Kaspien Holdings Inc.

Good afternoon. Welcome to Caspian's Fiscal Third Quarter 2021 Earnings Conference Call. Joining us today are company CEO Kunal Chopra and CFO Ed Sapienza. Following their remarks, we will open the call for your questions. Then, before we conclude, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company's website. Now, I would like to turn the call over to Caspian's CEO, Kunal Chopra. Sir, please proceed.

Welcome, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the fiscal third quarter ended October 30th, 2021. A copy of the press release is available in the investor relations section of our website. I encourage all listeners to view our release for additional information on what we'll be discussing today. And with that, we'll get started. To begin today, I'd like to run through a high-level overview of our operation highlights from the fiscal third quarter. Then I'll turn the call over to Caspian Holdings CFO Ed Sapienza to discuss our financial results for the quarter. Lastly, I'll come back on to provide more operational analysis and closing remarks before turning the call over to questions. And with that, let's get started. From a high level, in the fiscal third quarter, our team was focused on optimizing internal processes to best fit a fluctuating environment. As we discussed last quarter, industry-wide headwinds, including inventory shortages and inflationary price increases, stemming from the COVID-19 pandemic, limited many organizations' ability to drive overall sales and meet demand. In response to these challenges, our team narrowed our focus to the aspects of our business that we could control, including emphasizing certain products with greater price elasticity, more proactive purchasing strategies, our own private label brands, and our overall organizational structure. As a testament to our team's abilities, as well as the resiliency of our operating model, we have managed capably during this challenging period. I'll get into some of those updates now. Starting with our private label brands, which are our own properties where Caspian manages the entire lifecycle of the product. This segment of our business has been particularly important during the past few quarters, because we believe it serves as a bellwether for how the rest of our business should be operating in the absence of supply chain disruptions or other impacts that are out of our control. Private label brands grew 38% in our fiscal third quarter, a great result in any environment, driven by our early inventory positioning and resulting expanded stock. We believe these results achieved under end-to-end supply chain management serve as an indication that demand remains strong. and that our business thrived when we were able to meet that demand through our controlled environment. Another key growth area for CashPay is our subscription segment, which has continued to outperform despite the current environment, and also because this segment is less susceptible to fulfillment and other retail-related challenges. Over time, as this part of our business grows, we believe a more diversified revenue stream should also help us to achieve more consistent operating results. I'm glad to report that both our subscription GMV and our subscription monthly recurring revenue continue to show year-over-year improvement, with each increasing 15% in our fiscal third quarter. We've also continued to add to our account manager staff to support existing and anticipated growth going forward. Over the past few quarters, our subscriptions business has remained a consistent GMV driver on our platform, with a real opportunity to expand regardless of the macroeconomic environment. In addition to our subscriptions and private label businesses, our partnerships are another area in which we are looking to foster growth moving forward. Providing an omni-channel suite of services outside of our core Amazon business is another long-term revenue diversification strategy for us. Non-Amazon marketplaces, including Target+, eBay, and Walmart, continue to outperform well during the third quarter. On a combined view, these marketplaces grew an aggregate 127% year-over-year, which is an acceleration from last quarter as well. Largely driven by outperformance in our Target Plus marketplace, we believe there's plenty of room to grow here and are encouraged by the continued strong results. Altogether, much of the success that we had in the quarter stemmed from our efforts to remain nimble in our operations and our organizational structure. As it relates to operations, we are always finding opportunities within our existing business units for small tweaks and improvements. In today's environment, we are increasingly watchful for adjustments that optimize for our current setup and that have the flexibility to address other challenges that could arise at a later date. Examples of this fine-tuning include adjusting our international shipping and inventory management process to account for a much higher level of unique circumstances. taking our existing technology-driven process and providing a level of