Q1 2023 Polished.com Inc Earnings Call

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Speaker 1: I.

Speaker 2: Good morning and welcome to the polished conference call.

Good morning, and welcome to the polished conference call.

Speaker 2: Please note that certain statements made during the call constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Act of 1995 as amended.

Please note that certain statements made during the call constitute forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Act of 1995 as amended.

Speaker 2: such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.

Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.

These risks and uncertainties are described in the company's financial statements press release and its filings with the SEC. The forward looking statements today are made as of the date of this call and the company does not undertake any obligation to update the forward looking statements.

Speaker 2: Its risks and uncertainties are described in the company's financial statement press release and its filings with the SEC. The forward-looking statements today are made as of the date of this call and the company does not undertake any obligation to update the forward-looking statements. Please note that today's call is being recorded.

Please note that today's call is being recorded.

Speaker 2: I will now turn the call over to polished CEO Rick Bunka and polished CFO Bob Berry. Please go ahead.

I will now turn the call over to Polish CEO , Rick Banca polished CFO Bob Berry. Please go ahead.

Good morning, everybody.

Speaker 3: I'm going to start by thanking you, our investors, for your patience during this challenging period. Since Bob and I joined in the fourth quarter of last year, we've been unable to have standard communication with you due to the company's extensive audit and the related process for preparing these delayed financial statements. We fully recognize this has been extremely frustrating for you and everyone involved.

I'm going to start by thanking you our investors for your patience during this challenging period.

As Bob and I joined <unk> in the fourth quarter of last year, we've been unable to have standard communication with you due to the company's extensive audit and the related process for preparing these delayed delayed financial statements. We fully recognize this is Ben.

Extremely frustrating for you and everyone involved.

Speaker 3: Fortunately, now that the company is current on its filings, we will normalize our investor relations efforts and shareholder engagement. On today's call, we plan to cover three main topics followed by a Q&A.

Fortunately now that the company is current on its filings.

We will normalize our investor relations efforts and shareholder engagement.

On today's call we plan to cover three main topics followed by a Q&A.

Speaker 3: First, we'll address why the audit, why our audit and related process took so much time.

First we'll address why the audit a wire audit and related process took so much time.

Speaker 3: Second, I'd like to address the operating results for last year, 2022, and the first quarter of 23.

Second I'd.

I'd like to address the operating results for last year 2022, and the first quarter of 'twenty three.

Speaker 3: And then third, we'd like to discuss our priorities and what we've called a fix and rebuild year for 2023 and the opportunities that we see ahead.

And then third we'd like to discuss our priorities and what we've called the fix and rebuild year for 2023 and the opportunities that we see ahead.

Speaker 3: With respect to the first topic, it's worth providing a recap of where the company was when we joined in October . At that time, the board's audit committee was in the process of carrying out an internal investigation into business operations under the former management team.

With respect to the first topic, it's worth providing a recap of where the company was when we joined in October at that time. The Board's audit Committee was in the process of carrying out.

An internal investigation into business operations under the former management team.

Speaker 3: The investigations concluded in December 22, followed by a public disclosure and presentation of the findings.

The investigation concluded in December 22, followed by a public disclosure and a.

The presentation of the findings shortly thereafter, we received notice from our external auditor of their resignation.

Speaker 3: Shortly thereafter, we received notice from our external auditor of their resignation.

Speaker 3: we immediately began onboarding a new auditor and started a re-audit of the company's historical results.

We immediately began onboarding, a new auditor and started a re audit of the company's historical results.

Speaker 3: The audit was complicated by the departing firm's refusal to share documents and information related to their previous work. As a result, we were required to re-audit all of their work for 2021 and 2022.

The audit was complicated by the departing firms refusal to share documents and information related to their previous work as a result, we were required to re audit all of that work for 'twenty, one and 'twenty two.

Speaker 3: This effort substantially elongated the audit process, resulting in a target release date of 7-31.

This effort substantially elongated the audit process, resulting in a target release date of $7 31.

Speaker 3: I'm not restating this as an excuse, but simply trying to provide the context on where we were and where we are today.

Not restating this as an excuse but simply trying to provide the context on where we were and where we are today.

Speaker 3: regarding the operating results for 2022. We can say with great clarity that the performance of the business throughout 2022 was very disappointing.

Regarding the operating results for 2022, we can say with great clarity at the performance of the business throughout 'twenty two was very disappointing.

Speaker 3: As stated in the 10k, the prior management team pursued revenue growth above all priority.

As stated in the 10-K, the prior management team pursued revenue growth above all priorities.

Speaker 3: In many cases, the proper systems and controls were not in place to ensure reliable performance.

In many cases, the proper systems and controls were not in place to ensure reliable performance.

Speaker 3: The results in the second and third quarters of 2022 showed that while the company spent extensively on marketing personnel, marketing personnel, fails and margin with both compressed and target vines were not achieved. This caused considerable disruption in the business and the bottom line reflects that impact.

The results in the second and third quarters of 2022 showed that while the company spent extensively on marketing personnel.

Marketing and personnel sales and margin were both compressed and target volumes were not achieved this caused considerable disruption in the business and the bottom line reflects that impact.

It's important to note that at the same time window.

Speaker 3: Midsummer last year, consumer spending and performance within the appliance industry began to slow.

Mid summer last year consumer spending and performance within the appliance industry began to slow.

Speaker 3: impacted both by inflation and rising interest rates.

All impacted both by inflation and rising interest rates.

Speaker 3: In the fourth quarter of 22, our overall sales line had slowed across all major categories, but most notably in kitchen mats.

