Q2 2021 1847 Goedeker Inc Earnings Call
Good morning, and welcome to the $18.47.
Good there Kurt conference call for the second quarter of fiscal year 2021. As a reminder, this call is being recorded all participants will be in muscle only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Ask your question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
On the call today are Doug Moore, Chief Executive Officer, Richard Johnson, Chief Financial Officer, and Robert Berry, Chief Accounting Officer. Please note that various remarks about future expectations plans and prospects constitute forward looking statements for the purposes of the safe Harbor provisions under the private Securities Litigation Reform.
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The company cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated including risks described in the company's filings with the SEC any forward looking statements made on this conference call speak only as of today's date Thursday August 12.2020.
One.
And 2018.47 get occur assumes no obligation 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 the 18.47 that occur Investor Relations website. At this time I'll turn the call over to CEO, Doug more for opening remarks. Please go ahead.
Thank you very much and good morning to everyone for joining our second quarter earnings Conference call. We appreciate your continued investment and interest in <unk>.
We believe our strong second quarter performance, particularly our combined revenue of $140.1 million and our pro forma net income of $17.3 million demonstrates the many operational benefits and synergies presented by the appliances connection acquisition.
Now that the transaction is closed we are well positioned to scale and aggressively pursue our intermediate goal of achieving $1 billion in annual revenue, while driving stronger profit each step of the way.
During June and continuing forward, we focused on integrating the businesses and started to implement our six point strategy for achieving consistent profitable growth.
The board and management believes that this focused strategic plan is the key to helping us capitalize on the opportunity in the expanding U S home appliances market. This.
This play has the full support and commitment from the senior executive team and the board.
In line with the strategic plan, we are dedicating our energy and resources to the following.
Providing the widest product selection across the core premium and luxury verticals striving for at market or better competitive pricing.
Offering quick reliable fulfillment may.
Maintaining a modern tech stack and seamless E commerce experience.
Employing highly targeted marketing and delivering fast expert.
Global customer care and sales advice.
This is our customer centric formula for winning over the long term.
Home appliances market after raising capital and integrating new senior talent, including major stockholders, Albert and Eli Workday, we were able to execute against each of these six priorities during the quarter.
From a selection perspective, we're left we were we've leveraged new and existing supplier relationships to grow to 57000, Skus and faculty physicians to offer what we view is unrivaled product breadth.
We have begun implementing a data driven pricing strategy that closely tracks product demand was being offered by E. Commerce peers enable us to stay price competitive at all times in the area of fulfillment when we have product in stock we provide reduce shipping times. In addition, we have consolidated into a unified customer care team that is almost exclusively in house.
A latter point, having an in house team is especially important as we position ourselves as a specialized experts and differentiate ourselves from legacy competitors.
When it comes to our shipping and supply chain performance, we recognize that meeting and exceeding our customers' expectations will require a world class fulfillment network we.
We're taking.
Concrete steps to build this kind of network, including myself.
By supplementing our existing Missouri distribution center with appliances connections New Jersey facility. These two hubs are now working in unison to underpin phase one of our National network.
Notably we signed an agreement during the quarter to upgrade our warehouse management systems and modernize our tech stack.
Phase two of our fulfillment network build out is already commencing with our management team actively assessing new locations in California, Florida and Texas.
Expect to sign agreements on multiple facilities by the end of 2021.
Well it will take some time to get these locations fully operational we are developing ramp up plan for our people our products and our system. So we can hit the ground running.
Our emphasis on technology is also extending to the front end, although the GATX or an appliance connection web properties are currently still separate our development in the UI UX specialists are consistently updating the assets to ensure a seamless experience for customers across all screens desktop tablet mobile we have fine tuned our marketing spend to drive customers to products that are.
In stock are expected to become more readily available.
With respect to our long term web presence, we ultimately intend to operate under one singular E Commerce brand.
That's why we recently retained a leading market marketing consultancy firm to conduct a brand review an overhaul of this brand for US we are working towards rolling out a full rebrand during the first quarter of 2022.
In addition to the aforementioned financial and operational highlights for the quarter I want to take a moment to discuss a few other updates we continued improving fill rates and hit 76, 1% in June up from 61% in June of 2020.
While the pandemic related issues continue to caused certain delays in receiving inventory. We are leveraging our increased scale with suppliers to sustained fill rate improvements are larger economies of scale work to optimize hauling in shipping rates amidst rising transportation cost.
From a governance perspective, we've retained a leading compensation consultant to help us construct an executive director pay framework.
That properly aligns our incentives with our strategy and our go forward performance.
