percentage of sales or dollar amount and thank you.
Yeah. Another another good question. So as we look we guided kind of 7.5% to 8 and a half million dollars. This year with the big chunk in it.
This year, we'll also have.
And more of a onetime costs for trade show booths and really that's that's because under our former parent company, our Tradeshow booths, where we're under that parent company and and now spun off after co.
Covid.
As we attend these trade shows we're investing and those boots. So if you look back kind of the rest of it we look at we look at our business as a relatively low Capex company.
It would be variable with respect to new products and also revenue because the most of the remainder of that Capex is related to product tooling.
Back in fiscal 19, we were roughly $2 million or so out of 107.
71 million or 177 million of net sales and as you know obviously you can see that as the business is growing we will invest more on product tooling.
Okay, Great and then just finally I think you announced in May the the promotion of Curtis Smith, Chief Marketing Officer, just you know on relationships sort of Opex and how do you kind of see your marketing initiatives evolving from here in fiscal 'twenty 2 as it relates to customer acquisition.
And and Richardson, Thank you very true.
Yeah, you bet and this is Brian so yeah very very excited Curtis was promoted to our chief marketing officer of Curtis and I have been friends for a long time and work.
And previous lives together.
Curtis really helped.
And with the senior team establish our dock and a lot of process that we have so he's been very very involved along with me and the rest of the team too.
Really unlock the power of these brands and it's got a lot of experience there and so we'll continue to make investments and marketing going forward to unlock the potential for the 20 brands that we have and also as we look to acquisitions and how do we find these acquisitions and these companies that we believe are underserved, but could the other potential be unlocked and our platform.
So.
And also without any you mentioned some of the kind of customer acquisition and things like that.
We spend a ton of time looking at that and over the last year. If you look at our Q4 of for example, we took some of the savings from our Tradeshows that we didn't we didn't spend on trade shows and reinvested that into marketing, we have and incredible new E. Com platform and we have we get some really good insights from that so.
And we plugged money into that too.
We're going to retain those new consumers that we've attracted over the last year and we're going to continue to leverage insights into the consumer base and not only helps with us with our existing products, but as we as we mentioned we're going to come out with 300, new products. This year. It really helps as we launch new products. So we're very excited about that.
And thank you and best of luck.
Yeah. Thank you.
Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Brian Murphy for any further remarks.
Yes, thank you and clothing, I want and especially thank our employees for helping to make our first year of tremendous success.
We have a lot of people here and we're actually listening to this call. So I want to thank you very much.
And thanks, everyone for joining us here today, we look forward to speaking with you again next quarter.
Thank you, ladies and gentlemen for your participation on today's conference. This does conclude the program you may now disconnect good day.
Okay.
And.
And.
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