human intervention without appending the entire system is not something many other companies in our industry are able to do. So this is a key example of the flexible supply chain we've been discussing. We've also integrated our purchasing and inventory teams to allow for better communication across the board, which has also allowed for more agile decision-making. For select higher-margin products with greater price elasticity, we have also strategically integrated instituted modest price increases, which have helped to drive revenue with minimal disruption. On the whole, we remain diligently focused on optimizing our direct-to-consumer fulfillment model and diversified supply chain, and I'm quite proud of our teams for being able to accomplish all that we have in such a brief amount of time. These collective efforts resulted in approximately 3.1 million in additional revenue. versus what would have otherwise been lost opportunities for Caspian in Q3 performance. Looking at our organizational structure to better align our growth goals with our aspirations of global scale, we made several changes starting at the top. During the third quarter, we introduced a new architected senior leadership team, or SLT for short. Key tenets of the SLT include improved value chain alignment with a clear focus on better serving partners and building an infrastructure to support that mission. Number two, flatter organizational structure with greater emphasis on clear accountability. Three, eliminating single points of failure. And four, more teamwork and collaboration with fewer communication barriers. Under this new management structure, we have centralized our product marketing, supply chain and sales teams to improve our agility and align our decision-making across the business. We feel that this adjustment will add both productivity and accountability and will bring significant improvements to our efficiency over time. Overall, this quarter required our team to work persistently to adapt our processes and optimize for our new environment. We believe that we are past this quarter's tests and will be stronger for it in the long run. With that high-level overview completed, I'm now going to turn the call over to company CFO Ed Sapienza to discuss our financial results for the quarter in greater detail. Ed?

Thank you, Kunal. Turning now to our financial results for the fiscal third quarter ended October 30th, 2021. Net revenue in the third quarter decreased 17% to $32.2 million from $38.9 million in the comparable year-ago period. Over the nine months ended October 30th, 2021, net revenue decreased 5% to $107.7 million from $112.8 million in the comparable year-ago period. These decreases in net revenue were driven by ongoing supply challenges in the company's FBA US segment offset by improved performance from non-Amazon marketplaces and the subscriptions segment. Moving on to gross profit. This quarter, gross profit decreased 17% to $8 million or 24.9% of net revenue from $9.6 million or 24.7% of net revenue in the comparable year-ago period. Gross profit over the first nine months of the fiscal year was $26.6 million or 24.7% of net revenue compared to $28.2 million or 25% of net revenue over the comparable year-ago period. The decrease in gross profit was primarily attributable to a reduction in net revenue on the Amazon US platform. We saw a 20 basis point increase in gross margin year-over-year as a decline in merchandise margin rate was offset by the leveraging of fulfillment fees and warehousing and freight expenses. Turning to our selling general and administrative expenses. For the third quarter of 2021, our SG&A expenses decreased 2% to $10 million or 31.1% of net revenue from $10.2 million or 26.2% of net revenue in fiscal third quarter of last year. For the three-month period, the decrease in SG&A expenses was primarily attributable to a $1.1 million decrease in selling expenses related to the decline in net revenue. SG&A expenses over the nine months ended October 30th, 2021 decreased 10% to $30.9 million or 28.7% of net revenue. from $34.5 million or 30.6% of net revenue in the comparable year-ago period. For the nine-month period, the decrease in SG&A expenses was due to a $1 million decrease in selling expenses related to the decline in net revenue and a $2.6 million decline in general and administrative expenses. Our loss from operations for the third quarter was $2 million. compared to a loss from operations of $612,000 in the comparable year-ago period. The increase in operating loss was the result of the decline in net revenue partially offset by a decrease in cost of sales and SG&A expenses. Over the first nine months of this fiscal year, loss from operations totaled $4.3 million, an improvement from $6.3 million in the comparable year-ago period. The improvement in operating results was the result of a reduction in SG&A expenses. Our net loss for the third quarter totaled $886,000 or 36 cents per share compared to net income of $2.6 million or $1.39 per share in fiscal Q3 of 2020. The net loss during the period was driven by the decline in net revenue partially