Q3 2021 Kaspien Holdings Inc Earnings Call

Good afternoon, welcome to Caspian fiscal third quarter 2021 earnings conference call.

Speaker 1: Good afternoon. Welcome to Caspian's fiscal third quarter 2021 earnings conference call. Joining us today are company CEO Kunal Chopra and CFO Ed Sapienza. Following their remarks, we will open the call.

Joining us today, our company CEO, Kunal Chopra, and CFO Ed Sapienza.

Following their remarks, we will open the call for your questions.

Speaker 1: Then, before we conclude, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call.

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.

Speaker 2: 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's CEO , Kunal Chopra. Sir, please proceed. Welcome everyone and thank you.

Now I would like to turn the call over to Caspian CEO Kunal 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 third quarter ended October could be a 2021.

Speaker 3: After the market closed, we issued a press release announcing our results for the fiscal third quarter ended October 30th, 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'll be discussing today. And with that,

A copy of the press release is available in the Investor Relations section of all of that site.

I encourage all listeners to review our release for additional information on what we will be discussing today.

With that we'll get started.

To begin today I'd like to run through a high level overview of our operating highlights from the fiscal third quarter, then I'll turn the call over to gasoline holding a CFO Ed Sapienza to discuss our financial results for the quarter.

Speaker 3: To begin today, I'd like to run through a high-level overview of our operation highlights from the fiscal third quarter. Then I'll turn the call over to Cash Pin Holdings CFO Ed Sapienza to discuss our financial results for the quarter.

Speaker 3: Lastly, I'll come back on to provide more operational analysis and closing remarks before turning the call over to questions. And with that.

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.

From a high level in the fiscal third quarter. Our team was focused on optimizing internal processes to best fit the fluctuating environment.

Speaker 3: From a high level in the fiscal third quarter, our team was focused on optimizing internal processes to best fit a fluctuating environment.

Speaker 3: As we discussed last quarter, industry-wide headwinds including inventory shortages and inflationary price increases stemming from the COVID-19 pandemic limited many organizations' ability to drive overall sales.

As we discussed last quarter industry wide headwinds, including inventory shortages that inflationary price increases stemming from the COVID-19 pandemic limited many organizations ability to.

To drive overall sales and meet demand.

In response to these challenges Hakim narrowed our focus to the aspects of our business that we could control.

Speaker 3: In response to these challenges, our team narrowed our focus to the aspects of our business that we could control, including emphasizing certain products with greater price elasticity, more proactive purchasing strategies, our own private label brands, and our overall organizational structure.

Including emphasizing certain products with greater price elasticity more proactive, but using strategies, our own private label brands and our overall organizational structure.

As a testament to our team's abilities as well as the resiliency of our operating model, we have modest capably during this challenging period.

Speaker 3: As a testament to our team's abilities, as well as the resiliency of our operating model, we have managed capably during this challenging period. I'll get into some of those.

Get into some of those updates now.

Starting with our private label brands, which are our own properties Mcafee manages the entire lifecycle of the product.

Speaker 3: Starting with our private label brands, which are our own properties, where Caspian manages the entire life cycle of the product.

This segment of our business has been particularly important during the past few quarters, because we believe it serves as a bellwether for how the rest of our business should be operating in the absence of supply chain disruptions or other impacts that are out of our control.

Speaker 3: This segment of our business has been particularly important during the past few quarters because we believe it serves as a bellwether for how the rest of our business should be operating in the absence of supply chain disruptions or other impacts that are out of our control.

Speaker 3: Private label brands grew 38% in our fiscal third quarter, a great result in any environment, driven by our early inventory positioning and resulting expanded stock.

But labour brands grew 38% in our fiscal third quarter.

Great results.

Any environment driven by a lot of the inventory positioning and resulting expanded stock.

Speaker 3: We believe these results achieved on the end-to-end supply chain management serve as an indication that demand remains strong and that our business thrived when we were able to meet that demand through our controlled environment.

