How Did eCommerce Took Off In Malaysia?
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The Buckle, Inc. (NYSE:BKE) Q4 2023 Earnings Call Transcript
The Buckle, Inc. (NYSE:BKE) Q4 2023 Earnings Call Transcript March 15, 2024 The Buckle, Inc. beats earnings expectations. Reported EPS is $1.59, expectations were $1.44. BKE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning. Thank you for standing […] The Buckle, Inc. (NYSE:BKE) Q4 2023 Earnings Call Transcript March 15, 2024 The Buckle, Inc. beats earnings expectations. Reported EPS is $1.59, expectations were $1.44. BKE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning. Thank you for standing by and welcome to Buckle’s Fourth Quarter and Fiscal 2023 Earnings release webcast. As a reminder, all participants are currently in a listen-only mode. A question-and-answer session will be conducted following the company’s prepared remarks with instructions given at that time. Members of Buckle’s management on the call today are Dennis Nelson, President and CEO; Tom Heacock, Senior Vice President of Finance, Treasurer and CFO; Adam Akerson, Vice President of Finance and Corporate Controller; and Brady Fritz, Senior Vice President, General Counsel and Corporate Secretary. As a review of operating results, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement. Safe Harbor statement under the Private Securities Litigation Reform Act of 1995, all forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors which may be beyond the company’s control. Accordingly, the company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to those described in the company’s filings with the Securities and Exchange Commission. The company does not undertake to publicly update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. Additionally, the company does not authorize the reproduction or dissemination of transcripts or audio recordings of the company’s quarterly conference calls without its expressed written consent. Any unauthorized reproductions or recordings of the call should not be relied upon as the information may be inaccurate. As a reminder, today’s webcast is being recorded. And now I’d like to turn the conference over to your host, Tom Heacock. Tom Heacock: Good morning, and thanks for joining us this morning. Our March 15, 2024 press release reported a net income for the 14-week fourth quarter ended February 3, 2024 was $79.6 million, or $1.59 per share on a diluted basis, compared to net income of $87.8 million, or $1.76 per share on a diluted basis for the prior year 13-week fourth quarter ended January 28, 2023. Net income for the 53-week fiscal year ended February 3, 2024, was $219.9 million, or $4.40 per share on a diluted basis, compared to net income of $254.6 million, or $5.13 per share on a diluted basis for the prior year 52-week fiscal year and to January 28, 2023. Net sales for the 14-week fourth quarter decreased 4.8% to $382.4 million compared to net sales of $401.8 million for the prior year 13-week fourth quarter. Comparable store sales for the 14-week fiscal quarter decreased 9.6% in comparison to the same 14-week period in the prior year, and online sales decreased 12.4% to $65.5 million for the 14-week fiscal period, which compares to $74.8 million for the prior year 13-week fiscal period. Compared to the same 14-week period a year ago, online sales were down 16.6%. Net sales for the 53-week fiscal year decreased 6.3% to $1.261 billion compared to net sales of $1.345 billion for the prior year 52-week fiscal year. Comparable store sales for the 53-week fiscal year ended February 3, 2024 decreased 8% from the prior year 53-week period ended February 4, 2023. Our online sales were down 10.3% to $206.5 million for the 53-week fiscal year, compared to $230.4 million for the prior year 52-week fiscal year and compared to the same 53-week period a year ago, online sales were down 11.8%. For the quarter UPTs increased approximately 0.5%. The average unit retail increased approximately 1.5% and the average transaction value increased about 2%. For the full year, UPTs were flat. The average unit retail increased approximately 1% and the average transaction value increased approximately 1%. Gross margin for the quarter was 52.3%, down 70 basis points from 53% in the fourth quarter of 2022. The current quarter decline is the result of deleveraged buying, distribution and occupancy expenses partially offset by a 20 basis point improvement in merchandise margins. For the full year gross margin was 49.1%, which was down 120 basis points from 50.3% in the prior year, with the current quarter decline being due to deleverage buying, distribution and occupancy expense along with a 20 basis point reduction in merchandise margins. Selling general administrative expenses for the quarter were 27.1% of net sales compared to 25.6% for the fourth quarter of 2022. The fourth quarter increase was due to 150 basis point increase in store labor related expenses, a 35 basis point increase in marketing spend, a 30 basis point increase in G&A salaries, a ten basis point increase in equity compensation expense and a 25 basis point increase in other SGNA expense categories, and these increases were partially offset by a 60 basis point reduction in incentive compensation accruals and a 40 basis point decrease in ecommerce shipping expenses. For the full year SG&A was 27.6% of sales compared to 25.9% for the same period last year. The full year increase was due to 135 basis point increase in store labor related expenses, a 30 basis point increase in G&A salaries, a 25 basis point increase in marketing spend, a 20 basis point increase in equity compensation expense, and a 20 basis point increase in other SG&A expense categories and these increases were again partially offset by a 60 basis point reduction in incentive compensation accruals. Our operating margin for the quarter was 25.2% compared to 27.4% for the fourth quarter of fiscal 2022, and for the full year our operating margin was 21.5% compared to 24.4% for the same period last year. Income tax expense as a percentage of pretax net income for both the current and prior year fiscal quarter was 23%, bringing fourth quarter net income to $79.6 million for fiscal 2023 compared to $87.8 million for fiscal 2022. Income tax expense as a percentage of pretax net income for both the current and prior year full year periods was 24%, bringing net income to $219.9 million for fiscal 2023 compared to $254.6 million for fiscal 2022. Our press release also included our balance sheet as of February 3, 2024, which included the following. Inventory of $126.3 million, which was up about 1% from the same time a year ago, and total cash and investments of $315.4 million, which was after payment of $196.7 million in dividends during the year. We ended the quarter with $128.8 million in fixed assets of accumulated depreciation. Our capital expenditures for the quarter were $9.3 million and depreciation expense was $5.9 million. For the full year, capital expenditures were $37.3 million and depreciation expense was $20.8 million. Fiscal 2023, capital spending was broken down as follows, $35.9 million for new store construction, store remodels and technology upgrades, and $1.4 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened four new stores and completed four full store remodels, two of which were relocations into new outdoor shopping centers. We also closed three stores, bringing our full year counts to nine new stores, 18 full remodels and six store closures. Of our 18 full remodels during the year, 11 were relocations to new outdoor shopping centers, reflecting our ongoing strategy of ensuring that we are located in the best shopping environment in each of our markets. Cumulatively, over the last three years, 42 of our 56 full remodels have been relocations to new outdoor centers. Besides making better locations, these remodels also frequently enable us to take on more space with our new stores. For two of our recent projects, the extra square footage allowed us to close our standalone new store and move everything back under one roof. Current plans for fiscal 2024 include opening eight new stores and completing 15 to 19 full remodel projects with at least half of the planned being relocations to new outdoor centers. We also have closed two stores year-to-date with two additional planned store closures in early April. Buckle ended the year with 444 retail stores in 42 states, compared with 441 stores in 42 states at the end of fiscal 2022. And now I’ll turn it over to Adam Akerson, Vice President of Finance. Adam Akerson: Thanks, Tom. Women’s merchandise sales for the quarter were down about 8% against the prior year fiscal quarter and represented approximately 41% of sales compared to 42.5% in the prior year. On a 14-week comparable basis, women’s merchandise sales were down approximately 12.5%. Average denim price points increased from $79.75 in the fourth quarter of fiscal 2022 to $81.25 in the fourth quarter of fiscal 2023, while the overall average women’s price point increased about 1.5% from $50.30 to $51. On the men’s side, merchandise sales for the quarter were down about 2% against the prior year fiscal quarter, representing approximately 59% of total sales compared to 57.5% in the prior year. On a 14-week comparable basis, men’s merchandise sales were down approximately 5.5%. Average denim price points increased from $86.25 in the fourth quarter of fiscal 2022 to $87.15 in the fourth quarter of fiscal 2023. For the quarter, overall average men’s price points increased approximately 3% from $54.50 to $56.05. On a combined basis, accessory sales for the 14-week quarter were down approximately 7.5% against the prior year 14-week comparable period, while footwear sales were down about 41%. These two categories accounted for approximately 11% and 6% respectively, of fourth quarter net sales, which compares to 10.5% and 9% for each in the fourth quarter of fiscal 2022. For the quarter, average accessory price points were up approximately 1.5% and average footwear price points were up 10.5%. Denim accounted for approximately 44% of sales and tops accounted for approximately 29.5%, which compares to 41.5% and 30% for each in the fourth quarter of fiscal 2022. Our women’s denim business for the quarter was down about 6.5% compared to the same 14-week period a year ago. While the overall women’s denim business was down, we were excited about the continued growth in the performance of our premium fits and fabrics in our Buckle Black label, which grew about 18.5% during the quarter. Our core BKE line also performed better than the average. For tops, our fashion tops continued to be challenging, with many of our women’s guests focusing on essential styles and easy to wear pieces. Also, compared to the same 14-week period ago, our men’s denim business was down about 1%, which was primarily the result of reducing our inventory of street fashion brands. In our core denim brands, we saw positive trends for the quarter with the business in BKE and Buckle Black both improving year-over-year. The men’s business had a nice performance in short sleeve tees, soft shells and vests in several of our accessory categories. We also saw strong sell-throughs in our private branded wovens, knits and sweaters for the quarter. Our Q4 comparisons also continued to be challenged with declines in our Hey Dude volume, particularly on the men’s side. Fourth quarter net sales for our men’s business without Hey Dude compared to the same 14-week period a year ago were down about 1.5%. During the quarter we continued to see nice growth in our youth business, with combined youth business growing approximately 4% over the prior year 14-week period. Our overall private brand penetration continued to grow as our buying teams continued to develop and deliver a strong assortment across all categories. Private label represented approximately 50% of Q4 sales compared with 48% a year ago and 46% for fiscal 2023, compared with 44.5% in fiscal 2022. And with that, we welcome your questions. Thank you. See also 20 States With the Healthiest Populations and 20 Countries With the Best Healthcare in 2024. Q&A Session Follow Buckle Inc (NYSE:BKE) Follow Buckle Inc (NYSE:BKE) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator Instructions] Our first question is from Mauricio Serna. Mauricio, I’m going to go ahead and allow you to talk. Feel free to unmute yourself. Mauricio Serna: Great. Good morning. Thanks for taking my questions. I just wanted to know maybe you could talk about a little bit about what happened in February with the 11.5% comp sales [ph] decline, what were the main drivers behind that and how are you thinking about it for the rest of the quarter? And then maybe on the merchandise margin, nice to see the miles expansion in Q4, maybe if you could talk what was the driver behind that and how are you thinking about it for 2024? And then just lastly, just wanted to check the numbers that you talked about the store openings, I think you called out 18 new stores and closing four stores. So net openings were 14, it just appears to be like a very nice acceleration compared to previous years. So I just was wondering what is driving that? Thank you so much. Dennis Nelson: Okay. Thank you, Mauricio for the questions. If I could take a quick moment before answering to just thank our Buckle teammates for a very successful 2023. I appreciate our team’s great work in creating an enjoyable shopping experience for our guests, and I’m very much looking forward to working with our Buckle talent in 2024. Now, regards to the questions, February business, I think we saw less excitement on the new spring product. Shorts selling, which was very strong a year ago, was down. We brought probably some of our girls top selection for spring. We brought that in a little bit later, so we had an effect there. Still saw pretty good denim selling and a good reaction. But I think the traffic patterns were down some as well. On the increase of new stores locations, a few years ago, we did not do outlet situations, and a year or two ago, we did a store in an outlet with Tanger. That is our regular store, even though it’s in an outlet and that worked pretty well. And so we have a good relationship with Tanger and Simon on reviewing what used to be strictly outlet to do our stores as a typical store and that’s worked well. So it’s given us more options as well as we’ve seen some changes in some smaller markets in the past couple of years. That has given us opportunities as we looked outside to locations and power centers and such, which we did not before. So like a Poplar Bluff, last year that we opened in Missouri was an example of that, and that has worked well. So that’s given us new opportunities there. And did I miss a question? Tom Heacock: Mauricio, this is Tom. I’ll just clarify. I think you were asking about 2024 new store plans and remodel plans. What we said was eight new stores for 2024 is what we have planned, 15 to 19 full remodels, with half of the remodels being relocations to new outdoor centers. And then for now, we’ve already closed two stores so far this year, and one of those is a new store moving back into the full line store, so it’s all under one roof and then we have two more planned early in April. Adam Akerson: And then I think the last question was on merchandise margin drivers for the fourth quarter. Merchandise margins for all of 2023 hung in really strong and improved as we went through the year. The team did a great job of managing inventory, I mean, managing markdowns. And so part of that is mix shift, some of that private label at 50% I think that’s an all-time high at private label, that’s been accretive to margins. A little bit of benefit from freight costs coming down and then partially offset by a slight increase in shrink during the year. So those are the main drivers for Q4 margins which are pretty consistent with Q3. Operator: There are no further questions in queue. [Operator Instructions] Looks like we have another question from Mauricio, I’ll go ahead and unmute him at this time. Mauricio Serna: Thank you. Just a couple of follow-ups. Maybe if you could elaborate a little bit more on what you’re seeing in footwear. It seems the category continues to be challenged despite you are lapping maybe already some impacts last year from Hey Dude being soft. Maybe if you could elaborate on that? And then you talked about how you have been doing a lot of remodelings and repositions of the source, a lot of these two off mall locations. Maybe could you remind us at this point like roughly what is your off mall versus mall exposure? Thank you. Adam Akerson: Yeah, the mall exposure. Again, we’ve had a large number of remodels and broke that out, how many we’ve moved off malls. We’re still primarily mall based and then a lot of lifestyle centers, I think still 70% mall based. And so Brad and Dennis do a great job of reviewing that situation by situation to again make sure we’re in the best shopping center. So there’s probably still more opportunities to continue that trend......»»
PSQ Holdings, Inc. (NYSE:PSQH) Q4 2023 Earnings Call Transcript
PSQ Holdings, Inc. (NYSE:PSQH) Q4 2023 Earnings Call Transcript March 14, 2024 PSQ Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings and welcome to PublicSquare‘s Year End 2023 Earnings Conference Call and Webcast. Please note that this […] PSQ Holdings, Inc. (NYSE:PSQH) Q4 2023 Earnings Call Transcript March 14, 2024 PSQ Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings and welcome to PublicSquare‘s Year End 2023 Earnings Conference Call and Webcast. Please note that this call is being recorded. [Operator Instructions] I’d now like to hand over William Kent, Vice President of Investor Relations. William you may not start the conference. William Kent : Thank you. Good morning, everyone and welcome to PublicSquare’s year end 2023 earnings conference call. Hosting today’s call are Michael Seifert, Chairman and Chief Executive Officer; Brad Searle, Chief Financial Officer; and Dusty Wunderlich, President of Credova subsidiary. Information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PublicSquare, which may be accessed on the SEC’s website and PublicSquare’s website. Today’s call is also being webcast and a replay will be posted to PublicSquare’s investor relations website. Please note that statements made during this call, including financial predictions or other statements that are not historical in nature, may constitute forward looking statements. Thus, statements are made on the basis of PublicSquare’s views and assumptions regarding future events and business performance at the time they’re made, and we do not undertake any obligation to update these statements. Forward looking statements are subject to risks that could cause PublicSquare’s actual results to differ from its historical results and forecasts, including PublicSquare’s actual results to differ from its historical results and forecasts, including those risks set forth in PublicSquare’s filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward looking statements made during this call. Do not place undue reliance on any forward-looking statements. During this call, we may refer to certain non GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the company’s annual filing today with the SEC. I will now open the call to Michael Seifert. Michael, please go ahead. Michael Seifert : Thank you, Will. And thank you to everyone for joining our call today. It has been an incredible journey thus far over the past three years. We actually just celebrated our three year anniversary of incorporation just about two weeks ago. But it’s especially been a phenomenal last nine months as a publicly traded company, and we’re delighted to share with you today all the new and exciting updates to our business as we seek to change the country for the better through the power of the marketplace, while providing value for our customers and shareholders in the process. So we have a morning full of highlights and significant updates for you. So without further ado, I will jump right in. Starting with some high level updates on the whole, for the full year 2023, we increased net revenue by 1,097% to $5.7 million compared to the full year 2022 net of returns and discounts. So, again, for the full year 2023, we increased net revenue by 1,097%. We increased PublicSquare marketplace revenue by 529% compared to the full year 2022. EveryLife, the company’s wholly owned baby care brand that launched in Q3 of 2023, nearly nine months ago contributed over $2.7 million in new revenue for the full year 2023, of which 70% was actually subscription based. This is a very cool product where consumers can actually purchase subscriptions. It’ll ship the diapers and wipes directly to their door. This is obviously a fantastic metric, as a sign of recurring revenue moving forward. For the marketplace, we had a terrific Christmas shopping season as we specifically increased marketplace traffic from November 1, ’23 to December 31, ’23 by 549% year-over-year compared to the same period, achieved average order volumes of over $70, which was our goal, with an average engagement time per user up 90% year-over-year. We increased business vendors on the platform by 130% to over 75,000 at December 31, ’23 as compared to December 31, 2022. And for one of the metrics I’m most excited about looking forward, we are guiding to a year end 2024 exit run rate revenue as defined in the earnings release of approximately $47 million to $53 million resulting from the existing businesses before consideration for merger synergies, which we’ll discuss more today. So again, we’re guiding to year end 2024 exit run rate revenue as defined in the earnings release of approximately $47 million to $53 million resulting from the existing businesses before consideration for merger synergies. For the marketplace specifically, our e-commerce launch fundamentally changed the game for our company from a user experience, business experience and revenue perspective. While our advertising revenue continues to grow at a very healthy rate, it is awesome to see that we now have the opportunity to earn revenues from the brokering of these actual transactions taking place within our marketplace. We have been continuing to add features and we plan to continue to do so significantly for the remainder of 2024, such as user rewards, new payment and wallet systems, more business automation and controls over the business experience for the vendor, owner and UX and UI enhancements to continually increase conversions and the likelihood of success for the platform. Our marketplace had a tremendous impact over the Christmas shopping season, as I mentioned above and we are proud that we earned a lot of new customers that we now get to continue retargeting and putting quality products in front of them that meet their needs and desires as value aligned consumers. And finally, we are going to move to EveryLife here. We launched our first D2C brand in the baby care space, EveryLife on July 13 of 2023. This is a premium line of products with a simple yet profound message. EveryLife is a miracle from God and worth celebrating and protecting. We continue to see growth that’s unheard of in this industry with EveryLife. And as I mentioned earlier, 70% of our revenue in 2023 was from subscription sales, which is a great sign for recurring revenue moving forward, 70%. As I mentioned on our last call, we will soon be rolling out further products such as soaps and baby lotions as well as pull ups to further diversify our product lines. We expect the first of these additional products to be available during early Q2 of this year. We have initiated special partnerships with pregnancy resource centers, faith based non-profits and various churches around the country that we believe we’ll continue to provide both sales and weighted ware in world of direct-to-consumer products. So just to pause here, it’s very unique that you have a direct-to-consumer product have inroads with major organization for bulk sales almost as our version of retail. There are over 3,000, for example, pro-life, pro-family pregnancy centers in United States and its entirely untapped market for values aligned baby-care product. We can serve those people and provide impact in the process. We launched our Make More Babies campaign in January to much fanfare and experienced the highest traffic to our brand since launch day. For a little bit of context, Make More Babies was a campaign we initiated in January after Elon Musk tweeted powerfully that having children is saving the world. Well, we clipped that tweet. We put it up on a billboard in Times Square, had a network of influencers that blasted that billboard and experienced over 4 million views on our Make More Babies video and got a tweet about the campaign from Elon Musk himself saying that he endorses this message. So it was fantastic in attaining new customers and we anticipate many more campaigns actively like that heading in to 2024. To break it down a little bit further, on our last call, I covered briefly our path to profitability and I want to revisit this topic, especially in light of some of the exciting news related to an acquisition that we announced this morning. So regarding profitability, number one, we can get there today. We are an asset light business. We don’t have heavy capital expenses going out the door for manufacturing activity or long-term capital commitment for a very asset light business that rely heavily upon our people. Our route is not binary, meaning we have diversified our revenue streams that have multiple levers to pull as a holdings company to maximize growth. Many of our competitive incumbents in the marketplace space purely relied on their marketplace. But because of that, it took years to be able to achieve profitability. For us, we wanted to make sure that our marketplace could exist not only as a powerful customer acquisition engine and business vendor acquisition engine, but also a marketing funnel that we could then distribute to multiple product verticals with attractive margin profiles so that we could achieve our profitability road map quicker in a more diversified and safe fashion. Number three, we’re investing for our future and always strategically choosing what to buy, build or lease. So anytime we have new feature come up on the road map that we want to build or the platform with one of our direct-to-consumer product. We immediately stop and ask the question, do we want to buy, build or lease what we are looking to bring to the market. In many cases, we choose build or lease, but in some cases, we choose buy if it makes sense and we see that it could be immediately accretive to the business. We have an example of that that we’ll share briefly this morning. Maturity of the business, number four, we are public at a much earlier point in our life cycle and it affords us opportunities, namely to be a company by the people, for the people and owned by We the People. But also, it provides us a currency that we can actually utilize with wisdom and tact to continue growing the overall business closer and closer to profitability. And finally, because of that we are going to use our equity wisely. The Credova acquisition we announced this morning is a great example of the strategy to acquire a profitable cash flowing business run by an excellent values driven team. So on to the Credova acquisition. You’ll see this morning that we announced an all-stock transaction, an acquisition reverse triangular merger of Credova. Credova is the leading buy now, pay later company for the outdoor and shooting sports industry. They’re helping make the second amendment more accessible to a broader network of Americans, which I certainly personally view as a very moral cause and appreciate the work that they do. People interacting with a travel website, searching for the perfect destination. They have financed over $1.25 billion in transactions since their inception in 2018. And their merchant and customer universe is highly additive to PublicSquare with over 4,800 merchants onboarded to date and over 2.8 million unique applicants to date. We see those customers and those merchants as marketing opportunities to bring into the broader PublicSquare universe through this transaction. This acquisition creates a fully uncancelable commerce stack by combining a payments platform, financing solution and a marketplace. Credova management forecast and historical results suggest the acquisition is expected to be immediately accretive to the company before any anticipated synergies as Credova with unaudited management financials reflect estimated net revenues for 2023 of $15.5 million adjusted EBITDA of approximately $2.3 million and free cash flow from 2023 of $1.6 million. This also provides PublicSquare an entry point into the buy now pay later payments universe, a critical component to the future of marketplace transactions. Credova’s buy now pay later business has compelling and differentiated market power in values aligned sectors, including firearms, ammunition and outdoor recreation. And to take it further, they actually have exclusive partnerships with over 60% of the top online shooting sports retailers, one of the fastest growing consumer industries in the United States over the past few years. Integrating buy now pay later functionality into the PublicSquare platform is expected to act as a force multiplier to increase our potential sales for both Credova and PublicSquare Merchant. And the Credova leadership who have joined the company are excellence driven. They’re aligned in our mission and it will be an honor to partner with them. Overall, this transaction supports PublicSquare’s marketplace ecosystem approach, providing potential new opportunities in payment infrastructure as well as consumer and business financing. Specifically, we believe that merchant credit, inventory financing for a broad network of small businesses could be a major force of our business moving forward. That’s yet another reason we’re excited about this Credova transaction. And finally, new revenue opportunities associated with this business. It gets us into point of sale with brick and mortar, expands us into B2B financing and creates the foundation for a payments universe that will not only serve our ecosystem but also allow us to generate revenue from selling that service to other businesses in our network as well. Without further ado, I would actually love for you to hear from the visionary of the Credova brand, the President of Credova, the great Dusty Wunderlich, who has become a fast friend and someone I believe in wholeheartedly to lead this brand to excellence. He joins us as the new President of our Credova subsidiary. Dusty, why don’t you take a moment to introduce yourself before we move any further? Dusty Wunderlich : Thank you, Michael. It’s an honor to be here as part of the PublicSquare team. I’m really happy to be on this call with you today and equally excited to be part of the PublicSquare team now and have Credova as a part of this important economic ecosystem. A little background on me. In my prior role as CEO of Credova as I am today, I was driven by economic principles that enhance personal liberty. Well aligned with the PublicSquare mission, our personal and entrepreneurial journey is marked by commitments to protecting property rights and preserving voluntary exchange. Turning to the merger, the combination of Credova and PublicSquare is a declaration to the world that the parallel economy is not just thriving, it’s here to endure. By uniting our strengths, we’re accelerating Credova’s growth across various sectors and establishing Credova as a preferred payment solution for shooting sports enthusiasts. The Credova team and I are honored to advance this movement alongside individuals who are committed to defending not only the second amendment, but also the fundamental inalienable rights of our merchants and customers. This partnership underscores the lasting power and potential of the parallel economy, highlighting our collective dedication to building financial infrastructure that upholds our values and protects our community. Together, we’re not merely building a business, we’re fortifying a movement poised to make a lasting impact. Back to you, Michael. Michael Seifert : Amazing. Thank you, Dusty. It is a real honor to run with you and we’re excited to see what the future holds together. I’d like to hand now the call over to our CFO, Brad Searle to discuss a few items on the financial side, including our 2024 financial outlook before I ultimately then wrap things up. So without further ado, Brad. Brad Searle : Thank you, Michael, and thank you, Dusty, as well. I’m thrilled to be with you here today to discuss our full year 2023 results. A few quick hitting highlights. As Michael mentioned, we saw a 12x growth in net revenue from 2022 to 2023, 6x year-over-year marketplace revenue growth. We saw massive EveryLife sales and the highest referral source for EveryLife sales continues to be the PublicSquare platform, affirming our flywheel proposition. In terms of share count, as of the end of the year, we had 24,410,075 Class A common shares outstanding and 3,213,678 Class C common shares outstanding. We ended the year with $16.4 million in cash and cash equivalents, $17.2 million in working capital, $21.2 million in total current assets and zero debt on our balance sheet. Moving to a quick housekeeping item, you’ll see a lot of filings this morning. I’d like to point out that we filed a 10-QA to restate the Q3 financials due to an incorrect classification of transaction related costs in the statement of cash flows. Please note this restatement did not affect Q3 revenue, Q3 EPS or Q3 cash position. Before I hand the call back to Michael, I will cover the financial outlook for 2024 we provided in this morning’s release. First, in terms of revenue, as Michael mentioned but I believe that’s worth repeating, we are guiding to year-end 2024 exit run rate revenue as defined in the earnings release of approximately $47 million to $53 million resulting from existing businesses before consideration for merger synergies. Moving on to profitability. We expect EveryLife to reach and maintain cash flow positivity by the end of this year 2024. Credova adds substantial revenues and is expected to remain cash flow positive cash flow positive in 2024, excuse me, before consideration for synergies. Please keep in mind that we acquired Credova at a very attractive multiple compared to other BNPL peers, and we are able to refinance their debt at a significantly lower rate of 9.75%. Meanwhile, PublicSquare will strategically spend on development and marketing to support the ongoing growth of marketplace and advertising platforms. Lastly, in terms of cash position, cash generated from profitable segments along with proposed investment by PublicSquare Director and Affiliates is anticipated to support accelerated growth, including unlocking transaction synergies and building the PSQ payments platform. We expect to exit 2024 with approximately $8 million to $10 million of cash on our consolidated balance sheet. I will now hand the call back to Michael for some closing remarks ahead of Q&A. Michael Seifert : Thank you, Brad. To wrap up, 2023 was a tremendous year for PublicSquare and 2024 is setting up to be even more impactful across multiple fronts. With the addition of the profitable Credova to the PublicSquare ecosystem, we are supercharging our growth potential. Brief highlight now and how we believe 2024 will play out from a marketplace and product perspective. We have new EveryLife products launching in 2024. We have a new personal product brand, which you’ll hear more about shortly, launching in 2024. We are developing and launching a PSQ payments platform to protect merchants from cancellation, building upon and with the existing Credova network. And we are expanding through strategic acquisition into adjacent business segments fulfilling merchant and customer demand. Our theme for 2024 continues to be more members, more merchants, more money. 2024 is focused on growth and we are excited to lean into targeted advertising, partnership deals like Tucker Carlson, who, as a matter of fact, posted his first monologue about PublicSquare on his x channel yesterday evening, as well as strategic events and outreach endeavors such as the very helpful and transformative PublicSquare call series that we are currently conducting around the country in order to capitalize on the election season. We will now move to Q&A. See also 15 Countries With The Shortest Working Hours in the World and 15 Highest Quality Coffee Chains in the US. Q&A Session Follow Psq Holdings Inc. Follow Psq Holdings Inc. or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] Our first question comes from Darren Aftahi from ROTH MKM. Darren Aftahi: Congrats on the transaction. Could we just start before we jump into Credova, just you launched the marketplace in the fourth quarter. I’m just kind of curious your thoughts year-to-date in ’24 on the progress and any kind of plans of kind of marketing spend against that? Michael Seifert: Yes, absolutely. So we were very pleased with our launch of e-commerce on November 1 for a number of reasons. Obviously, as I mentioned at the beginning of this call, our traffic increase to the site was very substantial year-over-year. But one of the metrics I’m very excited about was the actual average engagement time per user, which was up 90% over the same time period year-over-year between November 1 and December 31. And the other analytical point I will call your attention to is that our average order value was over $70, which is above many peers in the marketplace space and we’re excited about that. It showcases that we’re targeting the right consumers with the right message and it’s converting to the right types of purchasing. As we move forward, now that we have that information because quick pause here. Before we launched ecommerce on November 1, we were limited in the information that we actually had about what our consumers were wanting and what was converting better than other things because we were simply marketing agents for these different companies, but our ability to track conversions was limited. Well, now after November 1, we can actually tell you on any given day what products are converting on what time line and how do they stack up against other similar products, but at different price points or different market sectors, et cetera. So as we move into 2024, all of that proprietary insight is now marketing fuel. So to answer your question directly Darren, we’re leaning heavily into a direct response strategy in 2024. We’re actually targeting look alike audiences, utilizing our customer habits and preferred products. And so what we’ll essentially do is say, for example, that outdoor products are trending very well on our platform. We’re seeing high conversions and high click through rates in the outdoor space. If we can target an outdoor audience through a very cohesive direct response strategy, we can drop our customer acquisition cost to a very attractive rate compared to our competitors, especially when we have the values differentiator. So direct response is a heavy tool that we will be utilizing in 2024 that we did not have the same ability to conduct in 2023. Finally, what I’ll mention and I can’t remember if I mentioned this on our last earnings call but I think it’s an important point to bring back up if I did regardless. And that’s we utilize a jobs to be done methodology when marketing. Meaning, we’ve run multiple surveys and internal research studies on our existing audience. We’ve interviewed them and we’ve tried to understand what are you hiring us for at PublicSquare. And we believe that our consumers are hiring us for four different jobs they need to get done. The job number one is the shopping list. These consumers come and they’re obviously driven by the values. But more than anything, they have a shopping list that’s tangible that they need to be able to switch over to brands that they believe in. Job number two, these are people that really are here because they want to support small businesses more than anything else. They want to support Main Street. Job number three, these people are led by the movement. They love the idea that they’re contributing to a better America for their kid. They may not have a money where their values are. And finally, job number four. These people come here because of the community. They feel not alone and they want to feel like they’re a part of a broader network of people that share their same views. And they actually come here because they want to see people face-to-face. They utilize our local functionality heavily. So to wrap it up, we now that we have that insight, we’ll utilize those four insights to make sure that we’re partnering with our direct response strategy to target those four jobs to be done, making our message cohesive and understandable and clear so that consumers can hear about PublicSquare onboard into the experience and convert with as little friction as possible. That’s our plan for 2024. Darren Aftahi: Before I jump into some questions on Credova, just a clarification, when you were using the language pre-synergy. So is the $47 million to $53 million run rate exiting the year, is that pre — any impact from Credova? Michael Seifert: So it counts Credova’s existing forecast, but it does not count any growth that PublicSquare brings to Credova’s existing forecast. So the way to think about this is this is Credova, this is PublicSquare combined but not counting any of the synergistic elements of our business. So for example, this does not count growth that we could add to their forecast from exposure to our over 75,000 business merchants. It does not include jumping into inventory financing at a greater capacity targeting that hot list of business leads. It does not include the conversion uppage that we anticipate Credova will bring to the PublicSquare platform. These are two forecasts that exist separate from one another that have not considered any of the compounding nature of our synergistic business model. It also doesn’t count the integration into our platform. So, the 2024 exit run rate guidance that we issued today of $47 million to $53 million does not account for any of those synergistic elements of our partnership that will exist undoubtedly as we move forward......»»