In the fourth quarter of 'twenty two.

Our overall sales line.

Had slowed across all major categories, but most notably in kitchen mass.

Speaker 3: which had been driven largely by consumer liquidity and the housing market.

Which had been driven largely by consumer liquidity and the housing market.

Speaker 3: The luxury market, however, had remained strong.

The luxury market. However has remained strong.

Oh.

Speaker 3: In response, we pulled back on our marketing spend and reduced our inventory loss.

In response, we pulled back on our marketing spend and reduced our inventory levels throughout the first quarter of 'twenty two 'twenty three overall volume remained challenging while the luxury category continued to perform.

Speaker 3: Throughout the first quarter of 2023, overall volume remained challenging, while the leathery category continued to perform. Our focus was to improve operational control and expense disciplines.

Our focus was to improve operational control and expense discipline.

Speaker 3: It's important to note that these efforts show that even with reduced volume, the company can deliver more normalized operating margin and positive cash flow. Our expectation was that we would be able to restore volume through measured improvements in marketing and several tactical strategies.

It's important to note that these efforts show that even with reduced Wally the company can deliver more normalized operating margins and positive cash flow. Our expectation was that we would be able to restore volume through a measured improvements in marketing and several tactical strategies.

Speaker 3: In two weeks, we will be releasing results for the second quarter of 23. We have, however, provided guidance for revenue and margin. Our business continues to be impacted by the industry headwinds and we have been limited in our ability to reverse these trends.

In two weeks, we will be releasing results for the second quarter of 'twenty. Three we have however provided guidance for revenue and margin our business continues to be impacted by the industry headwinds and we are have been limited in our ability to reverse these trends.

Speaker 3: We remain optimistic through the bounce of the air ability to recapture momentum during the bounce of the air.

We remain optimistic for the balance of the year, our ability to recapture momentum during the balance in here.

Speaker 3: But that said, thought it was prudent to reduce our estimates for sales and EBITDA for the rest of this year.

But that said thought it was prudent to reduce our estimates for sales and EBITDA for the rest of this year.

Speaker 3: We're now forecasting annual annualized net sales between 375 and 400 million.

We're now forecasting annual annualized net sales between 375 and $400 million.

Speaker 3: for with a low single digit EBITDA margin for 2023. Our focus has to be to build the systems and practices for this business to ensure that we have a stable foundation for future growth.

For Oh, with a low single digit EBITDA.

Margin for 2023, our focus has to be to build the systems and practices for this business to ensure that we had a stable foundation for future growth.

Speaker 3: If we continue taking the right steps for the duration of the year, we are confident that the company will be positioned to guide to and to execute towards profitable growth and cash generation in 2024.

If we continue taking the right steps for the duration of the year.

We are confident that the company will be positioned to guide to and to execute towards profitable growth and cash generation in 2024.

Speaker 3: Final points I'd like to touch on are the term loan and our strategic review process.

Final point I'd like to touch on are the term loan and our strategic review process.

Speaker 3: Given the term loan is now due 13 months from now, we are being very proactive and have engaged financial advisors to pursue non-dilutive financial options.

Given the term loan is now do 13 months from now we are we.

We are being very proactive and have engaged financial advisors to pursue non dilutive financial options.

Speaker 3: This step, coupled with sound execution, should enable us to source the type of options that we will need facing that time table.

This step coupled with sound execution should enable us to source the type of options that we will need.

That timetable.

Speaker 3: We continue to work with Jefferies to evaluate strategic alternatives that can maximize value. The process has moved slowly.

We continue to work with Jefferies to evaluate strategic alternatives that can maximize value.

S has moved slower than we would like.

Speaker 3: because of all of the factors noted above. But we expect a discovery phase to pick up and potential parties to continue on. Of course, there is no assurance that this process will result in any transaction or...

Because of all of the factors noted above but we expect the discovery phase to pick up in potential parties.

To continue on and of course, there is no assurance that this process will result in any transaction ourselves.

Speaker 3: Now that we've covered that overview, I'd like to open it up for Q&A for Bob and I.

Now that we've covered that overview I'd like to open it up for Q&A for Bob Tonight.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Speaker 2: To ask a question, you may press star, then 1 on your telephone keypad.

Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys.

If you are using a speaker phone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

Speaker 2: Once again, that was star then one to ask a question. And at this time, we will pause momentarily to assemble our roster.

Once again that with Star then one to ask a question at this time, we will pause momentarily to assemble our roster.

Okay.

Yeah.

Speaker 2: And our first question will come from Josh Peters of Morgan Dempsey. Please go out.

And our first question will come from Josh Peters of Morgan Dempsey. Please go ahead.

Speaker 4: Good morning, Rick and Bob. Thanks for taking my question.

Good morning.

Rick and Bob Thanks for taking my question.

Certainly.

Speaker 4: All first, I really feel like I have to congratulate you for what you've accomplished here, not just getting the filings done, although you make a

I'll first I really feel like I have to congratulate you for what you've accomplished here not just getting the filings done although it can make.

Speaker 4: a very good case for why that was a heavier list than what we've been expecting out here. But those same filings, they made clear that the previous management team was...

A very good case for why that was a heavier lift than what we'd been expecting out here, but you know those same filings they made clear that the previous management team was.

Speaker 3: not delivering and you've pulled this business out of the ditch in a very short amount of time and you know it's tough as an experience this has been for everybody you know I think you should be you know very proud of what you achieved and I want to express my gratitude

Not delivering and you've pulled a business out of the ditch in a very short amount of time and are tough as an experience that this has been for everybody.