We believe these results achieved on the end to end supply chain management. So there's an indication that demand remains strong and that our business thrives. When we were able to meet that demand through our control environment.

Another key growth area for gas spin as our subscription segment, which has continued to outperform despite the current environment and also because this segment is less susceptible to fulfillment and other retail related challenges.

Speaker 3: Another key growth area for Caspian is our subscription segment, which has continued to outperform despite the current environment, and also because this segment is less susceptible to fulfillment and other retail-related challenges.

Speaker 3: Over time, as this part of our business grows, we believe a more diversified revenue stream should also help us to achieve more consistent operating results.

What time as this part of our business grows we believe a more diversified revenue stream should also help us to achieve more consistent operating results.

I'm glad to report that both our subscription DNV and our subscription monthly recurring revenue continued to show you the way of improvement with each increasing 15% in our fiscal third quarter.

Speaker 3: I am glad to report that both our subscription GMV and our subscription's monthly recurring revenue continue to show year-over-year improvement, with each increasing 15% in our fiscal third quarter.

We've also continued to add to our account management staff to support existing and anticipated growth going forward.

Speaker 3: We've also continued to add to our account manager's task to support existing and anticipated growth going forward. Over the past few quarters, our subscriptions business had remained a consistent GMV driver on our platform, with a real opportunity to expand regardless of the macroeconomic environment.

Over the past few quarters, our subscriptions business had remained consistent G. M. B driver on our platform with a real opportunity to expand regardless of the macroeconomic environment.

In addition to our subscriptions and private label businesses. Our partnerships are another area in which we are looking to foster growth moving forward.

Providing an omnichannel suite of services outside of our core Amazon business is another long term revenue diversification strategy for us.

Non Amazon marketplaces, including targets plus E band Walmart continue to outperform well during the third quarter.

On a combined view these marketplaces grew in aggregate, 127% year over year, which is an acceleration from last quarter as well.

Largely driven by outperformance in our marketplace. We believe there's plenty of room to grow here and are encouraged by the continued strong results.

Altogether much of the success that we had in the quarter stemmed from my efforts to remain nimble in our operations and our organizational structure.

As it relates to operations, we are always finding opportunities within our existing business units for small tweaks and improvements.

Today's environment, we're increasingly watchful for adjustments that optimized for I've got it set up.

And that had the flexibility to address other challenges that could arrive at a later date.

Example of this fine tuning and glue.

Adjusting our international shipping and inventory management processes are calling for a much higher level of unique circumstances.

It's not existing technology, driven process and providing a level of human intervention without a pending the entire system is not something many other companies in our industry are able to do so this is a key example of the flexible supply chain we've been discussing.

We've also integrated our purchasing and inventory teams to allow for better communication across the board, which has also allowed for more E drive decision, making.

For select higher margin products like greater price elasticity, we have also strategically instituted modest price increases.

Which have helped to drive revenue with minimal disruption.

On the whole we remain diligently focused on optimizing our direct to consumer fulfillment model and diversified supply chain and I'm quite proud of our teams for being able to accomplish all that we have in such a brief amount of time.

These collective buy clothes resulted in approximately $3 1 million in additional revenue versus what would have otherwise been lost opportunities for Caspian and Q3 performance.

Looking at our organizational structure to better align our growth goals with our aspirations of global scale, we made several changes starting at the top.

During the third quarter, we introduced a new Architected senior leadership team are our sales people are shocked.

He turned it off the esselte include improved value chain alignment with a pure focus on better serving partners in building an infrastructure to support that mission.

To flatter organization structure with greater emphasis on clear accountability.

Three eliminating single points of failure in full more teamwork and collaboration with fewer communication barriers.

Under this new management structure, we have centralized our product marketing.

<unk> and sales teams to improve our agility and our lineup of decision making across the business.

We feel that this adjustment will add both productivity and accountability and will bring significant improvements to our efficiency over time.