PSQ Holdings, Inc. (NYSE:PSQH) Q4 2023 Earnings Call Transcript
PSQ Holdings, Inc. (NYSE:PSQH) Q4 2023 Earnings Call Transcript March 14, 2024 PSQ Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings and welcome to PublicSquare‘s Year End 2023 Earnings Conference Call and Webcast. Please note that this […] PSQ Holdings, Inc. (NYSE:PSQH) Q4 2023 Earnings Call Transcript March 14, 2024 PSQ Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings and welcome to PublicSquare‘s Year End 2023 Earnings Conference Call and Webcast. Please note that this call is being recorded. [Operator Instructions] I’d now like to hand over William Kent, Vice President of Investor Relations. William you may not start the conference. William Kent : Thank you. Good morning, everyone and welcome to PublicSquare’s year end 2023 earnings conference call. Hosting today’s call are Michael Seifert, Chairman and Chief Executive Officer; Brad Searle, Chief Financial Officer; and Dusty Wunderlich, President of Credova subsidiary. Information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PublicSquare, which may be accessed on the SEC’s website and PublicSquare’s website. Today’s call is also being webcast and a replay will be posted to PublicSquare’s investor relations website. Please note that statements made during this call, including financial predictions or other statements that are not historical in nature, may constitute forward looking statements. Thus, statements are made on the basis of PublicSquare’s views and assumptions regarding future events and business performance at the time they’re made, and we do not undertake any obligation to update these statements. Forward looking statements are subject to risks that could cause PublicSquare’s actual results to differ from its historical results and forecasts, including PublicSquare’s actual results to differ from its historical results and forecasts, including those risks set forth in PublicSquare’s filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward looking statements made during this call. Do not place undue reliance on any forward-looking statements. During this call, we may refer to certain non GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the company’s annual filing today with the SEC. I will now open the call to Michael Seifert. Michael, please go ahead. Michael Seifert : Thank you, Will. And thank you to everyone for joining our call today. It has been an incredible journey thus far over the past three years. We actually just celebrated our three year anniversary of incorporation just about two weeks ago. But it’s especially been a phenomenal last nine months as a publicly traded company, and we’re delighted to share with you today all the new and exciting updates to our business as we seek to change the country for the better through the power of the marketplace, while providing value for our customers and shareholders in the process. So we have a morning full of highlights and significant updates for you. So without further ado, I will jump right in. Starting with some high level updates on the whole, for the full year 2023, we increased net revenue by 1,097% to $5.7 million compared to the full year 2022 net of returns and discounts. So, again, for the full year 2023, we increased net revenue by 1,097%. We increased PublicSquare marketplace revenue by 529% compared to the full year 2022. EveryLife, the company’s wholly owned baby care brand that launched in Q3 of 2023, nearly nine months ago contributed over $2.7 million in new revenue for the full year 2023, of which 70% was actually subscription based. This is a very cool product where consumers can actually purchase subscriptions. It’ll ship the diapers and wipes directly to their door. This is obviously a fantastic metric, as a sign of recurring revenue moving forward. For the marketplace, we had a terrific Christmas shopping season as we specifically increased marketplace traffic from November 1, ’23 to December 31, ’23 by 549% year-over-year compared to the same period, achieved average order volumes of over $70, which was our goal, with an average engagement time per user up 90% year-over-year. We increased business vendors on the platform by 130% to over 75,000 at December 31, ’23 as compared to December 31, 2022. And for one of the metrics I’m most excited about looking forward, we are guiding to a year end 2024 exit run rate revenue as defined in the earnings release of approximately $47 million to $53 million resulting from the existing businesses before consideration for merger synergies, which we’ll discuss more today. So again, we’re guiding to year end 2024 exit run rate revenue as defined in the earnings release of approximately $47 million to $53 million resulting from the existing businesses before consideration for merger synergies. For the marketplace specifically, our e-commerce launch fundamentally changed the game for our company from a user experience, business experience and revenue perspective. While our advertising revenue continues to grow at a very healthy rate, it is awesome to see that we now have the opportunity to earn revenues from the brokering of these actual transactions taking place within our marketplace. We have been continuing to add features and we plan to continue to do so significantly for the remainder of 2024, such as user rewards, new payment and wallet systems, more business automation and controls over the business experience for the vendor, owner and UX and UI enhancements to continually increase conversions and the likelihood of success for the platform. Our marketplace had a tremendous impact over the Christmas shopping season, as I mentioned above and we are proud that we earned a lot of new customers that we now get to continue retargeting and putting quality products in front of them that meet their needs and desires as value aligned consumers. And finally, we are going to move to EveryLife here. We launched our first D2C brand in the baby care space, EveryLife on July 13 of 2023. This is a premium line of products with a simple yet profound message. EveryLife is a miracle from God and worth celebrating and protecting. We continue to see growth that’s unheard of in this industry with EveryLife. And as I mentioned earlier, 70% of our revenue in 2023 was from subscription sales, which is a great sign for recurring revenue moving forward, 70%. As I mentioned on our last call, we will soon be rolling out further products such as soaps and baby lotions as well as pull ups to further diversify our product lines. We expect the first of these additional products to be available during early Q2 of this year. We have initiated special partnerships with pregnancy resource centers, faith based non-profits and various churches around the country that we believe we’ll continue to provide both sales and weighted ware in world of direct-to-consumer products. So just to pause here, it’s very unique that you have a direct-to-consumer product have inroads with major organization for bulk sales almost as our version of retail. There are over 3,000, for example, pro-life, pro-family pregnancy centers in United States and its entirely untapped market for values aligned baby-care product. We can serve those people and provide impact in the process. We launched our Make More Babies campaign in January to much fanfare and experienced the highest traffic to our brand since launch day. For a little bit of context, Make More Babies was a campaign we initiated in January after Elon Musk tweeted powerfully that having children is saving the world. Well, we clipped that tweet. We put it up on a billboard in Times Square, had a network of influencers that blasted that billboard and experienced over 4 million views on our Make More Babies video and got a tweet about the campaign from Elon Musk himself saying that he endorses this message. So it was fantastic in attaining new customers and we anticipate many more campaigns actively like that heading in to 2024. To break it down a little bit further, on our last call, I covered briefly our path to profitability and I want to revisit this topic, especially in light of some of the exciting news related to an acquisition that we announced this morning. So regarding profitability, number one, we can get there today. We are an asset light business. We don’t have heavy capital expenses going out the door for manufacturing activity or long-term capital commitment for a very asset light business that rely heavily upon our people. Our route is not binary, meaning we have diversified our revenue streams that have multiple levers to pull as a holdings company to maximize growth. Many of our competitive incumbents in the marketplace space purely relied on their marketplace. But because of that, it took years to be able to achieve profitability. For us, we wanted to make sure that our marketplace could exist not only as a powerful customer acquisition engine and business vendor acquisition engine, but also a marketing funnel that we could then distribute to multiple product verticals with attractive margin profiles so that we could achieve our profitability road map quicker in a more diversified and safe fashion. Number three, we’re investing for our future and always strategically choosing what to buy, build or lease. So anytime we have new feature come up on the road map that we want to build or the platform with one of our direct-to-consumer product. We immediately stop and ask the question, do we want to buy, build or lease what we are looking to bring to the market. In many cases, we choose build or lease, but in some cases, we choose buy if it makes sense and we see that it could be immediately accretive to the business. We have an example of that that we’ll share briefly this morning. Maturity of the business, number four, we are public at a much earlier point in our life cycle and it affords us opportunities, namely to be a company by the people, for the people and owned by We the People. But also, it provides us a currency that we can actually utilize with wisdom and tact to continue growing the overall business closer and closer to profitability. And finally, because of that we are going to use our equity wisely. The Credova acquisition we announced this morning is a great example of the strategy to acquire a profitable cash flowing business run by an excellent values driven team. So on to the Credova acquisition. You’ll see this morning that we announced an all-stock transaction, an acquisition reverse triangular merger of Credova. Credova is the leading buy now, pay later company for the outdoor and shooting sports industry. They’re helping make the second amendment more accessible to a broader network of Americans, which I certainly personally view as a very moral cause and appreciate the work that they do. They have financed over $1.25 billion in transactions since their inception in 2018. And their merchant and customer universe is highly additive to PublicSquare with over 4,800 merchants onboarded to date and over 2.8 million unique applicants to date. We see those customers and those merchants as marketing opportunities to bring into the broader PublicSquare universe through this transaction. This acquisition creates a fully uncancelable commerce stack by combining a payments platform, financing solution and a marketplace. Credova management forecast and historical results suggest the acquisition is expected to be immediately accretive to the company before any anticipated synergies as Credova with unaudited management financials reflect estimated net revenues for 2023 of $15.5 million adjusted EBITDA of approximately $2.3 million and free cash flow from 2023 of $1.6 million. This also provides PublicSquare an entry point into the buy now pay later payments universe, a critical component to the future of marketplace transactions. Credova’s buy now pay later business has compelling and differentiated market power in values aligned sectors, including firearms, ammunition and outdoor recreation. And to take it further, they actually have exclusive partnerships with over 60% of the top online shooting sports retailers, one of the fastest growing consumer industries in the United States over the past few years. Integrating buy now pay later functionality into the PublicSquare platform is expected to act as a force multiplier to increase our potential sales for both Credova and PublicSquare Merchant. And the Credova leadership who have joined the company are excellence driven. They’re aligned in our mission and it will be an honor to partner with them. Overall, this transaction supports PublicSquare’s marketplace ecosystem approach, providing potential new opportunities in payment infrastructure as well as consumer and business financing. Specifically, we believe that merchant credit, inventory financing for a broad network of small businesses could be a major force of our business moving forward. That’s yet another reason we’re excited about this Credova transaction. And finally, new revenue opportunities associated with this business. It gets us into point of sale with brick and mortar, expands us into B2B financing and creates the foundation for a payments universe that will not only serve our ecosystem but also allow us to generate revenue from selling that service to other businesses in our network as well. Without further ado, I would actually love for you to hear from the visionary of the Credova brand, the President of Credova, the great Dusty Wunderlich, who has become a fast friend and someone I believe in wholeheartedly to lead this brand to excellence. He joins us as the new President of our Credova subsidiary. Dusty, why don’t you take a moment to introduce yourself before we move any further? Dusty Wunderlich : Thank you, Michael. It’s an honor to be here as part of the PublicSquare team. I’m really happy to be on this call with you today and equally excited to be part of the PublicSquare team now and have Credova as a part of this important economic ecosystem. A little background on me. In my prior role as CEO of Credova as I am today, I was driven by economic principles that enhance personal liberty. Well aligned with the PublicSquare mission, our personal and entrepreneurial journey is marked by commitments to protecting property rights and preserving voluntary exchange. Turning to the merger, the combination of Credova and PublicSquare is a declaration to the world that the parallel economy is not just thriving, it’s here to endure. By uniting our strengths, we’re accelerating Credova’s growth across various sectors and establishing Credova as a preferred payment solution for shooting sports enthusiasts. The Credova team and I are honored to advance this movement alongside individuals who are committed to defending not only the second amendment, but also the fundamental inalienable rights of our merchants and customers. This partnership underscores the lasting power and potential of the parallel economy, highlighting our collective dedication to building financial infrastructure that upholds our values and protects our community. Together, we’re not merely building a business, we’re fortifying a movement poised to make a lasting impact. Back to you, Michael. Michael Seifert : Amazing. Thank you, Dusty. It is a real honor to run with you and we’re excited to see what the future holds together. I’d like to hand now the call over to our CFO, Brad Searle to discuss a few items on the financial side, including our 2024 financial outlook before I ultimately then wrap things up. So without further ado, Brad. Brad Searle : Thank you, Michael, and thank you, Dusty, as well. I’m thrilled to be with you here today to discuss our full year 2023 results. A few quick hitting highlights. As Michael mentioned, we saw a 12x growth in net revenue from 2022 to 2023, 6x year-over-year marketplace revenue growth. We saw massive EveryLife sales and the highest referral source for EveryLife sales continues to be the PublicSquare platform, affirming our flywheel proposition. In terms of share count, as of the end of the year, we had 24,410,075 Class A common shares outstanding and 3,213,678 Class C common shares outstanding. We ended the year with $16.4 million in cash and cash equivalents, $17.2 million in working capital, $21.2 million in total current assets and zero debt on our balance sheet. Moving to a quick housekeeping item, you’ll see a lot of filings this morning. I’d like to point out that we filed a 10-QA to restate the Q3 financials due to an incorrect classification of transaction related costs in the statement of cash flows. Please note this restatement did not affect Q3 revenue, Q3 EPS or Q3 cash position. Before I hand the call back to Michael, I will cover the financial outlook for 2024 we provided in this morning’s release. First, in terms of revenue, as Michael mentioned but I believe that’s worth repeating, we are guiding to year-end 2024 exit run rate revenue as defined in the earnings release of approximately $47 million to $53 million resulting from existing businesses before consideration for merger synergies. Moving on to profitability. We expect EveryLife to reach and maintain cash flow positivity by the end of this year 2024. Credova adds substantial revenues and is expected to remain cash flow positive cash flow positive in 2024, excuse me, before consideration for synergies. Please keep in mind that we acquired Credova at a very attractive multiple compared to other BNPL peers, and we are able to refinance their debt at a significantly lower rate of 9.75%. Meanwhile, PublicSquare will strategically spend on development and marketing to support the ongoing growth of marketplace and advertising platforms. Lastly, in terms of cash position, cash generated from profitable segments along with proposed investment by PublicSquare Director and Affiliates is anticipated to support accelerated growth, including unlocking transaction synergies and building the PSQ payments platform. We expect to exit 2024 with approximately $8 million to $10 million of cash on our consolidated balance sheet. I will now hand the call back to Michael for some closing remarks ahead of Q&A. Michael Seifert : Thank you, Brad. To wrap up, 2023 was a tremendous year for PublicSquare and 2024 is setting up to be even more impactful across multiple fronts. With the addition of the profitable Credova to the PublicSquare ecosystem, we are supercharging our growth potential. Brief highlight now and how we believe 2024 will play out from a marketplace and product perspective. We have new EveryLife products launching in 2024. We have a new personal product brand, which you’ll hear more about shortly, launching in 2024. We are developing and launching a PSQ payments platform to protect merchants from cancellation, building upon and with the existing Credova network. And we are expanding through strategic acquisition into adjacent business segments fulfilling merchant and customer demand. Our theme for 2024 continues to be more members, more merchants, more money. 2024 is focused on growth and we are excited to lean into targeted advertising, partnership deals like Tucker Carlson, who, as a matter of fact, posted his first monologue about PublicSquare on his x channel yesterday evening, as well as strategic events and outreach endeavors such as the very helpful and transformative PublicSquare call series that we are currently conducting around the country in order to capitalize on the election season. We will now move to Q&A. See also 11 Highest-Paying Airlines for Pilots in the US and 18 Highest Paying Countries for Chemical Engineers. Q&A Session Follow Psq Holdings Inc. Follow Psq Holdings Inc. or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] Our first question comes from Darren Aftahi from ROTH MKM. Darren Aftahi: Congrats on the transaction. Could we just start before we jump into Credova, just you launched the marketplace in the fourth quarter. I’m just kind of curious your thoughts year-to-date in ’24 on the progress and any kind of plans of kind of marketing spend against that? Michael Seifert: Yes, absolutely. So we were very pleased with our launch of e-commerce on November 1 for a number of reasons. Obviously, as I mentioned at the beginning of this call, our traffic increase to the site was very substantial year-over-year. But one of the metrics I’m very excited about was the actual average engagement time per user, which was up 90% over the same time period year-over-year between November 1 and December 31. And the other analytical point I will call your attention to is that our average order value was over $70, which is above many peers in the marketplace space and we’re excited about that. It showcases that we’re targeting the right consumers with the right message and it’s converting to the right types of purchasing. As we move forward, now that we have that information because quick pause here. Before we launched ecommerce on November 1, we were limited in the information that we actually had about what our consumers were wanting and what was converting better than other things because we were simply marketing agents for these different companies, but our ability to track conversions was limited. Well, now after November 1, we can actually tell you on any given day what products are converting on what time line and how do they stack up against other similar products, but at different price points or different market sectors, et cetera. So as we move into 2024, all of that proprietary insight is now marketing fuel. So to answer your question directly Darren, we’re leaning heavily into a direct response strategy in 2024. We’re actually targeting look alike audiences, utilizing our customer habits and preferred products. And so what we’ll essentially do is say, for example, that outdoor products are trending very well on our platform. We’re seeing high conversions and high click through rates in the outdoor space. If we can target an outdoor audience through a very cohesive direct response strategy, we can drop our customer acquisition cost to a very attractive rate compared to our competitors, especially when we have the values differentiator. So direct response is a heavy tool that we will be utilizing in 2024 that we did not have the same ability to conduct in 2023. Finally, what I’ll mention and I can’t remember if I mentioned this on our last earnings call but I think it’s an important point to bring back up if I did regardless. And that’s we utilize a jobs to be done methodology when marketing. Meaning, we’ve run multiple surveys and internal research studies on our existing audience. We’ve interviewed them and we’ve tried to understand what are you hiring us for at PublicSquare. And we believe that our consumers are hiring us for four different jobs they need to get done. The job number one is the shopping list. These consumers come and they’re obviously driven by the values. But more than anything, they have a shopping list that’s tangible that they need to be able to switch over to brands that they believe in. Job number two, these are people that really are here because they want to support small businesses more than anything else. They want to support Main Street. Job number three, these people are led by the movement. They love the idea that they’re contributing to a better America for their kid. They may not have a money where their values are. And finally, job number four. These people come here because of the community. They feel not alone and they want to feel like they’re a part of a broader network of people that share their same views. And they actually come here because they want to see people face-to-face. They utilize our local functionality heavily. So to wrap it up, we now that we have that insight, we’ll utilize those four insights to make sure that we’re partnering with our direct response strategy to target those four jobs to be done, making our message cohesive and understandable and clear so that consumers can hear about PublicSquare onboard into the experience and convert with as little friction as possible. That’s our plan for 2024. Darren Aftahi: Before I jump into some questions on Credova, just a clarification, when you were using the language pre-synergy. So is the $47 million to $53 million run rate exiting the year, is that pre — any impact from Credova? Michael Seifert: So it counts Credova’s existing forecast, but it does not count any growth that PublicSquare brings to Credova’s existing forecast. So the way to think about this is this is Credova, this is PublicSquare combined but not counting any of the synergistic elements of our business. So for example, this does not count growth that we could add to their forecast from exposure to our over 75,000 business merchants. It does not include jumping into inventory financing at a greater capacity targeting that hot list of business leads. It does not include the conversion uppage that we anticipate Credova will bring to the PublicSquare platform. These are two forecasts that exist separate from one another that have not considered any of the compounding nature of our synergistic business model. It also doesn’t count the integration into our platform. So, the 2024 exit run rate guidance that we issued today of $47 million to $53 million does not account for any of those synergistic elements of our partnership that will exist undoubtedly as we move forward. Brad Searle: And just to note, Darren, this is Brad. Just another note, this does not include the additional revenue streams from new diapers — new product we’re launching on the EveryLife brand or any other wholly owned subsidiaries that we might launch or acquire in 2024......»»
Vera Bradley, Inc. (NASDAQ:VRA) Q4 2024 Earnings Call Transcript
Vera Bradley, Inc. (NASDAQ:VRA) Q4 2024 Earnings Call Transcript March 13, 2024 Vera Bradley, Inc. misses on earnings expectations. Reported EPS is $0.11 EPS, expectations were $0.15. VRA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings. Welcome to Vera […] Vera Bradley, Inc. (NASDAQ:VRA) Q4 2024 Earnings Call Transcript March 13, 2024 Vera Bradley, Inc. misses on earnings expectations. Reported EPS is $0.11 EPS, expectations were $0.15. VRA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings. Welcome to Vera Bradley’s Fourth Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Mark Dely, Chief Administrative Officer. Thank you, you may begin. Mark Dely: Good morning and welcome everyone. We’d like to thank you for joining us for today’s call. Some of the statements made during our prepared remarks and in response to your questions may constitute forward-looking statements made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those that we expect. Please refer to today’s press release and the Company’s most recent Form 10-K filed with the SEC for a discussion of known risks and uncertainties. Investors should not assume that the statements made during the call will remain operative at a later time. We undertake no obligation to update any information discussed on today’s call. I will now turn over the call over to Vera Bradley’s CEO, Jackie Ardrey. Jackie? Jacqueline Ardrey: Thank you, Mark. Good morning everyone and thank you for joining us on today’s call. I want to start with some comments on the quarter. We’re pleased with the completion of the first full year of our turnaround story. We’ve successfully pivoted the organization towards a bright future and effectively managed both the existing business as well as the turnaround efforts through Project Restoration, which will begin to bear fruit in the coming year. Our teams continued to carefully manage both gross margin and expenses in the fourth quarter consistent with efforts earlier in the year. We’ve improved discipline around gross margin management and cost control, a part of our go-forward DNA. In addition to this discipline, our strategic efforts are focused on stabilizing and growing our sales base. Our recent sales results demonstrate the need for change in our branding, product assortments and store environments, the exact areas that Project Restoration is addressing to position Vera Bradley Inc. for long-term profitable growth. After a year of foundational work, we’re very excited about the customer facing changes through Project Restoration that we will unveil this year. For the fourth quarter, Vera Bradley brand revenues fell 6.1% with soft sales in all direct channels. Sales were also negatively impacted by store closures. Customers responded to some of our latest product collaborations and to our newer product offerings like leather, but overall they continued to be more discriminating with their discretionary spending in light of the macroeconomic environment. A bright spot was the November transformation of our online outlet from a flash-sale model to an everyday extension of our outlet stores. This brought new customers to the brand and helped offset weakness in the outlet store channel. On the Indirect side, our wholesale partners were cautious with inventory buys in the fourth quarter. Pura Vida year-over-year fourth quarter sales declined 21.6%, primarily due to decreases in ecommerce and wholesale revenues, as external marketing costs continued to rise and marketing effectiveness remained challenging. Our holiday gifts, like our annual Advent Box, and engraving categories performed best for the quarter. While we are actively addressing revenue stabilization and marketing effectiveness at Pura Vida, our key focus is managing the business for profitability. As a result, we drove meaningful year-over-year operating margin improvement for the fourth quarter and full year. As I’m sure everyone listening understands, a strong balance sheet is incredibly important in retail and especially for Vera Bradley as Project Restoration enters an implementation stage. We continued to strengthen our already strong balance sheet, adding to our year-over-year cash position while strategically reducing our inventory levels. We ended the fiscal year with consolidated revenues of approximately $471 million. We generated GAAP net income of $7.8 million or $0.25 per diluted share, a return to profitability from a sizable loss last year. Excluding charges on a non-GAAP basis, net income for the fiscal year totaled $17.2 million or $0.55 per diluted share. This improved profitability was primarily driven by gross margin performance and disciplined expense control. Now let me turn to Project Restoration. A little over a year ago, we began a comprehensive review of the consumer, brand, product, and channel components for both of our brands. This work culminated in our long-term strategic plan, Project Restoration, which addresses each of these four pillars. Through Project Restoration, we are taking targeted and prudent actions to stabilize revenues, while remaining focused on strong financial discipline. We believe execution of this companywide comprehensive initiative will drive long-term profitable growth and deliver value to our shareholders. At Vera Bradley, Project New Day launches in mid-July, and is the first manifestation of our Project Restoration work and a full pivot from where we are today. It includes, among other things, the reveal of our new and elevated full-line branding and marketing, product, store design, and website. Our work on this initiative was informed by consumer research and current perceptions of the brand from both buyers and non-buyers. We believe we have the ability to attract new customers while keeping our current fans through product innovations and new marketing campaigns designed to inspire joy and connection. Our new assortment has broad appeal and uses new, higher quality, and softer fabrics and styles designed to not only look great, but feel great. I’d like to give you some more details on the progress within each pillar. For the consumer, we are focusing on restoring brand relevance, targeting casual and feminine 35 to 54-year-old women who value both fashion and function. Our focus on the 35 to 54-year-old led us in search of data to understand where and how she shops. We are using this data to inform product design development and will continue to use this data to target new customers and embark on new partnerships, licensing deals, and collaborations to extend our reach. We’ve created a multiyear customer product growth plan with a focus on this core consumer target along with an appropriate level of marketing investment to acquire new customers as we launch new product and our refreshed brand vision midyear. For the brand, we are strategically marketing our distinctive and unique position as a feminine fashionable brand that connects with consumers on a deep, emotional level. Vera Bradley is a strong brand with tremendous brand recognition and we’re going to make it even stronger by telling a new story about it. We are refocusing our marketing efforts and shifting more marketing dollars to increase reach in a more precise way through the right media mix. Our initiatives will include more creative campaigns, enhanced digital reach, increased public relations and innovative store efforts to drive interest and gain new customers. We’re also very excited about our new celebrity partner or Chief Joy Officer, who we will announce this summer and we are continuing to shift our focus from channel-specific customer acquisition to an omnichannel perspective for increased media effectiveness. For product, we’re refocusing our core categories and items we are best at by innovating and expanding within our core products. We are elevating our colorful feminine heritage, keeping it distinctive, but more trend-right and modern through updated prints, colors, styles and designs. And we will continue to enter into strategic adjacent lifestyle item introductions that make sense for our customers. We have the benefit of a strong brand with high brand recognition and will be offering something new in the full line accessory space under a good, better, best Halo [ph] model. These changes were derived carefully after extensive customer data analysis. There is more attention to key items like travel bags and these smaller items that fit inside bags like wallets and pouches that allow her to customize her look and personalize her organization. Products are curated to meet the needs of our customers, offering superior quality in fabrication, components and overall craftsmanship. We’ve improved the quality of most of our fabrics while keeping our commitment to increased use of preferred fibers and our retail price structure is unchanged. Although the assortment will look new, it is unmistakably Vera Bradley and our existing customers will still recognize their favorite styles and our distinctive colors, patterns and quilting. The reception from our wholesale customers who have seen our new products at the Dallas, Atlanta and New York markets has been extremely positive. I just mentioned leather. Our revamped leather collection of bags, wallets and wristlets and other accessories debuted last fall. Leather performed well and the initial collection mostly sold out. We’ve built on this success and developed a major expansion as part of New Day. Our outlet stores and outlet website will get new made for outlet styles, prints and collaborations, as well as the benefit of select merchandise transferred from full-line stores throughout the third quarter. Product collaborations will always be an important part of our brand expression. We continue to see strong response from partnerships with Disney, Hello Kitty and Peanuts, and those will continue in all channels. And then finally for the channel, we’re building a balanced footprint that more clearly differentiates our full-line and outlet assortments and experience. We will accelerate our digital-first focus and online reach while maintaining brand-right wholesale relationships and exploring partnerships that will help us acquire new customers. Delivering growth in our ecommerce channels is a key priority. We will accelerate this digital-first focus and elevate our online presence to include more consumer focused features, storytelling and personalized experiences. We are improving our online shopping experience and elevating creative, while offering our outlet assortment online on verabradleyoutlet.com. for the first time ever. We are doing a deep dive into our real estate strategy. Our full-line fleet is 80% in malls and not all of them are A malls. Traffic is declining in some locations and we need to adjust our strategy to optimize the fleet of both full-line and outlet stores. We will explore opening new formats, entering new markets, relocating stores where needed and increasing penetration in existing markets. We have already taken several expense disciplined steps to improve the profitability of our full-line stores. We will update our entire existing full-line store fleet with new branding and an improved shopping experience. The stores will reflect a more modern, less cluttered and easier to shop experience with new fixturing and lighting, allowing the product to shine. Our current year capital budget of $12 million to $14 million is triple of last year’s spending, and much of this is attributable to these remodels. In addition, we plan to open two full-line stores this year and are in the process of identifying prudent, modest store expansion plans for the future. We are also exploring new full-line formats with a focus on lifestyle centers. We’re also taking a comprehensive approach to addressing the trends in Vera Bradley’s outlet channel. We are reviewing all aspects of the outlet operating model for changes and improvements. Keep in mind that the outlet channel remains highly profitable and we will open one new outlet store this year. Maintaining brand-right wholesale relationships are important and we are actively working with new specialty retailers where we know our customer is shopping. As you can see, there’s a lot going on at Vera Bradley. Now let me turn to Pura Vida where we are shifting our focus to delivering profitability and balancing the ecommerce business with wholesale and retail stores. Pura Vida’s revenues have declined the last two quarters, largely as a result of increased digital media costs that led to new to lower customer acquisition. We diversified our marketing spend and are making additional efforts to retain customers while continuing to work on each pillar of Project Restoration. For the consumer we’re sharpening our focus on the 18 to 24-year-old collegiate girl. We will shift our marketing strategy to increased appeal to Gen Z based on our most recent research. For the brand we are recentering our brand ethos on living life to the fullest, sharing real moments, places and faces in our marketing campaigns and sharpening our focus on Gen Z. We are more analytical, using our newly implemented comprehensive customer data platform to more strategically target customers and potential customers with a focus on acquisition, but especially on repeat purchases and retention. This significantly enhanced customer reporting and increased analytics have made us smarter in analyzing challenges and we are investing in new tools to AB test and improve the site experience and conversion. For product we are focused on delivering unique, fun, playful designs that are affordable and accessible with a dominant emphasis on bracelets and jewelry as well as other strategic adjacent categories. We will continue to innovate around string bracelets and our other jewelry and accessory categories. Our custom bracelets, from Harper Charms to engravable items to building your own bracelets, are popular and continue to be a big growth opportunity. We will continue to pursue high profile collaborations like Hello Kitty, Shark Week and Harry Potter, which are always fan favorites and bring new customers to the brand. Social responsibility is important to the Pura Vida customer and we back this through our charity program which supports dozens of causes. And finally, for channel we continue to have strong focus on restoring ecommerce growth with a greater focus on repeat purchases as well as strategic growth of wholesale. Additionally, our success in retail stores has driven us to find new store locations for this year and beyond. We expect to open at least two new additional stores this year. Now let me turn the call over to CFO, Michael Schwindle to review the financial results. Michael? Michael Schwindle: Thank you Jackie and good morning everyone and thank you for joining us. Before we open for questions, I have a few highlights for the fourth quarter and the full year to cover. For the sake of clarity, the numbers I am discussing today are all non-GAAP in nature and exclude the charges outlined in today’s press release. A complete detail of items excluded from the non-GAAP numbers, as well as a reconciliation of GAAP to non-GAAP can also be found in the release. Beginning with our fourth quarter, consolidated net revenues totaled $133.3 million compared to $147.1 million in the prior