I think you should be very proud of what you've achieved and I want to express my gratitude.

Speaker 3: as well as my opinion that the business is now in safe and successful hands.

As well as you know my opinion that the business is now in a safe and successful hands. So.

Speaker 3: As tough as it's been over the last year, I think it's best to lead off with gratitude, and I wanted to express that publicly as a shareholder. Well, thank you, Josh.

As tough as it's been over the last year I think it's best to lead off with gratitude and I wanted to express that publicly as I as a shareholder.

Thank you Josh.

Speaker 3: Second, and then I'd like to let other people ask questions, although honestly, I'm very enthusiastic to have this opportunity to sort of reengage and relearn what's going on with the business.

Second and then I'd like to let other people ask I'll ask questions. Although I must say I'm very enthusiastic to have this opportunity to sort of reengage in re learn what's going on with the business.

Speaker 3: But what seems really outstanding to me about what you accomplished in Q1 in terms of cost management and the gross margin improvement is that

But what seems really outstanding to me about what you accomplished in Q1 in terms of cost management and the gross margin improvement is that.

Speaker 3: It seems to me the basic economics of the business, as we would have understood them from the outside a year ago, are probably still largely intact. And if we're not spending like crazy to try to drive unrealistic revenue growth, we're not going to be able to drive that.

It seems to me the basic economics of the business as we would've understood them from the outside a year ago are probably still largely intact and if we're not spending like crazy to try to drive unrealistic revenue growth.

Speaker 3: This can still be much more than a low single digit EBITDA margin business as sales recover.

This can still be you know much more than a low single digit EBITDA margin business as sales recover.

Speaker 3: So can you comment both on what you're doing to continue to manage down fixed costs and our break-even point?

So can you comment both on what Youre doing to you know continue to manage down fixed cost and our breakeven point.

Speaker 3: and then also talk about what the contribution margin is on incremental sales as sales come back.

And then also talk about what the contribution margin is on incremental sales.

As sales come back.

Yeah.

Well.

Speaker 3: Thank you, Josh, for your question. So to recap, I guess your question, I am...

Yeah. Thank you Josh for your question so.

To recap like I guess your question I'm Ah it.

Speaker 3: you're asking to help with clarity on the operating margin and the opportunities that may exist as we go forward.

You're asking.

To help with clarity on the operating margin and the opportunities that may exist as we go forward.

Speaker 3: The point I think you'll see in the in the filings that's quite clear is the company had had expectation of significantly higher volume.

The zip.

The point I think you'll see in the in the filing that's quite clear is the company had had expectation of significantly higher volumes.

Speaker 3: and was both expensing toward it and had established vendor economics with the assumption of much higher volume. As those volume estimates were missed, the company was laboring to handle the inventory and receipt flow that was purchased to support it, as well as the cost structure underlying it.

And was both expensing toward it and had established vendor.

Economics with the assumption of much higher volume as those volume estimates were missed.

The company was laboring to handle the inventory and receipt flow that was purchased to support it as well as the cost structure underlying it.

Speaker 3: But that was magnified by a statement that rippled through most of the quarters that the volume rebates associated with vendor purchases, the targeted goals were missed, and that represented a significant reduction from prior years.

But that was magnified by a statement that.

Rippled through most of the quarters that that does volume rebates associated with vendor purchases.

Targeted goals were missed and that represented a significant reduction from prior years.

Speaker 3: Those goals as we go forward, our efforts have been to.

Those goals as we go forward are our efforts have been to stabilize those rebates and both to create upside. So as we report financial performance going forward, we're trying to set the expense structure.

Speaker 3: stabilize those rebates and both to create upside. So as we report financial performance going forward, we're trying to set the expense structure.

Speaker 3: to provide cash flow at these lower levels of volume, but also provide the upside in the, with the result, if we exceed the revenue goals, those target revenue rebates would then also kick in. So the assumption that we've provided you at the forecast level, Josh, is that we're not relying on increased volume rebate revenue.

Two.

For diet provide cash flow at these lower levels of volume, but also provide the upside in the.

With the result, if if we exceed the revenue goals those target revenue rebates would then also kick in so the assumption that we've provided you at the forecast level. Josh is that we're not relying on increased rebate volume rebate revenue.

Speaker 3: our volume rebate incentives on the margin line and that does expand operating margins throughout. So as we grow and as we continue to exceed our performance, that's really where the leverage occurs.

Our volume volume rebate incentives on the margin line and that does expand operating margins through off so as we grow and as as we continue to exceed.

Our performance, that's that's really where the leverage kirsch.

Speaker 3: Okay, and then just one quick follow up here that, you know, I know that you've also, you know, taken down headcount, you know, you're consolidating your warehouse footprint in New Jersey. You know, can you outline the timing and the potential impact of some of those fixed cost reduction, operating cost reduction as we go through the year?

Okay, and then just one quick follow up here that you know I know that you've also taken down head count.

You know your consolidated in your warehouse footprint in New Jersey.

Can you outline the timing and the potential impact of some of those are fixed cost reductions operating cost reductions as we go through the year.

Speaker 3: Yes, I mean there was there was progressively over the course of the nine months that Bob and I have been here. There has been gradual reductions in headcounts that have happened throughout.

Hi.

Yes, I mean, there were there was there was a progressive we over the course of the nine months that Bob and I have been here. There has been gradual reductions in head counts that have happened throughout the year and that process is documented in the in both the K and the Q and that.

Speaker 3: the year. And that process is documented in both the K and the Q. And that expectation is that we'll continue to try to right-size the organization where it's smart.

