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spk03: Good afternoon and welcome to 1847 Gettaker's third quarter 2000 conference call. Sorry, 2020 conference call. As a reminder, this call is being recorded and all participants are in a listen-only mode. We will open the call for questions and answers following the presentation. On the call today are 1847 Gettaker's CEO, Doug Moore, and CFO, Robert Berry. I would also like to remind everyone that various remarks about future expectations, plans, and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. 1847 Getters cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated, including risks described in the company's filings with the SEC. Any forward-looking statements made on this conference call speak only as of today's date, Monday, November 16, 2020. An 1847 getter does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. A webcast replay of the conference call will be available on the Getters website at www.getters.com. With that, I'd like to turn the call over to 1847 Gettiker's CEO, Doug Moore, for opening comments. Please go ahead, Mr. Moore.
spk02: Doug Moore Thank you, and good afternoon to everyone on the call today. Thank you for joining us and taking the time to participate in the third quarter financial results call. First, I want to thank my team at Gettiker's for their contribution to an outstanding quarter of strong year-over-year growth and a substantial increase in cash flow from operations and revenues. Just as importantly, processing record orders, having record number of consumer interactions, and doing most of this work from their home office environment. We asked them to make a major pivot in how they work. They met the challenge and exceeded my expectations. It is appropriate for me to state with conviction that I have never been more confident that Gettysburg is on the path to becoming the nation's largest and most profitable online retail of appliances in the U.S., Record orders that continue through today's call point to the sea change occurring as consumers' preference to buy household appliances online is growing each day. We are addressing a $20 billion industry as the only pure play appliance online retailer listed on a major exchange. Over the past year, we have been investing in people, processes, and systems. while developing a world-class advertising and marketing platform in order to continue to drive significant revenue growth and dramatically increase our market share. My vision is this, to grow Getacur to a billion-dollar revenue company over the next five years, and in that process, become the largest, most profitable online retailer of appliances in the U.S. We intend to grow that billion-dollar size organically. We intended to grow it organically. We are in a position to accelerate that timeline upon the completion of the pending acquisition of appliances connection. We will provide more details on this acquisition on a special update call later this week at the close of market on Wednesday. Let me make a few points on this call to set the proper framework for our bullish view of Getikers. Through our e-commerce business model, we offer an online marketplace for consumers looking for top brands, for service and value when shopping for nearly any household appliance product needed. We have built a large online selection of products and we were able to offer this vast selection because our model requires minimal inventory and our logistics infrastructure is tailored to the unique characteristics of our market. We enjoy a strong relationship with most national and global appliance suppliers and we have built a technologically advanced online sales and infrastructure platform It gives us the capacity to scale for enormous growth. The delivery experience and overall customer service we offer our shoppers are central to our business. We tightly manage our inventory and warehouse space by primarily purchasing inventory only after sales have been made through our website. This allows us control over the entire process while still providing customers timely delivery times. About 90% of our appliances flow through our warehouse. Almost all furniture is drop shipped to the customer. We offer roughly 22,000 appliance SKUs from all mainline original equipment manufacturers. These include Bosch, Whirlpool, GE, Maytag, LG, Samsung, Sharp, KitchenAid, among others. We sell all major home appliances, including refrigerators, ranges, ovens, dishwashers, microwaves, freezers, washers, and dryers. And these appliances account for 80% of our revenues. Overall, In this past quarter, we generated 10% net sales growth rate year-over-year in the third quarter, with constrained supplier inventories preventing the doubling of that revenue number achieved at $13.4 million. Tracking with our increased ad spend, the third quarter site sessions were up 80% to 2.7 million sessions, while written orders grew 143% to 36.9 million. The lack of available product meant we were only able to ship 37 percent of our orders in the third quarter. This compares to the normal rate of ship sales to orders of 80 percent, which represents a three-year average of revenues to orders. The significant increase in orders required us to use temporary staff to supplement our permanent staff in a number of areas, including order processing, phone sales, customer service, and accounting. We believe strongly as manufacturers return to normal levels of production, and we've received more product our operating expenses will be in line with normal levels for the increased orders and revenue. Investments in logistics are already speeding up order processing time as we utilize EDI and other automated processes to replace manual tasks. We also saw continued strong improvement to free cash flow, with cash flow from operations improving to 7.4 million for the nine months ended September 30 this year, up from a negative 700,000 in the year-ago period. At this time, I'd like to hand the call over to Bob Berry for a more detailed review of our third quarter results. Bob?