year. Consolidated net income totaled $3.5 million, or $0.11 per diluted share, compared to a net loss of $1 million, or $0.03 per diluted share last year. The current year fourth quarter consisted of 14 weeks compared to 13 weeks in the prior year fourth quarter. The full year fiscal 2024 consisted of 53 weeks compared to 52 weeks in the prior fiscal year. Comparable sales discussed by Jackie and myself during this call were calculated based on 13 weeks in each of the fourth quarters and 52 weeks in each of the fiscal years. The additional week contributed approximately $6 million in net revenues and increased earnings per share by approximately one penny for both, the current year fourth quarter and the fiscal 2024 year. Current year fourth quarter Vera Bradley direct segment revenues totaled $93 million, a 6.6% decrease from $99.5 million in the prior year fourth quarter. Comparable sales decreased 10% from the prior year, largely driven by weakness in the outlet and full-line channels. Total revenues were also impacted by store closures over the last twelve months, including eight full-line stores and one outlet store, while we also opened three outlet stores over the last twelve months. Vera Bradley Indirect segment revenues totaled $16.1 million, a 3.7% decrease over $16.7 million in the prior year fourth quarter. The decrease was primarily related to lower sales to certain specialty partners and key accounts. Pura Vida segment revenues totaled $24.2 million, a 21.6% decrease from $30.9 million in the prior year fourth quarter, primarily a result of declines in ecommerce and wholesale sales. Fourth quarter gross margin totaled $69.6 million or 52.3% of net revenues compared to $60.7 million or 41.3% of net revenues. The current year gross margin rate compared to the prior year rate was favorably impacted by lower year-over-year inventory reserve charges, lower inbound and outbound freight expense, lower supply chain costs and sell-through of previously reserved inventory, partially offset by increased promotional activity. Prior year gross margin was materially impacted by inventory reserve charges and high inbound and outbound freight expense as well as overhead costs. SG&A expenses in the fourth quarter totaled $65.7 million, or 49.3% of net revenues compared to $64.4 million or 43.8% of net revenues in the prior year fourth quarter. Vera Bradley’s current year non-GAAP SG&A expenses were higher than the prior year quarter, primarily due to incremental marketing expenses in the quarter, partially offset by savings from companywide cost reduction initiatives. Fourth quarter consolidated operating income totaled $4.1 million or 3.1% of net revenues, compared to a consolidated net operating loss of $3.5 million or 2.4% of net revenues in the prior year. Now, turning to the full year results, our consolidated net revenues for the year totaled $470.8 million compared to $500 million last year. Consolidated net income totaled $17.2 million, or $0.55 per diluted share, compared to a net loss of $3.2 million, or $0.10 per diluted share last year. Vera Bradley Direct segment revenues for the current fiscal year totaled $309.9 million, a 5.6% decrease from $328.2 million in the prior year. Comparable sales for the year declined by 7.1%. Vera Bradley Indirect segment revenues for the fiscal year totaled $73.8 million, a 0.7% increase over 73.3 million in the prior year, primarily reflecting an increase in certain key account orders partially offset by a decline in certain specialty department revenues. Current year Pura Vida segment revenues totaled $87.1 million, an 11.5% decrease from $98.4 million in the prior year, reflecting declines in ecommerce and wholesale sales, partially offset by growth in retail store sales. Gross margin for the current fiscal year totaled $256.4 million, or 54.5% of net revenues compared to $240.5 million, or 48.1% of net revenues last year. The current year gross profit rate compared to the prior year was favorably impacted again by year-over-year inventory reserve charges, lower year-over-year inbound and outbound freight expense, lower supply chain costs and sell-through of previously reserved inventory, partially offset by increase in promotional activity. For the fiscal year, SG&A expense totaled $234.7 million, or 49.9% of net revenues compared to $245.3 million or 49.1% of net revenues in the prior year. The decline in the current year expenses was driven by companywide cost reduction initiatives. For the fiscal year, the company’s consolidated operating income totaled $22.6 million, or 4.8% of net revenues compared to consolidated operating loss of $4.4 million, or 0.9% of net revenues in the prior year. Now, turning to the balance sheet, our fiscal year end cash and cash equivalents totaled $77.3 million compared to $46.6 million at the end of the last fiscal year. We continued to have no borrowings on our $75 million ABL facility at year end. Total fiscal yearend inventory was $118.3 million compared to 142.3 million last year. We have taken strategic actions to reduce our inventory levels and believe we are appropriately positioned as we head into spring and prepare for our new product launches in July. In fiscal 2024, we purchased approximately 360,000 shares of common stock at an average price of $6.10 per share for an aggregate of approximately $2.2 million. $25.5 million remains under our $50 million repurchase authorization and that expires in December of 2024. Now looking forward to our guidance for fiscal 2025, our estimates for fiscal 2025 are based on current macroeconomic trends and expectations as we begin to unveil the results of Project Restoration and the launch of New Day midyear. As a result of this timing, we expect to continue to experience some revenue challenges in the first half of the fiscal year and see improving sales and profitability trends in the second half of the year. We expect to continue to take advantage of gross margin improvement opportunities and will manage our expense structure diligently. As a reminder, all forward looking guidance numbers are on a non-GAAP basis. For the full year fiscal 2025, we expect consolidated net revenues of $460 million to $480 million. As a reminder, net revenues totaled $470.8 million in fiscal 2024. We expect Vera Bradley brand sales to grow by low single digits for the year, with accelerating sales in the second half as we launch new products, branding and marketing. We anticipate Pura Vida brand sales will decline in the mid-teen range as we continue to manage the business for profitability by addressing marketing efficiencies impacting ecommerce sales, which will be partially offset by increased retail sales. We also expect consolidated gross margin of 54% to 55% compared to 54.5% in fiscal 2024. The fiscal 2025 gross profit rate is expected to be relatively flat to last year due to product margin improvements and lower supply chain costs offset by increased shipping costs. Consolidated SG&A expense is expected to range from $229 million to $239 million compared to $234.7 million last year. Year-over-year SG&A expenses are expected to be relatively flat to last year, driven by incremental marketing investments associated with the New Day launch offset by companywide expense reductions and lower Pura Vida expenses. This results in anticipated consolidated operating income of $21 million to $24.5 million compared to $22.6 million in fiscal 2024 along with diluted earnings per share of $0.54 to $0.62 compared to $0.55 last year. We also expect a net capital spending of approximately $12 million to $14 million versus $3.8 million last year. This spend reflects investments associated with new and remodeled stores as well as technology and logistics enhancements. As a result, our free cash flow is anticipated to be approximately $10 million in fiscal 2025 compared to $44.2 million in fiscal 2024. And that concludes our formal remarks. So Sherry, we’d like to open up the call for questions. See also 25 Countries With Highest Abortion Rates and Best and Worst Dating Apps in 2024 Ranked By Reviews. Q&A Session Follow Vera Bradley Inc. (NASDAQ:VRA) Follow Vera Bradley Inc. (NASDAQ:VRA) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator Instructions] Our first question is from Joe Gomes with Noble Capital Markets. Please proceed. Joe Gomes: Good morning. Jacqueline Ardrey: Good morning, Joe. Michael Schwindle: Joe Gomes: So just Jackie, you’ve talked about a lot of changes coming on both of the brands in calendar year 2024. You’ve been there for 18 months. Michael, you’ve been there for about a year, talked about Project Restoration for roughly a year. The challenge of turning around just that much bigger than you originally anticipated, or is there just things that are occurring that it’s taken you a relatively long period of time to get your hands around it in order to come up with the changes here that you’ve outlined today? Jacqueline Ardrey: That’s a great question, Joe and the short answer to that is no. We are absolutely on track in terms of our efforts to turn around the business. The first thing that we really had to deal with was a very long product lifecycle. So I’ve been here about 15 months and our product lifecycle is roughly 18 months. So kind of getting in the seat and then hiring the team to be able to do this level of transformation. We’re right really where we need to be in terms of launching all of this in the middle of the year. And I would say further to that, that it’s a big change and it’s the one thing over the years many people have followed the brand, and there’s been a lot of things at Vera Bradley specifically that we’ve done. This is a different effort. This is a very comprehensive effort that’s really outlined by Project Restoration. It’s not just one part of the pillar, it’s the entire pillar. So this was a bigger effort. And then expect to see that in the middle of the year when we launch New Day for Vera Bradley, that we’ll see some really good results. On the Pura Vida side definitely different issues. We’re seeing some other external issues that have really kind of caused us to say, you know what, this is a business that we’re going to manage for profitability and we did that this year. We did that for the year. We did that for the quarter. So I feel our plans are really on track. Joe Gomes: Okay, thanks for that. I appreciate that. And in the comments today, you talked about improving the quality of the fabrics with an unchanged retail price. Does that have any margin impact, or have you got to the point where margins, that won’t impact margins by improving the quality of your fabrics, but maintaining price? Jacqueline Ardrey: Yes, that’s a great question, too and we kind of expected that one today. So it’s definitely — the short answer to that is no. We are actually expecting our product margins to be about the same or a little bit better. And that’s because of mix shift for sure, is one element, and then another element is just the designs that we’ve just been able to design into styles that can highlight the fabrics, the new and improved fabrics that we’re using with less make. Joe Gomes: Okay, thank you. And you also talked about the new full-line format with a focus on lifestyle centers and I was wondering if you could just kind of give us what you meant by that or what you mean by that? Jacqueline Ardrey: Sure. It’s really just the alternative to our in-mall format, which is currently the majority of our fleet. We would like to mix up that ratio and be in a little more lifestyle center, so places that are — shopping centers that are anchored with whole foods, and in places where she’s going all the time. So all of this is really centered around, for Vera Bradley, centered around the customer and understanding where she shops, not only from a specialty or lifestyle retailer point of view, but where she’s going every day and how do we just get more in the front of her mind and consideration set? Joe Gomes: Okay, one more, if I may. So fiscal 2025 is based on your guidance today, kind of going to be a replay of 2024 from a financial point of view. And I was just wondering, what do you think, or what do you see could occur that might make 2025 a better outcome from a financial point of view than 2024? Jacqueline Ardrey: Michael, do you want to take that? Michael Schwindle: Let me jump in first. I think the first and the biggest of this would be customer reaction on the other side of New Day. We are being pretty diligent and judicious in our expectations, making sure that we’ve got an organization that’s focused on delivering. So to the extent that consumer reaction is obviously better than what we had planned, that would obviously be better results as well. I think additionally, as I mentioned in my forward looking comments, we are anticipating some continued overhang, economic — macroeconomic overhang. We saw over the course of 2024 and we talked about this on prior calls, we saw sequential declines in traffic patterns across most of the year. That continued through into the fourth quarter as well. And I think that’s reflective in a lot of other retailer results that have been released over the last week or two. So we have continued to anticipate that some portion of that’s going to continue to hang over into 2025. So if that outlook gets better, then of course the rising tide lifts all boats on that as well. Joe Gomes: Great. I appreciate you guys taking my questions and look forward to an interesting 2025. Michael Schwindle: Thanks, Joe. Jacqueline Ardrey: Thanks, Joe. Operator: Our next question is from Eric Beder with SCC Research. Please proceed. Eric Beder: Good morning. Jacqueline Ardrey: Good morning, Eric. Eric Beder: Good morning. So you’ve made tremendous progress in terms of reducing inventory levels. I gather from what I’m hearing in your guide that’s going to start to level off. How should we be thinking about the inventories going forward?.....»»
Lifetime Brands, Inc. (NASDAQ:LCUT) Q4 2023 Earnings Call Transcript
Lifetime Brands, Inc. (NASDAQ:LCUT) Q4 2023 Earnings Call Transcript March 12, 2024 Lifetime Brands, Inc. misses on earnings expectations. Reported EPS is $0.29 EPS, expectations were $0.32. Lifetime Brands, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, […] Lifetime Brands, Inc. (NASDAQ:LCUT) Q4 2023 Earnings Call Transcript March 12, 2024 Lifetime Brands, Inc. misses on earnings expectations. Reported EPS is $0.29 EPS, expectations were $0.32. Lifetime Brands, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, ladies and gentlemen, and welcome to the Lifetime Brands’ Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers’ remarks, there will be a question and answer portion of the call. [Operator Instructions] I would now like to introduce your host for today’s conference, T.J. O’Sullivan. Mr. O’Sullivan, you may begin. T.J. O’Sullivan: Thank you. Good morning, and thank you for joining Lifetime Brands’ Fourth Quarter and Full Year 2023 Earnings Call. With us today from management are Rob Kay, Chief Executive Officer; and Larry Winoker, Chief Financial Officer. Before we begin the call, I’d like to remind you that our remarks this morning may contain forward-looking statements that relate to the future performance of the Company, and these statements are intended to qualify for the Safe Harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today’s press release, and other factors are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the Company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in today’s press release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in the press release is a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP. With that introduction, I’d like to turn the call over to Rob Kay. Please go ahead, Rob. Robert Kay: Thank you T.J. Good morning, everyone, and thank you for joining us today. We had a strong fourth quarter delivering results that helped us to meet or exceed net sales, income from operations and adjusted EBITDA targets from the revised full year guidance metrics we provided last quarter as well as analyst estimates. We are pleased with the strong net sales growth we are driving across categories, especially in our ecommerce channels which continues to gain share. When coupled with our continued focus on driving efficiencies across the business, this outperformance translated to meaningful operating income growth that we expect will continue in 2024. To start, I’d like to walk you through our fourth quarter and full year results at a high level. In the fourth quarter, we delivered $203.1 million in net sales and $21.5 million in adjusted EBITDA compared to $207 million in net sales and $19.7 million in adjusted EBITDA in the prior year period. For the full year, we generated $57.3 million in adjusted EBITDA compared to $58.2 million in 2022, coming in ahead of our internal estimates, thanks to diligent expense management and a focus on incremental revenue opportunities throughout the year. Of note, our performance was notwithstanding $3.6 million of one-time charges in 2023. We have been encouraged by the improving supply chain environment in recent quarters and experienced no disruptions in the fourth quarter. Though we are monitoring potential issues stemming from ongoing geopolitical challenges in the Red Sea, which have had some initial impact on ocean freight cost and shipping times. Further, with another quarter of normalized shipment and ordering activities now behind us, we believe that the oversupply issues our retailers experience coming out of the pandemic have dissipated. Turning now to our international business. Throughout 2023, we remained diligent in the execution of our international turnaround strategy and we are pleased with the meaningful progress we have made including market share gains in these end-markets. In Australia and New Zealand, the direct go to market strategy we implemented earlier this year is translating to increased listings with additional accounts, products and brand listings. Additionally, we continue to drive incremental revenue opportunities as we roll out new product lines into our international markets driven by our highly successful KitchenAid offering. As a result of these factors, in the fourth quarter, we saw the first turnaround in year-over-year international revenues since 2021. As part of our international turnaround plan, we took a non-cash inventory write-off in the fourth quarter, which impacted our bottom-line performance, but we expect that the aforementioned initiatives will have a meaningful impact on our international channel’s bottom-line in 2024. In our Food Service business, we remain on track to achieve significant growth in 2024 as Mikasa Hospitality continues to gain traction and capitalize on the market positioning achieved in 2023. While this business is still in its early stages, we are confident that Lifetime is now recognized as an important participant in the food service industry and will continue to expand its product placement across North America. We maintain our long-term view that we can grow our total food service business to $60 million in revenues by 2026. Refining and building out our ecommerce strategy remains a key strategic priority for Lifetime. This quarter ecommerce net sales exceeded 23% of our total net sales for the quarter contributing meaningfully to our overall outperformance. This represents an increase of nearly 3.5% from the comparable quarter a year ago when our ecommerce net sales were slightly below 20%. We are continuing to hone our online strategy to ensure we are best positioned to capitalize on the significant opportunities we see in the channel. We maintain a strong focus on new product development and channel expansion to bolster our market position. Looking ahead, we are excited about our robust new product pipeline, many of which are incremental revenue opportunities. Production of our previously announced Dolly Parton-branded products is well underway with shipments on track to begin in April and the majority of products slated for the second half of the year. This launch is across four different product categories all in the Dollar channel, which is a new channel for Lifetime. We are also reinvigorating our robust pipeline of 12 products with new items being launched in the first quarter of 2024. These will initially be available online on swell.com as well as across ecommerce channels. In line with our commitment to reduce our exposure to supply chain issues in China, we continue to ramp up production capacity in our Mexico facility. With the facility now operational, and on track to reach full capacity in 2024, and combined with other sourcing initiatives we are well on our way to meeting our previously stated target of approximately 25% of our spend on goods being outside of China by the end of the year. Active balance sheet management remains a priority for us and we are pleased with our financial position as we enter 2024. Our disciplined cash management throughout 2023 led to a noticeable improvement in working capital year-over-year in both our US and international businesses, which Larry will discuss in further details shortly. We remain prudent in our approach to capital allocation and are open minded to value-enhancing M&A opportunities that align with our strategic priorities. We will continue to evaluate opportunities as they arise, especially in the current market, which favors strategic buyers. In summary, we are pleased with the strong momentum across our business as we close out 2023. The significant work we have done over the past several years to transform and reposition our business is paying off and we are entering 2024 as a more focused agile company. Looking ahead, we are excited by the meaningful work already underway across our organization to continue – and growing market share generating significant value for our shareholders. With that, I will now turn the call over to Larry. Laurence Winoker : Thanks, Rob. As we reported this morning, net income for the fourth quarter of 2023 was $2.7 million or $0.13 per diluted share versus $3.3 million or $0.15 per diluted share in the fourth quarter of 2022. Adjusted net income was $6.3 million for the fourth quarter of ‘2023 or $0.29 per diluted share as compared to $7.5 million or $0.35 per diluted share in 2022. Income from operations was $15.7 million for the fourth quarter of ‘23 as compared to $12.8 million in the 2022 period. Adjusted income from operations for the fourth quarter of ’23 was $19.4 million compared to $18.2 million in the 2022 period. And adjusted EBITDA for the full year of 2023 was $57.3 million. Adjusted net income, adjusted income from operations and adjusted EBITDA are non-GAAP financial measures, which are reconciled to our GAAP financial measures in the earnings release. The following comments are for the fourth quarter of 2023 and 2022, unless stated otherwise. Consolidated sales declined by 1.9%. U.S. segment sales decreased by 4% to $185.2 million. The decrease occurred in the tableware and home solutions categories. Tableware was lower as most of its warehouse programs shipped during the first nine months of the year and home solutions declined due to lower hydrated products in the corporate sales channel. The decrease was partially offset by strong sales in the kitchenware category. International segment sales increased by $3.8 million or $2.9 million in constant U.S. dollar to $17.9 million. As Rob discussed, in the fourth quarter, international had its first upturn in sales since the fourth quarter of 2021. The increase was attributable to higher ecommerce sales and market share gains from the launch of the go to market strategy and an increase in Asia sales too. Gross margin increased to 36.4% from 34.9%. U.S. segment gross margin increased to 37.2% from 35.8%. The improvement is due to lower inbound freight rates and favorable product mix. For international, gross margin decreased 27.2% from 37.1%, most notably, from reserves to certain slow moving inventory. U.S. segment distribution expenses as a percent of goods shipped from its warehouses excluding the warehouse redesign expenses were 8.7% versus 9.2%. The improvement was attributable to the significant reduction in inventory with limited the need for outsized storage and improved operating efficiency. In addition, better safety experience, lower insurance cost and abating inflations reduced some other expenses such as perplex[Ph]. These reductions more than offset the cost of higher labor rates. International segment distribution expenses as a percent of goods shipped from its warehouses were 19.1% versus 19.6%. The improvement was due to lower outbound freight rates and more shipments from The Netherlands warehouse. Selling, general and administrative expenses decreased by 4.1% to $38.7 million. U.S. segment expenses decreased by $3.2 million to $29.1 million and as a percentage of net sales, expenses decreased to 15.7% from 16.7%. The decrease was attributable to lower allowances for bad debt and a decrease in acquisition-related contingent consideration. International SG&A expenses increased by $700,000 to $4.5 million. As a percentage of net sales, expenses decreased to 25% from 26.7% due to the effect of period expenses on higher sales volume. Unallocated corporate expenses increased by $0.8 million to $5.1 million. The prior year reflected an expense reduction for performance stock awards not expected to be earned. Interest expense, excluding a mark-to-market adjustment for swaps increased by $0.5 million due to higher interest rates on our variable rate debt, substantially offset by lower average borrowings. The loss of extinguishment of debt was for the write-off of unamortized term loan fees into a loan amendment. For income taxes, in both Q4 2023 and 2022, the rate exceeded statutory rate primarily due to state local tax expenses, non-deductible expenses and firm losses for which no benefit is recorded. And related to our 24.7% equity interest in Grupo Vasconia, we reported our proportional share of its losses. Grupo Vasconia is a passive investment for us. Finally, turning to our balance sheet. In November, we amended and expanded our term loan. We now have no debt maturities until August 2027. In connection with this term loan amended and expand, we repaid $48.7 million of principal and as reminder, in June of ’23 we repaid $47.2 million of principal too. Notwithstanding this $97 million reduction of permanent debt, our balance sheet continues to be very strong with $134 million of liquidity. Liquidity includes cash, plus availability under our credit facility and receivable purchase agreements. Our adjusted EBITDA to net debt ratio as of yearend was 3.4 times, a considerable improvement from 4.0 times at year end 2022. This concludes our prepared comments. Operator, please open the line for questions. See also 20 Largest Armed Forces in the World Ranked by Active Military Personnel and 13 Alternatives to Disney World For a Family Theme Park Vacation. Q&A Session Follow Lifetime Brands Inc (NASDAQ:LCUT) Follow Lifetime Brands Inc (NASDAQ:LCUT) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] And our first question comes from Anthony Lebiedzinski with Sidoti & Company. Please state your question. Anthony Lebiedzinski: Good morning and thank you for taking the questions. So, the first… Robert Kay: Hey Anthony. Thanks. Anthony Lebiedzinski: First – hi good morning. So, yeah, first just a quick follow-up in terms of the fourth quarter sales. So, I know on your last conference call in November, you guys talked about a timing shift for shipments to a certain large warehouse club customer. So was the US segment sales hurt– was that the primary reason why your segment sales were down from a year ago was because of this timing shift or is there anything else that happened there? Robert Kay: Yes. The fourth quarter came in above our revised guidance range. If you look at on a year-over-year basis, there was a club program which didn’t repeat and that’s driving year-over-year performance. The outperformance versus our revised upward guidance that we issued last quarter was not related to the club channel. Anthony Lebiedzinski: Okay. Got you. Thanks for the clarification Rob, so. And then, to just – to follow-up in regards to the overall ecommerce strategy so, you mentioned that it was 23% of your sales in the fourth quarter. Do you have that number for the full year? And then, as you look forward, did you guys have a goal in mind in terms of how high you want to get this to? And just wondering about the margin profile for that channel versus others. Robert Kay: Yeah, Anthony, let me start and then Larry will give you the particulars, by the way 23.2% I believe this quarter. So, we do not have a target number in mind. Our sales philosophy is to sell wherever the consumer is and to maximize those opportunities. So, we did reorient in terms of how we stand in our approach which is why we’ve been successful across all channels growing and growing our share in each channel. So we tweak that a little bit about 6 to 8 months ago and is paying off nicely for us in gaining market share. So we are trying to maximize the pie in every channel for us. But there is no specific target and part of that is based upon the overall market and again where the consumer is spending, right? So, if the consumer spends 50% of their dollars in the ecommerce channel, we want to be at least 50% right? So that will drive a bit more than what we are experiencing now, which isn’t being driven by a shift in the quarter or last six months really towards ecommerce in the total market, it’s more just Lifetime’s approach to that channel which has been giving us enhanced success. Larry, you want to give full number – full year now. Laurence Winoker: For the full year, ecommerce sales increased, 2022 it was 18.7% of sales and ’23 full year was 19.3%. Anthony Lebiedzinski: Got you. So thanks for that. Okay, perfect. And then, so as far as the margin profile for ecommerce versus others, is that comparable? Robert Kay: Yes, sorry, I forgot to answer that, yes. Yeah again, it is comparable but there are different channels which have different dynamics; as we talked about the club channel which is a very healthy and good channel for us, does usually run at a lower gross margin. Anthony Lebiedzinski: Understood. Robert Kay: It does have working capital benefits but again it’s all priced accordingly. But in general, yes, the answer to your question is yes. Anthony Lebiedzinski: Got you. Okay. So I know you are not yet providing guidance. I know typically you do that in May. But as far as, just if you could – wondering if you guys could provide some additional color. So as you have your conversations with your top customers, what are you hearing from them in regards to overall demand as far as retail traffic or online traffic, just as but what can you share with us as we try to recalibrate our models hereafter the results. Robert Kay: Yes, so the market seems to be stable and retailers are definitely more comfortable. There is less discounting than you see when they are having trouble so there isn’t a discounting that we are seeing in the market. There is healthy dialogue. The industry’s big show happens next week, look no more after that. But we are comfortable with the conversations we are having, we don’t see there being a downward discussion. Anthony Lebiedzinski: Got you. Okay. And then last question before I turn it to others. So, you did a nice job with improving your cash flows. It looks like healthy inventory levels as well. As we look forward, do you think you can further reduce inventories? I know there are some quarterly variations obviously, but I mean, as far as just when you look at managing inventories, do you think there is some further improvements that you can make? Or you think this is kind of like that the bulk of that has already been realized? Robert Kay: Yeah, Anthony, again just backing up a second. Lifetime’s financial profile is a very strong free cash flow. So we generate very good free cash flow and we have a very strong balance sheet. In a lot of the macro driven challenges over the last couple of years including trade issues, ocean freight issues, availability and COVID-related, we made a decision as we were very public about to invest heavy in inventory and we use that to help gain market share which we’ve retained and by investing in more higher inventory levels. In 2022/23 when the market wasn’t as robust, we in an orderly basis because as we said this was always good inventory, we reduced those inventory levels and again we point out that our margin maintained or grew. So it wasn’t like we were dumping the inventory and it wasn’t excess, it was just an investment and we monetized that that helped us, as Larry mentioned, it helps us be in a position to repay almost $100 million of term loan in 2023. So, just in general, it’s very strong. Do we have an ability to further reduce inventory levels from where they are today? We do in our international markets, more so in the US. With the one caveat that the trade retailers in general have relied more which has been beneficial to us, but relied more on vendors for replenishment inventory and less in their own distribution centers near because they are smart and they can push that down to strong people like us. In very robust economic times that shifts where they want quicker turns into their stores, that’s we are not in that environment now, in a high growth environment. So that always helps us in terms of inventory turns, because it’s not in our DCs it’s in theirs. But the big numbers we’ve taken off of our balance sheet in the US, there is still room internationally. Anthony Lebiedzinski: Understood. Well, thank you very much for all that color and best of luck going forward. Robert Kay: Thanks, Anthony. Operator: [Operator Instructions] Our next question comes from Brian McNamara with Canaccord Genuity. Please state your question. Brian McNamara : Hey. Good morning. Thanks for taking the question guys. So, Rob, in November, you mentioned that you did not expect much of a rebound in the US end markets in either Q4 or 2024 as visibility remains pretty poor. I am curious if that view has changed at all relative to four months ago. Robert Kay: Tough to answer that, Brian. Yeah, a little bit, I mean, first starting with Q4, we exceeded, right, we have revised our guidance upwards and we exceeded everyone’s expectations including our own. So the market performed stronger than what we expected positive in terms of our expectations fairly on top of our business. It did better than we expected and that’s good obviously. So, we are still getting the data points we are particularly this year, as we launch a whole new channel and a new line. This is big market share pick up. So that’s not end-market delivery results. We will get results from that by our newness incremental. There is a little better clarity. But I think that we are still in a market where there is still unknowns in terms of general economy less so in North America than internationally. But there is an absolute clarity of what we see in normal condition. Brian McNamara : That’s helpful. It’s nice to hear the new product launches for S’well in Q1. I guess, I am curious your views on the hydration segment overall given the recent Stanley craze and how you intend to position the brand in the market with competitive intensity ramping here? Robert Kay: Yes, Stanley has been a phenomenon and has gained tremendously. As the whole category has grown driven primarily by Stanley and one other participant is not particularly well particularly at Walmart. They have been driving that category. Still very big category in S’well’s [Indiscernible] brand was needed additional investment that from when we bought it and we have done that. And while it’s really a phenomenal brand with great equity from a product development perspective we inherited zero pipeline and we reinvigorate that. And we have and actually you can see just by going on swell.com or one of the ecommerce channels at our pureplay guys, you will start to see our products. So, but, Stanley, everyone including us had entrants into these keeping very high graded with very really big bubbles, right which is what Stanley is. And look, it’s done a phenomenal job. So we are increasing our advertising, because Stanley as a good example has done a tremendous job in social media. We need to get the story out it’s a great brand. We need to reemphasize the story that already people know, particularly with Swell, but also bell. Bell has a major participation in hydrates. So we are spending more to reinforce our brand equity. We reinvigorated both at – Swell product development you will see go online you will already see and you will continue to see that come to market, which we are very enthusiastic about. Brian McNamara : Great. That’s helpful. I know you are not providing obviously fiscal guidance until May. But is it reasonable to expect top-line growth this year? Robert Kay: Yeah. I mean, wait till May. But one thing just mathematically to look at is, we are doing a major launch into a channel with Dollar General has 20,000 stores, okay? They’ll have 23,000 very shortly. We are going to be in every one of those. So, that’s going to have an impact. Part of that won’t be into ’25, but it decent amount will be in ’24. Brian McNamara : Okay. If that’s not quite well since your Q3 earnings, I am curious what should it get investors excited for 2024 and moving forward? And then I am done. Thanks and appreciate you taking all the questions. Robert Kay: No problem. So, as you know, Brian and other people, management and our key shareholders that are on the Board own a lot this company. We are very committed with our own money in terms of stake in the company and we are very pleased with the run up of the stock this year. We still think it’s tremendously undervalued and just the math and everyone can vote with their own dollars. So, we are pleased. We think there is just where we are today is and particularly relatively so. There is undervalue if you look at the cash flow that we generate and just the math. But we’ve been turning around our international business that’s got huge potential, that’s huge opportunity there which start to see some traction. Mikasa Hospitality, yeah, as we grew the business from when we launched the business, changed management in 2018, we put something together. We streamlined the operation, but we also launched our food service initiative in Mikasa Hospitality and that takes time, COVID laid that, but we’ve – as we’ve talked about, gained real traction in 2023, we’ll see real results in 2024 and beyond in particular. That business is really an annuity business once you are specked on you are selling that same product for years. So that will ramp up and that’s something that we have talked about being excited about. We see that now to net gain and remain very, very excited. There has been some bumps. We haven’t lost any market share. But there has been some bumps in 2022. After COVID the company is very streamlined and as we continue to grow, a lot of that falls disproportionately, which is a positive to the bottom-line. Very excited about that. We talked – we don’t overemphasize in terms of the M&A opportunities, but strategically have an advantage for the first time in 20 years and have bought dozens of companies. So we are cautiously optimistic that will translate opportunities for us. Frankly, if we wanted to be much more aggressive, we’d be buying a lot more businesses today. But we will maintain a very strict financial discipline and – but we think the opportunity isn’t hopefully will be able to transact it takes to and we are not going to sacrifice our discipline to do that. So there is many different levers that excite us and hopefully excites the public in terms of the ability to continue to create level own just from a cash flow generation basis, we continue to create equity value with the cash flow that we generate even as we did not grow and of course with all these levers we think there is ample opportunity for nice growth above the market. Brian McNamara : Okay. Thank you. Robert Kay: Thank you, Brian. Operator: Thank you. And there are no further questions at this time. I’ll hand the floor back to management for closing remarks. Robert Kay: Thank you, operator. Thank you everyone for attending our call. We look forward to issuing our full year guidance as is our custom with our next call. Larry and I remain open for anyone who has questions or comments or want to discuss any aspect with us in the interim. Thank you very much and have a great day. Operator: This concludes today’s call. All parties may disconnect. Have a good day. Follow Lifetime Brands Inc (NASDAQ:LCUT) Follow Lifetime Brands Inc (NASDAQ:LCUT) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»
First it was warehouses taking over America. Now it"s data centers.