Expectation is that we'll continue to try to right size the organization, where it's smart to have the right number of people supporting the business. So that we can be profitable. He did that as you alluded to was we do operate within two distribution centers.

Speaker 3: to have the right number of people supporting the business so that we can be profitable. Heated that as you alluded to was we do operate within two distribution centers in New Jersey and one in St. Louis.

In New Jersey, and one in St. Louis.

Speaker 3: our business plan calls for scaling those two distribution centers into one facility alongside DMI. One of our facilities today is next to our...

Our business plan calls for scaling those two distribution centers into one facility or alongside D. M I.

One of our facilities today is next to R. R.

Speaker 3: our partner DMI and it's highly efficient for us to be next to them. So our expectation is that through the balance of this year we will prepare for moving to a single facility and we don't expect to see any of that results in fiscal 2023 but should see that benefit in 2024.

Our partner GMI, and it's highly efficient for us to be next to them. So our expectation is that through the balance of this year, we will prepare for.

Moving to a single facility and we don't expect to see any of that results in fiscal 'twenty, three but should see that benefit in 2024.

Yeah.

Speaker 4: Okay, thank you very much. I will see the four to other questions, but again, congratulations to you're in your team.

Okay. Thank you very much I will feed the Florida other questions.

But again, congratulations to you and your team.

Thanks, Josh Thank you.

Speaker 2: Our next question comes from Peter Rabover of Artco Capital. Please go ahead.

The next question comes from Peter Rabbit her of article capital. Please go ahead.

Speaker 5: Um, Hey guys, uh, well first, uh, so I'd like to make a couple of comments.

Yeah, Hey, guys Ah well first so I'd like to take a couple of comments.

Speaker 5: I'll echo Josh there to say Rick, I think yes, you've done a great job now that you see that we can see the filings and you know what the previous management team left us with. I would say, yep, thank you for that.

I'll Echo Josh there to say, Rick I think yes, you you've done it.

Great job now that you see.

We can see the filings and you know what the previous management team left us with.

I would say, yes. Thank you for that I guess one.

Speaker 5: One comment I would make, I think, as we saw by the stock price performance for the last week is what happens when you keep shareholders in the dark for too long for things like the balance sheet and the performance. And so I hope that's a pretty tough lesson learned for everyone here that open communication and more disclosure is the key. The second comment.

Comment I would make I think that's the sad by the stock price performance in the last week.

What happens when shareholders in the dark or too long for things.

Things like the balance sheet and the performance and so I hope that's a really tough lesson learned for everyone here that open communication more disclosure is the key.

The second comment I'd like to make I think.

Speaker 5: One of the things that was a little shocking for me is that the size of the board that we have and that what the amount of money that they make given what happened last year and that Ellery, and you're listening to it, makes $250,000 for a consulting fee. I guess the comment I would make...

One of the things that that was a little shocking for me is that the size of the board that we have and at what amount of money that they make given what happened last year and that Larry and I was listening to it makes $250000 a poor consulting fee.

I guess the comment I would make are.

Speaker 5: I would expect some resignation from the board or at least a significant pay cut. And I hope that money goes toward your bonus or seeing some 13 being foreign store violence from the board in the next few days when that window opens because...

I would expect from resignation from the board or at least.

Got.

And and I hope that money goes towards your bonus or.

<unk> or <unk>.

<unk> be informed for filing from the board in the next few days when that window opens because.

Speaker 5: I guess with the stock price down like 99%, 90% that.

I guess with the stock price down like 99%.

90%.

Speaker 5: I don't know. I think we need some really, really fresh people on the board that did not fall asleep at the wheel and watched the previous man had been sort of destroyed the company. That's a sort of a frustration comment from me that I hope the board is.

I don't know I think I think we need some really really well for.

<unk> people on the board that did not fall asleep at the wheel or.

What's the biggest man had been sort of destroy the company.

That's the that's sort of a frustration comment from me, but I hope the board with me here.

Speaker 3: Evan said that I would like to ask some questions.

Having said that I, you know I would like to ask some questions.

Speaker 3: So before you do, can I make a statement? Yeah, yeah. I guess in parallel to that statement. Yeah. Obviously, as they laid a merger to this business and coming in, I can appreciate everything you do.

Before we do can I can I make a statement yeah, I guess in parallel to that to that statement.

As a as a.

Obviously as they learn later merger to this business and coming in I I can appreciate everything you just said.

Speaker 3: But what I have noted from this board was in a very tough situation to move with ACE to take an insider claims of activity and respond very quickly in a process. I recognize this has been 12 months of darkness and it's difficult. But the board, from my vantage point, the board acted very quickly to have

What I have noted from this board was in a.

Very tough situation to move with haste to take an insider insider claims of activity and respond very quickly in a process I I I recognize this has been 12 months of darkness, and it's it's difficult, but the board is from my Vantage point the board acted very quickly to have.

Speaker 3: investigation results and the management team out by October and have us in place.

[noise] investigation results and and the management team out by October and have us in place.

Speaker 3: By November the board has been very supportive to Bob and I to address this and put things in order. So I think it's important to note

By November the board has been very supportive to bubble and I to address this and put things in order. So I think it's important to note that.

Speaker 5: Okay, but you know, it is a $20 million company with a $600,000 and I guess including Ellery's consulting thing, $250,000, almost $1 million in expenses that for $20 million market cap is pretty egregious. So I hope they consider a pay cut while it goes through a transition.

Okay, but you know it is the $20 million company with its 600000 dollar Ah and I guess, including salaries.

A consultant than a 250000, almost $1 million and expenses that for $20 million market cap is pretty egregious. So like I hope they consider okay got well.

