Q2 2021 Kaspien Holdings Inc Earnings Call
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Good afternoon, and welcome to Caspian fiscal second quarter, 2021 earnings conference call.
Joining us today, our company CEO Kunal Chopra C O O Mitchell Bailey Caspian Holdings, Inc. CFO, Ed Sapienza, and Caspian, Inc. CFO brought coop Chuck following their remarks, we will open the call for your questions. Then before we conclude I'll provide the necessary cautions regarding the forward looking.
Statements made by management during this call.
I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website.
Now I would like to turn the call over to Caspian CEO.
Chopra Sir please proceed.
Welcome everyone and thank you for joining us today.
After the market close we issued a press release announcing our results for the fiscal second quarter ended July 31st 2021.
A copy of the press release is available in the Investor Relations section of our website.
I encourage all listeners to view our release for additional information on what we will be discussing today.
And with that we'll get started.
To begin today I'd like to run through a high level overview of our operational highlights from the fiscal second quarter, then I'll turn the call over to Gaspin Holdings' CFO, Ed Sapienza to discuss our financial results for the quarter.
Ed's remarks will be followed by comments from the CFO of our operating subsidiary Caffeine, Inc. Rock Golden Chuck.
I'll provide some additional disclosures around our key performance indicators.
Lastly, I'll come back on to provide more operational analysis and closing remarks before turning the call over to questions.
And with that let's get started.
In the fiscal second quarter, we responded well in the face of global supply chain challenges that have impacted businesses the world over.
Stemming from the COVID-19 pandemic industry wide headwinds mens sales were harder to come by and many brands in market Places we are limited in their ability to meet the demand when it was there.
While many organizations have been severely impacted operationally and also financially by inventory shortages in inflationary price increases I am pleased to report that our team has navigated the terrain effectively during this period, which is a testament to the abilities as well as the resiliency of our operating model.
Our past operational decisions, including setting up a distributed flexible supply chain allowed us to better respond in current circumstances.
In recent months, we have successfully mobilized our teams to establish a more robust direct fulfillment model by utilizing our regional warehousing locations to minimize gaps in lead times across the supply chain.
In some cases, we also introduced drop shipping as an option for select partners.
This coordinated response provided a better experience for our brand partners, who had been previously relied on Amazon FBA.
And despite these logistical challenge I'm pleased to report that we have been able to drive a 50 basis point increase in overall G. M D.
But 33% increase in subscription DNV and a 16% increase in subscription monthly recurring revenue during the period.
Within our strategic brands G. N V increased five 5% signifying the continued durability of our most meaningful lines as well.
Our non Amazon marketplaces also continued to perform well registering 72% growth as a group largely driven by success on our new and growing target plus program.
Traditionally much of our business has been transacted on Amazon and we are pleased to see growth in our up and coming market places as we look to expand to a more representative omnichannel enterprise.
Also while the retail arm of our business was most directly impacted by industry headwinds, we were encouraged to see that our subscriptions where to go and continue to show year over year improvement, including a 27% increase and I'm talking about.
We also doubled the number of account managers to support existing and anticipated growth going forward.
These increases further prove that caffeine has a real opportunity to expand in our subscriptions area, regardless of the macroeconomic environment.
On the product side of things. We also made significant platform technology upgrades this quarter in service of our mission to become a one stop shop for all partners.
More specifically, we implemented reporting capabilities in our platform dashboard improve product targeting management added sponsored ran video management to our AD manager software and developed a new partner Central rapid prototype among other updates, which I'll explain more fully in a few minutes.
The broader point is that these ongoing improvements will position us well for greater partner success and satisfaction in the future.
As an aside in August our AD manager software was even though what are the marketing automation Innovation award in the fourth annual market Breakthrough awards, which are hosted by a leading market intelligence organization that recognizes the top companies technologies and products in the global marketing sales and advertising.
The industry today.
Fast Windows have included global leaders, such as Adobe hub spot Shopify, the trade desk and square space among others.
To be included in such a prestigious group is both humbling and also a testament to the great work, we've done to lead with our technology first.
We appreciate that market, great fluke and recognize our commitment to excellence for all our customers and theyre important and valued small businesses around the world.
