Luvu Brands Inc

Greetings, ladies and gentlemen, and welcome to Luvu Brands Incorporated's Fiscal Full Year 2022 Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Mr. Alexander Sanikov, the company's Chief Financial Officer. Mr. Sanikov, you may begin.

Thank you, Ali, and thank you to everyone who joined us today for Louis Brandt's fiscal 2022 conference call. Joining me today is Louis Friedman, our founder, president, and chief executive officer, and Jordan Friedman, our sales director. We filed our annual report on Form 10-K for the year ended June 30, 2022, and issued an earnings release that highlighted the company's full-year performance. There are a number of items that we look forward to discussing with you this afternoon, including Louisville Brand's financial results for the year ended June 30, 2022, the recent developments in Louisville Brand's operational activities, as well as the company's near-term plans for the future. At the conclusions of this call, we will be answering questions during a brief Q&A session. Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections, and our plans and prospects. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the company's filings with the SEC, which includes today's press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligations to update them except as required by applicable law. Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered as an addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of the most directly comparable GAAP financial measures to such non-GAAP financial measures has been provided as a supplemental financial information in our press release. Now with that completed, I'd like to start the call with a few words from Louis Brandt's founder and CEO, Louis Friedman. Louis?

Good morning. Good afternoon, everyone. And thank you, Alex, and thank you, everyone, for joining us this afternoon. We are pleased with our full year's results. For the year ending June 30, 2022, we reported record sales of $26.3 million, an increase of 14% over the prior fiscal year. This year also marks our 20th anniversary. During the year, Luvu surpassed $260 million in lifetime net revenue, which is a significant achievement for our brands and a testament to the incredibly hard work and unraveling commitment of our managers and associates. As we continue to navigate in this difficult environment, we have implemented initiatives designed to generate cost of goods savings, streamline workflows, and lower operating costs through automation, repurposing our raw materials, and outsourcing to Mexico. The savings generated from these lean initiatives will allow us to continue to invest in our brands, our products, our customers, and our retailers. We remain confident that our digital savvy omni-channel operating model will support continued growth and enable us to create meaningful value for our shareholders in the years ahead. In short, our belief in our ability to reach our vision for YouVu brands is stronger today than it's ever been. At this point, I'll turn the presentation over to Jordan, who'll discuss our digital mass market approach for sales and brand awareness.

Thank you, Louis. Good afternoon, everyone. I've been managing the company's mass market accounts and e-commerce marketing and sales initiatives for over the last seven years. For all our brands, Liberator, Jaxx, Avana, extensive online distribution allows our customers to find our products wherever they prefer to shop and buy. We raise brand awareness through a multi-channel marketing approach. While some of our products lend themselves to success innately through Amazon and other marketplaces, Other products reach success through mass retailers like Wayfair or regional furniture chains and specialty stores. Commercial, business, and school accounts play their own role as well at continuing to keep business flowing throughout the year. For e-commerce, we tend to reach success with any channel that allows us to edit and enhance their data and media content directly, as our rich images, video, and SEO-friendly product copy continue to impress customers in any channel. As long as we have great photography, enhanced content, innovative product designs, and competitive price-to-value, onboarding anything new turns to sales usually within just a few days of listing. For advertising and marketing, we test and deploy all mediums including Google PPC, Amazon PPC, and many social channels including Reddit, Pinterest, Instagram, and Facebook. We also utilize the AdRoll platform to reach other blogs and content-rich sites. Constant monitoring, A-B testing, careful site placement, and use of clever long-tail keywords keep our advertising initiatives converting at a high level to this day. As an example of our success, let's look at our JAX brand's growth. During this fiscal year, JAX product sales increased 22% to $8.3 million, compared to last fiscal year's $6.8 million. New products for JAX this year included an expanded line of faux fur beanbags, kids' play couches, an enhanced collection of day beds and outdoor loungers, additions to our panelist headboard collection, and new vinyl chairs and beanbags for school and commercial environments. This past year, we also added several new web retailers, including Raymoor & Flanagan, Paragold, Frontgate, Indigo Canada, plus numerous large resorts, commercial, and hospitality clients. Additionally, we have several new sites onboarding now for the coming year. Researching and adding new wholesalers is something we do every day. We also have longstanding relationships with buyers in various channels, giving us a leg up in terms of personal knowledge and history, which leads to greater placement and visibility in existing channels. Amazon is also a significant market opportunity for Luvu Brands. It represents 31% of our annual revenue and is continuing to grow tremendously every year. as well over 50% of consumers start their product search on Amazon.com. We have five keys for continued Amazon success that we follow. Innovative design in a large variety of categories, in-stock quick-ship inventory utilizing FBA and Amazon vendor channels, enhanced and optimized creative content, clever advertising initiatives, and affordable direct-to-consumer pricing. With our Amazon expansion of FBA inventory, as well as expansion all over the world through Amazon's international channels, our goal for all our brands is to grow revenue by a minimum of 20% on Amazon year over year. Now I'll turn this call over to Alex Sanikov, our Chief Financial Officer, to summarize some of the financial highlights for the full fiscal year 2022. Thank you, Jordan.