Overall this quarter required our team to work persistently to adapt our processes and optimize for our new environment, We believe that the fastest quarters deaths and will be stronger for it in the long run.

With that high level overview completed I'm now going to turn the call over to company's CFO, Ed Sapienza to discuss our financial results for the quarter in greater detail.

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Thank you can al.

Turning now to our financial results for the fiscal third quarter ended October 32021.

Net revenue in the third quarter decreased 17% to $32 2 million from $38 $9 million in the comparable year ago period over the nine months ended October 30 of 2021, net revenue decreased 5% to $107 $7 million from $112.

$8 million in the comparable year ago period.

These decreases in net revenue were driven by ongoing supply challenges in the company's FBA U S segment.

Offset by improved performance from non Amazon marketplaces, and the subscriptions segment.

Moving onto gross profit this quarter gross profit decreased 17% to $8 million or 24, 9% of net revenue from $9 $6 million or 24, 7% of net revenue in the comparable year ago period.

Gross profit over the FERC first nine months of the fiscal year was $26 $6 million or 24, 7% of net revenue compared to $28 $2 million or 25% 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.

We saw a 20 basis point increase in gross margin year over year as a decline in merchandise margin rate was offset by the leveraging of fulfillment fees and warehousing and freight expenses.

Turning to our selling general and administrative expenses for the third quarter of 2021, our SG&A expenses decreased 2% to $10 million or 31, 1% of net revenue from $10 $2 million or 26, 2% of net revenue in fiscal third quarter of <unk>.

Last year.

For the three month period, the decrease in SG&A expenses was primarily attributable to a $1 $1 million decrease in selling expenses related to the decline in net revenue.

SG&A expenses over the nine months ended October 30 of 2021.

<unk>, 10% to $39 million or 28, 7% of net revenue from $34 $5 million or 36% of net revenue in the comparable year ago period.

For the nine months period, the decrease in SG&A expenses was due to a $1 million decrease in selling expenses related to the decline in net revenue and a $2 6 million dollar decline in general and administrative expenses.

Our loss from operations for the third quarter was $2 million compared to a loss from operations of 612000.

In the comparable year ago period, the increase in operating loss was the result of the decline in net revenue, partially offset by a decrease in cost of sales and SG&A expenses.

Over the first nine months of this fiscal year loss from operations totaled $4 $3 million, an improvement from $6 $3 million in the comparable year ago period.

The improvement in operating results was the result of a reduction in SG&A expenses.

Our net loss for the third quarter totaled $886000 or <unk> 36 cents per share compared to net income of $2 $6 million or $1 39 per share in fiscal Q3 of 2020.

The net loss during the period was driven by the decline in net revenue, partially offset by a decrease in cost of sales other income of $1 $6 million related to the settlement of an insurance claim and a decrease in SG&A expenses.

Over the nine months ended October 30 of 2021, net loss was $2 $2 million compared to a loss of $3 $8 million in the comparable year ago period.

The improvement in net loss was driven by the reduction in SG&A expenses and other income of $3 $5 million, which was offset by a decrease in net revenues.

Adjusted EBITDA, a non-GAAP measure was a loss of $1 $4 million in the third quarter compared to an adjusted EBIT loss of $65000 for the same year ago period.

For the nine months ended October 32021, our adjusted EBITDA loss was $2 $5 million compared to a loss of $4 $7 million in the comparable year ago period.

Moving to the balance sheet, we ended the quarter with $1.8 million in cash compared to $2 $4 million as of October 31 2020.

We ended the quarter with $5 $9 million in borrowings on our credit facility and had $6 $8 million and availability.

Over the nine months ended October 32021, our cash used in operations was $10 million compared to $15 $3 million over the same year ago period.

Tori at quarter end was $32 million compared to $27 $2 million as of October 31, 2020.