All of this is just to say we are continuing to improve grow expand and refine in all key areas of our business I look forward to delving deeper, but before I go further I am going to turn the call over to gas been holding CFO, Ed Sapienza to discuss our financial results for the quarter in greater detail Ed.
Thank you Carl.
Turning now to our financial results for the fiscal second quarter ended July 31st 2021.
Revenue in the second quarter decreased 18% to $43.0 million from $45.0 million in the comparable year ago period.
The decrease in net revenue was primarily attributable to ongoing supply challenges and our fulfillment by Amazon or FBA U S segment, which were offset by continued growth in our other marketplaces.
Over the six months ended July 31, 2021, net revenue increased 2% to $80.0 million from $82.0 million in the comparable year ago period.
Increase in net revenue was driven by improved performance from non Amazon marketplaces, and the subscription segment.
Moving on to gross profit this quarter gross profit decreased 17% to $16.0 million or 25, 3% of net revenue.
$17.0 million or 25, 3% of net revenue in the comparable year ago period.
Gross profit over the first six months of this fiscal year was $24.0 million or 24, 7% of net revenue compared to $24.0 million or 25, 2% of net revenue over the comparable year ago period.
The decrease in gross profit was primarily attributable to a reduction in net revenue on the Amazon U S platform.
Gross margin year over year remained flat despite a decline in merchandise margin rate as a result of the leveraging of fulfillment fees and warehousing and freight expense.
Turning to our selling general and administrative expenses.
For the second quarter of 2021, our SG&A expenses decreased 9% to $12.0 million or 29, 3% of net revenue from $13.0 million or 26, 4% of net revenue in fiscal Q2 of last year.
SG&A expenses over the six months ended July 31, 2021 decreased 14% to $29 million or 27, 6% of net revenue from $27.0 million or 32, 9% of net revenue in the comparable year ago period.
The decrease in SG&A expenses was primarily attributable to a decline in general and administrative expenses.
Our loss from operations for the second quarter was $5.0 million compared to a loss from operations of $493000 in the comparable year ago period.
The increase in operating loss was the result of the decline in that revenue, partially offset by a decrease in cost of sales and SG&A expenses.
Over the first six months of the fiscal year loss from operations totaled $4.0 million, an improvement from $12.0 million in the comparable year ago period. The improvement in operating results was the result of higher net revenue and a reduction in selling general and administrative expenses.
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Our net income for the second quarter totaled $82000 or <unk> <unk> per share compared to a net loss of $899000 or <unk> 49 per share in Q2 of 2020.
Over the six months ended July 31, 2021, net loss was $4.0 million compared to a loss of $9.0 million in the comparable year ago period.
The improvement to net income and loss for both periods was driven by a reduction in SG&A expenses as well as a $10.0 million benefit resulting from the company's paycheck protection.
<unk> program loan being forgiven during the period.
Adjusted EBITDA, a non-GAAP measure was a loss of $754000 compared to an adjusted EBITDA of $23000 for the same year ago period.
For the six months ended July 31, 2021, our adjusted EBITDA loss was $1 million compared to a loss of $11.0 million in the comparable year ago period.
Moving to the balance sheet, we ended the quarter with $8.0 million in cash compared to $9.0 million as of January 32021.
We ended the quarter without any borrowings on our credit facility and had $11.0 million and availability.
Over the six months ended July 31, 2021, our cash used in operations was $13.0 million compared to $9.0 million over the same year ago period.
We expect to be in a borrowing position with our line of credit at the end of fiscal third quarter with increased sales in the fourth quarter, providing a partial counterbalance to pay down the vast map.
Inventory at the end of the quarter was $25 million.
Compared to $26 million as of August one 2020.
This completes my financial summary, I'd now like to turn the call over to Brock for additional insights into our kpis for the quarter.
Brock.
Thanks, Ed turning now to our <unk> results for the fiscal second quarter ended July 31.2021.
And that number is retail GMP as well as subscription GMP.
Retail GMB was down 17% to $42.0 million.
Compared to $45.0 million in the comparable year ago period, JMP for strategic brands increased five 5%.