It goes through a transition.

Speaker 5: So, but I appreciate the color. So I guess the first couple of questions have to do with...

So but I.

At the call. It so I guess the first couple of questions has to do with <unk>.

Speaker 5: So one of the reasons it seems if you read the financial statements that the big increase in debt is just basically refinancing the customer deposit policy that we've had in the past, right? So that balance went down from 30 something to five. And obviously the debt increased by the same amount. Has that issue been resolved? Is that refinance? Like, are you anticipating any more cash flows related to that?

So one of the reasons. It seems if you read the financial statement that the big increase in debt is just basically a refinancing.

Customer deposit a policy that we've had in the past right. So that balance went down from 30, something two five I'm, obviously the debt increase by the same amount.

Has that issue been resolved is that we find that like are you anticipating any more cash outflows related to that.

Speaker 3: No, and that yeah Bob and let me try the first part of the event if you provide color I think it is very significant that the company changed its vendor deposit strategy It's customer deposit strategy and get that early on yeah, so are you speaking vendor deposits or customer deposit? No, I'm talking the vendor deposit is gonna be my next question. I'm talking about the customer deposit

No.

Yeah, Bob and let me try the first part of it and then if you can provide color I think it's it is very significant that the company changed its vendor deposit strategy or its customer deposits alright.

Did that really aren't yeah. So are you speaking of vendor deposits or customer deposits. So I'm talking about the vendor deposit was gonna be my next question I'm talking about the customer deposits.

Speaker 3: Right, the recognition of revenue was a topic that is of real importance, but the company does this the right way. This is a practice that is right. We have adopted it. There is a balance sheet effect from that and that is a major...

The customers the recognition of revenue was a topic that is a real important that the company does this the right way. This is a practice that is right. We have adopted it there is balance.

Balance sheet effects from that and that is.

A major.

Speaker 3: positive for the manner and way that we run this business. So, and we've got all the Bob sponsor.

Positive for the manner in ways that we run this business so with that I'll, let Bob Bob response.

Speaker 3: I was going to comment that the customer deposit number was a legacy from the Gettaker Television Company. The money was collected when the customer placed an order. That customer deposit number got up to an excess of $20 million. Part of the proceeds from the capital raise to make the...

I was going to comment that the customer deposit number was a legacy from the get a curved TV company.

Okay.

Buddy was collected when the customer places an order.

Customer deposit number got up to in excess of $20 million.

Part of the proceeds from the capital raise to make the Oh.

Speaker 3: appliances connection acquisition. Those proceeds were partially used to reduce that and some portion of although a smaller portion of the bank refinance that paid off the rest. It took a long time for this customer deposits to run off.

Appliances connection acquisition those proceeds were partially used to reduce debt.

And some portion of it although a smaller portion of the bank refinance debt paid off the rest. It took a long time for those customer deposits to run off the remaining ones are a special deposit so special orders and and builder and the builder business week, sometimes collect a deposit upfront from a builder so customer.

Speaker 3: Remaining ones are special deposits on special orders and in the builder business we sometimes collected the positive front from the builder. So customer deposits are effectively gone from the old legacy way of doing it.

Deposits are are effectively gone from the old legacy way of doing it and there'll be no more disbursements related to the legacy way of doing it.

Speaker 3: and there'll be no more dispersants related to the legacy way of doing it.

Speaker 4: Okay, so then the other one is the vendor deposits, right? That number is substantially higher, especially relative to the

Okay.

But then the other one is the vendor deposits right.

Number substantially higher especially relative to the two.

Speaker 4: to the level of business. And I assume that's because we're not, because the financials, right? So is that a number that we can expect to be kind of a cashflow release going forward now that the financials have been filed? And I guess a little bit more awkward question. Is there a problem that Albert is on the board of DMI while this is happening?

The level of business and I assume that because were not because the financials right. So is that a number that we can expect to be kind of like cash flow relief going forward now that the financials have been filed I guess, a little bit more awkward question is that a problem that Albert is on the board of BMI. While this is happening.

Speaker 3: Well, I've never no longer as of November , no longer on the board of DMI and that vendor amount that you are looking at as a vendor deposit is the DMI, it predominantly the DMI deposit and

Well first off yeah yeah.

No longer as of November and no longer on the board of GMI and that vendor amount you are looking at as a vendor deposit is the D. M. I it predominantly the BMI deposit and Bob can explain.

Speaker 3: The vendor deposit builds up by the rebates we earn from VMI and other vendors, and it's an accumulation of that number that builds the vendor deposit.

The the vendor deposit builds up by the rebates, we earn from D. M. I know their vendors and it's an accumulation of that remember that builds the vendor deposits.

Speaker 3: The debt vendor deposit allows us to borrow up to 95% that used to be 80% or 95% of that balance for our accounts pay of the.

That vendor deposit is allows us to borrow up to 95 per cent that used to be 80% or 95% of that balance for our accounts payable. So if we reduce debt balances by say 10 million, we'd have to pay off nine and a half million accounts.

Speaker 3: So if we reduce that balance by, say, $10 million, we'd have to pay off $9.5 million of accounts payable. So that secures our.

Accounts payable so that secures our deposits, it's not an indication that the vendors are holding money as a result.

Speaker 3: It's not an indication that vendors are holding money as a credit issue on our behalf. It's strictly VMI and secures accounts payable to vendors.

Issue on their behalf. So strictly then BMI and secures accounts payable to them.

Speaker 4: Okay, look, but the theme here is I'm just trying to look for

Okay.