During the quarter, we updated our existing loan agreement with the eclipse business capital to provide additional flexibility to execute on the company's long term business initiatives and aligned capital sources with Caspian growth Mccall's additional details around the amendment can be found in the form 8-K.

We filed with the SEC on September 20th.

Turning now to our Kpis results for the fiscal third quarter ended October 32021.

In fiscal Q3.

Most merchandise value our G M V.

Across our platform decreased 5% to $63 $5 million from $66 $8 million in the comparable year ago period.

Included in that number because retail G M D as well as subscription G N V.

Retail GMB was down 18% to $33 $4 million.

Scripture, GMP increased 15% to $30 $1 million or 47, 3% of total GMB compared to $26 $2 million or <unk> 39, 2% of total GMB and the comparable year ago period.

Moving forward under more normalized conditions, we generally expect to continue growing geography on a year over year basis.

Fiscal third quarter <unk> per active partner decreased 4% to $81300 in 2021 as compared to $84700 in the third quarter of fiscal 2020.

The decrease was due to the overall decrease in <unk> during the quarter.

However, 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 increased engagement across more product lines.

Total active partner count at the end of fiscal third quarter was approximately 781, including 628 retail partners and 153 subscription or agency and SaaS partners.

This represents a 1% sequential decrease and the partner base largely due to a 4% decrease in retail partners, partially offset by a 13% increase in subscription partners.

In support of the company's focus on maximizing <unk> per active partner Caspian regularly reviews and updates partner accounts to optimize its use of resources on higher value active partners. The company's subscriptions partner base as of October 32021 increased 47%.

Paired to the comparable year ago period.

Subscription lifetime value to customer acquisition cost ratio, our LTV to CAC ratio as of October 32021 was three eight times with an average payback period of 13 months in comparison to three three times with a payback period of eight.

<unk> recorded in the prior quarter.

Increase in LTV to CAC was largely attributable to an increase in lifetime value spread across a larger cohort base.

At a greater rate than the increase in cost to acquire a customer.

The increased LTV was largely driven by a decrease in customer churn rate cut.

Customer acquisition costs also increased during the period as a result of greater investments in acquiring high value prospects as well as additional head count increases to support anticipated future growth in subsequent quarters.

As subscription partners continued to mature and adopt more features of the Caspian platform. The company expects these metrics to fluctuate less on a quarterly basis and generally improve over time.

Retail lifetime value to customer acquisition cost as of October 32021 was $8 one times with an average payback period of seven two months in comparison to nine five times with a payback period of six one months recorded in the prior quarter.

The sequential change was largely attributable to an increase in customer acquisition costs as we shifted focus towards converting larger partners.

During the fiscal third quarter subscription monthly recurring revenue or <unk> increased approximately 15% to $151000 compared to $131000 at the end of the comparable year ago period.

Retail segment gross revenue per partner for the fiscal third quarter decreased 10% to $53000 from $59000 in the comparable year ago period.

That completes my summary, I'd now like to turn the call back over to Cardinal for additional insights into our operational progress during the quarter as well as an outlook going forward.

No.

Thanks, Ed.

Building on my earlier remarks, the fiscal third quarter was a true test of our ability to be nimble in the face of adversity.

At the same time, we continue to drive outperformance in many key growth areas and have also continued to navigate our business forward, which I'd like to take some time outlining the remainder of today's call.

Right now we have a number of major operational initiatives that look, including new product updates sealants and marketing programs partnerships marketplace thought leadership content and our brand acquisition strategy.

We'll now take a minute to update these areas more fully beginning with product.

Product launches on the price side of things, we continue to invest in our platform technology and service of our mission to become a one stop shop for all partners.

More specifically, we have begun the migration process to unify our detailed software applications under a unified platform architecture with visions of completing this process by the end of 'twenty to 'twenty two.

Once complete our unified platform will further drive that efficiency and optimization on our platform.

And so this is for a partner.

Also we have ongoing upgrades to our legacy retail drop ship finance and accounting obligations, including efficiency updates in our SKU analysis and creation processes.

