This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good afternoon, and welcome to 1847 Gettiker's Fiscal Year 2020 Conference Call. As a reminder, this call is being recorded and all participants are in listen-only mode. We will open the call for questions and answers following the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On the call today are 1847 Gettiker's CEO, Doug Moore, and CFO, Robert Barry. 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 Gettiker cautions that these forward-looking statements are subject to risks and uncertainties that may cause their 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, March 29, 2021, and 1847 Gettiker 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 Gettiker's website at www.gettikers.com. With that, I'd like to turn the call over to 1847 Gettiker CEO Doug Moore for opening comments. Please go ahead, Mr. Moore.
spk03: Thank you, Alex, and good afternoon to everyone on the call today. Thank you for joining us and taking the time to participate in our 2020 financial results call. I want to first thank my team at Getikers for their handling of record orders and customer interactions and doing most of that work from their home office environment while still helping us deliver a substantial increase in cash flow from operations in 2020. We asked our team to make a major pivot in how they work and the amount of work they do, and they met the challenge and exceeded all expectations. Let me state with conviction, I have never been more confident that Getacurs is on the path to becoming the nation's largest and most profitable online retailer of appliances in the U.S. as we change the way Americans shop for appliances. We are still in the early stage of addressing the $20 billion industry as the only pure play appliance online retail listed on a major exchange. We are executing on a proven DTC model of current investment driving scalable growth, Over the past year, we've been investing in people, processes, systems, while developing a best-in-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 Getters to be a billion-dollar revenue company over the next five years. While we initially intended to grow that billion-dollar size organically, we are in a position to accelerate that timeline through the pending acquisition of Appliances Connection. which remains on track to close in the second quarter. Both Appliances Connection and Getikers have shared parallel success in site sessions and order performance in the months since the acquisition agreement was announced, and we are excited for the expected rapid growth of our combined companies post-closing. Let me now 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, service, and value when shopping for nearly any home appliance product needed. We have built a large online selection of products, and we are able to offer this vast selection because our model requires minimal inventory and strong supplier relationships. And our logistics infrastructure is tailored to the unique characteristics of our market. The delivery experience and overall customer service we offer our shoppers are central to our business. We leverage our inventory and fulfillment assets through an efficient inventory acquisition strategy. About two-thirds of our appliances flow through our fulfillment center, while almost all furnitures drop ship straight from the manufacturer to the customer. We offer roughly 22,000 appliance SKUs from virtually all the leading brands, including Whirlpool, KitchenAid, Samsung, Bosch, GE, Maytag, LG, Sharp, and luxury brands on top of those premium brands. We sell all major home appliances, including refrigerators, ranges, ovens, dishwashers, microwaves, freezers, washers, and dryers. Sales of appliances account for more than 73% of our revenues in 2020. Overall, we generated a 15.8% net sales growth year-on-year in 2020. Pandemic-driven industry-wide supply interruptions and shortages significantly reduced product available to ship. The lack of available product meant that we were able to ship only 45% of our orders last year. This compares to an average rate of shipped orders of 80% for the three years prior to COVID. Had we shipped at historical rates, our total shipped orders would have increased by 42 million to 97.3 million for the year, which would have been up 104% compared to 2019. Written orders nearly doubled to 123.2 million last year, driven largely by our increased ad spend which helps to fuel nearly 10 million site sessions, up 57% from 6.3 million in 2019. The significant increase in orders requires us to use temporary staff to supplement our permanent staff in order processing, phone sales, customer service, and accounting. We believe as manufacturers return to normal levels of production and we receive 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 technologies and other processes to replace manual tasks. As manufacturers catch production up to consumer demand, we believe that Getters will quickly return to normal shipping trends, and our upcoming acquisition of Appliances Connection will further strengthen our ability to meet the increasing demand more efficiently, with a near-term look beyond supply constraints creating a clear path to profitability. I'll now hand the call over to Bob Berry, our CFO, for a more detailed review of our financial results. Bob?