Subscription G&P increased 33% to $33.0 million or <unk> 42, 1% of total GMB compared to $25.0 million or 31, 9% of total GMB and the comparable year ago period.
Moving forward, we generally expect to continue reliably growing GMP, both in retail and subscriptions on a year over year basis.
Yes.
Fiscal second quarter, GMB proactive partner increased 3% to $75000 in 2021 as compared to $72000 in the second quarter of fiscal 2020 as noted in today's release, we expect this metric to steadily grow over time as partners derive more value from the Caspian platform, leading to greater partner sales and increase engagement across more.
Product lines.
Total lack of partner count at the end of the fiscal second quarter was approximately 792, including 655 retail partners and 136 subscription partners or agency in SaaS partners. This represents a 6% sequential decrease in the partner base largely due to a 7% decrease in retail partners offset to a degree by 'twenty two.
7% increase in subscription partners.
The company's retail partner base decreased due to the rationalization of retail partners based on revenue margin and working capital considerations as we optimize our use of resources on our higher value active partners.
Subscription lifetime value to customer acquisition cost ratio, our LTV to CAC ratio as of July 31, 2021 was three three X with an average payback period of eight months. This was a decrease compared to three four times at seven seven months recorded in the prior quarter.
Sequential change was largely attributable to investments in customer acquisition, which should translate to growth in subsequent quarters, a subscription partners continue to mature and adopt more features of the Caspian platform. The company expects these metrics to improve over time.
Yeah.
Retail lifetime value to customer acquisition cost as of July 31, 2021 was $9 five extra an average payback period of $6. One months the increase in retail is due to the more mature business being longer partnership 10 years, given a longer operating history.
During the fiscal second quarter subscription monthly recurring revenue or <unk> increased approximately 16% to $138000 compared to $109000 at the end of the comparable year ago period.
Retail segment gross revenue per partner for the fiscal second quarter decreased 8% to $52000 from $57000 in the comparable year ago period.
That completes my summary, I'd now like to turn the call back over to can offer additional insights into our operational progress during the quarter as well as an outlook going forward.
Thanks, Brock building on my earlier remarks.
The second quarter was approved desktop our ability to be nimble in the face of adversity at.
At the same time, we continue to drive outperformance in many key growth areas and have also continued to navigate our business forward in a lot of other ways, which I'd like to take some time outlining on the remainder of today's call.
Right now we have a number of major operational initiatives at work, including new product launches sales and marketing programs partnerships market based park leadership content and an emerging brand acquisition strategy.
Now take a minute to update those areas more fully beginning with product.
As I noted a few minutes ago. This quarter, we made significant product related upgrades to our platform.
In addition to the aforementioned updates on the software side, we also upgraded our retail home, including making several key upgrades and enhancements to expand our capabilities improve our forecasting and make life easier for our partners.
More specifically, we expanded our SKU mapping service to support non Amazon market basis, reducing the work for our supply chain teams.
Also we improved our rolling forecast abilities, expanding on say the predictions from 30 days to a full year and updated our deal desk model to our Conklin international factors, such as status and value added tax.
Align creation of auto shipment plans going international market and saving time for our users.
Relatedly, we have also improved our supply chain process to incorporate staging facility.
This allows us to be competitive for new business and provides an opportunity to deepen our relationships with our brands by taking more work off their operations. It also allows maximum controller will closely linked to the end consumer.
Moving to sales and marketing our teams have been hard at work with finding on inbound marketing strategy.
Year to date, we have brought in 2568 marketing qualified leads our <unk> and 690 sales qualified leads are eskimos.
1492, <unk> and <unk> in 2016 Sql's game in Q2.
Importantly, 74% of all deals one in Q72% of all deal dollar value on the platform game from inbound marketing.
Last year, we put a lot of focus on operational sizing, our sales and marketing teams and the benefits of those investments are now showing in the quality of our one deal.
Conversion rates for our marketing and sales pipeline remained strong this quarter.
Average close deal size has improved by 14% compared to just the last quarter.
In addition to our improved numbers of <unk>. We are also seeing an increase in lots of larger deal one businesses.
This influx is largely attributed to a paid and organic content efforts in.
