Q4 2021 Summer Infant Inc Earnings Call

Good morning, ladies and gentlemen.

And welcome to the summer brands fourth quarter Conference call.

At this time, all participants in a listen only mode.

Following managements prepared remarks, well hold a Q&A session.

To ask a question. Please have started followed by one on your Touchtone phone.

If anyone has difficulty hearing the conference. Please press star zero for operator assistance.

As a reminder, this conference is being recorded today March 17 2022.

I would now like to turn to Chris witty Investor Relations adviser. Please go ahead.

Hello, and welcome to the summer brands 2021 fourth quarter conference call.

With me on the call today is the company's CEO , Stuart Noyes and interim CFO Bruce Meyer.

I would now like to provide a brief safe Harbor statement. This call may include forward looking statements that relate to summer brands' outlook for 2022 and beyond and the pending transaction with kids to these forward looking statements are subject to various risks and uncertainties that could cause actual results and events to differ materially from these statements.

Please refer to the risk factors contained in the company's annual report on Form 10-K , its quarterly reports on Form 10-Q and in our other filings with the SEC.

During the call management may make references to adjusted EBITDA adjusted net income and adjusted earnings per share.

Metrics are non-GAAP financial measures, which the company believes investors help investors gain a meaningful understanding of changes in summer brands operations.

For more information on non-GAAP financial measures. Please see the table for a reconciliation of GAAP results to non-GAAP measures included in the company's financial release issued yesterday evening.

And with that I'd like to turn the call over to Stuart Noyes Stuart.

Thanks, Chris and good morning, everyone. We appreciate you joining our fourth quarter conference call today.

I'll start by providing an overview of recent developments after which Bruce will go through our financial results in detail.

First and foremost, we recently announced a significant transaction to unlock value for our shareholders.

While the company has made great strides over the past few years recovering from the toys R us bankruptcy.

Chinese tariffs and the COVID-19 pandemic recent supply chain constraints have proven extremely difficult for a company our size to maneuver.

The added cost for shipping and logistics increased lead times and in tandem higher working capital requirements have certainly impacted our performance the team and I have worked tirelessly to manage through these challenges to get our product to market, but in line with our fiduciary responsibility we as a.

Board saw a great benefit emerging summer with a larger stronger global organization.

Closing is expected sometime in the second quarter, and we will work hand in hand, with the kids to team to prepare for the adventure mall integration, while positioning summer for success.

Regarding our quarter four operating performance, let me summarize the major factors that impacted our results.

As with last quarter. The company faced continued headwinds caused by supply chain issues across the globe severely limiting our ability to get product to market on time.

Currently driving up costs due to added freight logistics to merge and other factors.

Such expenses, along with higher overall material costs greatly reduced gross margins, which fell to almost 20% during the quarter.

While we were successful in continuing to shift to direct import selling this was not enough to offset overall margin pressure and the difficulty of getting product to market through our regular brick and mortar channels.

As a credit to our staff and our brands that many categories grew year over year, including Potties Bathers strollers boosters with Amazon revenue up more than 30%.

Presently as we near the end of the first quarter things remain a mixed bag our products remain in demand, but due to continued supply chain disruptions and delays. It is very hard to have the kind of visibility we'd like in terms of purchasing and long term planning.

This obviously impacts our ability to use capital efficiently as we need to purchase inventory with longer lead times. This has all clearly stretched working capital requirements and I'm thankful to our bank group as well as Winfield for providing the flexibility required during such unusual times.

It is with this backdrop that we reported a net loss of $4 8 million or $2 20 per share and adjusted EBITDA of negative $2 million.

For quarter four.

We remain committed to continuing to manage and grow our operations through these uncharted times.

Just as before we are actively and aggressively working to reduce costs manage working capital and get product to market.

This means working closely with our suppliers shippers and customers all with the same goal getting our brands and the shopping carts with consumers.

We're continuing to raise prices when possible, although it takes time for implementation and the margin recovery that falls.

We're also migrating production for certain items to more fishing areas with fewer logistics constraints costs or bottlenecks.

As you can imagine this is often a moving target. The overall environment continues to be challenging and container rates have remained elevated into quarter one.

It has been an honor working here at summer and I. Appreciate all that our team has put into improving the company its brands and innovative products. The management team and board are proud of all that's been accomplished under very difficult in unusual circumstances at the same time would be here without the steadfast support of wind field and so on.

Many of our investors who has good bias either even as we tackle multiple headwinds since my arrival several years ago. We thank all our shareholders for their patience passion in interest in our future. We will continue working diligently to position the company for the future as we work to close the deal.

Deal with kids two please see our SEC filings for additional information about the transaction with that I'll turn it over to Bruce to review our financial results in detail Bruce.

Thanks, Stuart and good morning, everyone. As a reminder, our 10-K and related press release were issued yesterday. In addition to listening to this conference call I encourage you to review our filings.

Now to the results.

Fourth quarter net sales were $35 3 million compared with 36.0 million in the fourth quarter of fiscal 'twenty 'twenty.