spk01: Thanks, Doug, and good afternoon, everybody. First, I'd like to discuss the restatement we filed today. Like many other companies that sell their products almost exclusively online, we concluded that we should accrue a liability for potential sales taxes that might be payable to the states in which we sell our products. We made this choice upon further review of the US Supreme Court's decision in South Dakota versus Wayfair, which determined that states may require remote sellers to collect sales tax under certain circumstances. With this in mind, we restated our 2019 financial statements to reflect an accrual for sales tax that might be assessed by the states where we sell. We will also restate our 2019 and 2020 second and third quarter results to reflect the accruals. Overall, the changes resulted in accrued non-cash charges of $2.9 million in both 2019 and 2020. Now, turning to our full-year results, as Doug mentioned, our net product sales were $55.1 million in 2020 of 15.8% year-over-year driven primarily by increased ad spend and a sea chain shift in consumer buying preferences. As Doug also mentioned, we estimate that had product been available, we would have generated an additional $42 million in revenue last year, based on our historical rate of shipping 80% of what is ordered by our customers. That would have resulted in 104% increase in revenue in 2019. The industry-wide lack of supply significantly impacted our cost of goods sold, as well as operating expenses, which were higher relative to revenue. Lack of available product resulted in lower rebates and other financial incentives from suppliers. As product becomes more available at pre-COVID levels, cost of goods sold and operating expenses will be right-sized for our sales. The good news is our key manufacturers tell us that they expect production would be approaching near normal levels by the end of the second quarter. Cost of goods sold were 47.9 million for the year 2020 as compared to 39.6 for 2019. That's an increase of 8.3 million or 21%. Gross profit was 7.3 million and 20 versus or 13.2% of revenue compared to 8 million or 16.8% of revenue in 2019. Personnel costs were $6.6 million in 2020 versus $2.9 million in 2019. As a percentage of orders, though, personnel costs fell to 5.3% of orders versus 6.2% in 2019. Advertising expenses, which include the cost of marketing our products, were $4.9 million for the year end of 2020 as compared to $2.7 in 2019. Measuring our advertising expenses as a percentage of orders had a decline in 2020 to 3.9% compared to 4.4% in 2019. Banking credit card fees were 1.8 million versus 1.2 in 2019. As a percentage of orders, these fees were 1.5% of orders in 20 versus 1.9% in 19. Operational results in 20 showed a loss of $14.4 million. Our estimated operating loss would have been $1.4 million, adjusting $9 million for pre-COVID rates of shipping and gross profit and approximately $4 million in non-recurring SG&A. Including non-cash items totaling approximately $4.8 million, net loss before income taxes for the year ended December 31st, 20 was $20.9 million, and that's compared to a net loss before income taxes of 5.7 in 2019. Excluding non-cash charge and free tax losses for 20 would have been 17.6 million. As of December 31st, 20, we had 9.9 million of cash, including unrestricted of 0.9 million and restricted of nine. In advance of the pending acquisition of Appliances Connection, we chose to move quickly to buy more appliance inventory to meet the rising online demand and completed a $4.6 million financing in March to facilitate increased inventory. Finally, cash flow from operations improved to $5.4 million in 2020. That's a positive swing of $7.1 million from the negative $1.7 in 2019. Favorable cash flow included a $3.8 million increase in inventory. I'll now hand the call back to Doug.
spk03: Thank you, Bob. I have a few more comments before we open up Q&A. As a leading appliance retailer, our longstanding reputation with vendors and customers provides a strong competitive position. As our order levels are rising, suppliers are engaging with Getters in a more strategic and less transactional way. Beyond COVID-related supply disruptions, this is leading to progress toward better availability, including opportunistic inventory buys and improved financial support. One of our key differentiators is our telephone sales staff, and extensive training and certification is occurring to ensure we are the best in the industry. This rising professionalism is occurring in our customer service team as well. These strengths are further augmented by ongoing investments in logistics and marketing technologies that place us in a position to offer a scalable, repeatable quality process that is second to none in the retail appliance industry. And we will continue to make investments in our infrastructure to support growth. Looking forward, there are five key components to our growth strategy. One, we have partnered with nationally accredited advertising marketing agencies to more efficiently utilize our increasing ad dollars and gross sales through our website and call center, resulting in continued record orders. Two, commercial market expansion. Today, we have directed all marketing efforts towards the consumer. With remodels and new home construction, there's an opportunity to market to home builders, contractors, and interior designers who are making or influencing the purchasing decision for many consumers. We believe that expanding our low-price business model to this market would be well received, creating substantial revenue opportunities and more repeat business. Three, we intend to expand category management and vendor collaboration. We continue to forge more dynamic relationships with vendor partners for initiatives in EDI, direct purchasing, expanded product offerings, improved programming, closer to customers' supply chain options, opportunistic inventory buys, promotional planning, and navigating lack of product supply and its future availability. We are just getting started here. For fulfillment optimization, we are implementing a series of initiatives with key vendors to increase shipping speed to customers, cut costs, and increase margins. And in January, we signed a lease for a new fulfillment center in the St. Louis area that will begin operations in the second quarter. tripling our shipping capacity. Strategic progress continues to be made with our key vendors. And five, we will ride the sea change wave of online retail. We have demonstrated that consumers are purchasing more big-ticket items online, and we are building the infrastructure to support the growth that we believe will accelerate as manufacturers produce enough product to meet demand. 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 that changes the way Americans shop for appliances. And with that, I would now like to open the call for questions.
spk06: At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
spk03: Well, Alex, how are we doing here?
spk06: Our first question is from Kyle Gallagher, a private investor. Please proceed with your question.
spk04: Yeah. Hey, guys. Thanks for the call and the update. Great to see you and congratulations on the good quarter. Just kind of had a question. You guys had put a note out about purchasing the extra inventory And correct me if I'm wrong, but I think that note said the interest rate on that was something like 10% per annum. As far as should we be thinking along those types of lines as far as the financing terms of the merger? Is there any color? I mean, I know there's certain things you can and can't say, but is there any color on how you can kind of inform investors' thinkings? along the lines of the financing there?