But the theme here is I'm, just trying to look for that.

Speaker 3: that company can purchase. Yeah, so that's the main point of that is that that vendor deposit is a function of payables, and it's because that is generally obligate, it's backed by obligations that we have to buy goods. So they are usually a like amount. Okay, I'm

Yeah. So that's the main point of that is that that vendor deposit is a function of payables and it's because that is generally obligate it's backed by obligations that we have to buy goods. So they they are usually a like amount.

Okay, I'm, just looking for ways that or I guess.

Speaker 3: assumptions that the company can release some operating cash flow to to reduce the debt level this year in a lower environment. And so that's kind of my theme there. But maybe that's the

Our assumptions that the company can relieve some operating cash flow to reduce the debt level. This year.

In a lower environment, so that's kind of might be in there, but maybe that's the.

Speaker 3: The next question I have is just maybe comment on the refining and the balance sheet. And are you worried at all about the next 13 months? Are you, there's a pretty big glut of private credit out there. I, we might not get the best terms, but.

But the next question I have is just maybe comment on the refinancing of the balance sheet and you know are you are you worried at all about you know the next 13 months are you you know or Theres, a pretty big glut of private credit out there as well.

They get the best terms, but.

Speaker 3: Can you comment on the potential refinancing of the company?

Can you comment on the potential refinancing of the company.

With that.

Speaker 6: Yeah, I think two main themes of the response and then I guess in that some color. The two major themes I have for you is that first, it's significant in material that we've concluded a very thorough audit of 2021 and 2022 and produced with this formatted Super 10K.

Yeah I think.

Two main themes of the response, and then and I guess some color are the two major themes I have for you is that first it's significant and material that we've concluded.

Very thorough audit of 'twenty, 'twenty, one and 2022.

And produced with this format it Super 10-K.

Speaker 6: an opinion of our auditors that looks forward and allows management to say that we, in a very clear statement, that we believe the company has the liquidity necessary to operate the business in the foreseeable future.

Hum an opinion of our auditors that looks forward and allows management to say that we are in.

In a.

Very clear statement that we believe the company has the liquidity necessary to operate the business in that in the foreseeable future.

Speaker 5: And the second piece would then...

And the second piece of it we've been.

Speaker 5: We complement the bank group and their participation with us. They have been very active and supportive and that process of being able to amend the facility and provide the runway ahead also gives us comfort as we look forward. Naturally, we have a

We complement the bank group and their participation with us they have been very active and supportive and that process of being able to amend the facility and to provide the runway ahead also gives us comfort.

As we look forward naturally we have.

Speaker 5: Here's the color. We have a good bit of continued work to do. We're going to continue to refine this business model and expect to produce improved operating results.

Here's the color we have a good bit of continued work to do we're going to continue to refine this business model and expect to produce improved operating results.

Speaker 5: And that is our primary focus as we go forward.

And that is that our primary focus as we go forward.

Okay.

Speaker 3: Thank you. Thank you for the statement. I guess I'm not really sure if that answers my question on the...

You bet.

Thank you. Thanks. Thank you for the statement I guess I'm not really sure if that answered my question on the.

Speaker 5: on the refinancing. Both the question of, I mean, the refinancing is a function of our performance and our liquidity of the business. So I, the NUS, our confidence level is high. So with regard to the specifically, if your question is the refinancing, we have in, as I said in my opening remarks, we have engaged a firm to assist us in that process. And we'll try to, it's a fairly...

On the.

Yeah, they're they're booked both the question of.

The refinancing is is a function of.

Our performance in our our liquidity of the business. So I like the U S. Our confidence loved one.

Our confidence level is high so with regard to the specifically to your question is the refinancing we have and as I said in my opening remarks, we have engaged a firm to assist us in that process and we'll try to it's a fairly structured process. We'll try to keep you informed as we go along.

Speaker 5: structured process will try to keep you informed as we go along. But at this point we don't have much to share.

At this point, where we don't have much.

Much to share.

Okay. Thanks.

Speaker 3: Look, I keep taking up time, but I think we have plenty of it now that we haven't talked for a year. The last one I think is more important. So the Q1, if I look at the Q1, the cash operating expenses seem to be running in like $19, $20 million. It seems like a lot.

Looks like you pick it up time, but I think it's you know where we are.

Ooh.

We have plenty of it another way talk where you are the last one I think that's more important so the Q1, a if I look at the Q1 are the the cash operating expenses seem to be running in that like 19 $20 million. If I'm you know it'd be 80 80 million.

Speaker 3: If I'm, you know, 80, 80 million annualized give or take. And so I'm just curious, and this was before the head count reduction that you mentioned or the consolidation. So what do you think the, you know, the natural, the good run rate of the companies like as G&A OpEx business is?

<unk> give or take and so I'm just curious and this was before the head count reduction that you mentioned are the consolidation so.

What do you think the you know the natural the good run rate of the companies like SG&A Opex business is and I guess, maybe the gross margin level that you could feel confident now that you're focused more on our more profitable business.

Speaker 3: And I guess maybe the gross margin levels that you could feel confident with, now that you're focused more on, you know, a more profitable bit.

Speaker 5: Well, there's two ways that we're looking at it at that, and I think you're going to, I believe we'll be able to give a little bit more color as the second quarter results come out, but you're going to see that our margin structures at our present volume has been

Well there's.

There's two ways to do that we're looking at it at that and I think youre going to I believe we'll be able to give a little bit more color as the second quarter, our results come out, but you're going to see that our our margin structures at at our present volume has been up.