In Sunday's edition of Insider Today: Bitcoin is here to stay, and the first wave of "walking-dead" venture firms is here. Alvarez/Getty ImagesThis post originally appeared in the Insider Today newsletter.You can sign up for Business Insider's daily newsletter here.Welcome back to our Sunday edition. If you have a sweet tooth and some time to spare, I recommend this story about an entrepreneur who tried to scale his artisanal marshmallows.On the agenda today:The US grid is under pressure. Some traders are hunting bottlenecks.Bitcoin is up, down, and here to stay.The first wave of "walking-dead" venture firms is here.Sam Altman's future AI empire is sprawling.But first: Warehouses were the first to take over America. Now it's data centers.If this was forwarded to you, sign up here. Download Insider's app here.Jahi Chikwendiu/The Washington Post via Getty ImagesThis week's dispatchData center boomAmerica's biggest warehouse owner is getting in on the data center game.Prologis, the $100 billion-plus real-estate giant, has hired a new global head of data centers and could invest more than $25 billion into the sector in the coming years.Prologis had previously driven a boom in warehouse investment as ecommerce took off during the pandemic. Now, along with Blackstone, it's placing a big bet on data centers."There is insatiable demand," Prologis's CEO said on a recent earnings call. "We can see easily 10, 15, 20 years of projects out there."The data center boom is being supercharged by the growing interest in AI. Big Tech companies and venture capitalists are pouring billions into generative AI efforts based on its potential to reshape our virtual realities.The building boom is a reflection of the physical infrastructure required to make that virtual world a possibility. And it's having very real-world consequences. Data centers are going up across rural America, impacting communities and placing strains on utilities. It's a story we'll be following in the months to come.Getty Images; Alyssa Powell/BIBitcoin isn't going anywhereIt was a bumpy week for bitcoin. First, the digital currency surpassed its all-time high of nearly $69,000 only to see its price quickly fall again.We've been here before: Bitcoin has had sudden, exciting price jumps (and falls) in 2013, 2017, and 2021, to name a few. The cryptocurrency's most recent boom is proving that its chaotic, roller coaster nature isn't a bug — it's a feature. And it's here to stay.What's going on with bitcoin.LedyX/ShutterstockFear the "Walking Dead" VCsAccording to PitchBook, the number of VCs in US deals peaked at 18,504 in 2021 and fell to 9,966 last year. Unlike other businesses, venture firms don't suddenly go out of business. Some become zombies, wreaking havoc on startup founders.Some founders said they have to make sure firms they meet with are still even in business. BI looked at PitchBook's data to identify some of the most inactive VC firms.See which firms have been inactive.Alastair Grant/AP; Rebecca Zisser/BISam Altman's expanding empireAltman, much like Elon Musk, has transcended merely running a business. He's selling a worldview. It's one where private companies and billionaires can solve humanity's problems.Such a dream will require more money than has ever been spent on any business venture in history. But with a network of startups preparing for the rise of artificial general intelligence, Altman is on it.Inside Altman's sprawling network of investments.Also read:Elon's crush on OpenAISam Altman is done playing nice with Elon MuskThis week's quote:"It's called embedding with the enemy. It's an age-old military tactic."Jeff Peticolas, a Michigan man protesting the arrival of a Chinese electric-vehicle-parts manufacturer to his hometown.More of this week's top readsThis CEO wants to kill the résumé.Amazon is waging a secret war on Android.One woman saw the financial crisis coming. Wall Street's boys club ignored her.These are the 15 US cities where your money goes the furthest.Founders Fund partner Sam Blond has left the firm.Meta's Facebook Messenger was hit with layoffs amid an ongoing "efficiency" push.A boomer couple moved from California to Kansas.Americans are facing a looming retirement crisis.Microsoft insiders share what they really think about the company's AI future.The Insider Today team: Matt Turner, deputy editor-in-chief, in New York. Jordan Parker Erb, editor, in New York. Dan DeFrancesco, deputy editor and anchor, in New York. Lisa Ryan, executive editor, in New York.Read the original article on Business Insider.....»»
Distribution Solutions Group, Inc. (NASDAQ:DSGR) Q4 2023 Earnings Call Transcript
Distribution Solutions Group, Inc. (NASDAQ:DSGR) Q4 2023 Earnings Call Transcript March 7, 2024 Distribution Solutions Group, Inc. misses on earnings expectations. Reported EPS is $-0.00035 EPS, expectations were $0.14. DSGR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings. Welcome […] Distribution Solutions Group, Inc. (NASDAQ:DSGR) Q4 2023 Earnings Call Transcript March 7, 2024 Distribution Solutions Group, Inc. misses on earnings expectations. Reported EPS is $-0.00035 EPS, expectations were $0.14. DSGR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings. Welcome to the Distribution Solutions Group Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Steven Hooser. You may begin. Steven Hooser: Good morning, everyone and welcome to the Distribution Solutions Group fiscal year 2023 and fourth quarter earnings call. Joining me on today’s call are DSG’s Chairman and Chief Executive Officer, Bryan King; and Executive Vice President and Chief Financial Officer, Ron Knutson. In conjunction with today’s call, we have provided a 2023 financial results slide deck posted on the company’s Investor Relations website at investor.distributionsolutionsgroup.com. Please note that statements on this call and in today’s press release contain forward-looking statements concerning goals, beliefs, expectations, strategies, plans, future operating results and underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. In addition, statements made during this call are based on the company’s views as of today. The company anticipates that future developments may cause those views to change, and we may elect to update the forward-looking statements made today, but disclaim no obligation to do so. Management will also refer to non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of the earnings release. The earnings press release issued earlier today was posted on the Investor Relations section of our website. A copy of the release has also been included in a current report on Form 8-K filed with the SEC. Lastly, this call is being webcast on the Internet via the Distribution Solutions Group Investor Relations page on the company’s website. A replay of this teleconference will be available through March 21, 2024. I will now turn the call over to Bryan King. Bryan? Bryan King: Thanks, Steven, and thank you all for joining us to review our 2023 annual and fourth quarter results. Let’s begin with Slide 5 to review top-level financial results, our 2023 annual sales totaled $1.6 billion, up more than 36%, and comparable sales increased by almost 24% despite ending the year with a choppier sales environment in a few important end markets, most notably technology and renewables. We did see some destocking of inventory by our customers, mirroring our own efforts to optimize working capital within the channel collectively, which contributed to a 6% decline in organic sales for Q4. While this backdrop did not meet our expectation in the near-term, our two-year organic stack sales increased almost 17% for the full year. Our marketplace traction around expanded value-added capabilities offers us confidence that we assembled a platform of complementary specialty capabilities that will enjoy sustained market share growth. We ended 2023 with $157 million in adjusted EBITDA, up nearly 28%, and an EBITDA margin of 10%. During 2023, we generated significant cash from operations of $102 million, translating to a strong free cash flow conversion. 2023 was a successful year for Distribution Solutions Group, with tremendous work to drive long-term value balanced with a mindfulness towards current profitability and cash generation. I congratulate our team on a job well done in what became a more choppy marketplace environment in September. Throughout the year, we invested with confidence in key long-term initiatives, while adding critical talent and depth to our leadership teams. Our employees have fostered a culture of collaborative accountability, essential for driving revenue growth and achieving sustainably higher profitability, a goal shared by all stakeholders. This is being realized through enhanced cross-selling and value-added customer engagements, which are gaining traction in the marketplace. By streamlining processes and optimizing resources, the team is making strategic improvements that support increasing the consolidated EBITDA margin into the teens and ensuring all business verticals operate with a margin above 12% within the next few years. These efforts align with our Investor Day objectives from September to elevate total EBITDA to over $450 million in the next five years. As eager as I am to demonstrate to our shareholder partners over the coming 24 months and beyond how current levers are driving future performance, the progress was not expected to be linear, even though we have strong line of sight on attaining our outlined objectives. As the environment shifted, we exercised additional patience with some process retooling that we knew would result in significant profitability improvements. We were unable to start our DSG TestEquity Hisco integration and profitability improvement plan until their earn-out window for Hisco eclipsed in November. Despite this, our disciplined execution around our long-term strategy delivered, one, revenue and margin growth, two, demonstrated improved profitability and returns, and three, reaped significant free cash flow that collectively created a lot of shareholder value. Most importantly in 2023, we further optimized the initial foundation created by pulling together DSG, which will allow us to sustain high-value creating years through the foreseeable future. While our work to architect and tool DSG for significant future growth and shareholder value creation still leaves much to be done, we accomplished important strategic goals in 2023. I will review some, not the least of which included the major acquisition of Hisco that I will discuss first. We added Hisco into the DSG portfolio, which gives us a strategically important business that more tightly binds TestEquity with Gexpro Services and Lawson. Since our purchase, our confidence has swelled with better line of sight into an expanded set of cost synergies that we are well into unlocking through the Hisco integration with TestEquity Group and combining that vertical to leverage total spend and capabilities across DSG. To review, the Hisco acquisition added over $400 million of revenue to a base of $1.4 billion, producing an annualized sales lift of more than 30%. Hisco also created significant revenue opportunities across the DSG verticals through geographic footprint expansion opportunities like in Mexico and internal value-added capability additions for DSG through their Alliance printing and Precision Converting divisions as well as their VMI leadership in categories such as chemicals, solders, and adhesives, among others. Lawson and Gexpro Services are already activating all of these benefits. The Hisco offering is also providing expanded efficiencies in coverage and capabilities for the TestEquity Hisco combined sales initiatives. Although we closed this acquisition in June 2023, due to the seller’s earnout, our initial integration plan was not launched until November when the earnout expired. Our integration plan, which includes optimizing the spending and capabilities between Hisco and the TestEquity Group, is expected to have DSG enjoy significant run rate improvements from the Industrial Technology’s vertical by the second half of 2024. Recall that we already announced a plan to take out $10 million of run rate operating costs from the TestEquity Group, and those actions began in the fourth quarter and were informed some by the capabilities brought by Hisco. Our 2024 cost realization for the Industrial Technology Group also includes additional cost capability and facility optimization, much of which will also be enjoyed during 2024, but an equal amount that we don’t expect to realize until 2025 or even 2026. Some additional key accomplishments by business segment include our MRO focused business, Lawson Products, had a standout year. We launched an important sales force transformation in 2023, engaging 900 highly productive field sales reps and expanding our inside sales team to about 45 people from a de minimis size. Our plan in 2023 was to minimize the disruption of the rollout and fortify the sales force through the change process. We increasingly are leaning on data to optimize our sales force network and how to drive the productivity and opportunity to earn for our sales people, and we are in the early stages of this effort. Most importantly, this is allowing us to get better at focusing resources where we can add the most value for customers, which is critical as we continue to refine having more product, more expertise, and more value-added tools and capabilities to engage with those customers and having a more optimized and consistent sales force focus on those customers will be critical to getting our improved capabilities in front of them. This approach is working well with good improvement in rep productivity realized in both the third quarter and fourth quarter. We committed in 2022 that the DSG merger to significantly invest in Lawson’s sales force infrastructure, which started in earnest in 2023. Although this is a multi-year, longer-term project, the early double-digit productivity lifts indicate a solid trajectory for the return we expect ahead. Across DSG, we are committed to execute on disciplined, inorganic growth through an acquisition model with tuck-ins that are both accretive financially and capability-wise. That said, some have taken longer than we expected to close, so we were excited to announce the purchase in early 2024 of the acquisition of Emergent Safety Supply as a strategic extension for Lawson Products in the safety category. Brand and line extensions in safety and power tool categories, as well as continuing to expand offerings in key product and private label categories, will collectively allow our business units to grow, improve margins, and scale into new geographies and markets with limited risk. We expect this to improve our cross-sale value proposition to existing customers of Gexpro Services and the Industrial Technology customers of TestEquity Hisco. Gexpro Services continues to assume the leadership role in our synergistic cross-selling and upstreaming opportunities. Our Gexpro Services customers, and more broadly DSG customers, can now gain exposure on how to maximize the full range of DSG products and our expanded suite of value-added capabilities for our customers. In 2023, we saw the first efforts of a more robust cross-selling message evolved from the 2022 initial successes into a more thoughtful and cohesive approach to engaging the market. This demonstrates credibility to customers and expands our offering with more product categories and more value-added capabilities. Gexpro Services enjoyed bringing home the first wave of successful engagements with some of our commercial and industrial customers, as well as championing wins in our aerospace and defense vertical, which translated into several million dollars for each broadened DSG engagement. Downstream synergies, selling more products and capabilities to existing customers, including customers from the acquisitions we made, opened up most significantly in our renewables category. Our 2022 acquisitions at Frontier, Resolux, and SIS set this up as those acquisitions allowed us to take former competitors and convert them to suppliers in 2023. These key channel partners coming together now offer a more comprehensive, differentiated offering to a much broader set of customers, coming from all of the acquisitions and Gexpro Services as well. This has set up an opportunity to further drive margin improvements at Gexpro Services, although much of the opportunity is in front of us in the renewables end markets. These end markets are still extremely sluggish and drag EBITDA margins down from prior year for those acquisitions below the Gexpro Services core during the last half of 2023, where we are now addressing integration cost-out opportunities. We anticipate that the renewables marketplace will open back up in 2024, a perspective reinforced by our book-to-bill, which is trending significantly positive. Finally, with the benefit of DSG, Gexpro Services started to benefit in capturing ecommerce revenue, adding several million dollars of incremental revenue from ecommerce orders originating from large established accounts in our aerospace and defense end markets. Despite the choppy environment in the technology market, that delayed several customers’ projects into 2024, and that created a drag on EBITDA of over $8.4 million for the year and over $2.3 million for the fourth quarter, backlogs are building and we are seeing margin improvements while it is early, Gexpro Services has started the year with a healthy book-to-bill. The previously mentioned Hisco acquisition for our TestEquity Group added significant scale to its North American operations, including Mexico. In 2023, consistent with committing to getting the Industrial Technology vertical up to double digit EBITDA margins over the next couple of years, we worked on setting up the margin improvement initiatives and as I mentioned, we indicated we had taken initiatives in November to take out over $10 million of 2024 run rate costs from the TestEquity Group, informed by the imminent opportunity in November to start the combination of capabilities, facilities and leadership with Hisco. Today, we understand more about the opportunity to leverage spend and resources and optimize capabilities at Hisco. Examples of these include some of the following actions: we’ve rationalized facilities, restructured go-to-market, including headcount reductions, made changes to our sourcing and supply agreements, rationalized unprofitable business with customers, and streamlined e-commerce efforts that allow for optimized search engine optimization and marketing spend. There is a lot of spend opportunity yet to be unlocked here, and it won’t happen overnight. But most importantly, the commercial opportunity brought by Hisco, its people, products, capabilities and position in the marketplace to DSG is even more impactful and I am pleased with the rapid progress and collaboration out of the team since they were able to start tackling commercial initiatives together and together affecting cost and process rationalization after the earn out window expired in November. With that, I’d like to turn the call over to Ron to walk through the financials. Ron? Ron Knutson : Thank you, Bryan. And good morning everyone. You’ll see on the following few slides that we expanded information on the three segments to include year-to-date information as well as the fourth quarter information. Turning to Slide 6, I will first summarize our business on a pro forma basis, which includes acquisitions for the full twelve months of 2023. Lawson represents 30% of total DSG revenue, Gexpro Services represents 23% and the TestEquity Group represents 47% of revenue, all on an adjusted revenue basis for 2023. Our run rate adjusted revenue is now approximately $1.75 billion and we serve over 180,000 customers across more than 500,000 SKUs. Now turning to Slide 7, I will summarize reported results for the year and for the fourth quarter by segment. Consolidated revenue for the year was $1.57 billion, inclusive of the premerger activity for Lawson in the first quarter of 2022. This represents an increase of $301.1 million, or 23.7%. Post-merger DSG acquired four companies, which accounted for approximately $267.5 million of the increase. Excluding these acquisitions, organic sales for 2023 grew by 2.9%, or 16.7% on a two-year stacked basis. For the quarter, GAAP sales were $405.2 million, an increase of $76.4 million, or 23.2%, primarily due to the acquisition. Excluding the acquisitions not in Q4 a year ago, organic Q4 sales declined 6.4%, solely driven by the continued delay of capital spending within the test and measurement business at TestEquity and weaker sales in the technology end market at Gexpro Services. On a two-year stacked basis, organic sales were up approximately 10% for the quarter. Excluding these two headwinds, organic sales increased approximately 1% for the quarter. 2023 reflected strong growth in net margin dollars. Inclusive of the loss in premerger results in 2022, adjusted EBITDA increased to $157 million in 2023 from $123 million a year ago. Full year 2023 represents 10% of sales versus 9.7% for all of 2022, a favorable outcome as anticipated, the 2023 margins were reduced by approximately 50 bips from the acquisition of Hisco. For the fourth quarter, we generated adjusted EBITDA of $33.9 million, or 8.4% of sales on seasonally fewer selling days in Q4 and the sales headwinds previously mentioned. I’ll expand further at the segment level on this in a minute. We reported operating income for the full year of $43 million, net of $40.3 million of acquisition related intangible amortization and $50.5 million of aggregate costs from stock-based comp, acquisition, severance and retention related expenses, merger and acquisition costs and other nonrecurring items. Adjusted operating income inclusive of Lawson for all of 2022 increased $19.9 million to $93.5 million. We reported GAAP diluted loss per share of $0.20 for the full year, inclusive of higher depreciation and amortization and a valuation allowance on certain deferred tax assets compared to earnings per share of $0.21 in the year ago. Full year adjusted diluted EPS was a $1.42 on higher outstanding shares. It should be noted that starting in Q4, we began including total non cash amortization expense related to the acquired entities and added these dollars back when computing adjusted earnings per share, which benefited EPS by $0.16 on a tax affected basis for the quarter. Turning to Slide 8, let me now comment briefly on each of these segments. Starting with Lawson, sales were $468.7 million, up 9.1% for the full year. Fourth quarter sales were $109.8 million as compared to $108 million a year ago quarter. The increase for the full year and the quarter was driven by continued strong performance within the strategic business, Kent Automotive and government military categories, offset by softening sales within the Lawson core customers. Lawson’s full year growth was achieved through price, increased wallet share with existing customers and new customers in both our strategic accounts and our Kent Automotive business. As Bryan highlighted, Lawson had a really strong 2023, all while continuing to invest in the business to strategically position itself for longer term success. We’re still in the early innings of implementing initiatives to help our sales team become more productive. However, we’re very pleased with the initial results of a 15% lift in sales rep productivity this quarter, on top of an 18% improvement achieved in Q3. Lawson’s adjusted EBITDA for the full year improved significantly to $63.7 million as compared to $38.6 million a year ago. This improvement was primarily driven by sales and gross margin improvements, partially offset by increased compensation on higher sales levels and channel investments to better position us on a longer term basis. For the quarter, Lawson realized adjusted EBITDA of $12.4 million or 11.3% of sales as compared to $11.5 million a year ago quarter a 7.8% improvement. Lower sales on fewer selling days in Q4 compared to other quarters on fairly flat operating costs reduced Lawson’s net margin in Q4 versus other quarters in the year. Turning to Gexpro Services on Slide 9, total sales for the year increased 5.3% to $405.7 million. For the fourth quarter, sales were $93.2 million, down 6.9% solely from project related businesses, primarily within renewables, and continued customer delays in the technology vertical, including the semiconductor end markets. 2023 saw global semiconductor spending decline by roughly 10% as consumer electronics and automobile production drove softness and supply chains adjusted. The remainder of the base Gexpro Services business increased 6.2% with continued strength in the industrial power and renewables end markets. Gexpro Services largest vertical is now industrial power, followed by renewables, which are expected to have secular strength for the next several quarters and years. We are continuing to invest in the business, however, are cautious about certain weaker markets and those more sensitive to current macroeconomic issues. Gexpro Services full year adjusted EBITDA grew to $45.2 million, or 11.1% of sales versus $43.2 million a year ago. For the quarter, adjusted EBITDA was $8.8 million, or 9.5% of sales. The decline as a percent of sales was primarily related to lower sales for the quarter in the higher margin technology vertical, which put over $2 million of net margin pressure on the quarter. We anticipate Gexpro Services will return to low double digit EBITDA margins in the first half of 2024 on higher sales on a relatively flat fixed cost structure. Lastly, I will turn to TestEquity Group on Slide 10. Full year sales grew to $641.8 million, an increase of $249.4 million, or 63.6%, driven primarily by the Hisco acquisition in 2023 and other acquisitions completed in 2022. Excluding these acquisitions, TestEquity sales were down $24 million, or 8% for the year, primarily within the test and measurement business. As we’ve discussed on previous calls, the decline in this piece of our business is primarily related to delays in customers capital project spending. Fourth quarter sales were up $85.3 million to $190.7 million, with Hisco sales adding $96.6 million and a decline in organic volume of 11.4%. On a two year stacked basis TestEquity organic sales were up approximately 3.1%. TestEquity’s adjusted EBITDA for the full year was $43.3 million, or 6.7% of sales, compared to $34.7 million, or 8.9% a year ago. Acquisitions made in 2022 and 2023 added approximately $19.7 million in adjusted EBITDA. The decline in the TestEquity’s based, business adjusted EBITDA was primarily related to lower sales levels in the test and measurement offset by cost normalization taken in Q4. For the quarter, TestEquity’s net margin was $11.8 million, or 6.2% of sales. The lower margin for the quarter was primarily related to lower sales on capital related projects, fewer seasonal selling days, and additional operating expenses related to higher health insurance claims and employee compensation. As we think about 2024 for TestEquity, we will continue to focus on the integration of Hisco and TestEquity. We remain committed to sequentially improving our margin profile as 2024 develops through higher sales synergies to be realized on the combined company and the nonrecurring nature of some of the Q4 charges. We anticipate a stronger second half of 2024 for TestEquity as we continue to integrate Hisco and on some of the pickup in capital spending, allowing us to drive toward a double digit margin profile. Moving to Slide 11, we ended the year with nearly $300 million of liquidity, including $99.6 million of cash and cash equivalents and under $98.3 million under our existing credit facility. As you know, we amended our credit facility in 2023 from $500 million to $805 million to support the acquisition of Hisco and to free up liquidity for other acquisitions. We’re really pleased with the progress made in strengthening our balance sheet and ending 2023 at a leverage rate of 2.9 times, all while acquiring four businesses since forming DSG. Although, we continue to support a robust working capital investment, we are carefully managing inventory levels, accounts receivable and accounts payable, as evidenced by our ability to generate significant cash flow from operations of $102 million for the year. Our cash conversion ratio defined as adjusted EBITDA, less the change in working capital and less CapEx divided by adjusted EBITDA was over 100% in 2023. Net capital expenditures, including rental equipment were $18.7 million for 2023. We expect full year CapEx to be in the range of $16 million to $20 million, or approximately 1% of revenue in 2024, and have a similar cash flow conversion goal for 2024. Before I turn it back to Bryan, I’d like to make some comments on how we see 2024 developing. As we’ve discussed, over the past two quarters, we were up against tough comps with Q4 2022 having been up 16.7%, and that will continue into 2024 with Q1 2023 having been up nearly 14%. Given our fourth quarter results and the first quarter comp that we’re up against, we expect Q1 of 2024 organic sales to be down versus a year ago in a range similar as what we experienced in the fourth quarter. As we make traction on many of our initiatives as 2024 develops and as comps against the prior year soften, we would expect organic sales growth to turn positive starting in the second half. To achieve our internal sales plans, we will need some normalization of various end markets and some recovery of customer capital related project spending. While we recognize the Q4 margins are seasonally our weakest quarter and were softer than originally anticipated, one quarter will not slow us down from our overall strategy. We will likely feel some of this margin pressure into the first quarter, but we are committed to continuing to drive margins upward while continuing to strengthen the entire DSG platform. I’ll now turn the call back to Bryan. Bryan King: Thank you, Ron. We are pleased with 2023 and are even more excited about how our successful initiatives tackled during 2023 will drive our 2024 and 2025 performance. Our prioritized focus on cash flow generation resulted in significant free cash flow in 2023. Turning to Slide 12, we continue to operate under a disciplined capital deployment strategy that drives focus around reducing capital intensity where possible, increasing working capital efficiencies, which improves liquidity and reduces our net borrowings. We ended the year with $99.6 million of cash and have zero borrowed on our revolver while enjoying a $430 million investment in networking capital. We are focused on continuing to structurally increase the return profile of the business both through operational discipline and process improvements where we have a clear line of sight on those improvements and with our return profile additionally benefiting from key acquisitions that will enhance our long-term position in the marketplace. While the current challenged backdrop for a couple of our end markets can create a short-term distraction, we are passionate and committed to drive this business alongside deepening bench of innovative thought leadership with strong distribution experience. We are aligned and collectively committed as large shareholders along with a shared vision from the Board to capitalize on this excellent opportunity to further build this best-in-class specialty value-added distributor. With this shared vision and the strategy we are executing, we are managing our leverage appropriately at 2.9 times at year-end and we are confident that we are well-positioned to capitalize on accretive acquisitions to drive organic and inorganic growth to build a better DSG. We use a disciplined approach to prioritize our capital investing. Our acquisition priorities need to be informed by intensity of other operational and leadership priorities, financial leverage and periodic decisions to invest in our own stock. To that end, during 2023, we increased our share repurchase program by $25 million and repurchased 139,000 shares at an average cost of $26.09 per share during the fourth quarter. Finally, we executed a successful oversubscribed rights offering and a two for one stock split in 2023 in order to balance our capital structure and liquidity objectives prudently as best we can for all our stakeholders. As we said in the last quarter, we continually monitor macroeconomic and global shifts that may affect the dynamics and forecasts of our end markets. We are two plus months into 2024 and given a continuation of choppiness this year similar to the end of 2023, and even with certain tailwinds expected in 2024, we expect that our first quarter organic sales compression will likely be in a similar range to the fourth quarter of 2023. We’re also seeing encouraging indications through our increased quoting activity and our book-to-bill that revenue reacceleration could be spooling back up in those softer pockets. These macro dynamics are significantly different than the invitation for expanded engagement that our customers are welcoming from the more robust offering each of the DSG verticals can now provide. Turning to Slide 13, full year and fourth quarter results demonstrated our ability to benefit from our diverse end markets to achieve a 10% EBITDA margin. Our cross-selling initiatives are still in the early innings. Still, cross-selling is becoming more natural across our teams and we are finding better and different ways to increase sales through longstanding relationships with our best customers. We’re very pleased with our progress of acquired business initiatives and believe we can incrementally improve margins in our Industrial Technology vertical between the exciting TestEquity and Hisco synergy opportunities over the next several quarters, as well as improve margins across our other acquisitions made over the past two years. We plan to continue to act on accretive, bolt-on acquisitions that fit our M&A criteria and that reinforce DSG’s expanded aperture around high value, high touch, specialty distribution capabilities. The acquisitions, initiatives, and actions taken in 2023 and 2024 are critically important as they deliberately scale up the profitability, capabilities, and intrinsic value of DSG across each of the business units. Setting this successful course for the next five years and beyond, we plan to continue to make good, prudent decisions that create value, improve the long-term return profile of the business and generate cash. To wrap up, as Chairman and Chief Executive Officer of DSG and as Managing Partner of LKCM Headwater, where we enjoy a very large interest in DSG. We are exceptionally well aligned and committed to our investors and DSG’s objective. You have my commitment along with the DSG and LKCM Headwater teams, that together we remain relentlessly focused around driving steep and sustained long-term value creation for our shareholders. With that, operator, we would like to take questions from analysts and investors. See also Billionaires Mario Gabelli and Mason Hawkins Love These 14 Stocks and 10 Best Stocks to Buy Before US Election Season 2024. Q&A Session Follow Distribution Solutions Group Inc. (NASDAQ:DSGR) Follow Distribution Solutions Group Inc. (NASDAQ:DSGR) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is from Max Kane with Stephens Inc. Max Kane: Good morning. Thank you for taking my questions. Bryan King: Good morning, Max. Ron Knutson: Good morning, Max. Max Kane: Good morning. So on a sequential basis, how has 1Q consolidated DSGR revenue trended first 4Q and for the remainder of March, are there any noteworthy negative or positive factors that might change that trajectory going forward? Ron Knutson: Yes. Max, this is Ron. I’ll take that. So keep in mind for us the seasonality that we generally experience within our overall business typically Q4 is our weakest quarter, probably followed by Q1 and then Q2 and Q3 are certainly the strongest quarters. Sequentially where we are today in terms of the first couple of months, I would call it kind of flat, versus where we exited the fourth quarter. In terms of March, it is a 21-day selling month for us this year. So I wouldn’t say, I know Bryan commented on some of the ordering process and so forth coming in, but the March is typically generally a 23-day month for us, this month a little bit shorter. So the first quarter only has 63 selling days. We won’t see quite a bit of a leverage advantage on a 21-day month as we would a 23. But to specifically answer your question, not – the first couple of months of the year are kind of flat sequentially versus Q4. Max Kane: Got it. Thanks for the color. My second question is regarding adjust EBITDA margins kind of a similar question, but yes, on a sequential basis, how has consolidated margins trended first 4Q and are there any noteworthy factors in March that may change that trajectory? Ron Knutson: Yes. I’ll jump in on that one as well. So, as you know, we don’t provide formal guidance in terms of the year. I know both Bryan and I made some comments in our prepared remarks that we do feel that will experience some of the margin pressure in Q1, similar to what we saw in Q4, just given where the overall sales are trending out. So nothing – I would say nothing unusual there in terms of what we’re expecting here in the month of March either. But again, without getting into too much specifics, I think we’re going to continue to see a little bit of that margin pressure here in the first quarter and probably early into the second quarter. Max Kane: Thanks for the color, and I’ll turn it back. Ron Knutson: Thanks, Max. Operator: Your next question for today is from Kevin Steinke with Barrington Research. Kevin Steinke: Hey, good morning, Bryan and Ron. Bryan King: Good morning, Kevin. Kevin Steinke: Good morning. I wanted to ask about, Ron, your comments about looking to return to positive organic growth in the second half of 2024. And you said it would be somewhat dependent on pickup in your some of the softer end markets. But just trying to get a sense as to your line of sight into potential pickup in those end markets. I know you talked about the pipeline building in Gexpro for technology and renewables, and then it sounds like you expect some capital spend return on test and measurement equipment and TestEquity. So just any more color on your expectations on the pickup and demand and the line of sight you have there? Ron Knutson: Yes. So – yes, go ahead, Bryan. Bryan King: Either one of us. But Kevin, Ron gave some and you just highlighted the three areas that we’ve been most focused on, because they’re where we’ve seen the only real softness. If you look at the Industrial Technology division or TestEquity, $23 million, of the $24 million of drag that we had on revenue last year was specifically from the test and measurement equipment. And there were specific inventory destocking dynamics that were going on in the marketplace there. And we maybe made the wrong decision, but we decided to step out of selling equipment at margins that we saw some competitors kind of try and blow out inventory to get their inventory levels at the end of the year right sized. And so that overhang of normalization of inventory levels from some of our peers seemed to work through the system. And we’ve seen quite a bit more requests for the activity level of quotation has gone up quite a bit as we’ve gone into this year, although, and we know that our customers have budgeted for spend, but we’re not seeing the spending dollars being released yet at the pace that we would want to see to feel like that that business is normalized, but we expect that it will. And we also aren’t seeing as the more undisciplined approach and some of our competitors have kind of gotten out of the marketplace with their inventory positions that they took on when our channel partners were struggling to get product. It was kind of the same issue that we’ve seen in other parts of our businesses, not just at DSG, where the supply chain led to people puffing orders or expanding their efforts to try and gather inventory. And then there was a destocking level that we saw and we saw it in other end markets as well at DSG towards the end of last year. The most acute spot where we felt it and saw it was at test and measurement. And we may made of it, and we wrestled a lot with the decision on whether or not to participate in the marketplace as people were selling stuff at margins that were significantly lower than what we’ve historically sold test and measurement equipment for and that’s abated itself. On the renewables side, we’ve just seen a delay in some of the project spend and also some of the MRO packaging that we’ve kind of our kits that we put together to be able to address some of the reworks of a lot of the installed base on the renewable side. But our book-to-bill is as high as I’ve seen it in the renewable space currently......»»