Although insiders and their affiliates currently owned approximately 9% of the company's common stock we are committed to maintaining an enduring culture of alignment accountability and incentive position going forward.
I'll now conclude my initial remarks and turn it over to Maria Johnson, our new Chief Financial Officer to provide an overview of the company's performance for the second quarter and first half of 2021.
Ray joined US in July after holding senior finance roles at companies, such as Pepsico and John Hardy. She is valuable experience, helping business to scale and grow we are thrilled to have her aboard Maria.
Thanks, Scott good morning to everybody.
As Jack mentioned with the completion of our acquisition of appliances connection the company's scale has changed dramatically.
Net product sales for the quarter, where 141 million.
And increase of $48.6 million over pro forma sales for second quarter 2020.
On a year to date basis pro forma net sales were $263.1 million an increase of Congress.
For <unk> 9 million.
GAAP net product sales, which include US appliances connection sales from June 2nd through the average of the quarter were $64.1 million, an increase of $48.8 million or 319% comparing the second quarter of 2020.
GAAP sales for the six months period was 7% to seven 8 million.
$52.8 million or 212% from 'twenty to 'twenty.
Pro forma gross profit for the quarter was $33.3 million and the margin was 23, 7% up from $18.8 million with a 25% margin for second quarter 2020.
Pro forma gross profit for the six months period was $65.4 million was at 24, 9% margin.
Up from 31, 4 million and margin of 19, 8% profit 'twenty 'twenty period.
GAAP.
Gross profit for the second quarter was $13.1 million with a margin of 22.4% an improvement of $10.5 million compared to $2.6 million with a margin of 17% for the prior year quarter.
Pro forma operating expenses for the quarter were $24.3 million and that was the largest expense item being personnel cost of $7.8 million advertising expense of $5.1 million bank and credit card fees of $5.6 million and general and administrative expenses.
So $3.6 million.
Pro forma net income for the quarter was $17.3 million and for the six months period. It was $32.9 million.
Second quarter pro forma net income included an income tax benefit of $7.3 million and the six months pro forma net income included an income tax benefit of $5.6 million.
GAAP net income for the second quarter was 4 million and included an income tax benefit of $8 million compared to a net loss of $5 million 689000 of income tax benefits for second quarter 2020.
Pro forma adjusted EBITDA for the quarter was $15.2 million with a margin of 10, 8%.
Six month pro forma adjusted EBITDA was $3.6 million was up 12, 8% margin.
For the six months ended June searches 'twenty to 'twenty, one the company incurred negative cash flow from operations of $7 million and had working capital of $15.5 million.
Additionally, the company had cash and cash equivalents of $45.2 million on June 30 is 2021 up from 935000 on December 31st 2020, and $1.3 million on March <unk>, 'twenty or 'twenty one.
The increase in cost reflects a $60 million term loan secured by the company during second quarter trying to place a lot.
With respect to our outlook, we expect full year revenue on a pro forma basis to be between $520 million and 550 billion full.
Full year gross margin on a pro forma basis to be between 22, 5% and 24, 5% and full year pro forma adjusted EBITDA margins to be between nine 5% and 11%.
Now I will hand, the presentation back to <unk> for his closing comments.
Thanks, Maria and some of the actions we took during the second quarter were absolutely transformational.
The reality is we needed to be bigger and more tech centric to seize the massive opportunities in the U S household appliances market, which is projected to exceed $22 billion in 2021.
Our data and our research indicates consumers are going to increase their online purchase of major appliances, including big ticket items like freighters dishwashers washing machines refrigerators and ovens.
With the completion of the appliances connection acquisition. We believe we now have the scale the people the resources and the capital to capture double digit market share.
Executing on our six point strategy, which is described in more detail and our new investment presentation deck, we will further secure gallagher's as the leading E commerce player.
Substantial work lies ahead, but our pro forma results from this quarter demonstrate the power of our current value proposition and point towards significant opportunities for our customers and our shareholders in the future.
I can I'll conclude there and at this time I'll ask the operator to open the call up for any questions. Thank.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone, Ken Let Star then one.
If you are using a speakerphone please pick up your handset before pressing the key.
So let's draw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Yeah.
Okay.
Yeah.
And then if you'd like to ask a question Thats Star then one okay.
Our first question today will come from Charles Mckeown with G. W.
Please go ahead.
Yeah.
Hey, guys good morning.
Yes.
I was curious about July orders.
Film It right there.
We're not publicly disclosing July at the moment I will say, what we've done Charles is we've taken our marketing position to market towards what we already own and what we can readily own so.
So we actually reduced our marketing spend in.