In Q2, we published 31 online education resources and hosted two industry topical webinars.
Moving to our partnership success.
Goal in this area, it's a solid buyout approach towards serving our partners on multiple leading marketplaces in a true omni channel like fashion.
In pursuit of that channel expansion strategy back in March we announced in our religious seller target Dot com, who it's invite only target plus program.
One of the only third party sellers granted the special access.
Already we are seeing strong growth in this channel a solid plus revenue has increased 204% this quarter.
Also this quarter, we established Caspian supposed to beat to be partnership that utilizes AD manager as a white label software for a digital agency managing Amazon brands.
In addition, we're in the process of expanding this collection of partners and already have a second agency that has also approved the partnership and its putting together the necessary information for onboarding onto the platform.
Last quarter, we also announced a partnership with the international grocery business Kroger.
This partnership is still in its early days I'm pleased to report that we have had our first go live in this channel and we're working to build out functionality to support a greater number of potential partners and use cases.
I look forward to sharing further updates you're asbury.
Switching gears as I mentioned in our last call. We believe there's ample ground for us to cover as we position ourselves as a business and thought leaders in our space.
Let me take a minute to discuss just a few of the activities. We have you been actively engaged to grow the gasoline brand.
This year, so far we have published a 94 pieces of content, including 69 logs nine bought gas H E books and eat Webinars in.
In Q2, specifically, we published 37 pieces of content, including 28 blogs re bought gas to E books and full webinars.
Blogs subscribers by the end of Q2 2021 have grown 145% since Q2 2020.
This quarter. We also had 285 ebook downloads and 792 webinar registration is leading to a 188% increase in website traffic in these resource areas.
We've also conducted content trades are blogs webinars on ebooks with five companies, including three new relationships.
This brings our total group to 10 companies since the start of fiscal year 2021, now, including cohort grew tusker and Cox Dot Com. In addition to vantage BP 11 consulting E Comm engine sell a smile zone deliver and my FBA prep.
We are continuing to drive the conversation on all things E Commerce and the feedback we're getting is validating our time spent in these areas.
I'll now take a minute to discuss updates on our brand acquisition strategy.
At a high level, we believe there are opportunities to expand our offerings through strategic acquisitions, where brands and services are highly complementary to our existing technology and business.
We've spent the last several months developing and initiating a program focused on identifying and ultimately acquiring these online brands.
Our approach has been deliberate and thoughtful and our intention is to only engage with brands that would complement our current operations when included under the Caspian umbrella.
That's been a partner that over 4000 grants to date, giving his experience as well as high quality data to identify and acquire a brand that would benefit from our platform.
More although we continue to have a promising pipeline of companies that we feel would be good fits for our blackboard and.
In recent months of seller services space is also presented several compelling acquisition targets.
What noting that within the current environment, we are seeing valuation multiples at elevated levels, which have kept us from moving forward all potential targets at this time.
We believe in taking a deliberate conservative approach to brand acquisition and we are willing to be patient to find the right deals at the right prices.
We'll continue to evaluate opportunities in relation to the potential redone and ultimate value, we expect to attain.
While these pipeline companies may not ultimately result in transactions at the same time, we see a tremendous opportunity to drive incremental value, even just within our own customer base.
Together, we believe we have a long term recipe for becoming number one in <unk> within the seller services market.
Before we turn the call over for questions I'd like to provide a brief outlook on our operations.
The supply chain challenges befalling the industry at large Australia and will remain in effect to some degree for the foreseeable future.
That said the state of our business remain strong.
Between the roughly 2 million forgiveness of a PPP loan and a $9.0 million pay down of our line of credit we have effectively reduced our debt by $8 million.
The beginning of the fiscal year.
Our <unk> margin profile stability over the first six months of 2020, one indicated resilient core business that is steady enough to withstand temporary headwinds.
Looking ahead, we will be investing in the coming months to meet the expected growth in demand during the upcoming holiday season, which has us optimistic about future sales pick up.
In many ways Q2 wasn't involuntary litmus desktop our business model one that I believe we are fast.
Sequent quarters will be a test of our vision for the future.