Paysafe Limited (NYSE:PSFE) Q4 2023 Earnings Call Transcript
Paysafe Limited (NYSE:PSFE) Q4 2023 Earnings Call Transcript March 7, 2024 Paysafe Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings. Welcome to the Paysafe fourth quarter 2023 earnings call. At this time, all participants are in a listen-only […] Paysafe Limited (NYSE:PSFE) Q4 2023 Earnings Call Transcript March 7, 2024 Paysafe Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Greetings. Welcome to the Paysafe fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Kirsten Nielsen, Head of Investor Relations. Thank you, you may begin. Kirsten Nielsen: Thank you and welcome to Paysafe’s earnings conference call for the fourth quarter and full year 2023. Joining me today are Bruce Lowthers, Chief Executive Officer, and Alex Gersh, Chief Financial Officer. Before we begin, a reminder that this call will contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company’s most recent SEC reports. These statements reflect management’s current assumptions and expectations and are subject to factors that may cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Today’s presentation also contains non-GAAP financial measures. You can find additional information about these measures and reconciliations to the most directly comparable GAAP financial measures in today’s press release and in the appendix to this presentation, which are available in the Investor Relations section of our website. With that, I’ll turn the call over to Bruce. Bruce Lowthers: Great, thanks Kirsten, and thank you all for joining us today. We’re pleased with our fourth quarter and full year ’23 performance, which reflects the achievement of our financial guidance. 2023 marked a year of continued improvement for Paysafe with better growth and better execution. Our team has a lot to be proud of and I want to thank them for their hard work and dedication. While we’ve made progress in many areas of the business, there is more to be done and we are excited to deliver on our goals for 2024, which are well underway. Alex will take you through the financial results in more detail, but the headline is that we delivered a strong fourth quarter with 8% revenue growth, or 6% on a constant currency basis, resulting in full year revenue of $1.6 billion, a 7% increase compared to 2022 and 6% on a constant currency basis. Fourth quarter adjusted EBITDA increased 13%, leading to full year adjusted EBITDA of $459 million, an increase of 12% compared to 2022 or 11% on a constant currency. This resulted in adjusted EBITDA margin of 28.6% for 2023, an increase of 120 basis points. We also reduced our net leverage, which was 5.0 at quarter end, over-achieving our original target for 2023 and down from 5.8 at the end of last year. Turning to Slide 4, I’ll recap the highlights of our achievements in 2023, which provide us with a solid foundation to build upon on 2024. First starting with enterprise sales, we closed roughly 160 enterprise deals in 2023. This was supported by a 58% decrease in our quota-carrying sales reps to 71 team members, which is nearly double the comparable headcount from the second half of 2022, when the plans for our sales transformation were first established, and this drove a strong contribution to in-year revenue growth from new deals signed. We also recorded double-digit ecommerce growth, which increased 29% for 2023. On customer experience, after coming up in JD Power rankings and reaching third place last year, I’m thrilled that Paysafe has now reached among the top two brands, outperforming the industry average for all study dimensions. Another highlight on the merchant side is our improved deal efficiency, including faster on-boarding. In Q4, our average contract to launch timeframe was about 30 days faster than what we were delivering in Q1, driven by continued process improvement, system consolidation, and the creation of a focused customer success team. On the consumer side, we improved the customer experience by building self-serve tools into web and mobile journeys, resulting in a 20% reduction in customer service contacts. We also increased our customer service NPS score by implementing enhanced automation and next-gen customer service tools. These improvements throughout 2023 have resulted in increased growth and engagement in our classic digital wallet. We closed out the year seeing growth in three-month actives with encouraging progress in key conversion metrics, including payment success rates and converting sign-ups to first usage in the wallet. Lastly, in addition to improving the customer experience, we’ve sharpened our focus on new product development. We’ve made a number of organizational changes in 2023 and adapted our capital spend to support this renewed commitment to innovation. During the year, we optimized and expanded the payment methods available to our merchants and increased the number of payment methods that are available enterprise-wide. In summary, we’ve made great progress across the board, resulting in growth in our key financial metrics while also reducing our debt and leverage. Moving to Slide 5, this is the same supplemental view that we provided last quarter, demonstrating our growth by each business unit. As you’ve seen in our results, we’ve improved revenue growth to 7% in 2023, driven by double-digit growth across the classic digital wallet business, ecommerce solutions, and our SMB third party channel. This growth was partially offset by softer performance from two areas of the business: our direct channel in the U.S. acquiring, as well as our e-cash business. I’ll come back to this in a moment when I discuss our focus for 2024. Turning to Slide 6, in Q4 we booked 50 new enterprise wins with balanced deal activity across our target verticals. Additionally, we are pleased to have expanded our relationship with Hard Rock Bet into the newly re-launched Florida market, which is now the largest state with legalized sports betting and anticipated to be one of the largest sports betting markets in the U.S. We look forward to continuing to grow our relationship with Hard Rock supporting online payments for its players. For our 2024 sales priorities, we’re moving into an important phase of execution and continued investment to support future growth and scale. In 2024, we plan to add 170 additional sales people to our headcount while expanding the scope of this initiative beyond the enterprise level to also include our SMB business. This will also include territory expansion to about four new states this year where we already have hired 25 SMB agents primarily in states not covered today by us. As we’ve touched on during prior calls, we will be focused on optimization of the SMB portfolio in 2024, particularly to improve the growth of our direct channel. At the same time, we are focused on the entire portfolio to drive a more favorable business mix, partly supported by the expansion of acquisition channels and agent recruitment programs. Also, we’re rolling out expanded capabilities and value-added services to further enhance client satisfaction and support retention. Importantly, we’ll continue to deliver on the progress we made into 2023, including continued cross-selling into our client base. During 2023, we cross-sold our products into 19% of our enterprise client base of more than 800 merchants, which is up from very little cross-selling in prior years, and this continues to reflect a key opportunity with a lot of runway to grow with our existing merchants. Turning to Slide 7, we are rolling out a phased approach of our merchant wallet to SMBs in the U.S. with a planned road map that leverages our digital wallet for SMBs to receive acquiring settlement and manage their business finances in one place. We see this as a growing opportunity in a market where SMB needs are currently being met by fragmented solutions for U.S. banks, wallets and various checking and software service solutions. For Paysafe, this represents an opportunity to bring together our B2B and B2C capabilities with a mission to help businesses with easy and convenient ways to move money through simple intuitive digital experiences. Moving to Slide 8, we continue to show progress in our classic digital wallets, ending the year with approximately 930,000 three-month actives. This reflects 7% growth from the prior year and two quarters of consecutive growth in active users following the stabilization in the first half of ’23. In the fourth quarter, we saw constant currency revenue growth of 14% from classic wallets. This was supported by product and client experience initiatives such as pricing promotions, engagement activities such as promotion calendars and revamping our loyalty program, VIP campaigns, and the launch of prepaid virtual cards in Brazil. This was further supported by the growth from interest revenue on consumer deposits, new merchant relationships, as well as ongoing improvement to the merchant checkout conversion. In 2024, we look forward to expand this view to also demonstrate progress in our e-cash solutions, providing a more comprehensive view of the consumer side of the business. Turning to Slide 9, as we move forward, improving our marketing and customer acquisition strategy is key to delivering sustainable growth on the consumer side of our business. Here as one example, we recently conducted a test campaign for our Skrill digital wallet in two European markets. The key point is that we expanded our outreach to new channels while delivering more effective, localized messaging. We also implemented improved incentives and rewards to encourage new sign-ups to fund their accounts and perform subsequent transactions, driving improved conversion and engagement. The initial results are promising. We contributed to double-digit growth year-over-year in new accounts funded and the strongest sign-up activity in more than 20 months. While this campaign was focused on our Skrill wallet in select markets, we also had a solid quarter for consumer acquisition of registered e-cash users in Q4 as a result of promotions across various new marketing channels, such as influencer collaborations with key gaming partners, the roll-out of country-specific promotions, and the sponsoring of an e-tournament. This is just the start of what we’re working on as part of our broader goals to drive higher consumer acquisition. Turning to Slide 10, let’s bring all this together to summarize our priorities for 2024. First, we will advance our new go-to-market strategies on both sides of the ecosystem to expand our reach with new and existing merchants to strengthen consumer acquisition. As I touched on earlier, we also have a number of initiatives underway to optimize the portfolio, particularly to address the mix dynamics we’ve experienced in the SMB business. Here, we are enhancing our product offering and capabilities, expanding our merchant acquisition program, and adding additional headcount with a sharper focus on moving up-market and expanding territories. Lastly, we continue to drive our initiatives around product innovation and customer experience. About half of our projects this year are focused on consumer solutions such as scaling new products and e-cash, including our new online account features and deposit methods. We are also continuing to improve the digital wallet payment experience and loyalty programs while expanding local payment methods and payouts in key regions such as Latin America. The other half of our product initiatives are focused on the merchant side, such as continuing to expand our authorization acceptance and advancing our unbranded solutions. Turning to Slide 11, in 2024 we are making important investments to drive growth in our target verticals while enhancing operational efficiencies. The two key investment areas are sales initiatives and portfolio optimization. Overall, this will reflect $25 million of incremental investment in 2024, about half of which represents one-time expense with the remaining half reflecting a short term marketing headwind from our new sales hires in 2024, prior to their full revenue and margin contribution in ’25. We expect the contribution of these initiatives to deliver at least $50 million in in-year revenue and approximately $100 million in 2025, coupled with improved operating leverage as the benefits are realized over the next two years. With that, I’ll ask Alex to review the financial results. Alex Gersh: Thank you Bruce. Let’s move to Slide 13 for the summary of our fourth quarter financial results. Volume was $35.8 billion in the fourth quarter, an increase of 8% year-over-year, and total revenue of $414.5 million increased 8% or 6% on a constant currency basis. Growth was led by double-digit volume in revenue growth in ecommerce within the merchant solutions segment as well as classic digital wallets, included interest revenue on consumer deposits which was a year-on-year benefit of $6 million in Q4 or $32 million for the full year compared to 2022. Excluding the year-on-year benefit from tax and interest, Paysafe revenue growth was approximately 4% for both the fourth quarter and full year. Adjusted EBITDA for the fourth quarter was $121.7 million, an increase of 13% year-over-year or 11% constant currency. Adjusted EBITDA margin was 29.4%, an increase of 140 basis points primarily driven by operating leverage, including lower credit losses which more than offset a decline in gross margin. Our total SG&A was 30.2% of revenue in the fourth quarter, down from 35.7% of revenue in the prior year quarter. We generated $89.6 million in unlevered free cash flow for the fourth quarter, reflecting 74% conversion of adjusted EBITDA. I’ll note that we have changed our naming convention from free cash flow to unlevered free cash flow for clarity purposes. Additionally, we elected to re-classify the presentation of settlement receivable and funds payable due to customers from operating activities to present them as financing activities within the cash flow statement. As a result, the reconciling item related to movement in customer accounts and other restricted cash is no longer required in our non-GAAP unlevered cash flow reconciliation. You can find more information on our non-GAAP definitions and reconciliations in the appendix of our presentation. Adjusted net income for the fourth quarter increased 23% year-over-year to $40.9 million, and adjusted EPS increased 22% to $0.66 per share as our growth and margin improvements more than offset increase in depreciation and amortization and tax expense. Overall, our fourth quarter results were in line with our expectations, resulting in the achievement of our full year guidance for 2023. Let’s move to Slide 14 for the summary of the full year. Volume in 2023 increased 8% to $140 billion and full year revenue was $1.6 billion, an increase of 7% compared to 2022 or 6% constant currency. Our largest region, North America, grew approximately 7% for the full year 2023. Europe, our second-largest region grew approximately 3%. Overall, our growth and performance trends have been consistent throughout the year, reflecting strength in ecommerce, including in classic digital wallets, and continued resilience in the U.S. SMB market driven by our third party channel. We saw softer performance in the e-cash business and the SMB direct business, which are a key focus for improvement in 2024. Adjusted EBITDA for the full year increased 12% to $459 million, resulting in adjusted EBITDA margin of 28.6%, an increase of 120 basis points. Our full year total SG&A was 31.7% of revenue, down from 35.7% in 2022. Our unlevered free cash flow for 2023 was $318 million, an increase of 8% compared to 2022 and reflecting 59% conversion of adjusted EBITDA, in line with our expected conversion range of 65% to 70%. Adjusted net income for the full year increased 5% to $144 million, and adjusted EPS increased 4% to $2.33 per share as growth in adjusted EBITDA was partially offset by an increase in depreciation and amortization expense, as well as a $24 million increase in interest expense. In 2024, we expect to see a reduction in interest expense reflecting debt repayments and current rates for FX and interest. Let’s move to Slide 15 to discuss the segment results. In fourth quarter, merchant solutions volume was $30.2 billion, an increase of 8% year-over-year, resulting in full year volume of $118.7 billion, also up 8%. Fourth quarter revenue increased 9% year-over-year to $227.3 million, and the full year revenue increased 7% year-over-year to $878.3 million. Performance was led by ecommerce, which increased 29% for the full year with strong momentum in North America and i-gaming. In the SMB market, we saw continued growth in verticals such as eating and drinking places, grocery and petrol, and personal services. Merchant solution fourth quarter and full year adjusted EBITDA both increased 11% to $56.6 million and $222.2 million respectively. Fourth quarter adjusted EBITDA margin expanded by 40 basis points and the full year margin expanded by 80 basis points, reflecting operational improvements including lower credit losses which more than offset a gross margin headwind from channel mix, as SMB growth was stronger in our lower margin third party channel. Out of Q4, our revenue mix within merchant solutions was roughly 15% ecommerce or enterprise-level merchants, 40% SMB direct channel, and 45% SMB third party channel. In 2024, we expect this segment to grow revenues between 8% to 10%, supported by strong growth in ecommerce, the annualization of our 2023 wins, and the optimization of the SMB portfolio. Turning to the digital wallet segment on Slide 16, fourth quarter volume increased 13% to $6 billion and full year volume increased 9% to $22.4 billion. Revenue for the fourth quarter was $191.3 million, an increase of 8% year-over-year and 3% constant currency. Digital wallet revenue for the full year was $734.7 million, an increase of 7% or 5% constant currency. Fourth quarter adjusted EBITDA for the digital wallet segment was $82.4 million, an increase of 7% year-over-year and up 2% on a constant currency basis and reflecting a 43.1% margin, down 40 basis points mainly due to product mix. Full year adjusted EBITDA was $318.7 million, an increase of 10% or 8% constant currency, with margins improving by 120 basis points to 43.4%. In 2024 for the digital wallet segment, we expect growth in the low single digits, reflecting growth in active users, the roll-out of new products in e-cash such as online account features and deposit methods, cross-selling and the expansion of our merchant wallet in Europe, while expanding in key regions such as Latin America. We expect growth to be partly offset by a modest headwind from interest revenue. Turning to Slide 17 for the summary of debt and leverage, at the end of fourth quarter, total debt was $2.5 billion, reflecting debt repayment and repurchases of $62 million during the quarter. In 2023, we repaid approximately $174 million of our debt as we continued to take advantage of the market opportunity to buy back debt at discounts to par. At year end, net debt was $2.3 billion and our leverage ratio was further reduced to 5.0 times compared to 5.8 times at the end of 2022. We will remain focused on reducing net leverage in 2024 and will continue to work towards our midterm target net leverage of 3.5 times. Additionally, as of December, the average interest rate on our debt was 5.8%. We also earned interest on our customer deposits at a rate of 3.7%, which is recognized in revenue. As you saw in our last earnings in November, Paysafe’s board authorized a $50 million share repurchase program which we expect to commence in the coming weeks. We continue to expect a majority of our excess cash flow to be committed to deleveraging while we continue to invest in innovation to drive long term growth. Moving to the full year outlook on Slide 18, for 2024 we expect revenues to be in the range of $1.688 billion to $1.712 billion, reflecting growth above 6% at the midpoint with the largest contribution coming from our existing client base, including new enterprise wins in 2023. We believe that this growth outlook reflects continued improvement with higher quality of revenue growth, particularly when you consider the benefits of interest and a tax tailwind that we saw in 2023. We expect adjusted EBITDA to be within the range of $473 million to $488 million, and while we expect to see a continued decline in gross margin in 2024 as a result of business mix, we are offsetting this headwind with cost discipline and operational efficiencies. As Bruce highlighted, we are also planning for incremental opex investments of approximately $25 million to support the expansion of our sales team and portfolio optimization, which has an impact of approximately 150 basis points on adjusted EBITDA margin. Excluding these investments, adjusted EBITDA would be greater than $500 million and reflect margin expansion. We expect the cadence of growth throughout the year to follow our normal seasonal patterns, which typically reflect a modest seasonal decline from Q4 to Q1, as well as seasonal uplift from Q3 to Q4. As with prior years, we expect Q4 to be our strongest quarter, also reflecting the timing of our sales and product initiatives, including the pace of revenue contribution from new sales hires, which can take about six months to on-board and start producing. We expect the $25 million of incremental cost to be phased roughly 60% in the first half of the year and 40% in the second half. Adjusted EBITDA margins are expected to be stronger in the second half as well, largely due to the same drivers which will influence our operating leverage. Looking ahead to 2025, we expect revenue growth to accelerate from 2024 and for adjusted EBITDA margins to reflect a more normalized margin. Excluding these investments, we’re at least 100 basis above the high end of our 2024 outlook, including enhanced operating leverage as the new hires are on-boarded this year and generating annualized revenue contribution in 2025 and beyond. Now I will turn the call back to Bruce for closing remarks before we take questions. Bruce Lowthers: Thank you Alex. In closing, I’d like to reiterate that we see significant value potential in Paysafe with a lot of runway to accelerate growth. We maintain strong market positions in high value markets. We serve a premier global client base with significant cross-selling opportunities across our geographies. We are entering 2024 in a solid financial position with strong cash generation while also deleveraging the business to create shareholder value. By continuing to prioritize client experience, product innovation and execute our go-to-market strategy, we believe that we can unlock meaningful opportunities and stakeholder value. Now let’s begin the Q&A session. A – Kirsten Nielsen: Thank you Bruce. We’ll take a couple questions from the Say Technologies platform, which allows shareholders to submit and upvote questions. After that, we’ll turn to questions from our research analyst community. As a reminder, we may pass over questions that were already addressed on this call or in prior recent quarters. We may also group together questions that share a common theme. Our first question is from Matthew, who asks, what goals have we set in order to restore investor confidence in Paysafe? Bruce, could you take this one? Bruce Lowthers: Sure. Thank you Kirsten. Look, I think the question that Matthew’s posed, what goals have we set, I think we clearly said that as we started out, going back a couple years, we’d stabilize the company, we would then begin to grow our revenue streams and then accelerate growth once we had done that. I think as you look back at the achievements and the financial results that we highlighted in our remarks, we can see that our results of improved growth in ’23 across essentially all key metrics, while also reducing our debt and net leverage ratio, we continue to deliver on that progress in ’24. We’re really advancing our go-to-market strategies on both sides of our ecosystem to expand the reach with new and existing merchants to kind of strengthen our consumer and merchant acquisition. We’ve gone under significant operating changes during the past year and I’m highly confident that we are in a stronger position today and well positioned for the future. Kirsten Nielsen: Okay, thank you Bruce. Our next question is from Daniel, who asks about adding Web3 or cryptocurrency capabilities, and asks if Skrill users will be able to invest in equity markets. Bruce, do you want to address this one as well? Bruce Lowthers: Yes, happy to, and Daniel, thanks for the question. I think we have the right talent, assets and regulatory experience to enable new ways to buy and sell in a virtual environment and to serve the new generation of digital entrepreneurs in the experiential economy. The combination of crypto and Web3 is part of that, I would say. We’re very focused across the entertainment space and we do think about the future functionality quite a bit as to how that’s going to evolve over time. To address the question more directly, crypto is today a very small piece of our business, less than 2% of our revenue. Our wallet does offer crypto trading with 50 different cryptocurrencies available in over 80 countries globally, including features complementary with Web3, but we don’t really have any interest at this point of offering equity trading, as we’re looking at our feature functionality as we’re moving forward. We feel very strongly about the emergence of crypto and Web3, especially in the gaming space on Web3, and we do plan to be part of–have that as part of our offering as we’re moving forward. Kirsten Nielsen: Okay, thanks Bruce. Lastly, we did have a couple questions on the nature of capital allocation from Ganesh (ph) and Viknaswaram (ph), who ask about the strategy for repaying debt, and had another question on our plans to initiate the recently approved stock buyback program. Alex, can you take this one? Alex Gersh: Sure, happy to take the question. Just to recap what we’ve shared in our prepared remarks, at year end our leverage ratio was reduced to 5.0 times compared to 5.8 times at the end of 2022. In 2023, we repaid approximately $174 million of our debt, and this was actually better than what we initially targeted for the year. We remain focused on reducing net leverage in 2024 and we’ll continue to work towards our midterm target net leverage of 3.5 times. As you saw in our last earnings release in November, the board authorized a $50 million share repurchase program which we expect to commence in the coming weeks. We plan to maintain flexibility and continue to focus on reducing leverage while we continue to invest in innovation to drive long term growth. Kirsten Nielsen: Thanks Alex. Let’s open up the line for our analyst Q&A. Operator? Operator: Thank you, we will now be conducting a question and answer session. [Operator instructions] Our first question is coming from the line of Dan Perlin with RBC Capital Markets. Please proceed with your questions. See also 20 Countries That Read the Most in the World and 20 Countries with Most Blackouts in the World. Q&A Session Follow Paysafe Limited (NYSE:PSFE) Follow Paysafe Limited (NYSE:PSFE) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Dan Perlin: Thanks, good morning. I just wanted to touch on the payback period, so to speak, on the $50 million of in-year revenues. I appreciate the cadence commentary on the investments – I think you said 60% of the $25 million will happen in the first half. I guess this implies kind of a second half ramp, but it also seems to be a pretty quick turnaround, so I’m just wondering the efficiencies that you’re expecting from the sales team, and maybe just putting a finer point, is that something that we would see really ramp aggressively in the fourth quarter or should we be thinking third, and maybe even before that? Alex Gersh: Okay, well I think you’re right, Dan, that we do expect this to be a pretty quick payback, and obviously with $50 million this year and $100 million next year, the payback occurs somewhere within the 12 months of incurring the cost. It is a no-brainer, quite frankly, from our perspective. Dan Perlin: Yes, okay. Then just a follow-up on gross margins, I know you said there’s going to continue to be a headwind there. Is there any way to kind of quantify or help us with the pacing of that and maybe what that might look like in totality, given some of the moving parts? Thank you. Alex Gersh: I think on the gross margin, and I think we’ve said this before, we’re very much focused on the obviously revenue growth and EBITDA margin. As you see us moving into different verticals and to different customer bases, both in digital wallets–particularly in digital wallets, we could see and we have seen some deterioration in margin. It’s really–I would almost call it deterioration that is really expanding our wallet capabilities significantly from where it was a few years ago, so that may continue. But what we’ve also said is we will continue to focus on efficiencies in terms of SG&A costs to make sure that we continue to improve operating leverage and EBITDA margins. On the merchant solution side, of course, we’ve already mentioned that what we really need to do is really ramp up the SMB direct channel, which is a higher margin channel than the third party channel. We are working on this, as you can see right now. We still have a lot of work to do and we will be reporting on this on a quarterly basis, and as you see that turn around, you should see some improvements in the SMB margin, gross margin. Dan Perlin: Got it, thank you. Bruce Lowthers: Thank you. Operator: Thank you. Our next question is coming from the line of David Togut with Evercore ISI. Please proceed with your questions. David Togut: Thank you, good morning. Could you discuss the drivers of digital wallet take rate compression in the fourth quarter, and what are your expectations for digital wallet take rate for this year as a whole? Thank you. Bruce Lowthers: Yes, Alex, do you want to go ahead? Alex Gersh: Sure Bruce. I think as we’ve said, I think in our remarks, and as I’ve just alluded to the strength, we are–we have significant growth in our digital wallet segment, right, and we are re-accelerating that segment. We are looking at different products and are targeting different parts of the ecosystem to drive that growth. Some of those products–and therefore the simple answer is gross margin–take rate deterioration is the product mix. But again, we see it as a really good story because what we’re really expanding is the use case for the digital wallet, but with some of those customers and some of those products, it does come with a little lower take rate. David Togut: Got it. Bruce Lowthers: Probably just to clarify for you, we’re not seeing pricing pressure with our existing product. What we’re seeing is, as Alex has said, us bringing new product to market at different price points and different margin profiles, so when we look at our take rates on an apples-to-apples basis, we’re seeing stability within our rates, but we’re introducing new things at different price points and different margin profiles. David Togut: Understood, thanks for that clarification. Just as a follow-up, what are your 2024 expectations for unlevered free cash flow and then year-end 2024 leverage targets? Alex Gersh: Again, what we are–you know, because of the buyback and because of the–you know, we’re really focusing and optimizing our balance sheet as much as possible, it would include the buyback, it would include the leverage. We aren’t really giving a target for 2024 in terms of the net leverage, but we continue to focus on reducing the net leverage. The midterm target, as we said, is 3.5 times, and we stand behind that target. The expectation would be that our EBITDA increases, so I would expect our unlevered cash flow to continue to stay stable, maybe increase a bit from where it is now, so overall we continue to see 2024 as a very strong cash generating year where we are able to invest in our business, deleverage, and execute on the buyback. David Togut: Thank you. Bruce Lowthers: Thank you David. Operator: Thank you. Our next questions come from the line of Scott Wurtzel with Wolfe Research. Please proceed with your questions. Scott Wurtzel: Thanks, good morning guys, and thank you for taking my questions here. Just wanted to start off on the SMB side of the business. You talked about introducing value-added services to your merchant base, and I know you’re rolling out the merchant wallet, but just wondering if you can maybe share some color on any of the other value-added services and products you could be introducing into the ecosystem this year......»»
Pharmaceutical companies behind weight-loss drugs are slimming down a new target: The Magnificent 7
In today's big story, we're looking at pharma companies' surging stocks and threatening tech darlings thanks to their weight-loss drugs. Tirzepatide and similar medications can lead to significant weight loss, but evidence suggests you need to stay on the drugs long-term to maintain it.Peter Dazeley/Getty ImagesThis post originally appeared in the Insider Today newsletter.You can sign up for Business Insider's daily newsletter here.Happy Friday! President Joe Biden delivered a State of the Union yesterday that was unlike any in recent memory. He seized the opportunity to tear into his predecessor, Donald Trump — and Trump was quick to vent his fury online.In today's big story, we're looking at pharma companies' surging stocks and threatening tech darlings thanks to their weight-loss drugs.What's on deck:Markets: Stock buybacks are set to make a massive comeback.Tech: Apple is having a tough go of it.Business: Make way for bike lanes! They'll actually help your business.But first, there's a new kid on the block.If this was forwarded to you, sign up here.The big storyMagnificent weight lossAPWeight-loss drugs have become a trendy way to shed pounds in recent years. The companies behind them are now slimming down a new target: The Magnificent 7.Mom-and-pop investors have been net sellers of most of the Magnificent 7 stocks, selling off shares of Tesla, Apple, Alphabet, and Microsoft, according to a new note from JPMorgan.Meanwhile, pharmaceutical companies appear to have gained what the market's tech darlings lost, writes Business Insider's Yuheng Zhan. Eli Lilly, Pfizer, and Novo Nordisk have grabbed the attention of retail investors, according to JPMorgan.That shift was evident Thursday. Shares of Novo Nordisk, the drug maker behind Wegovy, surged to a record high following an update on a new obesity drug, pushing its market cap ranking past Magnificent 7 laggard Tesla.Expectations are high for fellow weight-loss drugmaker Eli Lilly. Bank of America assigned it a $1,000 price target, the highest on Wall Street, off the potential its weight-loss drug tops $60 billion in sales by 2030. And some have speculated it could become the first trillion-dollar drug company.Market experts expected investors to exit some of their Magnificent 7 positions to realize some of the massive gains they accumulated last year. And retail investors remain buyers of Nvidia, the crown jewel of the Mag 7, JPMorgan said.But the growth these pharma companies have already shown is impressive. And it comes despite only 1% of US adults taking weight-loss drugs, according to Bank of America, which predicts that number could rise to 15% by 2035.Hannah Latham; Octavio Jones; Christian Rodriguez; Laura MacPherson; Jenny Chang-Rodriguez/BINot unlike artificial intelligence, which has pushed tech stocks higher, the weight-loss drugs fueling pharmaceuticals' recent rally have their critics.The most notable concerns stem from a lack of understanding of the long-term effects of the drugs, which act on our neural pathways. For some, their loss of appetite has come with a similar apathy towards other things, like work or sex.Weight-loss drugs are also cutting more than just fat. Doctors have raised concerns about the major loss of muscle mass people on these drugs can experience, especially if they're not getting enough protein or exercise.Drug companies are already considering ways to incorporate drugs that can help users build muscle while also losing fat, according to The Atlantic.For Wall Street, meanwhile, the equation is much simpler: Getting more people on weight-loss drugs boosts the economy. The US GDP could grow an extra 1% if 60 million Americans took GLP-1 drugs by 2028, according to Goldman Sachs' chief economist.3 things in marketsBusiness InsiderCompanies buying their own stock is back in fashion. Share repurchases will hit $925 billion this year and $1 trillion next year, according to Goldman Sachs. The trend, which will be powered by cash-rich mega-cap tech companies, is thanks to strong earnings growth, the bank said. However, the Biden administration is mulling quadrupling taxes on stock buybacks.A billionaire real estate mogul has some stern words for the Fed. Barry Sternlicht said the real estate industry was "minding our own business" when it became "collateral damage" of the Fed's aggressive rate hikes. He also pointed to the Fed's tightening policy amid government spending on the Infrastructure Investment And Jobs Act and the Inflation Reduction Act.An old hedge-fund strategy makes a comeback. Alpha capture strategies, which generate investment portfolios by aggregating inputs from sources including human traders, market data, and sell-side research, are hot again in the hedge-fund world.3 things in techFernando Gutierrez-Juarez/Getty ImagesApple can't catch a break. It's been a rough week for the iPhone maker: On Monday, the European Commission slapped it with a $2 billion fine. Then, a report found its iPhone sales in China had dropped 24% in the first six weeks of the year. And that's saying nothing of its abandoned EV ambitions.Tesla's value is sagging — bringing Elon Musk down with it. The EV company has seen its value slump by $234 billion this year. That's more than McDonald's, Disney, or Nike are worth. In turn, Musk's wealth has dropped by almost $40 billion since the start of 2024.TikTok is fighting back against Congress. Lawmakers are talking about banning the app once again — and the White House has signaled it thinks that's a good idea. TikTok has responded by sending messages to some users that urge them to help it stop a shutdown.3 things in businessPete Ryan for BIBike lanes are good for business. Some store owners worry that bike lanes take away parking spots, hindering customers' access to shops. But studies have shown bike lanes do nothing to reduce business — and may actually help improve sales.Temu will open to US merchants soon. US-based merchants told BI they're eager to sell on Temu as it rapidly grows. The Chinese ecommerce platform has made a splashy entrance into the American market, reportedly spending $2 billion for advertising on Meta.Check out Rivian's new EVs. The carmaker revealed two new SUVs on Thursday: the long-awaited R2 and a surprise, smaller version called the R3. "These represent our future," Rivian CEO RJ Scaringe said. Take a look at the designs, specs, and other features.In other newsRupert Murdoch is taking yet another shot at marriage at the age of 92.Private-equity and VC investors look to sports, AI, and live events as the era of peak TV draws to a close.Inside hedge funds' big Lincoln Center bash: Caviar, acrobats, and a professed love for New York 'even if we move to Florida.'Live in DC? Get ready for 20% service charges when you eat out.A busy 83-year-old doctor who does triathlons shares his 'square method' for maintaining a work-life balance.Bitcoin is replacing gold in investor portfolios.'Love is Blind' fans are bashing the cookie-cutter Charlotte suburbs featured on the show. Here's how experts say they can be improved.Ray Dalio went to a Taylor Swift concert, took a selfie, and endorsed her for president.Omnicom agency Merkley+Partners hit with lawsuit accusing ex-creative director of raping a social media strategist in the bathroom.Noticing more product recalls lately? It's not just you.Travelers booked the residential cruise of their dreams. Now, some doubt it'll happen — and say they've waited months for refunds.5G had a slow and messy start. New 5G technologies could finally bring the faster networks we were promised.What's happening todaySXSW kicks off today.The Insider Today team: Dan DeFrancesco, deputy editor and anchor, in New York. Hallam Bullock, editor, in London. Jordan Parker Erb, editor, in New York. George Glover, reporter, in London.Read the original article on Business Insider.....»»