As Stuart discussed.

Companies lower revenue was the result of ongoing supply chain disruption and inefficiencies negatively impacting our ability to get product to market.

That said many product categories saw substantial growth year over year, including Potties Bathers strollers boosters.

Sales continued to shift to ecommerce channels during the period with Amazon revenue up over 30% year over year.

Gross profit was 7.3 million versus $10 8 million in the fourth quarter of 2020, and our gross margin as a percent of sales was 26% versus 29, 9% last year.

The year over year margin decline reflects higher transportation and raw material costs, primarily related to supply chain constraints.

We're taking steps to improve margins going forward, including raising prices, where possible migrating manufacturing to low cost locations and enhancing supply chain management processes.

Selling expense was $2 8 million in the fourth quarter versus $2 6 million in the prior year period.

As a percentage of net sales was seven 9% this past quarter versus seven 2% in 2020.

The increase year over year and as a percentage of revenue was primarily due to high freight out costs.

General and administration expenses were $7 7 million in the fourth quarter versus $7 6 million in the prior year period and G&A as a percentage of sales was 21, 9% this year versus 21, 1% in 2012.

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Interest expense was zero point $4 million in the fourth quarter of 2021 versus zero point $5 million in 2020.

The company reported a net loss of $4 8 million or $2.20 per share in the fourth quarter of 2021 compared with a loss of $3 4 million or.

Or $1 59 per share in the prior year period.

Note that the company recorded a tax provision.

Zero point $6 million in fiscal 'twenty, 'twenty, one fourth quarter, which included a $1 5 million valuation allowance on its deferred tax asset versus a provision of zero point $2 million in the comparable period of fiscal 'twenty 'twenty.

The 2024th quarter also included a $1 8 million debt extinguishment charge related to refinancing the company's credit facilities, and a 0.7 million impairment charge associated with dissolving and Israeli subsidiary.

Adjusted EBITDA for the fourth quarter of 2021 was negative 2.0 million.

One 4 million in the fourth quarter of 2020.

Adjusted EBITDA in the fourth quarter of 'twenty 'twenty. One included $1 2 million in bank permitted add back charges compared with zero point $7 million and add back.

For the prior year period.

Adjusted EBITDA as a percentage of net sales was negative five 8% in the fourth quarter of fiscal 2021 versus three 9% last year.

Turning to the balance sheet.

As of January one 2020 to summer infant had approximately zero point $5 million of cash and $40 6 million of bank debt compared with zero point $5 million of cash and $30 9 million of bank debt at the beginning of fiscal 2021 .

After the end of the quarter in January the company reached an agreement with Winfield capital its largest shareholder for subordinated term loan of up to 5 million, providing additional liquidity and financial flexibility, we drew down $2 million of this in late January .

Yeah.

Inventory at the end of the fourth quarter was $28 6 million compared with $25 1 million as of January 2nd 2021 and all.

Our inventory turns were three nine versus 4.0 turns at the beginning.

Of the 2021 fiscal year.

Trade receivables as of January one 2022 were $30 9 million compared with 26.0 million at the beginning of fiscal 2021 .

Days sales outstanding or Dsos were 79 as compared to 66 at the start of last year.

Accounts payable and accrued expenses were $33 7 million as of January one 2022, compared with $34 1 million at the beginning of the fiscal year.

In addition, as disclosed in its Form 10-K for the year ended January one 2022 the report of the company's independent auditors on summary financial statements as of January one 2022 includes a going concern matter of emphasis.

With that I.

I'll turn the call over to the operator and open it up for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Yeah.

Our first question comes from Rick Smith with capital.

No go ahead.

Good morning.

I haven't seen a deal in a while that's contingent upon financing can you guys walk us through that and then also walk us through the new going concern language in the 10-K. Please thanks.

Yeah, I'll talk to the contingent and then you can talk to the GC language Bruce.

On the contingent we're getting ready to file a proxy that will have all the details on.

The actual agreement.

That should happen in short order here over the next couple of weeks and we really need to wait until last filed you'll you'll have all the information then.

Does that mean.

Yes.

Say again.

Does that mean it was part of the negotiation.

Well, yes, we announced that rate in there that it was contingent on that so it was part of what we negotiate it correct. Okay.

Okay.

Yeah, and as it relates to the going concern look generally generally accepted accounting principles requires that you go through certain analyses.

Such as trends are recent losses, being incurred et cetera, et cetera, and upon reviewing that criteria.

It was decided that we would have a going concern opinion.

How does that differ from last year was it just a technicality because it's the financials.

It's it's it's just an interpretation of the technical language that we need to go through.

Understood.

Thanks.

Okay.

Again, if you have a question. Please press Star then one.

Okay.

Yeah.

Okay.

At this time there appears to be no further callers in the queue I would now like to turn it over to Stuart Lewis for any closing remarks.

Great. Thank you very much for everybody joining our call today have a nice afternoon.

Okay.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.