We're always looking to improve our products and drive efficiency for our box doesn't this quarter was another positive step.

Sales and marketing moving to sales and marketing our teams have been hard at work finding on inbound marketing strategy. This quarter, we built on our success with a 33% increase in inbound marketing qualified leads our inflows of 21% increase in inbound sales qualified leads or SQL and a 10% increase in.

Inbound customers, one all compared to just the last quarter.

Inbound marketing is a crucial driver for our business at 69% of all deals one in Q3 came from this channel.

In addition to our improved numbers of empty wasn't SQL is we're also seeing an increase the influx of larger deal when businesses.

This influx is largely attributed to our theater in organic content. Therefore, it is a trend that we hope to continue to drive in the future.

Partnerships moving to an update on our partnership success. Our goal in this area has a solid fire approach towards serving our partners on multiple leading marketplaces in a true omnichannel like fashion.

As I mentioned in my opening remarks, we've been pleased with the success of our brands in the marketplace, which has done non Amazon marketplace is to drive a 127% year over year growth.

Also this quarter, we've continued to expand our white label agency efforts and initiated the expect to accelerate in the next few quarters as we define our strategy.

The original concept of this program has been to partner with marketing agencies to implement strategies and manage brands on Amazon as part of their organization.

In further support of this strategy, but also expanding to all four customer service as a service.

The much less of a multiple feedback through our own agency programs.

Uplifts suite of finding the best ways of meeting our clients needs continues and we are always searching for improved ways of expanding our product offering suite.

We now have one fully on boarded White label agency partner with another partnership with the final approval stages.

Looking ahead, the white label pocket pipeline is robust we believe strongly in the future opportunity feedstocks affords us given its strategic value in today's market.

Talk leadership switched.

Switching gears as I mentioned on our last call. We believe there's ample ground for us to cover as we position ourselves as a business and property doesn't all space. Let me take a minute to discuss just a few of the activities that we've been engaged in active lead to grow the category and brand.

This he also foggy as published 116 pieces of content, including 83 blogs protein podcasts 90 E books of 11 Webinars.

In fiscal Q3, specifically be published but do you want the pieces of content, including platelet blog Stewpot gas one E book and five <unk>.

<unk> subscribers by the end of fiscal Q3, 2021 have grown 47% since the beginning of the fiscal year. This.

This quarter, we also had 166% increase in website traffic largely driven by E book downloads and webinar registration.

We've also conducted content trades are blogs webinars any books with five companies, including three new relationships. This brings our total group to 10 companies since the start of fiscal year 2021 now, including <unk> and Cox Dot Com. In addition to vantage VEB 11 consulting E Comm engine sell us.

So go and deliver and my FBA Brett.

We are continuing to drive the conversation and all things equal amongst them. The feedback we're getting is validating our time spent in these areas.

Switching gears a bit as you think about the amount of change we've seen in our industry in just the past few months all of going against the backdrop of a lingering global pandemic.

Ensuring that our company culture remains strong it's paramount to our long term success, we take immense pride in being a positive environment for our employees to live work and grow.

This quarter, we opened our second consecutive and fourth overall best places to work in the northwest corner and were recognized as one of Seattle business magazine, Washington, Hundreds less places to look at 2021.

These acknowledgements highlights both company wide efforts to increase professional growth and development opportunities as well as an abiding dedication to work life balance and spaces for creativity that defined the ethos of gasoline and we are very proud of the culture with video.

Grand acquisition strategy.

Lastly, as it pertains to our brand acquisition strategy. We continue to believe that there are opportunities to expand our offerings through strategic acquisitions with brands and services are highly complementary to our existing technology and business.

We're looking to take a deliberate conservative approach to brand acquisition and they are willing to be patient to find the right deals at the right prices.

While our current environment shows valuation multiples at elevated levels, we continue to monitor the market for potential opportunities that would benefit from our platform.