Commercial Vehicle Group, Inc. (NASDAQ:CVGI) Q4 2023 Earnings Call Transcript
Commercial Vehicle Group, Inc. (NASDAQ:CVGI) Q4 2023 Earnings Call Transcript March 5, 2024 Commercial Vehicle Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, ladies and gentlemen, and welcome to the CVG’s Fourth Quarter and Full Year […] Commercial Vehicle Group, Inc. (NASDAQ:CVGI) Q4 2023 Earnings Call Transcript March 5, 2024 Commercial Vehicle Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, ladies and gentlemen, and welcome to the CVG’s Fourth Quarter and Full Year 2023 Earnings Conference Call. During today’s presentation, all parties will be in listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Andy Cheung, Chief Financial Officer. Please go ahead. Andy Cheung: Thank you, operator, and welcome, everyone, to our conference call. Joining me on the call today is James Ray, President and CEO of CVG. This morning, we will provide a brief company update as well as commentary regarding our fourth quarter 2023 results. After which, we will open the call for questions. As a reminder, this conference call is being webcast in the Q3, 2023 earnings call presentation, which we will refer to during this call is available on our website. Both may contain forward-looking statements, including, but not limited to, expectations for future periods regarding market trends, cost-saving initiatives and new product initiatives, among others. Actual results may differ from anticipated results, because of certain risks and uncertainties. These risks and uncertainties may include, but are not limited to, economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, financial confidence, compliance and liquidity, risks associated with conducting business in foreign countries and currencies and other risks as detailed in our SEC filings. I will now turn the call over to James to provide a company update. James Ray: Thank you, Andy, and good morning everyone. It is an absolute pleasure to be joining you on my first earnings call as President and CEO of CVG. Having served on the Board of Directors since 2020, I’ve had the opportunity to witness the strength of CVG’s business fundamentals, the transformative strategy in place, and the remarkable growth potential in this organization. We have great strategy, great people, and great customers. I was appointed president and CEO December of 2023 and there was a lot of good progress already underway from the leadership of our Chairman and Interim CEO, Bob Griffin. I want to thank Bob for all his efforts in the months prior to my appointment as President and CEO. As this is the first time I’m speaking to the majority of you, I’d like to offer a bit of my perspective on the opportunity I see ahead for CVG. I’m sure you’re curious what will change with me as CEO. And to be clear, my aim is not to change our strategy, but rather to enhance it. In my role as a board member, I saw firsthand the hard work and planning that went into developing our transformation strategy. We think we are seeing the early benefits of that transformation, as our new business wins drive top line growth and margin improvement even as we see a downturn in the Class 8 truck builds and this improved profitability is leading to reduced leverage and a healthier balance sheet. Additionally, we have provided our outlook for the full year 2024 more on this later. My goal is to best equip our teams to continue driving this transformation and to make sure we have the right culture in place to enable our teammates to drive us forward every day. In order to build and maintain this growth focused culture, we need to do three key things. One, develop and reward our employees. Two, excite our customers, and three, deliver results to increase our value to shareholders. Fundamentally, it’s all about people, processes and capability. My goal as CEO will be to make sure we are developing all three aspects through strong teamwork, continuous improvement and building capability. I am incredibly excited about that opportunity ahead of us at CVG. Before turning to the details of the quarter, I want to highlight that Bill Johnson was elected to the Board of Directors in December. He brings a wealth of operating experience and expertise across a variety of business areas, including his current role as CEO and a board member of the Board of Directors of Avail Infrastructure Solutions. Bill also served as President and CEO of Welbilt from October 2018 to July 2022, and as the President and CEO and COO of Chart Industries from July 16 through June 2018. He possesses over 30 years of global experience and we’re excited to have Bill join our board. I have no doubt CVG will benefit from his skills and perspective. Now, I’d like to turn your attention to the supplemental earnings presentation starting on Slide 4. Following solid year-over-year improvements in the first few quarters of the year, our fourth quarter results were negatively impacted by a work stoppage at a customer facility and reduced demand. We reported net sales of $223 million in the quarter and an adjusted EBITDA of $10.3 million. We continue to win and integrate new business, optimize costs and work to improve profitability of our business. Our continued focus on margins as well as the contribution of new wins helped drive a 26% increase in full year adjusted EBITDA to 6.8%, up 140 basis points compared to last year. For the full year, we generated $19 million in free cash flow and it combined with our strong EBITDA, our net leverage ratio declined to 1.5 times from 2.2 times. Speaking of new wins, we recorded in excess of $150 million of new wins this year on a fully ramped basis, continuing our strong track record of success. Consistent with our strategy, these wins continue to be focused within our Electrical Systems segment and support the product ramp up at our two new plants in Mexico and Morocco, which are focused on meeting the demand growth in Electrical Systems. We’re also currently expanding our footprint with an additional new plant under construction in Morocco. Turning to Slide 5, I’d like to take this opportunity to highlight some recent strategic actions we’ve taken, which all serve as a reminder of our ongoing focus to align cost and improve margins at CVG. First, we are closing one vehicle solutions facility in North America and shifting the production to other locations in line with our goal of lowering our manufacturing cost and improving Vehicle Solutions margins. Second, we are taking additional steps to reduce organizational cost and align resources to support our highest growth product lines. These actions are part of our ongoing efforts to make sure we are cost competitive and improve our profitability over time. Finally, we announced the sale of our Finnish [ph] tech business in the Vehicle Solutions segment in January of this year. While not a large transaction, it focuses our business portfolio more on our core growth opportunities and demonstrates our commitment to strategic capital allocation. These recent actions should echo well with our long stated transformation strategy to improve the mix and profitability of our business through the growth of our Electrical Systems business. And with that, I’d like to turn the call back to Andy for a more detailed review of our financial results. Andy Cheung: Thank you, James, and good morning everyone. If you are following along in the presentation, please turn to Slide 6. Consolidated fourth quarter 2023 revenue was $223.1 million as compared to $234.9 million in the prior year period. The decrease in revenues is due primarily to the impacts of a strike at a Vehicle Solutions customer facility, which more than offset an increase in Electrical Systems revenues. Foreign currency translation favorably impacted fourth quarter 2023 revenues by $1.8 million, or 0.7%. Adjusted EBITDA was $10.3 million for the fourth quarter, compared to $13.3 million in the prior year. Adjusted EBITDA margins were 4.6%, down 110 basis points as compared to adjusted EBITDA margins of 5.7% in the fourth quarter of 2022, driven primarily by lower volumes and strike impacts. Interest expense was $2.4 million as compared to $2.9 million in the fourth quarter of 2022. The decrease in interest expense was primarily related to lower average debt balances during the respective periods, partially offset by higher interest rates on variable rate debt. Net income for the quarter was $23.3 million or $0.70 per diluted share as compared to a net loss of $32 million or negative $0.98 per diluted share in the prior year. Adjusted net income for the quarter was $2.9 million or $0.09 per diluted share as compared to $1.4 million or $0.04 per diluted share in the prior year. Consolidated full year 2023 revenue was $994.7 million as compared to $981.6 million in the prior year period. The increase in revenues is due primarily to pricing and an increase in Electrical Systems volume. Foreign currency translation favorably impacted full year 2023 revenues by 2.0 million or 0.2%. Adjusted EBITDA was $67.6 million for the full year, up 26% compared to the prior year. Adjusted EBITDA margins were 6.8%, up 140 basis points as compared to adjusted EBITDA margins of 5.4% in 2022, driven by gross margin expansion slightly offset by higher SG&A. Net income for the full year was $49.4 million or a $1.47 per diluted share as compared to a net loss of $22 million or negative $0.68 per share in the prior year. Adjusted net income for the year was $30.2 million or $0.90 per diluted share as compared to $16.4 million or $0.51 per diluted share in the prior year. Turning to Slide 7, I would like to highlight a few items on the adjusted EPS bridge, which include our adjustments to GAAP EPS as well as one additional special item. First, we reversed a charge we took last year for deferred tax valuation allowance due to improved profitability in our U.S. operations. Second, we took a restructuring charge related to the footprint optimization and cost reduction efforts that James discussed, totaling $0.05 per share. Additionally, we were negatively impacted by a strike related work stoppage at one of our customers facilities during the quarter, which we estimate negatively impacted earnings by $0.06 per share. Adjusting for these items, our EPS would have been $0.15 per share. Now moving to segments results beginning on Slide 8. Our Electrical Systems segments achieved revenues of $56.2 million, an increase of 19% compared to the year ago fourth quarter, resulting from increased sales volume, including the impact of new customers and increased pricing. Adjusted operating margin was 11.6%, an increase of 30 basis points compared to fourth quarter of 2022, driven by increased sales volume and improved pricing. For the full year, revenues were up 27%, again driven by pricing and new wins contribution. Full year adjusted operating income margin increased 100 basis points as volume, leverage and pricing more than offset inflationary impacts. Evident in these results are the impacts of our new business wins and the ramp up of our two new plans in Mexico and Morocco, which remain on track to support these new wins. Furthermore, given the continued new wins, we are currently in the early construction phase for a second site in Morocco. As always, we will remain focused on driving operational improvements and optimizing margins even as the additional new wins flow through. Turning to Slide 9. Our Vehicle Solutions segment’s fourth quarter revenues decreased 10% to $128.4 million compared to the year ago quarter due primarily to the impacts of a strike related outage at one of our customer facilities. Adjusted operating margin for the fourth quarter was 3.1%, an increase of 20 basis points compared to the prior year period, as increased pricing and cost controls more than offset the impact of lower volumes related to the strike. For the full year, revenues were up 1% driven by increased North America Class 8 production. However, it was partially offset by lower volumes in Europe and China. Full year adjusted operating income margin increased 350 basis points, driven again by pricing and other cost controls. We are encouraged by the year-over-year improvement in Vehicle Solutions, but this segment remains a key focus for our team in terms of reducing cost, driving, further operational improvements, as well as winning business on new platforms, all with the goal of driving improved margins. Moving to Slide 10, our Aftermarket and Accessories segment revenues in the fourth quarter decreased 8% to $31.4 million compared to the year ago quarter, primarily resulting from decreased sales volume. It is also worth noting that our Q4 2022 performance benefited from a large backlog that did not repeat this year. Adjusted operating margin for the fourth quarter was 11%, an increase of 20 basis points compared to the prior year period. The increase is primarily attributable to pricing. For the full year, revenues were up 5%. Full year adjusted operating income margin increased 330 basis points, driven again by pricing as well as better cost performance. Turning to Slide 11, our Industrial Automation segment produced fourth quarter revenues of $7.1 million, a decrease of 35% as compared to $11 million in the fourth quarter of 2022 due to ongoing challenging market conditions. Adjusted operating margin was 3.7%, an increase of 850 basis points compared to the year ago quarter, primarily attributable to the efforts taken to right size this business. For the full year, revenues declined 56% at demand levels for this business remained at trough levels. Full year adjusted operating income margin declined 760 basis points, driven primarily by lower volumes. As mentioned, we have taken actions to right size our core structure in this business and we have broadened our market focus to expand our revenue opportunity. That concludes my financial overview. I will now turn the call back over to James to discuss our key focus areas for 2024 as well as our outlook. James Ray: Thank you, Andy. Turning to Slide 12, I’d like to highlight where our team will be focused in 2024. This will be no surprise to hear, but new business wins remain core to our culture at CVG and we continue to add additional customers and platforms. We look to continue our new business wins in 2024 building on the wins we recorded in 2023. Our strategy calls for continued diversification of our revenue stream, which is key in transforming our revenue mix, reducing our cyclical exposure and improving profitability. Next, we will continue the planned ramp up of our new Electrical Systems plants in Mexico and Morocco. These expansions are key to growing our Electrical Systems business globally and are positioned to be cost competitive and provide outstanding service to our customers. Additionally, we are underway with the construction of an additional Moroccan plant, which will further support anticipated growth and supply chain optimization. So, before turning to the fiscal 2024 outlook, I want to emphasize what we are doing with our three key businesses. One, we are focused on making Electrical Systems our largest business by continuing to win new electrical business across multiple end markets and diversifying our product portfolio, including diversifying our vehicle platforms toward higher growth markets while simultaneously reducing our exposure to the cyclical Class 8 truck market. Two, we are optimizing our Vehicle Solutions and Aftermarket businesses as we see multiple levers to improve profitability through operational cost efficiency and making strategic sourcing decisions. We expect all of this to lead to improved working capital management and increased free cash generation. Collectively, this fundamental business transformation is expected to improve our business mix and make CVG a larger, stronger and more profitable company in the coming years. Turning to Slide 13, I’ll share a few thoughts on our outlook for 2024. You’ll notice that for the first time we are giving you quantitative annual guidance at the revenue and adjusted EBITDA level. We believe this will help indicate our underlying expectations for the performance of our business. Industry forecasts currently project a decline in North American Class 8 truck builds of approximately 16% for the year. However, we expect to benefit from growth in Electrical Systems revenue. As a result, we are forecasting revenues to be in the range of $915 million to $1.015 billion [ph] with projected growth in Electrical Systems segment notwithstanding the approximately 16% drop in North American Class 8 truck build, we expect adjusted EBITDA margins year-over-year to be relatively flat as implied by the midpoint of our guidance range of $60 million to $73 million EBITDA for 2024. Our expectation is that this level of EBITDA generation offset by capital expenditures in the range of $25 million to $30 million for the year to drive further free cash flow, giving us the optionality of further debt paydown or potential inorganic growth opportunities should we find an attractive deal. Overall, we expect 2024 to show solid demand and revenue for the full year as we continue to win new business at a strong pace. With [indiscernible] in our Electrical Systems segment. We believe this level of resilience in the face of lower North American Class 8 industry volumes is further evidence of the success of our diversification strategy. With that, I will now turn the call back over to the operator to open up the line for questions. Operator? See also 20 Biggest Oil Producers in the World and 15 European Cities with the Best Public Transportation. Q&A Session Follow Commercial Vehicle Group Inc. (NASDAQ:CVGI) Follow Commercial Vehicle Group Inc. (NASDAQ:CVGI) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you, sir. [Operator Instructions] And your first question will be from Joe Gomes at Noble Capital. Please go ahead, Joe. Joe Gomes: Good morning. Thanks for taking my questions. Andy Cheung: Good morning, Joe. James Ray: Good morning, Joe. Joe Gomes: James, you gave us a quick overview. It’s great to hear your voice here on the call. I was wondering maybe you’ve been there two months. If you give us some more insight into kind of your key findings or thoughts from the CEO position here in the first two months. James Ray: Sure, Joe. Yes, it’s very exciting for me to come in. Fortunately, I had the benefit of observing the company on the board from the other side of the table. So, I’ve had the opportunity to get a look closer during the time of our Interim CEO, Bob Griffin, and that really excited me about the possibility of taking on this role. What I’ve seen since I’ve been here is that we have really good products that our customers value. We have a very enthusiastic team and really focused on growth in not just electrical, but other aspects of our business. We have a good approach to finding solutions to help customers solve their problems, and also we are focused on making sure we deliver on commitments. So I think the team is very engaged. I’ve had interaction with several of our top customers and I’ve also had a chance to talk to a few investors as well. And we all see continued improvement in the value of this business and the value proposition it brings to the market. Joe Gomes: Thank you for that. And are there any significant contracts that might be coming up for renewal in 2024, rebid in 2024? James Ray: Well, as part of our new business win methodology here, and I think what’s happened in our results is that we have a funnel of activities and a funnel of opportunities that we look at and align our product strategy to our customers quoting opportunities. So across our businesses, there’s a number of quoting opportunities that occur every week during the quarter. Some are prioritized higher, some we have a stronger value proposition against our competition. But we do have a focus on making sure that we pursue opportunities that are sustainable, that have the appropriate margin profile, and that fit within our manufacturing and supply chain footprint. We do have some small ones we go after, and we also have some large ones we go after. We don’t disclose our customers specifics as we do book new business, but I would say that we’re gaining a stronger reputation in the market of being able to provide what customers are looking for as well as a differentiated value proposition compared to our competitors, mainly in Electrical Systems. But we also have some strong areas in our plastics and trim business, as well as our seating business and aftermarket. So it’s not just electrical, it’s across the board. But our focus is really accelerating electrical growth beyond market growth. Joe Gomes: And what are the goals in 2024 for new business wins? I know historically it’s been at least $100 million. Are we still sticking to that or you get a higher number this year? James Ray: Obviously we want to continue the trend we’ve been on, and it depends on the customer program cycles and when opportunities are quoted. So our funnel is larger than our target. We have different win rates in different segments, and different products have different win rates based on the competition that we’re going up against. But generally we expect to be in the $100 million or more range on our bookings going forward. We’ve proven we have a right to play and a right to win. It all comes down to strong execution and making sure we deliver on our commitments, both to customers as well as to our organization, for the financial commitments of the program. So that’s going to continue to be the focus. And the great thing about this is we’ve had a couple of years of building momentum and we’re really starting to accelerate that and our reputation is increasing within our customers. Joe Gomes: Great. And one more for me. I get back in queue. So your expectations for 2024, trying to get some of what your thoughts? Obviously the range is about $100 million. I’m assuming some of that deals with where the Class 8 truck builds end up coming in. But on the Electrical Systems side, last year you did a bang up job. Top line was up 27%. Are you looking for that similar number similar rated growth in 2024 in that segment or back, maybe down closer to that 20% range or something other? Andy Cheung: Joe, well, let me answer that. So just describe. We’re already seeing the benefit of the new wins that we secure over the last few years. So 2023 is really a strong year. Revenues growth for the Electrical Systems segment. We expect that you’ll continue to see us launching business that we already own [ph]. Right now that’s why we have a range here is sometimes a customer launch schedule is out of our control, and it depends on manufactures, but we expect that you’ll continue to see good growth in our electrical segments. Joe Gomes: Great. Thanks for taking my questions. James Ray: Thanks, Joe. Operator: Next question will be from John Franzreb at Sidoti. Please go ahead. John Franzreb: Good morning, guys, and thanks for taking the questions. I like to start with the revenue loss at the strike. Can you talk a little bit about maybe the size of the revenue and was it lost or was it deferred into the first quarter? Maybe more color there would be helpful. Andy Cheung: Yes. The strike at the customer was actually lasted about six weeks, so it impacted us. We estimated to be about $12 million in revenues for the quarter. As the customer did not change their overall backlog. We expect that eventually they’re going to put those lost vehicle back on the production schedule. The timing is a little unclear right now because they also have their own manufacturing constraint, but we expect that eventually it will come back to the production. John Franzreb: Excellent. And I guess if we start thinking about the Class 8 truck cycle and last quarter I asked you, how is the first quarter shaping up? And you indicated it was looking good. I’ll repeat the question. How’s not only the first quarter looking, but how’s the second quarter looking relative to the current production rates that you finished at? Andy Cheung: Yes. So we don’t forecast quarter-by-quarter what our customers do, but as you can see on the market, there’s public information about the ACT forecast, which is one of the more important forecasts you use. So right now, you see ACT is actually expecting some decline from Q2 and beyond in terms of overall market production. But we’ll see. We’re still not seeing full visibility on our customers own schedule, but the ACT forecast is showing some drop off from Q1 and beyond. John Franzreb: Got it. And just a little bit about the Mexico and Moroccan facilities. When would they be fully operational? James Ray: The Mexico facility launched in Q3 and the Morocco facility, the initial Morocco facility, launched in Q4, and they are ramping up, bringing on the new programs that we had won in prior years to those facilities. The new facility that’s under construction in Morocco. The additional facility should be online in Q1 next year. John Franzreb: Q1 next year. Got it. And just if I think back to about a year ago, you were rolling out a new aftermarket initiative. Looking back on it, can you talk a bit about the successes and maybe where it’s lagging a little bit relative to expectations going in? James Ray: Sure, no problem. We did change leadership of the aftermarket business in Q3 last year and kind of reassess the effectiveness of the prior strategy, especially on the ecommerce side. What we have found is ecommerce, you have to have a lot of discipline around your production planning and your inventory strategy and how you’re going to market and what you’re focusing on. And we believe that there’s probably more work that could have been done there. So the new leadership that came in, actually we participated in the heavy duty aftermarket week in January, and we have a pretty large number of field sales reps that we met with that will represent our product with various dealers, retail outlets in various regions of the country. And we recognized from that interaction we needed to do a better job of getting our name and brand out there. And I think the aftermarket truckparts.com, probably mid to late this year, may have a lot more traction based on the work that our field reps are doing out in the field with our brand improvement and brand awareness. So I think going forward, or I expect going forward, we’ll see better traction sequentially in our aftermarket business sales opportunities. John Franzreb: That’s great to hear. And I guess one last question then. And let’s get back into queue. Clearly right size the Industrial Automation business. What’s kind of updated thoughts on when the revenue profile kind of turns around there now that you’ve kind of right sized the business? James Ray: That’s a really good question. I’ve been able to take a really good look at what we’ve done even before coming into the CEO role. The business profile there was primarily more contract manufacturing, lower value add, but we had an opportunity to really gain inputs and access to the local market. And with the takeoff of warehouse automation, that’s where the business really popped up. And as that tailed off, it kind of came back to the legacy contract manufacturing box builds. And the leadership in that business intentionally has been focusing on a more highly engineered solution in the market, in various customers in various different configurations. So we’re somewhat at the inflection point of where this business could potentially go based on these new products. We do have favorable customer feedback, but there’s going to be a Runway to ramp back up to more substantial revenue numbers. And early indications are by mid to late this year, we should start to see more of a bounce back in that business based on orders we have and customer insights. We are actually going to be participating in the MODEX show in mid March, demonstrating one of our new innovative products in that show to get feedback and determine how we need to potentially scale that new product innovation. So that’s pretty much an update on that business. It’s at an inflection point and trying to pivot it to more value-add. John Franzreb: That’s also good to hear. Thanks, guys. I’ll get back into queue. James Ray: Thanks, John. Andy Cheung: Thanks, John. Operator: Next question will be from Gary Prestopino at Barrington. Please go ahead. Gary Prestopino: Good morning all and welcome, James. A couple of questions here. First of all, James, with you coming on board, I mean, the company had a target of revenue of $1.5 billion, 9% adjusted EBITDA margin by 2027. Is that something that you want to stick to here or can we throw that out with baby out with the bathwater? James Ray: That’s a good question. I wouldn’t say we’re throwing the baby out with the bathwater, but I do think we have an opportunity right now to look at the profile more specifically through market segmentation, customer and product segmentation, and have a more intentional profile management as we look at future business. And we’re still assessing what that profile might look like and where it could potentially go to ensure that we have an appropriate margin accretion algorithm in front of us. But we’re really focused on executing our annual guidance expectations and continuing to book new business. So with these two things, we’ll have a better chance to, I think, shape what this looks like longer term, and we’re still defining how that’s going to be staged out. So at this point, we’re not really discussing the long-term targets, we’re not throwing a baby out with the bathwater. But I do think there’s work that needs to be done on a more disciplined approach to shape the profile of that revenue stream. Gary Prestopino: Okay. And that’s fine. I just wanted to may get that out there because that also, those targets had been out there and we don’t want to obviously repeat them if they’re not something that you want to adhere to. Well, okay. James Ray: Well – let me just, I guess, backtrack a little bit. We did state on the prior question that we expect to book a $100 million [ph] or more new business wins a year. So that is another data point that you can use in determining where we’re going longer term. We’re not backing off or throwing the baby out with the bathwater. We’re sticking to that. Gary Prestopino: Okay, so in terms of the closing of the facility and then higher cost reduction in organizational costs, can you slap a number on what kind of expense capture you’re looking to get from these actions in 2024? Andy Cheung: So Gary, let me answer that question, so you can see that this quarter we took a charge of about $0.05 per share, so roughly about $3 million. It’s not all the charge that related to the action. So some of the action will continue into Q1 as well. We normally look for about less than two years payback in our spending on right sizing and improving the operations. So we can see – there you will see a multimillion dollars of benefits based on the charge that we take. But that’s also roll into our annually the cost reduction that we do. So we’ll continue to use those actions to expand our margins as well as offsetting the inflation that we are still seeing in the business. Gary Prestopino: Okay, and then just something. Well, I got two more questions, but with the Electrical Systems business, a nice percentage of that was going to electrified vehicles, is that correct? James Ray: Actually, our largest segment in that business is ConAg construction and agriculture, some of the key industrial customers. The EV portion of that revenue stream is relatively small and we’re focused on some of those customers in our growth and business wins. But as you know, based on recent publications, some of the customers, even the non-new OEMs, some of the legacy OEMs that are going to electrification have somewhat backed off of the volume estimates as well as the years of introduction. So because we’re more intentional about how we shape the profile of our new business ones in electrical, we didn’t have an over reliance on that to hit our longer term growth objectives. Gary Prestopino: Okay, that’s good. That’s what I was trying to get at here. Okay. And then, James another question for you. You got a great background here in terms of where you’ve been and companies you’ve worked for. Where do you see your strengths and how they match up with the needs of CVGI? I guess what I’m trying to get at here is that in your prior roles at Stanley Black & Decker and that, were you more operationally oriented? James Ray: Yes. So that’s a great question and I’ll try and answer it to the best of my ability. So if I work backwards, the seven years I was at Stanley Black & Decker was focused a lot on transformation, both from a supply chain business model or efficiency, engineering, go-to-market, customer relations management. So truly general management during my time at TE was really focused on operational transformation at the plant four level, and that was during the post 2008, 2009 downturn. So there was a lot of hands on, heavy lifting there. And I see that coming into this role. And after observing some of the needs of the business from a board seat, I felt very comfortable that I could understand what exactly needed to be done, where we needed additional capability, where we needed more capacity, and also improved processes and tools to help us run our operations. So as many of you know, it’s a journey in operational transformation. And I would say we’re probably in the early phases and we’re gaining traction. So the difference in my approach may be that I’m focused on culture change management as well as sustainable process and tool improvement as compared to Brute Force. And just trying to muscle things through sustainability of improvements is very important to me. So I believe that’s where I add a lot of value coming into the business. And I would also add on to customer relations management. I think that we have some very strong and exemplar customers in our portfolio and there’s opportunities to manage them in a different way. So it’s long-term strategic relationships and we keep the comprehensive picture of our relationship in front of us. And it’s a win-win, mutually beneficial relationship balance that I’m aspiring to achieve with our large customers and our new customers as well. All of our customers are important, but there’s some that really sway your business one way or the other. And we just need to make sure we’re very intentional about how we manage them. Gary Prestopino: Okay. Thank you very much and I wish you well. James Ray: Thank you. Andy Cheung: Thanks, Gary. Operator: Next question will be from Guillermo Herrera at Gabelli Funds. Please go ahead. Guillermo Herrera: Good morning. Thanks for taking the question. Andy Cheung: Good morning. James Ray: Thanks, Guillermo. Guillermo Herrera: So we’ve heard a bit on margins being up from both pricing as well as contribution from the ES business. Curious whether part of the story here is also being more selective in your contracts. So in other words, have you had to walk away from any significant customers based solely on margin profile? You mentioned not disclosing specific contracts, but if you could just provide some color on whether this was part of the margin story over the past year or so, that would be helpful. Thanks. Andy Cheung: Yes. So if you remember, we did talk about that in the past, that there is one customer that we didn’t like the terms of the contract and we walked away from a seating standpoint. So that was ended, actually this fiscal year. So that helped to streamline our operation and as well as get rid of some of the terms that we didn’t like. So that’s part of the margin reflection. Guillermo Herrera: Got it. Thank you. Operator: Thank you. Next question will be from Steven Martin at Slater Capital. Please go ahead. Steven Martin: Hi. James you’re new, but you’ve been on the board. So as a shareholder who’s been around longer than any of the senior management, I’d like to share a couple of thoughts. I think Harold sold us a bill of goods over the last three or four years. If I look back at his comments about recutting the truck contracts and blaming things on increased costs that couldn’t pass through, and now here we are, four years later. You recut the contracts last year, April 1 you recut the last, supposedly the last contract. Freight costs are down. And by the way, I’ll point out that if you look at your fourth quarter press release last year, the same time last year, you said ACT was projecting 305 and it ended up being 345. So every quarter this year, ACT got better than you guys anticipated, yet your business didn’t, and you underwhelmed when it comes to last year, you made a big deal about a $30 million cost savings program. We don’t see it. There was a big deal, and you talked about it. Harold made a big deal about aftermarket and all the money that got spent reorganizing plants, building inventory, hiring new people. We don’t see it when we talk about the electrical business. You just pointed out they made a big deal out of all the EV wins we had. And now you’re saying EV is not really a big part of it. I won’t even go into the acquisition, which has been an unmitigated disaster. So while you weren’t the CEO, you were on the board. And I just want to share with you the level of frustration of your long-term shareholders who’ve watched this stock go nowhere for five years. James Ray: Steve, thanks for your feedback, and your observations are very well grounded. So I’m going to let Andy comment on a few things, and then I’ll come on the back to Andy’s comments. Andy Cheung: Yes, so Steve, well, thank you for the feedback. So we actually look at the business. As you said, there are some areas that we believe is really doing well, some areas that we are falling short a bit, particularly like to your point. And James already mentioned the aftermarket ecommerce. I think we mentioned that it was a experiment and trial for us, that we learned from it, and that initiative didn’t pan out as strong as we thought. So we have made some changes to leadership, and we are regrouping and seeing other ways to grow the business, as Zulio [ph] also pointed out. So we have some wins in the electrical business that you mentioned that the previous CEO have also mentioned. And thus those are the wins that we saw over the past couple of years......»»
Temu spent so much on Meta ads that staffers joked they should thank the company with a hefty gift card, report says
The Chinese ecommerce platform was the top advertiser by revenue for Meta in 2023, per The Wall Street Journal. Temu sells a wide assortment of goods at low prices. STEFANI REYNOLDS/AFP via Getty ImagesTemu reportedly spent nearly $2 billion on ads on Meta last year, per WSJ.The Chinese ecommerce platform has made a splashy entrance into the US.Analysts say it's likely losing money on every sale thanks to hefty marketing spend. Temu reportedly spent nearly $2 billion on ads on Meta in 2023.According to a report from The Wall Street Journal, the Chinese online shopping platform — known for its rock-bottom prices that rival a dollar store — was the top advertiser by revenue for Meta in 2023. The newspaper cited sources familiar with the matter.One source told the Journal that Meta staffers joked that Temu has spent so much on ads on its platforms that it should thank the company by rewarding it with one of its own gift cards.A spokesperson for Temu denied the $2 billion figure when contacted by Business Insider but would not disclose the company's advertising spend.As the company is privately owned by Chinese firm PDD Holdings, it doesn't have to release its financials. As a result, very little is known about the performance of the company.Still, it's no secret that Temu has been going all out on its advertising campaigns to grow its reach in the US.After launching in this region in September 2022, it made a splashy entrance at the 2023 Super Bowl with an ad that invited consumers to "shop like a billionaire" on its app.The message was that shoppers had the power to buy whatever they wanted on Temu without worrying about the cost. It may well be true — the store is known for its ultra-low prices on a wide assortment of goods.Analysts say that these pricey ad campaigns — including spots at the 2023 and 2024 Super Bowls — alongside its rock bottom prices, likely mean the company is making a loss right now.Goldman Sachs estimated that its marketing spend alone contributed to an average $7 loss per order in 2023, the Journal reported.While its strategy to bombard shoppers with ads and woo them with low prices seemed to pay off initially as customers flocked to the app, data suggests that Temu may be losing momentum.Observed sales for Temu fell 12.5% month-on-month in December and 4.8% in January, per Bloomberg Second Measure data.The data showed that the number of Temu users in the US was also declining.BI contacted Meta for comment but did not immediately hear back.Read the original article on Business Insider.....»»