spk05: Bob Berry Thanks, Doug, and good afternoon, everyone. As Doug mentioned, our net product sales were $13.4 million for the third quarter, which is an increase of 10.1% year-over-year, driven primarily by increased ad spend. Our cost of goods sold was $11.3 million for the three months, as compared to $10.2 million in the three months of 2019. That's an increase of $1.1 million, or 10.6%, in line with our net sales growth. Our cost of goods sold consists of the cost of the product, plus the cost of delivery, and where applicable, installation and haul-away, net of promotional rebates, and other incentives from vendors. Gross profit was $2.2 million for the third quarter, were 16.2 percent of total revenue, basically in line with the 16.5 percent margins in the third quarter of 2019. We estimate that revenue for the quarter would have more than doubled had we shipped at the historic rate of 80 percent of orders versus the actual rate of 37 percent. And at a constant gross margin percentage, gross profit would have also more than doubled to 4.8 million. We believe we will have continuing improvement in product availability in 2021 and expect that the ratio of shipped sales to orders will improve as the year progresses. In Q3, we increased personnel expense in product ordering, customer service, sales, and accounting to deal with 143% increase in orders. We supplemented our own personnel with temporary employees at a higher cost which we estimate are $500,000 to $750,000 for the quarter. Significant progress is underway in reducing personnel and other expenses that were created because of the record increase in orders. We estimate that we will have very few temporary employees by year end. Advertising expense was $1.4 million for the three months ended September 30, 2020, compared to $697,000 for the three months of 2019. That's an increase of $735,000, or 105%. The increase in spending primarily focused on driving traffic to our website. And as Doug noted earlier, with site visits increasing 80% and orders increasing 143% in the quarter, we're seeing improved advertising to sales results from this period. We had non-recurring expenses in Q3 for enhancement to our operations, such as our electronic data interchange project and logistics. both of which will greatly improve operations in future periods, including non-cash items, which have totaled approximately $1.6 million. Net loss before income taxes for the quarter ended September 30 was $4.5 million, compared to a net loss before income taxes of $0.9 million in the three months of 2019. Excluding non-cash charges, re-tax net loss for the quarter would have been $3.1 million. For the nine months ended September 30, including non-cash items totaling $4.7 million, net loss before income taxes was $10.9 million, as compared to a net loss before income taxes of $2.1 million for the nine months of September 2019. Excluding the non-cash charges, net loss for the nine months ended September 2020 would have been $6.2 million. Because of supply chain issues for the nine months, we shipped 47% of orders versus 79%. We had non-recurring expenses in the quarter period from enhancement to operations, such as the EDI project I mentioned, a new phone system, an upgraded shopping cart, and accrual of contractual liabilities due to a terminated employee. Such expenses also included the temporary employees in Q3 that we needed to handle the spiking orders As I mentioned, we are reducing temporary staffing. We expect to have very few at year end. In the nine months, had we shipped at the normal shipping rates, the same gross margin, our gross profit for the nine months would have been approximately $10.8 million. As of September 30, we had cash and cash equivalents of $12.4 million. As Doug mentioned, our cash flow improved to $7.4 million for the first nine months from a positive swing from the negative $700,000. in the prior year period. I'll now hand the call back to Doug.