Speaker 5: performing within a relative range that are fairly predictable and our expense structures that you'll see in the first couple quarters. Our expectation is that we're going to continue to be able to gain efficiency as the year as the year progresses through the third and fourth quarter. So I are.

[laughter] performing within a relative range that are fairly predictable and our expense structures that youll see.

In the first couple of quarters.

Our expectation is that we're going to continue to be able to gain efficiency as the years go or as the year progresses through the third and fourth quarter. So.

I I R.

Speaker 5: expectation to you is that those first couple quarters ought to be a pretty good indication of what the model looks like.

[noise] expectation to you is that those first couple of quarters ought to be a pretty good indication of what.

The model looks like at its present volume yeah.

Speaker 5: the opportunity as we go forward. And what we see is that the margins expand. That this is a fairly heavy fixed cost business. So the margins tend to move up quickly both on the EBITDA and pure margin side when volumes rise. So we're going to get good at operating at this level and seek to drive volume higher.

The opportunity as we go forward.

And what we see is that the margins expand the this is.

A fairly.

Have the fixed structural fixed cost business. So the margins tend to.

Move up.

Quickly both on the EBITDA and pure margin side wind volumes right. So we're going to we're going to get good at operating it at this level and and seek to drive volume higher.

Speaker 4: Right, no, no, I completely appreciate the

Right no no I completely appreciate the.

Speaker 3: I guess the beauty of the business model and the substantial operating and financial leverage that we have, I'm just wondering, like, you know, at about eight.

I guess, the beauty of the business model and the substantial operating and financial leverage that we have I'm. Just wondering you know are at about eight.

Speaker 3: At the first quarters, you know, as DNA, and the $375 million run rate seems like it's right about breaking even give or take, you know, like single digit millions, but you had also mentioned that you're gonna do head counts and the warehouse consolidation. So I'm just curious what the, what, how that's gonna impact the...

At the first quarter, you know as G&A.

The $375 million run rate in fact, it's right about breakeven give or take.

Like single digit millions, but you had also mentioned that youre going to do with head count, so and and the warehouse consolidations. So I'm just curious what the what how that's going to impact the fixed cost structure I guess, if you can give there.

Speaker 3: I guess if you give any color at all, I appreciate that. Yeah, the biggest cost we have going forward are fixed costs related to our facilities.

Any color at all but yeah yeah.

The fixed.

The biggest cost we have going forward or are fixed costs related to our facilities.

Speaker 3: And those are going to be a little bit longer term. As I said, those are going to be 2024 enhancements. And I think we'll have to share those kinds of expectations with you as we go forward.

And those are going to be a little bit longer term as I said those are gonna be 'twenty 'twenty four.

Enhancements and.

I think we'll have to share those kinds of expectations with you as we go forward.

I don't know that I can do that now.

Speaker 2: next question comes from the Shaw Meetster of Bard Associates. Please go ahead.

The next question comes from Vishal Shah of Bard Associates. Please go ahead.

Good morning, Rick and Bob.

Yeah.

I have a question about the.

Speaker 7: normalize level of sales, I mean sales revenue numbers are down though because of macro reduction and demand and also something going on within your

Normalized level of sales I mean, the sales or revenue numbers are down.

Because of the because of macro reduction in demand and also you know something going on within your business.

So what was sort of a last year.

Speaker 7: for normalized demand for the appliances market. Was it 2019? And specifically for your business, what can we say about the normalized level?

Normalized demand for appliances market is it 2019 and.

Specifically for your business.

What can be said about the normalized level.

Do you think the if he should've.

They did drop off the sales cycle.

Yes.

Speaker 3: Well, the two levels of questions you're asking and that's the industry trends. The industry trends last year of reported numbers have been that during COVID and the years 21 and 22 that it was a strong demand for the categories and the growth of the category was

Well the U two levels the questions you're asking in it and that's the industry trends the industry trends last year.

All of our reported numbers have been that during COVID-19 and the years 'twenty, one and 'twenty two there was a.

Strong demand for the categories and the growth of the category was only limited by the availability of goods there were considerable supply chain issues and as a result, there were both inflationary pressure on appliances prices were rising as well as it was hard to obtain.

Speaker 3: only limited by the availability of goods. There were considerable supply chain issues and as a result there were both inflationary pressure on appliances, prices were rising, as well as it was hard to obtain goods.

What's.

That that overall trend in the industry subsided a last the beginning in September of last year, where the industry flipped and and negative operating results.

Speaker 3: That overall trend in the industry subsided last, beginning in September of last year where the industry flipped and negative operating results.

Speaker 3: started to show at the industry revenue line among categories.

Started to show at the industry revenue line among categories.

Speaker 3: That decline was anywhere from single to double digit decline in all of the major categories, refrigeration, cooktop, virtually all elements of appliances were seeing decreases.

That decline was anywhere from single to double digit decline in all of the major categories refrigeration Cooktop.

Virtually all are all elements of appliances were seeing decreases that those decreases have been projected through spring of this year and are expected to continue.

Speaker 3: Those decreases have been projected through spring of this year and are expected to continue. And the industry has discussed that it has moved much more toward replacement and away from the state remodels and investment. So those two are the national trends that I think everybody is aware of and assessing.

And the industry has discussed that it it has moved much.

More toward replacement and away from Remodels and investment. So those two are the the national trends that I think everybody is aware of and assessing.

Speaker 3: That has been our experience, our declines that happened. We were still seeing revenue growth through.

That has been our experience our declines that happened we were still seeing revenue grow through.

Speaker 3: through September of last year and the clients started after September and moved through the numbers, the present numbers. That trend line has the, the clients have stabilized and that is the basis for our expectation through the balance of the year. But there are still industry headwinds for sure.