In June July and August.
In an effort to make fewer customers dissatisfy with wait times and lack of product.
Consumer demand continues to be strong.
But we are now believing that our best approach is to not necessarily drive orders that we can't fulfill quickly but to drive orders, we can and that's been our approach. So we will continue to.
Modulate our marketing spend to what we can consistently provide which means our fill rates are in the as we mentioned in this call or 76, 6% for June.
That trend is continuing to be consistent or rising towards the more traditional number of 80 plus percent. So good question, we're modulating our marketing approach to it to make sure we satisfy more people on a percentage basis in real quick time. Thank you.
Great. Thanks.
Our next question will come from Colin Mclafferty with Lapidus apps asset management. Please go ahead.
Hey, good morning, Doug Thanks for taking my question.
Sure.
So I was curious about the guidance you provided this morning I appreciate you all providing that but the full year guidance implies a pretty wide range for gross margin in the second half.
My calculation is somewhere between 20% and 28% could you explain the reason for the wide range.
Actually the range, we provided on that call was 22, 5% to $24 five did you did.
The full year, no sorry, but for the full year, so doesn't that imply that implies a wider range in the second half I guess is what I'm, saying the full year is a couple of things happening in the second half calling in Europe.
Appropriately to focus on this as you know and you've heard this from home depot Lowes Whirlpool others.
There is there are some headwinds on freight and shipping.
It was triggered by a number of things lack of containers Suez Canal, all kinds of things, but bottom line is that that in the second quarter was higher than it was in the first quarter and we.
Use that as a guidepost to understand and project properly.
Freight and delivery costs. The second part is there Ben.
Most every appliance manufacturer has handed us a call at 8% raise in their cost.
The board not just to obviously gallacher appliances connection.
And I'm sure you're familiar with price protection. They did some price protecting but when we have products that people order a couple months back there is a little bit of a.
Consolidation process that is occurring in the third quarter, we are raising our retails to new new orders, but you can't go back to existing orders and do that so there's a little bit of pressure in the third quarter on that topic, but it normalizes as the year goes on supply continues to be an issue. There is a reluctance on the manufacturer's part two to.
Provide traditional promotional kind of buys.
You may be familiar I am not sure but for those on the call typically three or four times a year manufacturers.
Put out an opportunity for us to buy it call it 6% to 10% below normal prices and we.
With our working capital quite readily able to two.
Put those in our inventory and utilize lower cost for a number of months we.
We don't see that.
We're not predicting that that will occur in the third and fourth quarter. So we're taking an approach that is constructive and appropriate relative to our guidance.
Those factors as you know a bunch of people have said, we're not giving guidance since we have not been in the guidance game up to this point, we felt it was important to give people a range of understanding of our business.
And it's perhaps a little wider than it would be under normal supply in and freight.
Situations considerations.
Thanks for calling.
That's really helpful. I had a couple of follow ups. If it's okay. I was looking at the IHA and industry volume data and I guess whats confusing is the constrained supply chain narrative that I hear from whirlpool and others. It doesn't really jive with the fact that there was 18% industry volume growth in Q1, and 25% volume growth in Q2 could you explain.
Why that discrepancy might be between the industry data and what we're hearing anecdotally about supply chain being tight.
I mean.
If you were kind of in this game last year about this time that the manufacturers supply. There was there was inventory in most of the first quarter and then essentially dried up factories were closed on an immediate basis and <unk>.
And inventory was unavailable, so youre actually comping, the very richest deepest part of lack of product in the second quarter of last year into the third quarter. If you recall also.
Although a ham would not show this with any kind of descriptive dialogue.
Moving the goalposts thinking David reopened reopening catch up quickly that failed to materialize. So again, we're comping very very easy comps on an eight handle that level.
And I think you'd see that in other industries.
I know you're a student of hard line. So you would see that another heartland businesses, but that's a good question, but thats the answer.
Okay. That's helpful.
And can you give us a sense of what the pro forma combined company as volume growth was in Q1 and Q2.
I think we already did that in the data that's presented and already we've already we've already done the combined basis. So I think.
And you've broken out have you broken out volume and price I'm, just curious with whats driving our results versus the industry. We have not done that and we can we can follow up with you and to have that conversation separately, but we're not showing that at the moment in this in this on this call but the.
Volume and pricing pricing was not a factor last year. They were not taking up pricing in May June July time period last year.
So that's that part of it is not.
The volume gain versus the units versus the dollars per unit.
As you know our clients are always take price up thats not a new thing. It's one of the great benefits of this of this industry is theres not a downward spiral for lower cost and lower realized price by the consumer the consumer pays more every year and they gladly do it because this is.