spk02: Thank you, Bob. I have a few more comments before we open up for questions and answers. These comments intend to pick up where we left off on our last call and build on the significant improvements that are occurring each week. As a leading appliance retailer, our longstanding reputation with vendors and customers provides a strong competitive advantage. As our order levels are rising, suppliers are engaging with getters in a more strategic and less transactional way. This is leading to progress towards better availability using opportunistic inventory buys and better financial support. Extensive training and certifications occurring with our best in the industry contact center sales staff. This rising professional is also occurring in our customer service team as well. These strengths are further augmented by best in class contact center and marketing technology, that places them in a position to offer scalable, repeatable quality process that will be second to none in the retail appliance industry. We will continue to make the investments in our infrastructure to support growth. In August, we announced the addition of Art Schmuck, former CEO of FedEx Supply Chain as a senior strategic advisor for logistics. Art has already provided tremendous help, and we look forward to his ongoing insightful input as we continue to scale operations. and select and implement a warehouse, supply chain, or logistics system. It's well experienced that the intersection of logistics and technology provides significant value as we enter a key growth phase at Gettysburg in the quarters ahead. Additionally, the appointment of logistics veteran Jacob Gehas as our new VP of logistics in October further strengthens our team as we expedite our preparations for significantly increasing order volume and capitalize on untapped opportunities to partner more deeply and in real time with global manufacturers that supply our appliances, furniture, and home goods. This contribution has been immediate, and it's a key part of our path to profitability and scalability. Looking forward, there are five key components to our growth strategy. One, we have partnered with nationally accredited advertising market agencies to more efficiently utilize our increasing advertising dollars and to grow sales through our website and call center. The near-term results are a record. advertising to sales ratios more efficient than a previously discussed model put a fine point on it in the fourth quarter in the first 45 days halfway through we are seeing an increase of 78 percent in sessions but 240 percent more in orders and our daily order average has moved to 440 000 per day versus 126 000 just a year ago that puts us on pace in these 45 days for almost 20 million dollars in written orders against less than $6 million in written orders last year at this time, and drops our A to S ratio to 3% versus 5.2% a year ago. As you recall in some of our discussions, we pointed to the advertiser sales ratio as a key component that if we could keep that ratio below 4.5% and drive the kind of volume that we just discussed, that we would be in a strong position to create profitability. Number two, commercial market expansion. Today, we have directed all marketing efforts towards the consumer. With remodels and new home construction on the horizon as a growing demand for 2021 and beyond, this is a huge opportunity for us to market to home builders, contractors, and interior designers who are making our influence in the purchasing decision for many consumers. We believe that our low-price business model would be well received by the market, create a substantial revenue opportunity for more repeat business. Evidence of unmet demand and market need is ongoing with large commercial sales occurring organically each week through our website and contact center. As supply improves, we will move forward in 2021 to increase our market penetration of this important segment of the household appliances market. The third point, we intend to expand category management and vendor collaboration. We have had extremely productive meetings with more vendor partners in the last 90 days with initiatives in EDI, direct purchasing, expanded product offerings, improved programming, closer to customer supply chain options, opportunistic inventory buys, promotional planning, and navigating lack of product supply and understanding its future availability. We are just getting started here with our vendor community. Four, I want to point to our warehouse and shipping optimization. We are implementing a series of initiatives with key vendors to increase shipping speed to customers, cut costs, and increase margins. We plan to pick up product from manufactured warehouses and selectively use inventory buys to reduce costs. With access to vendor warehouse operations, we expect to take advantage of buying opportunities and capture time-sensitive customers more frequently. As I said, Jacob Gehas is spearheading this work, and we continue to get guidance from Art Smock. And five, and this is an important one to remember, we will ride the sea change of wave on online retail. Those of you who looked at the Wall Street Journal this morning saw a page one article citing McKinsey's belief that in the past three months, the pandemic has created a process of adopting e-commerce that would have taken 10 years. This directly affects our capability and our ability to scale rapidly, and we are foolish on that reality being a permanent sea change in how people buy appliances. Big-ticket online retail continues to grow significantly, as product offerings and shopping experience are superior to the vast majority of brick-and-mortar shopping. Our continued key investments in people, processes, and systems will grow our customer base, and we believe we are well-positioned to benefit from the growth in online retail. Lastly, just a reminder, we will be hosting another call this week, Wednesday, after the market closed, to provide an update on the appliance connection acquisition we announced in late October. So on this call, if we could limit our conversation to questions regarding the performance of Gettiker in the third quarter and beyond, I would appreciate that. In closing, I want to thank our shareholders for their support of 1847 Gettiker and our long-term vision of building a billion-dollar enterprise. And with that, I would like to now open the call up for questions.
spk03: Ladies and gentlemen, in order to ask a question, you will need to press star and then 1 on your telephone keypad. Again, that's star 1. Please stand by while we compile the Q&A roster. And again, ladies and gentlemen, in order to ask a question, it is star and then one on your telephone keypad. We do have a question from McKelvin Horry from Horry Capital Management. Your line is open.
spk05: Yeah, hi. Thanks for taking my question. I'm kind of new to the story. Is there any seasonality to your business?
spk02: Yeah, remarkably. the total set, this is Doug Moore, the CEO. There's not that much seasonality. You'll see some cooking that spikes up sort of from this time period through, through the Christmas holiday. And you'll see some refrigeration and freezers with an uptick in the May, June timeframe due to the kind of activities around the kitchen. The rest of these things are really almost evergreen in their demand. Appliances break every seven years. You just don't know which one of the seven years it's going to break in. It's, It's anti-cyclical. It really is not subject to very much seasonality at all. It's an endless parade of demand. And with a rising demographic, rising population, millennials buying more homes, older folks wanting to age gracefully in their homes, we think it's even more bullish than perhaps at any point in the last 10 years.