I'll briefly touch on some of the financial highlights from the fiscal year end of June 30, 2022. For the whole fiscal year 2022, net sales increased to $26.3 million from $23.1 million, an increase of 14%. Liberator sales increased 22% to $12 million from $9.8 million in the prior year. Jaxx products increased 22%. to $8.3 million compared to last fiscal year's $6.8 million. And Avana product sales decreased 21% to $2.9 million from $3.7 million a year ago. Gross profit for the fiscal year totaled $6 million compared to $6.3 million in the prior year. The company experienced labor and raw material cost increases during this year. Gross profit as a percentage of net sales decreased 23% from 27% in the prior fiscal year. Operating expenses for the year were approximately 19% of net sales, or approximately $5,055,000, compared to the same 19% of net sales, or approximately $4,459,000 for the prior year. Net income for the fiscal year was $604,000 compared to net income of $2,563,000 in the prior year. For the full fiscal year, adjusted EBITDA was $1.3 million compared to $3.2 million in the prior year. Excluding the PPP note forgiveness, adjusted EBITDA in the prior year was $2.1 million. We continue to increase the quantity of products sown by our contractor in Mexico, and it now is running at 30% to 35% of all our sown products. Cash and cash equivalents on June 30th, 2022 totaled $859,000 compared to $977,000 on June 30th, 2021. Working capital increased from $435,000 on June 30th, 2021 to $774,000 at the end of the fiscal year 2022. Now I'd like to turn the call back to Louis for some additional comments regarding current development. Louis? Thank you, Alex.

In this fiscal year, we saw strength across our retail and digital channels as we continue to increase market share. Our diverse offering of consumer brands continues to attract new and repeat customers, and as a result, I expect to see continued strong demand across our three major brands as we approach the holiday season. Our results also reflect strong global demand for Liberator brand, even with these periods of ongoing macro challenges. Our domestic manufacturing capability allows us to continue to operate within a challenging supply chain environment. For all of our brands, where sustainability meets design, we've established a three-step approach to hold ourselves accountable. Here are our priorities and our plans for reducing our carbon footprint. Number one, we repurpose 100% of our polyurethane foam trim into microcushions, about 4,000 pounds a day. When blended with various foam densities, it makes the perfect support fill for all of our beanbags and cushions. Across all channels, we compress and flat pack 100% of our foam-based products to reduce corrugated and fuel consumption by two-thirds. And in addition, we repurpose surplus military, automotive, and medical fabrics into liners for our Jaxx product line beanbags, daybeds, and chaises. We believe that our stream of product innovation, continued web and retail store expansion, and increased international presence will continue to drive accelerating top-line growth for 2023, helping us to continue in a path of continuous growth and increased profitability targets. We remain focused on executing against our key growth strategies to drive long-term value for shareholders. We look forward to keeping you updated on our progress and developments as we finalize our first quarter results. This wraps up our formal presentation. Operator will now open the call for Q&A, and after Q&A, we'll have some additional closing comments.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please type your question on the webcast link. One moment, please, while we poll for questions.

Operator, we seem not getting any questions on the webcast. Are there any investors who want to ask a question over the phone?

Ladies and gentlemen, if you wish to ask a question via the phone lines, please indicate so now by pressing star 1 on your handset at this time. Gentlemen, there appear to be no questions on the phone lines at this time. Do you have any closing comments?

Sure, yes. Thank you, Operator. We're very pleased with 2022 and take great comfort in our ongoing business performance, which is stronger today than it's ever been. Put simply, we're methodically delivering what we need to build significant consumer brands, and we believe that over time the market will catch up to what we're up to. We believe we're building a solid foundation for Luvu Brands' future growth and we're well positioned to capitalize on our growing markets. We remain focused on executing our key growth strategies to drive long-term value for shareholders. Thank you for your time. On behalf of the entire Luvu Brands management team, we want to again thank you for joining us today.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect from the webcast at this time. Thank you for your participation.