So before we turn the call over for questions I'd like to provide a brief outlook on our operations.

Now we have currently amid peak holiday shopping season, and as we look into the year ahead, our focus remains on growing GMB as a leading indicator of the success of our business. While also shifting our mix to more profitable subscriptions and expanding into other market places.

Overall, our fiscal Q3 was a desktop our ability to be a dial in the face of adversity.

Longer term the up and you need to make investments in our people processes and technology to grow Caspian.

Into a truly global ecommerce enterprise.

Why do we believe the headwinds of the past few quarters should continue for the foreseeable future. The work. We are doing today has allowed us to mitigate many of these daunting.

And we'd have to emerge even stronger once the tide has subsided.

We remain committed to helping businesses of all sizes grow online and using a comprehensive platform of software and tech enabled services to guide up walking us through the increasingly complex landscape of digital marketplaces.

So with that we're ready to open the call to your questions. Operator, please provide the appropriate instructions.

Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pickup your handset and for listening on speaker phone to provide optimum sound quality.

So while we pull for questions.

Now your first question will come from Rommel Dionisio from Aegis capital.

Your line of lives.

Oh, yes. Good morning, Thanks, so much for taking my question.

The Caspian private label brands, 38% really strong growth there I wonder if you could just give us a little more granularity in terms of what sort of drove that strength as well as <unk>.

The margin implications as well you talked about broader sustained demand across the portfolio were there any particular sort of home runs on with regards to those brands or just maybe just a little more granularity there.

On the on the strength of that business. Thank you.

Of course, thank you for asking the question I'll start by just giving you a high level on that business and then Ed can maybe answer the margin question, specifically, but big picture, we have been able to control the supply chain and demand in that business. Because you drive that we have relative to working on our retail business, where we have to work with other partners.

And do you have to manage the supply chain through them and so that gave us the advantage of being able to order inventory on time being able to bring it into our warehouses appropriately move it either to Amazon all do our own warehouses, and then ship it to consumer so we had him a lot more flexibility and being able to manage inventory and being able to put a lot more earlier.

Being a surge of demand later on so that's what gave us that growth in the business.

From a margin perspective, Ed let me hand, it over to you to just to give some details on that particular business.

Thanks, Kunal. Thanks Rommel.

Without getting into specifics, we certainly run our private label business at a higher margin given the exclusive exclusivity of the product and it generally runs.

At a higher margin than our partner product.

Okay. Thanks very much.

Okay.

Thank you.

At this time. This concludes our question and answer session I'd now like to turn the call back over to Mr. Chopra for his closing remarks.

Thank you everyone for joining us on today's call, especially I want to take a moment to thank our employees our partners and our investors for their continued support operator back to you.

Before we conclude today's call I would like to provide Caspian <unk> Safe Harbor statement that includes 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 1095.

Certain statements in this communication or forward looking statements.

<unk> 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.

Fact, intend May plan predict project, and similar terms and phrases, including references to assumptions and the skull 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 uncertainties and factors that could cause actual results to differ materially from results expressed in the statements.

The following factors are among those that may cause actual results to differ materially from the companys forward looking statements.

<unk> of disruption of current plans and operations of Caspian and the potential difficulties in customer supplier and employee retention.

The outcome of any leading legal proceedings that maybe instituted against the company.

The company's level of deaths related restrictions and limitations unexpected costs charges expenses are liabilities, the companys ability to operate as a going concern deteriorating economic conditions and macroeconomic factors the impact of the COVID-19 pandemic and other risks described in the company's filings with the SEC.

Such as its quarterly report on Form 10-Q, and annual reports on Form 10-K.

The listeners should keep in mind that any forward looking statements made by US on this call are elsewhere pertains only as of the date on which we 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 in this call.

<unk> or elsewhere it might not occur.

Thank you for joining us today for Caspian This fiscal third quarter 2021 earnings call you may now disconnect.