spk05: Okay. And regarding your drop, shipment business plan. These agreements you have with manufacturers, I don't want to just throw a name out there, like Sub-Zero or somebody. Do you have contractual agreements? Do you have to sell a certain number of their products, or is it pretty much open?
spk02: Well, the good news is whoever we were doing business with last year And last quarter and the quarter before that, we're doing double and triple the business that we did before. So there really is not, I think, in general, you've got to reach a certain threshold. The individual mom-and-pop retailers have to buy totally through distribution. We do a mix of straight from the manufacturer as well as some distributed products as well. And these are agreements. They're not true contracts, just to be clear. These are trade agreements. Okay. Okay, thanks. I'll get back to you. Sure.
spk03: Thank you. Our next question is from Mitch Fitter with Aegis Capital. Your line is open.
spk01: Hey, guys. I'm just wondering, have you talked about how you're going to finance that acquisition? Which?
spk02: So we're going to all questions about the plans to connect. We'd like to defer to that call that it's just going to be two days from now. So please come back on that call and we'll be happy to put that in the context that would have gotten us to this point of that of that call. So is there perhaps another question regarding the Gettiker third quarter results or that model?
spk01: I was wondering your impression of how the stock took off when the acquisition was announced and the fact that it has come back down. It's made a full circle. Is there anything you could say to the shareholders who bought the stock at much higher levels
spk02: Well, again, I'm not a stock advisor, and it would be inappropriate for me as CEO to kind of provide that advice. You know, I think there are working theories on all that. I just don't have one that I would feel was worth sharing that would help you with insight on that particular question. Okay, thank you. Sure.
spk03: And again, ladies and gentlemen, it is star and then one to keep for a question. We have a question from Bradley Donner with Canada Lodge Securities. Your line is open.
spk04: I was wondering if the revenue that we seem to have either lost or postponed, if you will, in Q3 due to the logistics, supply-side logistics, will we get 100% of that made up in future quarters, or will we lose a percentage of that going forward?
spk02: That's a great question. We'll lose the percentage of that, but, you know, it's remarkable the staying power of customers waiting for this product because the answers you're getting most places are similar to ours. I mean, this is really a universal problem for suppliers. We routinely, I mean, we learned recently, just as an aside, that 455 of our orders were not going to be produced until much later than had been anticipated. We communicated with those 455 folks, and we recovered and saved most of those orders. So, Even in cases where that timeline has been stretched into more than half a year, you know, a fair number of people are willing to wait. And we sell better and best goods, so we tend to have a slightly more patient customer because they tend to be more of a remodel type than a duress customer. Someone who's had a refrigerator and needs to go get a refrigerator, they would have fallen out of that queue a long time ago. Historically, we've shipped 80% of what we sell, of what we take money for. And we call a written order when we take cash or credit card for that. And then the revenue you see on our P&L is actually when it's shipped and received by the consumer. But we think we'll retain a lot of that. And we think there'll be an overhang that will be beneficial. We're liking to think that 2021 will will play above its weight and play more like a 13- or 14-month year for most people that are in the online space of big-ticket sales.
spk04: Well, that said, that pent-up demand then could create an even more significant surge in sales for us then, correct?
spk02: We like the way you think there and believe that that's going to happen. A lot of this has to do with not only people changing the habits and how they shop online, but They're going to spend a lot more time at home, and they just can't, you know, once you hang around with, you get dissatisfied with, you know, there's something about the phrase I can't remember. But, yeah, we think there will be a lot to kind of demand. And the remodeling strength, if you look at the strength of what you see at Home Depot and Lowe's and their general overall business that supports remodeling and new home construction and all that kind of stuff, I think it's just going to be a heck of a couple years.
spk04: Yeah, I agree. All right. Hey, thanks. That's all I have for now until Wednesday. No, thanks. Thank you.
spk03: And we do have another question from Kelvin Horry from Horry Capital Management. Your line is open.
spk05: Yeah, again, it's more of a how do people get to know you? I mean, I never heard of your company before about a week ago or so, but You know, people thinking of buying a refrigerator or something, the first thing that comes to mind is Best Buy or Home Depot or Lowe's or something like that. How do you get your name out there and entice people to come to your website and buy products from you guys?