offset by a decrease in cost of sales other income of $1.6 million related to the settlement of an insurance claim and a decrease in SG&A expenses. Over the nine months ended October 30th, 2021, net loss was $2.2 million compared to a loss of $3.8 million in a comparable year ago period. The improvement to net loss was driven by the reduction in SG&A expenses and other income of $3.5 million, which was offset by a decrease in net revenues. Adjusted EBITDA, a non-GAAP measure, was a loss of $1.4 million in the third quarter compared to an adjusted EBITDA loss of $65,000 for the same year-ago period. For the nine months ended October 30, 2021, our adjusted EBITDA loss was $2.5 million compared to a loss of $4.7 million in the comparable year-ago period. Moving to the balance sheet, we ended the quarter with $1.8 million in cash compared to $2.4 million as of October 31st, 2020. We ended the quarter with $5.9 million in borrowings on our credit facility and had $6.8 million in availability. Over the nine months ended October 30th, 2021, our cash used in operation was $10 million compared to $15.3 million over the same year ago period. Inventory at quarter end was $30.2 million compared to $27.2 million as of October 31, 2020. During the quarter, we updated our existing loan agreement with Eclipse Business Capital to provide additional flexibility to execute on the company's long-term business initiatives and align capital sources with Caspian's growth goals. Additional details around the amendment can be found in the form 8K we filed with SEC on September 20th. Turning now to our KPI results for the fiscal third quarter ended October 30th, 2021. In fiscal Q3, gross merchandise value or GMV Across our platform decreased 5% to $63.5 million from $66.8 million in the comparable year ago period. Included in that number is retail GMV as well as subscription GMV. Retail GMV was down 18% to $33.4 million. Subscription GMV increased 15% to $30.1 million or 47.3% of total GMV. compared to $26.2 million or 39.2% of total GMV in the comparable year-ago period. Moving forward, under more normalized conditions, we generally expect to continue growing GMV on a year-over-year basis. Fiscal third quarter GMV per active partner decreased 4% to $81,300 in 2021, as compared to $84,700 in the third quarter of fiscal 2020. The decrease was due to the overall decrease in GMV during the quarter. However, as noted in today's release, we expect this metric to steadily grow over time as partners derive more value from the Caspian platform, leading to greater partner sales and increased engagement across more product lines. Total active partner count at the end of fiscal third quarter was approximately 781, including 628 retail partners and 153 subscription or agency and SaaS partners. This represents a 1% sequential decrease in the partner base, largely due to a 4% decrease in retail partners, partially offset by a 13% increase in subscription partners. In support of the company's focus on maximizing GMV per active partner, Caspian regularly reviews and updates partner accounts to optimize its use of resources on higher value active partners. The company's subscriptions partner base as of October 30th, 2021 increased 47% compared to the comparable year ago period. Subscription lifetime value to customer acquisition cost ratio or LTV to CAC ratio as of October 30th, 2021 was 3.8 times with an average payback period of 13 months in comparison to 3.3 times with a payback period of eight months recorded in the prior quarter. The increase in LTV to CAF was largely attributable to an increase in lifetime value spread across a larger cohort base at a greater rate than the increase in costs to acquire a customer. The increased LTV was largely driven by a decrease in customer churn rate. Customer acquisition costs also increased during the period as a result of greater investments in acquiring high value prospects, as well as additional headcount increases to support anticipated future growth in subsequent quarters. As subscription partners continue to mature and adopt more features of the Caspian platform, the company expects these metrics to fluctuate less on a quarterly basis and generally improve over time. Retail lifetime value to customer acquisition costs as of October 30th, 2021 was 8.1 times with an average payback period of 7.2 months in comparison to 9.5 times with a payback period of 6.1 months recorded in the prior quarter. The sequential change was largely attributable to an increase in customer acquisition costs as we shifted focus towards converting large group partners. During the fiscal third quarter, subscription monthly recurring revenue, or MRR, increased approximately 15% to $151,000 compared to $131,000 at the end of the comparable year-ago period. Retail segment gross revenue per partner for the fiscal third quarter decreased 10% to $53,000 from $59,000 in the comparable year-ago period. That completes my summary. I'd now like to turn the call back over to Kunal for additional insights into our operational progress during the quarter, as well as an outlook going forward. Kunal?