An essential item that all homes out so.
Anyway, that's that's.
That's that circumstance so thanks Colin.
I'm sure chat in the near term, Yes next question Hey, guys.
Our next question will come from.
Okay.
Okay here knee with think.
Equity. Please go ahead.
Hey, Doug congratulations on the quarter.
I just wanted you to expand a little bit on the asset purchase with appliances Gallery in Florida, and kind of what that means for your logistics in the southeast.
That's a great question Nate.
It's one of those great opportunities that come along when you have a working capital and have an understanding of the industry.
Appliances Gallery is a very well known luxury.
Retailer in the Tampa area, they've had access with some products that we did not have current access to the quickest way to get distribution on products you are not able to currently distributors too.
By someone who does and we were able to do that it also gives us a foothold in the Florida market, where we've established on this call on many calls that we intend to have a fulfillment center in a showroom in that market.
That certainly is what we're going to do there.
And then they will also benefit from a transactional website that we support and obviously a contact center for sales customer service. So they actually have a high potential being a much larger business in that part of the part of the market.
We continue to look constructively and consistently at opportunities like this where we can quickly.
Spanned our distribution on products that we believe and again our success is built currently largely on premium and luxury products and as we as we were able to do this we've really only we're the only one that offers all 30 of the top clients brands in the country. It's a significant differentiator, it's something that investors need to continue to understand that.
You can get from a to Z the products.
At get occur appliances connection.
Only through us not at home depot, Lowe's best buy or anyone else. So.
We were really pleased to get that again, it was not a material activity from a cost standpoint, and a price standpoint, but extremely helpful. In terms of our strategic intent and our strategic.
The impact in the marketplace. So good question. Thank you Nate.
Thank you Doug.
Our next question will come from George Askew with Roth Capital. Please go ahead.
Yes. Good morning, Thanks for taking the call the question.
This is Europe.
Certainly your first earnings call since the merger.
He is on the case.
The CFO role could you just provide your philosophy around guidance going forward.
Will you continue to provide the.
Line items that you mentioned today.
You sort of have a.
Under promise over deliver mindset, just kind of what's your what should we expect looking forward.
Well again I think.
I think the ambiguity around shipping and around.
Supply make guidance.
No.
Tougher enterprise in fact, others.
<unk> guidance, but since we've not been in the guidance business, because we've not been an entity and a public entity for years and years.
We felt it was important to put something out there that gave some goalposts for people to pay attention to.
By nature, our management team, our executive team in Alberta, Eli myself Maria and Bob.
We're thoughtful business people and we're going to provide guidance that makes sense based on our view of the marketplace. That's not a it's not a blue sky activity, it's something that we take very seriously and we have behind that.
Rows and rows and pages and pages of XL spreadsheets and other data to go between that well we hope in fact happened as the modeling will start to occur based on our results and that others. Besides us will have a perspective on our future, but we thought it was important to share our belief that we are really in for a very robust totaled 2021.
<unk> supply freight cost of goods.
Prospects being not what we would like them to be necessarily the 2022 and beyond world. We will start to be able to have a clearer picture of that as we go forward.
And we expect to be accompany this data driven and consistently transparent about what we believe is going to happen. When we look at our our peers in the pure play market space and see things, whether it's a wafer or others.
We look to how they talk about the business and how they project guidance as as examples of how people talk about a business that's moving rapidly and that requires actually some insight and belief about the future we're not.
We're not guiding on.
Something like.
Our stable predictable thing, it's a pure play piece.
The pandemic drive certain issues, but we thought again, it's important to put ourselves out there. We thought you all deserve that as investors to understand what we really believe and we've felt confident at this point that now that we're together, we're able to put that out there. So.
Happy to take this offline and other conversations but again.
A great question and certainly something we will continue to provide in the months ahead.
Super Thank you.
Thank you George.
Ladies and gentlemen, this will conclude our question and answer session I would like to turn the conference back over to Doug <unk> for any closing remarks.
Thank you very much and again I want to be able to.
This suggests that folks on the call that we're very excited about our prospects and we've discussed.
It has some detail.
Where we believe the company is going as those of you who have an opportunity to spend time with our management team and with our board.
We welcome other conversations and commitments to two communicate strongly and consistently about our prospects.
Albert de myself, Eli Maria and Bob are are here to provide leadership on a basis that makes our business.
One that you can believe in and can provide value for investors over a long period of time, so with that in mind, we really welcome.
Future conversations and hope that you continue to have an interest in our company because we think it's a story that's worth following now and into the into the future. So thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.