spk02: Well, at this point, we are building a bit of a word-of-mouth reputation by the number of orders that are significantly increased year over year, but you're absolutely correct. People have shopped somewhere else before we get a chance to talk to them, and that's the way we like it. That's why our advertiser sales ratios are so low and acquiring customers is such a low percentage. What we do is we do middle to bottom of the funnel marketing, which means when they get a lot closer to understanding exactly what they want to buy, that's where we do the bulk of our marketing. Having said that, we buy keywords that are related to appliances, but – For many of our customers, they are hearing about us for the first time. And what they like when they do that is, you know, what they do is when they copy and go see our site, they like our website. It's easy to navigate. For one of the few companies, whether it's brick and mortar or any online, in fact, we do this more than anybody. We'll talk to you on the telephone, and we won't keep you waiting, you know, hours on end. A lot of that temporary expense that we had was built on people answering phones because we We think there's still in the big ticket world a combination of high tech, which gets you on the web, and then the high touch of talking to people on the phones is really a winning combination. So hopefully you'll be a consumer, and then we'll start to build a brand from there with word of mouth and repeat business. But with that buying cycle of seven years, we're not in the blogging business. We don't need to tell people this season, think about cooking at home. It'll be exciting. I hope there's going to be a sale there. When you want a stove or a refrigerator and you've gone to Best Buy, Home Depot, Lowe's, or a manufacturer site, and we show up in that top two, three consideration set, you copy and paste it. And within seconds, we're equal value or better value than what you've seen at the other sites. And that's kind of our secret sauce.
spk05: Okay. Are you going to provide the call-in number for the call on Wednesday? Okay.
spk02: Yeah, we're going to issue a press release ahead of time, well ahead of time, to make that happen so that people know what to do. It'll be very similar format to this. We'll be utilizing a presentation deck that we'll make public and allow people to follow the story in that way. But, yeah, we'll definitely do that. And thank you for showing interest in that as well.
spk05: Okay. And, I mean, this was a big acquisition. Are you looking for anything else, or is this it for a while? No.
spk02: We won't be talking about anything like that until maybe Wednesday, but we believed in our plan when it was 100% organic, and we still believe in that. And the order flow from this model is going exactly to plan, with the exception of the supply being interrupted in an incredibly difficult way. But everything else about that, we said we'd go spend more money on advertising, which will create more sessions, which will create more orders, and we would do it in a ratio that is appropriate to make money. We did all that. And proof of that is better cash flow because the order flow was there. The revenue flow will come and the expense ratios will drop as we get much more close to the historical cycle time for an order to be shipped to a customer. So anyway, yeah, we made those comments without any belief that acquisitions were our path to get to our objective of a billion dollars and to be the most profitable online retailer of appliances in the U.S.
spk05: And finally, how much does stock do insiders and board of directors own?
spk02: Bob, you may want to handle that one. I make a pretty good guess, but you're the CFO and can be more precise.
spk05: The chairman and one of the directors own, I believe this is right, 23% and 15% respectively. They're also under a lockup agreement. They can't be sold until a year after the IPO. The Officers have option agreements. I personally own some shares, and I believe those are the two major stockholders, insider stockholders. The former owners of the business, Steve and Mike Gettiker, collectively own, I believe, 17% of the company. They are not on the board, but they are former owners.
spk02: And I think you had a question about the number of shares of stock as well. You just did the percentage there, Bob. Were you looking for a more nominal number in that question?
spk05: Well, how many shares outstanding for ? There's no warrants or options or anything? There are some stock options to management. There are warrants, 55,000 warrants to the underwriters. Okay. That's pretty clean capital structure.
spk02: Yes, yes, that's true.
spk05: So over 50% is held by, tightly held, you would say?
spk02: Yes, I think by traditional measures, yes, that's right.
spk05: The vote is at 1.1 million shares. Oh, gosh. Okay. All right. I'll look forward to the call on Wednesday. Thank you.
spk02: Great. Look forward to having you join us. Thank you.
spk03: And again, it's star one to queue for a question. Okay, Mr. Moore, there are no more questions. I'll turn the call back over to you for any closing remarks.
spk02: Thank you very much. Again, thanks for those of you that participated on the call. As you can tell, and hopefully the words I've spoken and Bob Barry has spoken, we continue to be entirely excited by this opportunity that CataCurves has put into the marketplace. And we couldn't be more pleased that the market has reacted well by ordering that record numbers and providing us with cash flow that is well in excess of last year. We will be speaking, as we said, on a separate call exclusively to the Appliances Connection Agreement to purchase them on Wednesday, close the business. And, again, we thank you for your time today and look forward to continuing our dialogue as we take on the future as a company that's bent on becoming incredibly successful. So thank you, and we'll talk soon.
spk03: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
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