MercadoLibre (MELI) Delivered Standout Results in November
Lakehouse Capital, a Sydney-based investment manager, released its “Lakehouse Global Growth Fund” November 2023 investor letter. A copy of the same can be downloaded here. During November, global equity markets performed well with the team focusing on tracking earnings reports of various portfolio companies. The portfolio’s holdings continue to perform well, displaying strong fundamentals and executing […] Lakehouse Capital, a Sydney-based investment manager, released its “Lakehouse Global Growth Fund” November 2023 investor letter. A copy of the same can be downloaded here. During November, global equity markets performed well with the team focusing on tracking earnings reports of various portfolio companies. The portfolio’s holdings continue to perform well, displaying strong fundamentals and executing on their growth opportunities. The Fund returned 10.9% net of fees and expenses for the month compared to 4.3% for its benchmark. Since its inception in December 2017, the Fund has returned 124.8% compared to 75.0% for its benchmark’s, MSCI All Country World Index, Net Total Returns (AUD). In addition, please check the fund’s top five holdings to know its best picks in 2023. Lakehouse Global Growth Fund featured stocks like MercadoLibre, Inc. (NASDAQ:MELI) in its Q4 2023 investor letter. Headquartered in Montevideo, Uruguay, Mercadolibre, Inc. (NASDAQ:MELI) is an online commerce platform that operates through Mercado Libre Marketplace and Mercado Pago FinTech platform. On March 5, 2024, MercadoLibre, Inc. (NASDAQ:MELI) stock closed at $1,525.59 per share. One-month return of MercadoLibre, Inc. (NASDAQ:MELI) was -11.96%, and its shares gained 26.94% of their value over the last 52 weeks. MercadoLibre, Inc. (NASDAQ:MELI) has a market capitalization of $77.343 billion. Lakehouse Global Growth Fund stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its fourth quarter 2023 investor letter: “The Funds second largest holding, Buenos Aires-based e-commerce leader MercadoLibre, Inc. (NASDAQ:MELI) delivered another standout result in November that came in well ahead of analysts’ expectations. Net revenue grew 40% year-on-year in U.S. dollar terms to $3.76 billion while operating income grew 131% to $685 million, providing a very impressive balance of growth and profitability. The marketplace business grew across all major regions and total gross merchandise volume (GMV) increased to $11.4 billion, up 32% year-on-year. The platform’s core metrics remained healthy with items sold accelerating for the fourth straight quarter to 357 million, unique buyers increasing 18% year-on-year to 50.3 million and items sold per buyer reaching an all-time high of 7.1. As always, the company continues to invest in its logistics capabilities and is now able to deliver 80% of all items sold within 48 hours and 54% same or next day. In our view, building and owning a first-class logistics network is critical for the company’s success as it will ultimately help protect its market share and profits from competitors over the long-term. We also note that faster shipping accelerates sales growth, which in turn, fosters wider selection, better prices, and greater investment in logistics, all part of a virtuous cycle. Zooming out, as the largest ecommerce player in LATAM, we continue to believe MercadoLibre is in an ideal position to capitalise on the significant opportunities ahead and deliver many years of above average growth and margin expansion.” A businesswoman using her mobile device to shop on a ecommerce platform. MercadoLibre, Inc. (NASDAQ:MELI) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, MercadoLibre, Inc. (NASDAQ:MELI) was held by 81 hedge fund portfolios, up from 76 in the previous quarter, according to our database. We discussed MercadoLibre, Inc. (NASDAQ:MELI) in another article and shared Baron Global Advantage Fund’s views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors. Suggested Articles: 25 Countries with Highest Crude Oil Production in 2024 20 Best Places to Live in Texas in 2024 30 Most Educated Cities In The World Disclosure: None. This article is originally published at Insider Monkey......»»
HAMILTON BEACH BRANDS HOLDING COMPANY ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 RESULTS
GLEN ALLEN, Va., March 6, 2024 /PRNewswire/ -- Hamilton Beach Brands Holding Company (NYSE: HBB) (The Company) today announced results for the fourth quarter and full year 2023. Highlights of 2023 Periods Compared to 2022 Periods THREE MONTHS ENDED DECEMBER 31 TWELVE MONTHSENDED DECEMBER 31 2023 2022 2023 2022 (In millions) Revenue $ 206.7 $ 196.2 $ 625.6 $ 640.9 Gross profit $ 55.3 $ 34.1 $ 143.7 $ 129.1 % of revenue 26.8 % 17.4 % 23.0 % 20.1 % Operating profit $ 25.0 $ 11.3 $ 35.1 $ 38.8 % of revenue 12.1 % 5.7 % 5.6 % 6.1 % Cash flow from operating activities $ 88.6 $ (3.4) Total debt $ 50.0 $ 110.9 Net debt $ 34.6 $ 110.0 Revenue in Q4 2023 grew 5.3% compared to Q4 2022, reflecting increased sales in the Company's consumer markets overall partially offset by decreased sales in the Company's global commercial market For the full year 2023, gross profit margin expanded by 290 basis points to 23.0%, reflecting lower product costs and favorable product mix Operating profit in Q4 2023 was $25.0 million compared to $11.3 million in Q4 2022, reflecting gross margin expansion Cash flow from operating activities for the full year 2023 was $88.6 million compared to a use of $3.4 million for the full year 2022, reflecting the Company's focus on improving net working capital For the full year 2024, the Company expects total revenue to increase modestly and operating profit to increase moderately Results of the Fourth Quarter 2023 Compared to the Fourth Quarter 2022 Total revenue grew $10.4 million, or 5.3%, to $206.7 million compared to $196.2 million. Revenue growth reflected increased unit volume and favorable mix partially offset by lower average selling price. In the Company's consumer markets, revenue increased in the U.S., Mexican and Latin American markets and decreased in the Canadian market. In the Global Commercial market, revenue decreased compared to the fourth quarter of 2022, when revenue grew 57.1% due to a continued strong rebound in demand from the food service and hospitality industries from pandemic-driven demand softness. The year-over-year decline was attributable to lower sales in the international food service industry as several markets were overstocked as well as unrest in certain key countries that resulted in an unfavorable impact on sales. Gross profit was $55.3 million compared to $34.1 million. Gross profit margin expanded to 26.8% compared to 17.4%, mostly reflecting lower product costs, which offset lower average sales price. Selling, general and administrative expenses increased to $30.2 million compared to $22.8 million primarily due to higher incentive compensation, advertising, M&A and other expenses. Operating profit was $25.0 million compared to $11.3 million. Interest expense, net decreased to $0.4 million compared to $1.7 million primarily due to decreased average borrowings outstanding under the Company's revolving credit facility. Net income was $19.6 million or $1.40 per diluted share, compared to net income of $7.1 million, or $0.51 per diluted share. Results of the Full Year 2023 Compared to the Full Year 2022 Total revenue of $625.6 million decreased 2.4% compared to $640.9 million, reflecting lower average selling price for the year and lower unit volume in the first half of 2023. In the Company's consumer markets, revenue increased in the Mexican market and decreased in the U.S., Canadian, Latin American and Global Commercial markets. Gross profit was $143.7 million compared to $129.1 million. Gross profit margin expanded to 23.0% compared to 20.1% reflecting lower product costs and favorable product mix. Selling, general and administrative expenses were $108.4 million compared to $90.1 million, primarily due to higher incentive compensation and to the benefit of a $10 million insurance recovery in 2022. Additionally, there was an increase in employee-related costs in 2023 that was partially offset by a decrease in outside services. Operating profit was $35.1 million compared to $38.8 million, which included the benefit of the insurance recovery. Interest expense, net decreased by $1.6 million, to $3.0 million, primarily due to lower debt levels partially offset by higher interest rates. The effective tax rate on income was 20.4% and 22.1% for the twelve months ended December 31, 2023 and 2022, respectively. The effective tax rate was lower for the twelve months ended December 31, 2023 due to the favorable impact of foreign operations in the current year. Net income was $25.2 million, or $1.80 per diluted share, compared to net income of $25.3 million, or $1.81 per diluted share. Cash Flow and Debt For the year ended December 31, 2023, net cash provided by operating activities was $88.6 million compared to cash used for operating activities of $3.4 million for the year ended December 31, 2022, primarily due to the Company's focus on net working capital improvement. Net working capital provided cash of $49.5 million in 2023 compared to a use of cash of $39.0 million in 2022. Net cash provided by accounts payable was $37.5 million in 2023 compared to $69.9 million used in 2022. Capital expenditures in 2023 were $3.4 million compared to $2.3 million in 2022. In 2023, the Company made $1.6 million in secured loan payments to HealthBeacon. The Company allocated its strong cash flow primarily to reduce debt and return value to shareholders through the quarterly dividend and repurchase of stock. On December 31, 2023, total debt was $50.0 million compared to $110.9 million as of December 31, 2022. On December 31, 2023, net debt, or debt minus cash and cash equivalents, was $34.6 million compared to $110.0 million on December 31, 2022. For the full year 2023, the Company paid $6.1 million in dividends and repurchased 250,772 shares of its Class A common stock at prevailing market prices for an aggregate purchase price of $3.1 million. Outlook In 2024, the retail marketplace for small kitchen appliances is expected to be modestly below 2023. The Company expects that continued progress with its strategic initiatives will enable it to deliver above market revenue performance. For the full year 2024, the Company expects total revenue to increase modestly compared to full year 2023. Revenue in both the first half and second half of 2024 is expected to increase modestly with the first half expected to be somewhat stronger than the second half mostly due to comparisons to the prior year. Operating profit for the full year 2024 is expected to increase moderately compared to 2023 based on an expansion of gross profit margin. Continued progress with the Company's six strategic initiatives is expected to drive revenue growth, expand margins, and generate strong cash flow over time. The initiatives are focused on increasing sales of innovative, higher priced, higher margin products in the Company's core North American market. The following is a summary of each initiative. Drive Core Growth: This initiative is focused on driving the growth of the Company's flagship brands Hamilton Beach® and Proctor Silex® in its core North American market. Both brands have a long history of consumer trust, based on quality, durability and innovation. The Company has a long track record of developing innovative new products that improve everyday living in the small appliance category. Teams study consumer pain points and develop new product solutions that have enabled the Company to generate significant revenue over time. New products are supported by digital marketing, social media advertising and influencer marketing. Hamilton Beach® continues to be the #1 small kitchen appliance brand in the U.S. based on units sold. Gain Share in the Premium Market: The Company continues to develop, license and acquire brands to increase its participation in the premium market. New products and digital marketing support underpin the strategy to grow this business. Premium products include the Company's owned brands Hamilton Beach Professional® and Weston®, and the licensed brands Wolf Gourmet® countertop appliances, CHI® premium garment care products, CloroxTM True HEPA air purifiers, and Brita HubTM countertop electric water filtration appliances. The Company has an exclusive multiyear agreement to design, sell, market, and distribute Bartesian® premium cocktail delivery machines. In March 2023, the Company announced an agreement to provide the next generation of specialty appliances for use with Numilk® raw ingredients to create a variety of fresh non-dairy milk products on demand in homes and commercial establishments. Initial rollout for the new Numilk appliances began in early 2024. Accelerate Growth of Hamilton Beach Health: Drawing on decades of experience as a trusted resource in the home, in 2021 the Company created the Hamilton Beach Health® brand. The Hamilton Beach Health business empowers people to take control of their health with digitally connected tools using in-home solutions. In February 2024, Hamilton Beach Health acquired HealthBeacon PLC, a medical technology firm and strategic partner of the Company since 2021. HealthBeacon develops connected devices that enable patients with chronic conditions to manage their injectable medication regimens at home and provides other health services. The Company believes HealthBeacon is an attractive investment with the potential to increase shareholder value over time as the business is scaled and expanded. Growth opportunities are expected to be driven by the development of in-home healthcare management tools, including Remote Therapeutic Monitoring systems. Sales are principally through the specialty pharmacy channel in the U.S. and directly to pharmaceutical companies outside the U.S. HealthBeacon's revenue model is subscription based. Growth plans include attracting new patients and adding new chronic disease treatments. The acquisition combines the trusted brand name of Hamilton Beach and the Company's leadership in innovation, engineering, and product development with HealthBeacon's digital capabilities and patented technologies. Hamilton Beach Health and HealthBeacon together are focused on improving patient outcomes and accelerating access to more patients and new opportunities. In 2024, Hamilton Beach Health is expected to have an operating loss due to planned investments in the business and as HealthBeacon continues in the start-up phase. Hamilton Beach Health is expected to contribute to operating profit in 2025. Hamilton Beach Health continues to explore collaboration opportunities with other companies in the home medical market. Lead in the Global Commercial Market: This initiative is focused on securing new business and increasing sales with existing customers that operate in the food service and hospitality industries throughout the world. The Hamilton Beach® brand, with its reputation for performance, reliability and differentiated products, is driving growth of commercial products. Continuing to develop products that create a competitive advantage in the Company's core blending and mixing categories, as well as expanding into new categories organically, is the cornerstone of the strategy. Commercial customers include restaurants, fast food chains, bars and hotels. The Company's products are sold through distributors and increasingly through internal sales capabilities. The Company's commercial products are sold in more than 100 countries and more than 50% of revenue is from outside the U.S. Growth plans also include expanding customer relationships with regional and global restaurant and hotel chains. Building strength in ecommerce, which is becoming more important in the commercial market, is also a focus. Accelerate Digital Transformation: The Company has a well-developed ecommerce capability and continues its investments to gain share in ecommerce markets for consumer and commercial products. The Company collaborates closely with omnichannel and online-only retail customers to leverage the fast-paced changes in the ecommerce channel and increase awareness and sell-through of its products. The Company focuses on robust digital marketing that includes online product content, search optimization and advertising, attracting favorable reviews and strong star ratings, and social media strategies. The Company's U.S. distribution center provides the Company with the capability to ship small packages directly to consumers in partnership with retail customers. Ecommerce sales as a percentage of total revenue increased 1% to 39% in 2023 from 38% in 2022. Leverage Partnerships and Acquisitions: This initiative is focused on identifying and securing businesses with a strategic fit to the Company's portfolio. The Company is actively engaged in the pursuit of additional trademark licensing agreements, strategic alliances, and acquisitions to drive growth in all its markets, including accelerating the growth of Hamilton Beach Health in the home health market. Conference Call The Company will conduct an earnings conference call and webcast on Thursday, March 7, 2024, at 9:30 a.m. Eastern time. The call may be accessed by dialing 888-350-3452 (toll free), International 647-362-9199. Conference ID: 1809480. The conference call will also be webcast live on the Company's Investor Relations website at www.hamiltonbeachbrands.com. An archive of the webcast will be available on the website. About Hamilton Beach Brands Holding Company Hamilton Beach Brands Holding Company operates through its wholly owned subsidiary Hamilton Beach ...Full story available on Benzinga.com.....»»
Sea Limited (SE) Fell after the Release of Quarterly Results
Lakehouse Capital, a Sydney-based investment manager, released its “Lakehouse Global Growth Fund” November 2023 investor letter. A copy of the same can be downloaded here. During November, global equity markets performed well with the team focusing on tracking earnings reports of various portfolio companies. The portfolio’s holdings continue to perform well, displaying strong fundamentals and executing […] Lakehouse Capital, a Sydney-based investment manager, released its “Lakehouse Global Growth Fund” November 2023 investor letter. A copy of the same can be downloaded here. During November, global equity markets performed well with the team focusing on tracking earnings reports of various portfolio companies. The portfolio’s holdings continue to perform well, displaying strong fundamentals and executing on their growth opportunities. The Fund returned 10.9% net of fees and expenses for the month compared to 4.3% for its benchmark. Since its inception in December 2017, the Fund has returned 124.8% compared to 75.0% for its benchmark, MSCI All Country World Index, Net Total Returns (AUD). In addition, please check the fund’s top five holdings to know its best picks in 2023. Lakehouse Global Growth Fund featured stocks like Sea Limited (NYSE:SE) in the Q4 2023 investor letter. Headquartered in Singapore, Sea Limited (NYSE:SE) engages in digital entertainment, e-commerce, and digital financial service businesses. On March 5, 2024, Sea Limited (NYSE:SE) stock closed at $55.75 per share. One-month return of Sea Limited (NYSE:SE) was 27.84%, and its shares lost 30.15% of their value over the last 52 weeks. Sea Limited (NYSE:SE) has a market capitalization of $31.708 billion. Lakehouse Global Growth Fund stated the following regarding Sea Limited (NYSE:SE) in its fourth quarter 2023 investor letter: “Meanwhile, the largest detractor was Sea Limited (NYSE:SE) (-17.1%), which sold off following the release of its quarterly results where earnings came in below expectations. For our part, while a headline drop in profitability can appear worrying, we aren’t overly concerned as it was merely a function of management’s intentional decision to increase investment towards e-commerce to drive growth. As the broader Southeast Asian e-commerce market recovers from some post pandemic headwinds and their primary competitor TikTok is entangled in a regulatory setback in Indonesia, we agree with management that now is the time to be aggressive and pivot back to growth mode and consolidate market share.” A businesswoman using her mobile device to shop on a ecommerce platform. Sea Limited (NYSE:SE) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Sea Limited (NYSE:SE) was held by 51 hedge fund portfolios, down from 55 in the previous quarter, according to our database. We discussed Sea Limited (NYSE:SE) in another article and shared the list of tech stocks to sell according to Cathie Wood. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors. Suggested Articles: 20 Countries With The Best Justice System in the World 11 Best March Dividend Stocks To Buy 13 Best Dividend Stocks For Rising Interest Rates Disclosure: None. This article is originally published at Insider Monkey......»»
Amazon"s average customer is a white Gen X woman who spent $2,662 there last year
Amazon's typical customer is a white woman who earns about $60,000 a year and shops 72 times per year. Amazon shoppers order something one to two times per week.SOPA Images/Getty ImagesAmazon has 1,363 e-commerce facilities in the US and more than 1.5 million workers around the world.Eight in 10 US shoppers are Amazon customers, and they place an average of 72 orders per year.Amazon's average customer is a white Gen X woman who earns about $60K per year and spends $2,662.Amazon sells stuff online. Maybe you've heard of it.The ecommerce giant is the second-largest retailer in the world after Walmart, making net product sales of nearly $255.9 billion in 2023.Founded in Seattle in 1994, the e-commerce juggernaut now has an employee headcount of more than 1.5 million around the world.There are an estimated 1,363 Amazon distribution centers, fulfillment centers and other facilities in the US, with another 1,176 in other countries around the world, according to a supply chain consulting firm MWPVL.Meanwhile, eight out of 10 US shoppers bought something from Amazon in the past year, according to data from the consumer analytics firm Numerator.In addition, while Amazon reached a smaller percentage of US shoppers than Walmart's 95%, almost all of Amazon's customers shopped multiple times.Numerator found that Amazon's typical shopper is a white Gen X woman earning around $60,000 per year.Although Baby Boomers slightly outnumber Gen X among Amazon shoppers, Boomers are slightly less likely to shop with the company than the overall US consumer, while Gen X shoppers are slightly more likely. Boomers and Gen X shoppers are also increasingly fans of Amazon's Chinese-owned challenger, Temu.The typical customer makes a comparatively high number of transactions per year, with 72 orders at an average cost of about $37 for an annual spend of $2,662. That's roughly one to two orders per week.About one fifth of the typical Amazon shopper's consumer spending takes place online, more than the overall US average. Amazon customers are also highly likely to compare prices on Amazon, even when shopping elsewhere.Earlier reports from Numerator found that Amazon shoppers' favorite product categories on Amazon are cell phone accessories, cases, and chargers, as well as medical supplies and small kitchen appliances. They tend to buy Amazon's in-house labels, and their favorite name brands are Disney, Hanes, Kraft, and Apple.Read the original article on Business Insider.....»»
I quit my blue-collar job and grew 2 ecommerce brands to over $1M in revenue. I finally have financial freedom.
A former electrician started an ecommerce business by learning on YouTube and built his two brands to over $1 million in combined revenue. Sydney Bencriscutto holding the Double Oak Essentials wallet.Sydney BencriscuttoSydney Bencriscutto left his unfulfilling job as an electrician to pursue e-commerce in 2022.He started by learning on YouTube and built his two brands to over $1 million in combined revenue.He advises giving the customer a real reason to choose your brand and prioritizing customer service.This as-told-to essay is based on a conversation with Sydney Bencriscutto, a 34-year-old electrician-turned-entrepreneur in Milwaukee. It has been edited for length and clarity.Between 2010 and 2020, I split my time trying to succeed as a hip-hop artist while working as the grunt for higher-skilled electricians. I commuted two hours a day to a dirty, physical job and felt unfulfilled.The marketing, advertising, and graphic design skills I acquired to make it in the music business and my deep desire to leave my electrical position led me to create two e-commerce brands that have done over $1M in revenue in under two years.I never exactly take a day off, but this is by choice. I love running an e-commerce business.I spent my entire life dreaming of financial freedom2020 was a turning point for me. I was 30 years old, my wife and I had a six-month-old child, and our finances weren't secure. I realized I could've achieved seemingly anything with the time and focus I had put into music, so I decided to stop. I wanted to quit my electrical job, too.I had a few requirements for my next endeavor: It needed to be creative, flexible, not physically exhausting, and lucrative. E-commerce fit all these requirements, but besides selling digital albums on iTunes, I had zero experience trying to sell anything.I got started on YouTubeOne night, I found a nearly five-hour-long YouTube video tutorial on private-label brands by Dan Vas. I stayed up filling out six pages of notes on the entire process. The next morning I eagerly told my wife about the idea, and she was on board.I used my two hours of commuting and the time I was on a job alone to listen to more YouTube tutorials, audiobooks like "Rich Dad Poor Dad" by Robert T. Kiyosaki and "Amazon FBA for Beginners" by Ryan Stephens, and podcasts like "My First Million" to soak up as much information about e-commerce as I could.I looked for products to sell that had a balance of great sales potential and low competition. The first product I found landed in a niche I knew and understood: whiskey products. I decided to sell cocktail smoker kits.I found the perfect supplier for pre-made products and added my branding to make them unique. Three months and $8,000 later, my first batch of 500 cocktail smokers arrived at Amazon warehouses nationwide.I did $100,000 in revenue in 30 days during the 2022 holiday season.After my initial launch success, I expanded to sell more productsDouble Oak Essentials now includes a line of wallets, candles, and more. I do everything from advertising, photos, and videos to branding, packaging, and website design myself.I started selling on Shopify and Etsy and use fulfillment centers across the country for some products but keep small items like wood chips and candles at home and ship them out myself.A few months later, my step-brother and I partnered to restart my once-failed brand Royal Clips, which sells fade kits. We also started Royal Clips on Amazon but focused more on Shopify. The brand did $200,000 in revenue in its first six months.Both brands together have passed $1M in revenue, and with a recent new release from each brand, I'm on track to hit $2.5M in combined sales in 2024. I pay myself a salary of around $150,000, but I'll make more if we hit projections.My typical work hours are open-endedI used to work all day, shower, eat, try to get some time in with my wife and daughter, and then spend the hours from 9 p.m. to as late as 1 a.m. talking to suppliers or finishing a design.Now, I wake up at about 8 a.m. and watch my daughter for about an hour while my wife gets her exercise in, eat breakfast, send out a few orders that need to be shipped from our house, and then spend the rest of the day doing whatever I feel could improve sales. I could be optimizing the websites, tweaking the ad campaigns, or learning a new skill, like how to use apps on Shopify to increase revenue.I often work 10 hours or so, but even the parts I don't particularly care for are so much better than my previous job.Try not to fall victim to shiny object syndromeAt the beginning of my e-commerce journey, I started three other brands that didn't pan out. One, a red-light therapy device, failed due to unforeseen compliance issues, and the other, a self-haircut mirror, failed due to the low-priced competition in my niche.If you want to get into e-commerce, ensure you give your customer a legitimate reason to buy your product vs. your competitor's and make your customer service go above and beyond any preset policies. I handle all the customer service myself because I believe small things like helping a customer whose package was lost or stolen in transit goes a long way.I still feel like a student in the e-commerce industry. Soak up all the available information you can on the internet. You can answer nearly every question you've ever had with your phone.Read the original article on Business Insider.....»»