Our focus over the long term will be to continue growing overall <unk> as the leading indicator of the success of our business. While also shifting our mix to more profitable subscriptions and expanding into other market places.
We remain committed to helping businesses of all sizes grow online and to using a comprehensive platform of software and tech enabled services to guide up partners to the increasingly complex landscape on digital marketplaces.
Across our business, we will continue to offer the software technology and Knowhow to support more marketplaces expand to new geographies and lay out new business models on top of our existing platform.
And with that we're ready to open the call for your questions.
Later, please provide the appropriate instructions.
Thank you. The floor is now opened for questions. If you do have a question. Please press star one on your telephone keypad at this time for using a speaker phone only asked that while posing a question you pick up your handset to provide the best sound quality.
Again, ladies and gentlemen, if you do you have a question or comment. Please press star one on your telephone keypad at this time.
Please hold while we poll for questions.
Our first question comes from Raimo <unk> at Aegis capital. Your line is open Sir Please go ahead.
Yes. Good afternoon, thanks for taking my question.
Obviously, the industry wide supply chain challenges, that's pretty well known across the board.
We are certainly not alone there, but one of the things I find really encouraging in the quarter was you know this is Jim be proactive partner continued to see these nice positive trends I know you talked about credit partner sales increase in case I wonder.
Could you just provide a little more.
On that really key.
Internal factors that you're focused on that's really taking root there to drive that.
Jim fee per partner statistic upward, even even despite all the sort of industry wide challenges on the supply chain. Thank you.
Thank you Rommel Yeah Big picture I mean at the end of the day. It comes down to our platform, which is geared towards trying to optimize for <unk> and the contribution margin <unk> per dollar of family.
And although we have a few partners that suffered.
Some of the issues that we're seeing across the board. We are also seeing some increases with certain partners and that's the advantage of taking a more diversified approach and our diversification approach extends to not only the number of partners that we have in the platform. The total number of business models that we have the diversified supply chain that we talked about on today's call. So all in all they can do that.
Diversified approach across our entire partner base has helped us to continue to drive that number up even though a few partners suffered as you saw from the topline decline.
Okay, great. Thanks very much.
Yeah.
Once again, ladies and gentlemen, it was star one if you had a question or comment at this time.
With no other questions holding this will conclude our question and answer session I would now like to turn the call back over to Mr. Cho preferences for closing remarks.
Yeah. Thank you everyone for joining us on today's call, especially I want to take a moment to thank our employees our partners and investors for all of their continued support operator back to you.
Thank you before we conclude today's call I would like to provide Caspian Safe Harbor statement that includes important important cautions regarding forward looking statements made during this call.
During today's call there were forward looking statements made regarding future events within the meaning of the private Securities Litigation Reform Act of 1995.
Certain statements in this communication or forward looking statements. These statements contained herein that are not statements of historical fact may include forward looking statements that involve a number of risks and uncertainties.
We have used the words anticipate believe could estimate expect intend may plan predict project and similar terms and phrases, including references to our assumptions in this call to identify forward looking statements.
These forward looking statements are made based on management's expectations and beliefs concerning future events and are subject to the uncertainties and factors that could cause actual results to differ materially from the results expressed in the statements.
The following factors are among those that may cause actual results to differ materially from the company's forward looking statements.
Risk of disruption of current plans and operations of Caspian and the potential difficulties in customer supplier and employee retention.
Outcome of any legal proceedings that maybe instituted against the company.
The company's level of debt and related restrictions and limitations unexpected costs charges expenses are liabilities, the company's ability to operate as it going concern deteriorating economic conditions and macroeconomic factors.
Part of the COVID-19 pandemic and other risks described in the company's filings with the SEC.
Its quarterly reports on Form 10-Q, and in your overall thoughts on Form 10-K.
The listeners should keep in mind that any forward looking statement made.
Our elsewhere pertains only as the date on which we can make it.
New risks and uncertainties come up from time to time, and it's impossible for us to predict these events or how they may affect us.
In light of these risks and uncertainties you should keep in mind that any forward looking statements made on this call are elsewhere might not occur.
Thank you for joining us today for Caspian fiscal second quarter 2021 earnings Conference call you may now disconnect.
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