Through September of last year, and the declines started after September .

And moved through the numbers.

Present numbers that trend line has.

The declines have stabilized and that is the basis for our expectation through the balance of the year, but.

There are still industry headwinds for sure.

Okay, great. Thank you.

Speaker 2: next question comes from Adam Wilk of Greystone Capital Markets. Please go ahead.

The next question comes from Adam well of Greystone capital markets. Please go ahead.

Wondering can you guys hear me.

Yeah.

Yes, yes.

Speaker 3: Can you help quantify what low single digit even the margin means for fiscal year 23?

Can you help quantify what low single digit EBIT margin means for fiscal year 'twenty three.

Speaker 5: I think we want to stay with that general range and that's a percentage of revenue in the low single digits of the sales vine. So, and that's a, I don't know that we want to quantify an exact number, but we see the number being positive and low single digits.

I think we want us stay with that general range and that's a percentage of revenue in the low single digits of the sales line.

And that's a I don't know that we want to quantify an exact number but we see the number being positive in low single digits.

Speaker 3: Okay. Are you, so in the press release, you mentioned in regards to the bank who own your working with an independent financial advisor. Can you also provide a little more color on that along with maybe your involvement with referees at this stage in terms of the continuation of the strategic review or any sort of options you're looking at or levers to pull to drive value outside of operating the business.

Okay.

Are you so in the press release you mentioned.

In regards to the bank loan you're working with an independent financial adviser can you also provide a little more color on that along with maybe your involvement with Jefferies. At this stage in terms of the continuation of the strategic review or any sort of options, you're looking at or levers to pull to.

Drive value outside of operating the business.

Speaker 3: Well, the Jeffries process we've been public in our disclosure of the purpose behind it and the process itself, it is bound. There are participants in it, it is bound by the confidentiality of that process. It has been longer than we all had hoped. We have been asked.

Well the Jefferies process, we've been public in our disclosure of the purpose behind it and the process itself. It is bound there are participants in it is bound by the comp.

And she already of that process. It has been longer than we all had hoped.

We have been ask.

Speaker 3: what impact the absence of audited financial statements had on the process and without a doubt that has been a common request. We have been able to fill information requests from it, but the need for audited financial statements was important in this process, so it has elongated the process.

What impact the absence of audited financial statements had on the process and without a doubt that is it has been a common request, we have been able to fill information request from it but the need for audited financial statements was important in this process. So it has elongated the process.

It's us.

Speaker 3: And that being said, I don't know that I can comment further on any

And that being said I don't know that I can comment further on any specifics.

Speaker 3: Regarding the financial advisor that we've asked to help and the process related to...

Regarding the <unk>.

He actually adviser that we've asked to help in the process related to.

Speaker 3: financing, we have retained a firm that is working with us. It's focused will be to identify and execute strategies that can, as I think the questions have surrounded and that's free up either the balance sheet or cash in an effort to facilitate the financing of that, that facility.

Financing, we have retained a firm that is working with us its focus will be to identify and.

And execute strategies that Ken is I think that the questions had surrounded and that's free up.

Either the balance sheet or cash in an effort to facilitate the financing of that debt facility.

Okay.

And then it looks like.

Speaker 3: Your interim tag has been removed from your title. But with no sort of, I guess subsequent details, is there any update there regarding your role with the business or how you see things moving forward?

Your interim tag has been removed from your title and but with no sort of I guess subsequent detail is there anything any updates there regarding your role with the business or how you see things moving forward.

Speaker 3: Well, Bob and I are both still operating in the same capacity under the same titles of interim. You know, and many have asked, we have been brought in. We came back to this business because we believe in it. And we're excited about it. It is a business that Bob and I both had familiarity with and felt there was...

Well, yeah, Bob and I are both still operating in the same capacity under the same titles.

Interim.

You know we are in and many have asked we have been broad and we came back to this business because we believe in it and we're excited about it it is a business that Bob and I, both had familiarity with and felt there was a.

Speaker 3: a great group of people and a great reason for this business to be, which is why we're back and why we're focused. I know I speak for Bob that we feel like this is just a milestone in the effort of what we have in our work. We don't believe our work is done. So at this stage, we're still operating under the same capacity.

Great group of people and a great reason for this business to be which is why we're back and why you know why we're focused I I I I know I speak for Bob that we feel like this is just a milestone in the effort of what we have in our on our work. We don't believe our work is done so.

It at this stage, we're still operating under the same capacity.

Okay. Thanks for taking my questions. That's it for me.

This concludes our question and answer session I would like to turn the conference back over to Rick Barker for any closing remarks.

Speaker 2: So, I would like to close that question in the answer session. I would like to turn the conference back over to Rick Bunkoff for any closing remarks.

Speaker 3: Well, I'd like to thank everyone for attending. I know this has been a long awaited call and obviously we'll see to not have this kind of disruption as we go forward. As I mentioned.

Well I'd like to thank everyone for attending I know this has been a long awaited call end and I'm sure. We'll seek to not have this kind of disruption as we go forward as I mentioned.

Speaker 3: These efforts that we've made have been under great scrutiny and it is always beneficial to share the color of our intent and where we're headed as we go. So please look forward to us communicating regularly as we move forward. So.

These efforts that we've made have been.

Under great scrutiny and it is always beneficial for us to share the color of of our intent and where we're headed as we go so please.

Look forward to us communicating regularly as we move forward.

Thank you everyone.

Speaker 2: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect. What's gonna happen is this.

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

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