spk03: Let me go straight to the deal structure. The deal structure obviously is confidential, but the deal structure would be nowhere close to those kinds of circumstances. So we're proceeding on a very normal basis for the deal structure in terms of the financing. And Bob, I don't know if you want to comment briefly on the percentage on the note, but that would be perhaps helpful. But But please, please.
spk01: Well, we had an opportunity to get this financing very quickly to meet the rising demand we'd had for inventory. So, we took that rather than shopping around. So, it is higher than we would pay ordinarily, but we wanted to be able to continue buying inventory and not be distracted by shopping around for a better rate. So, yes, I do understand it's high. That is certainly not in the range or anywhere near what we're talking about for the acquisition financing.
spk04: Understood. Thanks so much for the clarification, guys. Really appreciate it.
spk03: That's great. Thanks, Kyle.
spk06: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Peter St. John, a private investor. Please proceed with your question.
spk02: Thanks. This is Peter St. John. My question is brief. I'm just interested to get a sense of the action items remaining in order to close on ACI, especially as it relates to late last year when the acquisition was announced.
spk03: Thank you. Thanks, Peter. It's good to talk to you again. What can I say about this? We are proceeding with deliberate speed and don't foresee any true obstacles to get there. I'm really not able to comment on the precision of that. We continue to state, as we did on this call, an expectation that we will conclude that before the end of the second quarter. And I think my comments around never having been more bullish or confident should indicate that we're on a expedient track. I just can't go any further than that.
spk06: Our next question is from Erkin Peksoff, a private investor. Please proceed with your question.
spk03: Erkin, are you there?
spk05: Sorry, can I hear you guys?
spk03: Erkan, this is Doug Moore. Are you there?
spk05: Hi, Doug. Can you hear me?
spk03: I can hear you now, yes. Thank you.
spk05: Okay, good. Thank you, John. So I work in marketing analytics and deal a lot with our consumer products, and we have seen increase across the board, anything that is related to the kitchen and the home in the U.S. Thanks. And obviously, this is likely a one-time thing. It's going to have some stiffness for online. So my question is, so 15.8% was, you know, developers' growth last year. What was the industry in that or the areas that you compete? That's by the ABCs of the world.
spk03: Yeah, the industry, a couple of things, if you'll let me go here. The industry is broken into core, premium, and luxury products, and we participate – A little bit in core, mostly in premium, and in luxury as well. But the overall market that includes all of those white goods, which are the traditional refrigerator stoves, dishwashers, ovens, ranges, that range, depending on where the source was, whether it's the manufacturer or some consumer panels, fell between kind of a negative two and a plus four. And, again, those are panels, and one are shipments, and they're reported. So you don't have the classic – you know, register tape kind of clarity, but a very small low single-digit declines or low single-digit increases. And that, you know, it didn't really – it really took a bath the first, call it, five to six weeks of COVID, and then it rebounded the best it could with limited supply. So – And there's a significant backlog at every manufacturer in orders. It's certainly a big backlog where we are and certainly a big backlog for Appliances Connection. It's not necessarily a big backlog for everybody. I can't really speak to the independents. I don't know where, you know, those kinds of models don't really take orders, so they're not able to hold on to orders the way the online companies are. Typically, you go into a retailer, brick and mortar, You buy it if it's there. You don't give them money or replace your order if it's not there because it's not predictable. But that's the actual percentage in that range. And it's expected to be kind of in that close to zero range on the things that I read. There are some home improvement legs, they think, relative to remodeling or refinancing. But what we shift and what we order, the orders are really a true indication of the sea change move towards how people want to buy. It's overwhelming, the numbers. I mean, 100% increase in orders on a reasonably substantial base to begin with. It just doesn't come out of thin air. So anyway, that's where this sea change thought process comes in. Again, 100% increase in orders on 50% increase in sessions speaks that they're also converting from shoppers to buyers at a much higher rate, which tells you that this change is probably permanent.
spk05: Thank you. It's great clarification of how the industry performs, and that 15-point base becomes golden. Thanks so much.
spk03: Thanks, Erkan.
spk06: Thank you. We have reached the end of the question and answer session, and I will now turn the call over to CEO Doug Moore for closing remarks.
spk03: Thank you, Allison. Thanks, everyone who has been on the call and has listened to remarks, Bob Berry and myself. I just want to reiterate to the group here, we feel really strongly that 1847 Gatteker is in a perfect position, very strong position to participate in the growth of the online appliance business. And we look at our strengths around scalability and the growth areas that we're in, our superior customer service, our becoming more efficient supply chain, and then, of course, the the on-track acquisition of Appliances Connection. We really enjoy working with them up to this point. We see and talk to each other all the time. We think it's going to be a partnership that really drives a company that just hasn't existed in our space, our direct-to-consumer space on appliances. And we appreciate your continued interest and look forward to continue to update you on the progress of 1847 Gettiker and then on the progress towards consummating that deal in the very near future. So thank you, and thanks again for taking the time this afternoon.
spk06: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a great day.
Disclaimer