Want $10,000 in Passive Income? Invest $2,000 in Each of These Dividend Stocks
The inflationary environment over the past few years has constricted consumer buying power, resulting in supplementary income requirements by many. For those who cannot augment their paychecks with additional part-time jobs but have investment funds, dividend stocks are an option worth consideration. With the potential for capital appreciation along with the generation of passive income […] The post Want $10,000 in Passive Income? Invest $2,000 in Each of These Dividend Stocks appeared first on 24/7 Wall St.. The inflationary environment over the past few years has constricted consumer buying power, resulting in supplementary income requirements by many. For those who cannot augment their paychecks with additional part-time jobs but have investment funds, dividend stocks are an option worth consideration. With the potential for capital appreciation along with the generation of passive income at yield rates sometimes exceeding comparably rated bonds, dividend stocks are available from a wide range of issuers. We screened our 24/7 Wall St. dividend equity research database, looking for stocks that pay massive dividends, and we found a collection of companies that, combined, can generate over $10,000 a year in passive annual income if you invest just $2,000 in each stock at the time of this writing: Hapag-Lloyd Aktiengesellschaft German shipping company Hapag-Lloyd Aktiengesellschaft is 177 years old and one of the larges shipping companies on the planet. Stock #1: Hapag-Lloyd Aktiengesellschaft (OTC: HLAGF) Yield: 47.88% Shares for $2,000: 13 Annual Passive Income: ~$957.60 Based in Hamburg, Germany and celebrating its 177-year anniversary (founded in 1847), Hapag-Lloyd Aktiengesellschaft is the fifth largest shipping company in the world by TEU (twenty foot shipping container units) volume. With a fleet of over 250 cargo vessels, the company provides maritime transport of dry, specialized, hazardous, reefer, and conventional containerized cargo around the globe. Hapag-Lloyd also has developed electronic cargo monitoring platforms with secure data transmissions, and has established its own land operations for inland transportation of goods by rail or truck in numerous countries. Ecopetrol, S.A. Ecopetrol, S.A. is the national oil company of Colombia. It is headquartered in Bogotá, Colombia. Stock #2: Ecopetrol, S.A. (NYSE: EC) Yield: 27.79% Shares for $2,000: 166 Annual Passive Income: ~$555.80 As the national oil company of Colombia, Ecopetrol is located in Bogotá and has operations in Colombia, the US, Asia, Europe, South America, Central America, and the Caribbean. In addition to oil and gas exploration, Ecopetrol transports, refines, and sells crude oil, refined fuels, petrochemical distillates, polypropylene resins and compounds, and natural gas. The company also is involved with power transmission and information technology. Office Properties Income Trust Office Properties Income Trust leases office space to a variety of professional businesses from their 152 property holdings in over 30 states. Stock #3: Office Properties Income Trust (NASDAQ: OPI) Yield: 26.67% Shares for $2,000: 680 Annual Passive Income: ~$533.40 Office Properties Income Trust is a Newton, MA headquartered REIT. OPI owns and manages leasing for a portfolio of 152 real estate properties equating to 20.5 million square feet across thirty states as well as Washington, D.C. (as of the end of 2023.) Focusing on commercial office space, 64% of OPI’s revenue comes from investment grade-rated tenants from the insurance, financial, legal and other professional service sectors. OPI recently closed a $300 million five year, 9% coupon bond offering in February, 2024, so investors appear to be comfortable with the company’s ability to continue to pay interest coupons. The common stock yield, at present, is more attractive by comparison. CVR Partners, LP CVR Partners’ nitrogen products are essential for manufacturing fertilizers for industrial farming. Stock #4 : CVR Partners, L.P. (NYSE: UAN) Yield: 25.60% Shares for $2,000: 28 Annual Passive Income: ~$512.00 CVR Partners is headquartered in Sugar Land, TX. The company produces and sells nitrogen-based ammonia and urea ammonium nitrate products for agricultural and industrial distributors and retailers for use in fertilizers for farming. There is some speculation that the recent riots and protests in the European farming sector may result in global food shortages that may increase demand for greater production from US farmers. If this were to occur, there would be subsequently greater demand for CVR fertilizer products. Unit Corporation Unit Corporation drills and manages oil and natural gas wells in Oklahoma, Texas, and other states. Stock #5: Unit Corporation (OTC: UNTC) Yield: 25.03% Shares for $2,000: 49 Annual Passive Income: ~$500.60 Based in Tulsa, OK, Unit Corporation engages in drilling and exploration of oil and natural gas in the United States, and then manages wells once the underlying reserves have been tapped. Current primary producing wells are located in Oklahoma and Texas, with additional wells in Arkansas, North Dakota, Louisiana, and Kansas. Additional contract drilling services that Unit Corporation conducts for outside clients include the aforementioned states, along with Wyoming and New Mexico. Unit Corporation’s other division handles natural gas acquisition, processing and treatment for third parties in Oklahoma, Texas, Pennsylvania, W. Virginia, and Kansas. Avance Gas Holding, Ltd. Avance Gas Holding, Ltd. owns a fleet of vessels specially designed to transport liquified petroleum gas. Stock #6: Avance Gas Holding, Ltd.(OTC: AVACF) Yield: 23.11% Shares for $2,000: 167 Annual Passive Income: ~$462.20 Eschewing the oil side of the energy business, Hamilton, Bermuda based Avance Gas Holding, Ltd. engages solely in Liquified Petroleum Gas (LPG). The company has 12 very large maritime cargo vessels equipped for LPG transport. Avance Gas did a re-financing in Q4 2023 with the announced sale of two dual-fuel LPG newbuildings (note: “newbuilding” is a newly built, or relatively completed ship in maritime construction parlance) for over $60 million each, with the proceeds applied to the current fleet. Medical Properties Trust, Inc. Medical Properties Trust is the second largest non-government hospital property owner in the world. Stock #7: Medical Properties Trust, Inc. (NASDAQ: MPW) Yield: 22.92% Shares for $2,000: 520 Annual Passive Income: ~$458.40 A REIT operating out of Birmingham, AL, Medical Properties Trust focuses on the ownership and leasing of buildings for healthcare industry tenants. Leasing its 441 different properties to be used as facilities for hospitals, clinics, and other healthcare services related operations, Medical Properties Trust is the second largest non-government hospital property owner in the world. In addition to the US, Medical Properties Trust also owns hospitals in the UK, Switzerland, Spain, Germany, and other countries. Icahn Enterprises L.P. Icahn Enterprises, L.P. was founded by high-profile billionaire investor Carl Icahn. Stock #8: Icahn Enterprises, L.P. (NASDAQ: IEP) Yield: 20.89% Shares for $2,000: 103 Annual Passive Income: ~$417.80 Legendary billionaire Carl Icahn has been involved in some landmark investment plays for over a half century. Icahn Enterprises, L.P. is the public vehicle he has used for managing some of the various portfolio assets he acquires to hold. IEP is divided into industrial sectors. The Energy sector handles fuel and fertilizer assets. Automotive is involved with maintenance services and replacement part distribution. The Food Packaging division manufactures casings and other types of packing materials for processed meats. The Pharma sector manages products and services. Real Estate manages a country club and various real estate properties, along with a single-family home construction and sales branch. Finally, IEP’s Home Fashion division manufactures, sources, and markets home consumer products. For the most part, IEP contains long term assets and businesses. While some of its holding might be publicly traded securities, it does not include some of Icahn’s speculations or stock plays, such as his recently announced stake in JetBlue Airlines. Euronav NV Euronav NV is ranked as the third largest oil tanker shipping company in the world, by revenues. Stock 9#: Euronav NV (NYSE: EURN) Yield: 17.86% Shares for $2,000: 114 Annual Passive Income: ~$357.20 Headquartered in Antwerp, Belgium, Euronav NV is ranked as the third largest oil tanker shipping company in the world, by revenues. In addition to its fleet of 155 maritime vessels, Euronav engages in floating, storage and offloading (FSO) crude oil related services. Separate from crude oil transport, the company’s ship management services include, fleet management, technical services, defense management, environmental protection, commercial and operational management. A proposed merger with rival Frontline (NYSE: FRO) (see listing below at #21) would have taken Euronav private, but that deal reportedly hit some stumbling blocks in October, 2023 due to ego differences between Frontline’s John Fredriksen and Euronav’s Saverys family, owner of CMB. It resulted in Frontline purchasing 24 VLCC (Very Large Crude Carrier) ships from Euronav for $2.35 billion and to sell back the 26% of shares it had accumulated to Euronav’s parent, CMB. TORM plc TORM plc transports refined petroleum products, such as gasoline, jet fuel and naphtha, as well as fuel oil. Stock #10: TORM plc (NASDAQ: TRMD) Yield: 17.20% Shares for $2,000: 58 Annual Passive Income: ~$344.00 Another example of specialization in the shipping industry is 135 year old UK shipping company TORM plc. Headquartered in London and founded in 1889, TORM transports refined petroleum products, such as gasoline, jet fuel and naphtha, as well as fuel oil. Their 80 vessel fleet primarily ranges between 45,000 and 114,000 DWT (Dead Weight Tons), which classifies them in the LR1 (Long Range 1: 55,000-79,999 DWT) and LR2 (Long Range 2: 80,000-159,999 DWT) categories. TORM acquired eight fuel efficient vessels in just the past year. These included four MR (Mid Range) vessels, roughly 8-9 years old, and eight LR2 vessels about 12 years old. Analysts covering TORM were impressed by this proactive approach to fleet management upgrades with an eye towards cutting fuel costs for the future. AFC Gamma, Inc. AFC Gamma Inc. finances companies in the legal cannabis and CBD space. Stock #11: AFC Gamma, Inc. (NASDAQ: AFCG) Yield: 17.08% Shares for $2,000: 178 Annual Passive Income: ~$341.60 Since limited legalization for medical and adult use in the US, the CBD end of the cannabis industry has spawned hundreds of entrepreneur-led new companies. Rather than participating in the cultivation, harvesting and processing of CBD products, AFC Gamma, Inc. engages in the finance of these companies. Underwriting and financing senior secured loans, alternative debt securities collateralized by real estate, equipment, licenses, and other types of tangible assets comprise the bulk of AFC Gamma’s business model. In February, 2024, the company announced that it would be spinning off its real estate finance investment business (roughly 25% of AFC Gamma’s overall portfolio) into a separate independent public company. The real estate finance is expected to file for REIT status. Petróleo Brasileiro S.A. – Petrobras Petróleo Brasileiro S.A. – better known as Petrobras, is the national oil company of Brazil. Stock #12: Petróleo Brasileiro S.A. – Petrobras (NYSE: PBR) Yield: 16.63% Shares for $2,000: 113 Annual Passive Income: ~$332.60 Based in Rio de Janeiro, Brazil, Petróleo Brasileiro S.A. – better known as Petrobras, is the national oil company of Brazil. The company has three broad divisions: Exploration and Production of oil and natural gas; Refining, Transportation, and Marketing, which handles sales of crude oil and refined products, such as ethanol, Gas and Power, which involves Liquid Natural Gas (LNG) logistics and trading, along with thermoelectric power generation; Medifast, Inc. Medifast Inc.’s product line and foods are devoted to weight-loss regimens. Stock #13: Medifast, Inc. (NYSE: MED) Yield: 16.27% Shares for $2,000: 48 Annual Passive Income: ~$325.40 Baltimore, MD based Medifast is the parent company that produces and markets an entire catalog of weight-loss based foods and products under the brand names OPTAVIA, OPTAVIA ACTIVE, and Optimal Health. The foods range from shakes, drinks, and puddings to cereals, soups, baked goods, and even pancakes. They are sold via point-of-sale or on ecommerce in both the US and Pacific Rim. ARMOUR Residential REIT, Inc. The majority of ARMOUR Residential REIT Inc.’s portfolio is devoted to government backed mortgage securities from issuers like Fannie Mae and Freddie Mac. Stock #14: ARMOUR Residential REIT, Inc. (NYSE: ARR) Yield: 15.29% Shares for $2,000: 105 Annual Passive Income: ~$305.80 Incorporated in 2008, Vero Beach, FL based ARMOUR Residential REIT, Inc. is a securities based REIT. Its portfolio is predominantly US Government Sponsored Entity mortgage-backed bonds. GNMA, FDMC and FNMA bonds and comparable issues comprise the bulk of the holdings, with a small percentage of non GSE residential mortgage securities. AGNC Investment Corporation AGNC Investment Corp. invests primarily in Collateralized Mortgage Obligations that have been securitized into bonds by government agencies. Stock #15: AGNC Investment Corp. (NASDAQ: AGNC) Yield: 15.09%% Shares for $2,000: 209 Annual Passive Income: ~$301.80 Formerly known as American Capital Agency Corp., Bethesda, MD headquartered AGNC Investment Corp. changed its name in 2016. AGNC Investment Corp. is another REIT that primarily invests in collateral mortgage obligations, such as Fannie Mae and Freddie Mac. Although earnings growth appears to have stalled, institutional ownership remains fairly strong. Hedge fund Centiva Capital has the largest institutional fund ownership position to date, with 1.4 million shares as of the 2023 end of the fourth quarter. Alliance Resource Partners, L.P. Alliance Resource Partners, LP is one of the largest coal producers in the United States. Stock #16: Alliance Resource Partners, L.P. (NASDAQ: ARLP) Yield: 14.81%% Shares for $2,000: 105 Annual Passive Income: ~$296.20 As one of the largest thermal and metallurgical coal producers in the United States, Tulsa, OK centered Alliance Resource Partners, L.P. has mining production, sales, energy royalties, and technological mining services and products divisions. Services and products include data communication, tracking, collision avoidance, proximity detection, products, services and analytical software. Presently, the 24-year old company operates underground coal mines in Illinois, Indiana, West Virginia, Maryland, and Pennsylvania. Alliance Resource Partners also owns 1.5 million oil and gas producing acres of land in the Anadarko, Permian and Williston Basins. PetMed Express, Inc. PetMed Express, Inc. sells veterinary prescription and non-prescription treatments online for dogs, cats, and horses. Stock #17: PetMed Express, Inc. (NASDAQ: PETS) Yield: 13.07% Shares for $2,000: 394 Annual Passive Income: ~$261.40 Online veterinary pharmacy PetMed Express, Inc. offers prescription and non-prescription medications and other health related supplies for dogs, cats and horses. Based in Delray Beach, FL, PetMed Express also competes with PetSmart, PetCo and similar retailers in offering pet food, beds, supplies, and other pet products. Hedge Fund Renaissance Technologies recently announced in mid-February, 2024 that it had added another 328,000 shares of PETS to its portfolio, increasing its total stake to 6.36%. Dynex Capital, Inc. Dynex Capital carries a variety of non-agency mortgage securities in its portfolio in addition to government backed ones. Stock #18: Dynex Capital, Inc. (NYSE: DX) Yield: 12.83% Shares for $2,000: 164 Annual Passive Income: ~$256.60 Founded in 1987 in Glen Allen, VA, Dynex Capital, Inc. is a REIT that invests in a mix of GSE mortgage-backed securities, such as FDMC, as well as non agency ones. In the past year, insider buying from Dynex executives increased significantly, with Executive V.P. Robert Colligan the largest buyer, adding $97,000 worth of stock to his holdings. NextEra Energy Partners, LP NextEra Energy Partners’ green energy assets include solar and wind power generation equipment. Stock #19: NextEra Energy Partners, LP (NYSE: NEP) Yield: 13.04% Shares for $2,000: 73 Annual Passive Income: ~$260.80 One of the few high dividend green energy companies stocks, NextEra Energy Partners, LP is based in Juno Beach, FL. The company’s holdings include solar, wind, and battery storage green technology assets, in addition to natural gas pipeline assets. NextEra Energy, Inc. (NYSE: NEE), founded in 1925, is the parent company. It is a regulated electric power utility in Florida. Stellus Capital Investment Corporation Stellus Capital Investment Corp. finances North American companies seeking private, secured loans outside of the normal banking arena. Stock #20: Stellus Capital Investment Corp. (NYSE: SCM) Yield: 12.34% Shares for $2,000: 153 Annual Passive Income: ~$246.80 Participating in both the private corporate debt and equity markets, Stellus Capital Investment Corp. looks to make financing deals for North American companies with EBITDA between $5 million and $50 million. Financings may manifest in several configurations, such as first lien, second lien, unitranche, and mezzanine debt, often accompanied with an equity portion. Frontline plc Frontline plc is the fifth largest oil shipping company in the world by revenue. Stock #21: Frontline plc (NYSE: FRO) Yield: 12.39% Shares for $2,000: 89 Annual Passive Income: ~$247.80 Registered in Cyprus, Frontline plc is also in the crude oil tanker shipping business. Founded in 1985 and is controlled by shipping tycoon John Fredriksen. The company has a 70 vessel fleet and is rated fifth in the industry globally by revenue. Frontline EBIT has been strong, growing its margins from 19% to 43% over the past year. This helped to fuel its purchase of 24 VLCC ships from Euronav NV, along with selling back a sizable block of accumulated Euronav shares after merger talks collapsed in Q3 2023. Black Stone Minerals, L.P. Oil and gas field mineral royalties and their monetization is the lucrative business niche of148 year-old Black Stone Minerals, LP. Stock #22: Black Stone Minerals, L.P. (NYSE: BSM) Yield: 12.34% Shares for $2,000: 129 Annual Passive Income: ~$246.80 For 148 years, Houston, TX based Black Stone Minerals, L.P. has been in the natural resources business. Although its roots are in the lumber business, the company expanded to include mineral royalties, along with oil and gas drilling, in the 1960s. In 1998, they left timber, oil, and gas to focus on mineral rights and land acquisitions. It is one of the largest mineral rights companies in the US. Fortitude Gold Corporation Fortitude Gold Corporation owns five gold mines in Nevada. Stock #23 : Fortitude Gold Corporation (OTC: FTCO) Yield: 10.74% Shares for $2,000: 445 Annual Passive Income: ~$214.80 With ownership of five gold mine properties in Nevada, Fortitude Gold Corporation is a gold and silver mining company headquartered out of Colorado Springs, CO. Their flagship project is the Isabella Pearl, which is 9,000 acres. Proven reserves can potentially yield up to 220,000 oz. of gold and 1.3 million oz. of silver. Dividends are paid monthly. Hercules Capital, Inc. Hercules Capital provides growth stage capital to many cutting edge companies in a wide range of sectors, including biotech, digital technology, and others. Stock #24 : Hercules Capital, Inc. (NYSE: HTGC) Yield: 10.55% Shares for $2,000: 111 Annual Passive Income: ~$211.00 Ensconced in the venture debt and growth capital space, Hercules Capital supplies capital to all types of private companies from the start-up stage all the way up to pre-IPO stage and, in certain situations, beyond. The financing can take a wide range of configurations, including venture or mezzanine debt, secured loans, asset backed credit lines, and other structures. Hercules Capital operates out of Palo Alto, CA. Horizon Technology Finance Corporation Cleantech is one of the sectors in which Horizon Technology Finance Corp. is an active venture debt financier. Stock #25: Horizon Technology Finance Corp. (NASDAQ: HRZN) Yield: 10.15% Shares for $2,000: 153 Annual Passive Income: ~$203.00 With a preference towards the technology, biotech, healthcare, cleantech, and sustainability sectors, Farmington, CT headquartered Horizon Technology Finance Corp. provides venture and secured debt financing structures to qualifying growth-stage companies. Civitas Resources, Inc. Civitas Resources, Inc. is an oild and gas exploration and production company primarily operating in Colorado. Stock #26: Civitas Resources, Inc. (NYSE:CIVI) Yield: 10.10% Shares for $2,000: 31 Annual Passive Income: ~$202.00 Civitas Resources, Inc. drills for and produces oil and gas in the Rocky Mountain region. The company’s primary business is in the Colorado Denver-Julesburg Basin’s Wattenberg Field. In January, Civitas announced the acquisition of additional oil and gas assets in Texas from Vencer Energy, LLC. Altria Group, Inc. Altria Group’s Marlboro is a globally recognized American brand. Stock #27: Altria Group, Inc. (NYSE: MO) Yield: 9.63% Shares for $2,000: 49 Annual Passive Income: ~$192.60 Altria’s Marlboro cigarettes are an internationally recognized American brand, and the 200 year old tobacco company has a long history, weathering the negative publicity inherent with tobacco’s medical study links to lung cancer, nicotine addiction, and disfavor from the ESG policies of institutional funds. From a dividend growth perspective, the Richmond, VA based company has consistently increased dividends 54 times in 58 years to the present, with a 4.3% hike made just last year. British American Tobacco PLC Camel cigarettes are on of British American Tobacco’s most popular brands in the US, Stock #28: British American Tobacco PLC (NYSE: BTI) Yield: 9.87% Shares for $2,000: 67 Annual Passive Income: ~$197.40 One of the main competitors to #27 Altria Group above, British American Tobacco plc is based in London, England. Its international tobacco brands are well known throughout the US, UK, China and Europe under brand names like: Camel, Lucky Strike, Dunhill, Kent, Newport, Shuang Xi, and others. Ares Capital Corporation Ares Capital Corporation acquires, finances, and restructures companies from numerous industry sectors, although they are partial to manufacturing. Stock #29: Ares Capital Corporation (NASDAQ: ARCC) Yield: 9.57% Shares for $2,000: 99 Annual Passive Income: ~$191.40 Ares Capital Corporation is an asset management company that engages in a wide range of activities, including, but not limited to, acquisitions, leveraged buyouts, debt financings, restructurings, rescue financings, and resales. With a stated preference towards manufacturing companies, Ares is otherwise industry agnostic. Ares’ investment range per deal is between $20 million to $200 million or half that if debt, for companies with EBITDA between $10 million and $250 million. MPLX LP MPLX LP handles transport, processing, storage and logistics of oil and gas products. Stock #30: MPLX LP (NYSE:MPLX) Yield: 8.57% Shares for $2,000: 51 Annual Passive Income: ~$171.40 A subsidiary of Marathon Petroleum, Findlay, OH based MPLX LP is an oil and gas midstream company engaged in gathering, processing, storage, transport, pipeline logistics, and other related services for oil, refined oil products, and natural gas in its different forms. $2000 in Passive Income Company Yield Annual Dividend Payment Hapag-Lloyd Aktiengesellschaft (OTC:HLAGF) 47.88% $957.60 Ecopetrol, S.A. (NYSE: EC) 27.78% $555.80 Office Properties Income Trust (NASDAQ: OPI) 26.67% $533.40 CVR Partners, L.P. (NYSE: UAN) 25.60% $512.00 Unit Corporation (OTC: UNTC) 25.03% $500.60 Avance Gas Holding, Ltd.(OTC: AVACF) 23.11% $462.20 Medical Properties Trust, Inc. (NASDAQ: MPW) 22.92% $458.40 Icahn Enterprises, L.P. (NASDAQ: IEP) 20.89% $417.80 Euronav NV (NYSE: EURN) 17.86% $357.20 TORM plc (NASDAQ: TRMD) 17.20% $344.00 AFC Gamma, Inc. (NASDAQ: AFCG) 17.08% $341.60 Petróleo Brasileiro S.A. – Petrobras (NYSE: PBR) 16.63% $332.60 Medifast, Inc. (NYSE: MED) 16.27% $325.40 ARMOUR Residential REIT, Inc. (NYSE: ARR) 15.29% $305.80 AGNC Investment Corp. (NASDAQ: AGNC) 15.09% $301.80 Alliance Resource Partners, L.P. (NASDAQ: ARLP) 14.81% $296.20 PetMed Express, Inc. (NASDAQ: PETS) 13.07% $261.40 Dynex Capital, Inc. (NYSE: DX) 12.83% $256.60 NextEra Energy Partners, LP (NYSE: NEP) 13.04% $260.80 Stellus Capital Investment Corp. (NYSE: SCM) 12.58% $246.80 Frontline plc (NYSE: FRO) 12.39% $247.80 Black Stone Minerals, L.P. (NYSE: BSM) 12.34% $246.80 Fortitude Gold Corporation (OTC: FTCO) 10.74% $214.80 Hercules Capital, Inc. (NYSE: HTGC) 10.55% $211.00 Horizon Technology Finance Corp. (NASDAQ: HRZN) 10.15% $203.00 Civitas Resources, Inc. (NYSE:CIVI) 10.10% $202.00 Altria Group, Inc. (NYSE: MO) 9.63% $192.60 British American Tobacco PLC (NYSE: BTI) 9.87% $197.40 Ares Capital Corporation (NASDAQ: ARCC) 9.57% $191.40 MPLX LP (NYSE:MPLX) 8.57% $171.40 Total: $10,105.00 ALERT: Today Could Be Your Best Shot At Early Retirement (Sponsored) If you want to retire before 65, pay attention. Study after study has shown that the longer you stay invested, the better your chances at an early retirement. Every day that goes by without saving and investing for tomorrow means more to earn and save later. Don’t waste any more time and get started with Robinhood today. The app makes it easy to buy and sell stocks, mutual funds, trade options, and even cryptocurrencies. Sign up today using the link below or click here to start your journey. The post Want $10,000 in Passive Income? Invest $2,000 in Each of These Dividend Stocks appeared first on 24/7 Wall St.......»»
Taboola.com Ltd. (NASDAQ:TBLA) Q4 2023 Earnings Call Transcript
Taboola.com Ltd. (NASDAQ:TBLA) Q4 2023 Earnings Call Transcript February 28, 2024 Taboola.com Ltd. beats earnings expectations. Reported EPS is $0.09, expectations were $0.02. Taboola.com Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day, and thank you for standing […] Taboola.com Ltd. (NASDAQ:TBLA) Q4 2023 Earnings Call Transcript February 28, 2024 Taboola.com Ltd. beats earnings expectations. Reported EPS is $0.09, expectations were $0.02. Taboola.com Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day, and thank you for standing by. Welcome to the Taboola Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker for today, Jessica Kourakos. Please begin. Jessica Kourakos: Thank you, and good morning everyone, and welcome to Taboola’s fourth quarter and fiscal 2023 earnings conference call. I’m here with Adam Singolda, Taboola’s Founder and CEO, and Steve Walker, Taboola’s CFO. The company issued earnings materials today before the market and they are available in the Investors section of Taboola’s website. Now, I’ll quickly cover the Safe Harbor, certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information and we undertake no duty to update them except as required by law. Today’s discussion is also subject to the forward-looking statement limitations in the earnings press release, future events could differ materially and adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. With that, I’ll turn the call over to Adam. Adam Singolda: Thanks, Jessica. Good morning, everyone, and thank you all for joining us. And before we talk about the business, I want to start with a word about our people. I’ve always said that a company’s true innovation is its culture and people. And I’m so proud of the tremendous resilience displayed by our nearly 2,000 Taboolars during the war in Israel. Their resilience is what’s driving our progress in reaching new users, delivering engaging experiences in the open web, improving our effectiveness at monetization and driving yield. We have real momentum coming into this year, and it shows in our Q4 results and strong 2024 financial guidance. Turning first to our quarterly results, we had a strong end to 2023; Q4 ex-TAC of $168.5 million, growing 6% versus 2023 Q4. Q4 adjusted EBITDA of $50.1 million, a significant beat to the high end of our guidance by $18 million, representing over 30% adjusted EBITDA margin. Free cash flow in Q4 was $10.5 million, bringing our 2023 free cash flow to $52.2 million, representing 3x growth over 2022, as well as 50% conversion to EBITDA, which is our desired stated goal. 2024 is set to be a record year for Taboola across all key measures, revenue, ex-TAC gross profit, adjusted EBITDA, and free cash flow. On the revenue front, we’re back to fast growth. Revenue is growing 33% to nearly $2 billion this year. Ex-TAC is growing 25% to $670 million. We are reiterating our adjusted EBITDA guidance of over $200 million, which is 2x 2023. And we are reiterating our free cash flow guidance of over $100 million, also nearly 2x of 2023. On the business front, there is a lot of good momentum. 2024 is benefiting from fast adoption of our AI offerings, and we assume yield expansion this year after two years of softness. Yahoo is ramping up, already crossing the $100 million mark in Q1, with the great trust and collaboration between our teams. Now, and since we’ve signed the partnership with Yahoo, many investors have asked us what is next, what will be the next Yahoo-style partnership? And I’m very, very happy to share than another iconic consumer brand has just chosen Taboola as its partner of choice to help them grow their advertising business. I hope to share more about this very soon. On the back of our business momentum, strong balance sheet, and commitment to shareholder returns, we’re announcing a new share buyback authorization of $100 million, which represents approximately 6% of our current market cap. 2023 was going to be an investment year for growth. We’re investing more than $100 million a year in R&D and AI to bring users and advertisers the same amazing experience they have when they interact with search and social platforms. Every day, we’re getting closer to the size of X, Pinterest, Snap, and others in revenue and ad spend. And we’re paving our way to becoming the very first must-buy platform for the open web. As I reflect on our journey, 10 years ago, we generated just over $200 million in revenue. I remember it like it was yesterday. And this year, 10 years later, we’re approaching $2 billion. Now, looking ahead, I see two key themes that will allow us to achieve our financial transformation in 2024. The first one is reaching and engaging users in the open web. With the addition of Yahoo, and now another iconic consumer brand, there’s a lot of momentum here. The second one is how well we can monetize our time with consumers, specifically growth in performance advertising and AI to drive yield. Now, let’s expand into both of these areas. Starting with how we reach users on the open web. We’re seeing great momentum of publishers choosing Taboola on the back of our technology investments. We’re so much more than just to publishers as we empower the entire publish organization, the editorial team, subscription team, audience team, monetization team, and more. Publisher win rates continue to improve with terrific new publisher partners joining Taboola family from all around the globe, including A360 Media, Postmedia, Times Internet, Nine Entertainment, and more. We renewed and expanded our scope with existing publishers, including NBC News, McClatchy, Editora Globo, Prisa, Ynet, and more. In the industry, we’re seeing a shift of great consumer companies getting into advertising in a bigger way. This includes Disney, Amazon, Netflix, DoorDash, Uber, Walmart, and more, where to some, advertising is already one of the most profitable lines of business they have. I expect that Fortune 500 CEOs will increasingly be asked to present their advertising strategy. And that the advertising industry will get to become a $1 trillion market in years to come. This is just the beginning. Now, while I believe many of these companies would try to sell directly to big brands, many would consider partnering with a technology company like Taboola to reach tens of thousands or hundreds of thousands of mid-funnel performance advertisers. We have an opportunity to become the advertising engine of choice to the open web. We call it advertising in a box. Signing strategic partnerships with publishers and big consumer platforms give Taboola another way to reach users, and access new premium advertisers. And we’ve seen it already with Yahoo, as incredible brands are starting to spend. And these are the best of the best out there, names like Samsung, and Verizon, Hulu, Hilton Hotels, Southwest Airlines, Citibank, and many others. On the Yahoo front, I can tell you we just had an executive offside for the Yahoo leadership, and we’re focused on executing our plans this year, and into 2025. our biggest priority is demand migration of Yahoo omnichannel advertisers. I’m happy to tell you we’re seeing good results. And we recently shared the case study of large advertisers seeing 3x in leads volume at 24% lower cost. To share some of Yahoo’s good progress, we expect Q1 revenue to cross the $100 million in revenue, which is fast ramping. Beyond working with publishers, we also reach users as part of Taboola News as we bring our publishers’ content to Android devices. Taboola News had a spectacular year in 2023, with revenue growing to over $100 million. It is still in early stages, with a lot of work ahead of us, yet we expect another strong year for Taboola News in 2024. This is because device manufacturers all around the world continue to seek differentiated offerings that delight users with personalized experiences. Beyond publishers and Taboola News, we’re also reaching users with our Header Bidder. We’re continuing to take advantage of our direct demand, unique data, and AI to bid on inventory that is not exclusively ours. Microsoft continues to be our largest Bidder partner, and we expect to expand our scope across a network of publishers in 2024. Microsoft made some changes to its Epic platform in Q4 that impacted all Epic partners they work with, including us. This had a single-digit millions of dollars impact in Q4, and a small impact to 2024, which is already included in our guidance. Now, switching to the second driver of revenue growth, how we monetize time with consumers, essentially how we grow yield. Yield represents the revenue we can generate per user. For comparison, we estimate Meta makes $200 of revenue per user a year in the U.S. Snap makes $33, and we make about $3.00 to $4.00 per user a year. While I think Taboola is among the best in the open web when it comes to monetizing user attention, you can imagine how much runway we have to improve, and how much better the open web can do. When we win, the open web wins. Now, the open web is about an $80 billion market because it uses low yield monetization capabilities invented 30 years ago, such as display banners, text ads, interstitials, and more. And on top of that, only in the open web advertisers are asked to bid using CPC or CPM, which companies like Google or Meta don’t do. Now there are three ways Taboola will grow yield. The first one is data. This is where code on page being bigger and getting a large volume of clicks from the network, makes us better at driving conversions to advertisers faster. The second one is AI. Deep learning is really hard to do. We’ve been at it for years. And, this is a key element as it relates to matchmaking between users to information. And, the third one is advertisers. We’ve 15,000 to 20,000 advertisers as of now while Google and Meta have 10 million advertisers each. Bringing more advertisers means better diversity and personalization to offer users the ad they may like. We’re seeing great momentum from Maximize Conversions, our advanced AI biding technology. Advertisers are seeing up to 50% boost in conversions while maintaining their cost per acquisition or CPA. As well as, some advertisers are seeing reduced CPA by nearly 20%. Let’s give an example. If you sold 10 flower bouquets with Taboola and it’s cost you $30 to get a single costumer, you can now sell the same 10 bouquets at the cost of $24 per customer. Or, sell up to 15 bouquets at the same $30 cost to acquire that customer. Now that’s selling a lot more flowers and saving more which is great. Now as more advertisers adopt our AI and Max Conversions, we expect improved retention, essentially lower churn, as well as increase in net dollar retention, NDRs, which means advertisers are able to spend more with us over time. In Q4, we launched Generative AI ad maker helping advertisers kick off a campaign faster. For self-serviced advertisers, one is four new creative are being generated using our new Generative AI. In 2024, we are focused on enhancing our data integration with Yahoo, continuing adoption, and improvement to maximize conversions as well as launching a new maximized optimization product called Maximize Revenue. Maximize Revenue is the way for advertisers that have direct value associated with conversions like in ecommerce space to optimize their desired return on investment. I am happy to say that with this momentum where already 50% of our revenue is driven by advertisers who adopted Max Conversion and are at steady roadmap were back to yield growth this year. Another segment of advertisers that is helping us drive yield growth and seen momentum is ecommerce. In 2023, we’ve benefited from the combined fire power of Connexity, Skimlinks, and Taboola. We launched Turnkey Commerce, which is where we partner with publishers to establish or expand their commerce business. This is in high demand, we essentially created commerce content, drive traffic to it, and monetize it. All powered by Taboola. I am very, very happy to say that at the end of 2023, we signed an agreement with the Associate Press, one of the largest and most trusted news publishers in the world, to power its new ecommerce destination using Taboola Turnkey Commerce. Ecommerce represents approximately 20% of ex-TAC. It’s premium revenue. And we continue to see it as an important growth driver for Taboola in years to come. Now as I am wrapping up my part, I would be remise in not acknowledging that our industry is facing tectonic changes this year like cookie deprecation, gen AI, and the need for performance advertising in times of recession and market softness. And, we are so ready. We have more code on page than anyone. We understand intent with users clicking on Taboola tens of billions of times a year. And if history is a proxy for the future, we did well when Apple deprecated cookies. In summary, we are coming in strong into 2024 with stunning partnership, fresh revenue growth, and a strong EBITDA and free cash flow profile. We’re now seeing a new $100 million buyback authorization. And after two years of yield been soft, we are back to growth as our clients adopt AI faster than any product developed since I started Taboola. With that, let me the pass the call over to Steve to review our financials and outlook in more detail. Stephen Walker: Thanks, Adam, and good morning, everyone. As Adam mentioned, we had a strong end to 2023. Our Q4 revenues were approximately $420 million and grew 13% year over year, accelerating from Q3 levels. Ex-TAC’s gross profit was $169 million, which represented growth of 6% year over year. Ex-TAC growth was driven by double-digit growth in advertising spend and included a small contribution from Yahoo in the quarter. These positive factors were partially offset by margin compression due to the ad rate declines in 2022, which have since stabilized in 2023. Net income was $3.7 million, and non-GAAP net income was $31.4 million. Adjusted EBITDA was $50.1 million, representing a 30% adjusted EBITDA margin. Year-over-year, adjusted EBITDA was down, which was due primarily to higher expenses related to the onboarding of Yahoo’s supply that were not in the year-ago period. Operating expenses excluding Yahoo would have been relatively flat year-over-year, reflecting strong cost discipline in 2023, which we plan to continue into 2024. For the full-year of 2023, we finished with over $1.4 billion in revenue, $536 million in ex-Tac gross profit, and $99 million in adjusted EBITDA. We had a net loss of $82 million and non-GAAP net income of $33 million. We also generated $52 million of free cash flow in 2023, which was up 181% versus 2022. Free cash flow benefited from the stronger than forecasted adjust EBITDA, which reflects the cost controls mentioned previously, partially offset by the expenses related to the onboarding of Yahoo inventory in the period. Free cash flow in Q4 would have been even stronger if not for the timing of some payables and capital expenditures that we mentioned were delayed last quarter. As Adam said, our strong revenue and Ex-Tac gross profit performance was driven by strength in our e-commerce, bidding, and Taboola News businesses, as well as the initial contributions from Yahoo and relatively stable yields in our core business. E-commerce had double-digit growth in 2023, driven by strong growth in advertising budgets from some of our largest retail advertisers, as well as strong momentum in Europe. In addition, we are seeing great success ramping Taboola’s feeds and now Yahoo as supply sources for our retail advertisers. In fact, Taboola’s feed supply has become a top ten traffic source globally for these advertisers. As we have stated previously, Taboola News grew very quickly and exceeded $100 million in revenues in 2023. In total, e-commerce, Taboola News, and Header Bidding now represent approximately 30% of our ex-Tac gross profit. This is exciting because each represents very valuable forms of supply that are valued by high-quality advertisers. Our teams have achieved accelerating revenue and ex-Tac performance while improving cost efficiency, indicated by our strong adjusted EBITDA margin exiting 2023. Operating expenses were $489 million in 2023, up $11 million year-over-year as a result of the cost incurred to onboard the significant inventory we are gaining with the addition of Yahoo. Excluding Yahoo, as I mentioned earlier, operating expenses were essentially flat with the prior year. Our headcount is down approximately 2.5% from its peak in July of 2022. With our ongoing expense discipline and our strong growth expectations, we expect that in 2024 we will approach our long-term adjusted EBITDA margin target of 30%. GAAP net loss for 2023 of $82 million included amortization of intangibles of $63.9 million, share-based compensation expenses of $53.7 million, and holdback compensation expenses related to the — connects the acquisition of $10.6 million, all of which were excluded from non-GAAP net income. Our non-GAAP net income of $32.6 million was above the high end of our guidance range. In terms of cash generation, we had approximately $84.4 million in operating cash flow in 2023 and free cash flow of $52.2 million. This includes net publisher prepayments, which were a source of cash of $19.7 million, and interest payments on our long-term debt, which were a use of cash of $18.5 million. As I have highlighted in previous quarters, I would note that net publisher prepayments were a source of cash for the full-year due to the fact that new prepayments were lower than the amortization of historical prepayments. Let’s turn to the balance sheet. You can see that our net cash balance remains healthy. Our net cash position of $36.2 million remained positive at the end of Q4, even after share repurchases. Cash and cash equivalents, plus our short-term investments decreased from $250.7 million at the end of Q3 to $181.8 million at the end of Q4. This reflected a $50 million prepayment of our debt and $32 million used for share buyback activity in Q4. Cash and cash equivalents and short-term investments remained above our debt principal balance of $142.2 million. Speaking of our share repurchases, I would also like to provide an update on our share buyback and debt repayment programs. The share buyback program was initiated on June 1, and as of December 30, we had repurchased over 15 million shares at an average price of $3.62 for total repurchases of $55.1 million. The average repurchase price of $3.62 represented a return of approximately 30% based on our closing price on Monday. Today, we are also announcing a new share buyback authorization of $100 million that replaces our former buyback plan, which was largely exhausted. We are fortunate enough to be able to fund our organic growth investments from our operating cash flow. Given that, we believe that at current valuations the best use of our free cash flow is to buy back shares. To the extent that we have additional cash to deploy, we intend to pay down our long-term debt. We did this in October of 2023, in fact when we voluntarily prepaid another $50 million of our long-term debt, bringing the total debt that we have voluntarily prepaid to $141 million. As always, both the share repurchase program and the debt pay-down are contingent upon the availability of sufficient working capital. As an Israeli company, we are also required to obtain Israeli court approval for share repurchases. Also of note, we will be filing a general purpose shelf in the coming days. We consider it good corporate hygiene for a company at our stage to have a general purpose shelf on file. Given we believe our stock is a great value at current levels and have announced a new buyback authorization today, we obviously do not intend to issue new shares at this time. I just wanted to make sure that was clear. Now let me shift to our forward-looking guidance. As Adam mentioned earlier, in the last 12 months, we invested in technology that advanced our e-commerce and Taboola News offerings, successfully launched maximized conversions and onboarded all of Yahoo’s global native supply onto the Taboola network. 2023 was a year in which we invested heavily in these initiatives, sometimes in advance of revenue. As we look ahead, we see the following tailwinds driving outsized growth in our business through 2025. First, we expect the Yahoo Advertiser migration to be materially complete by Q3 2024 and to continue ramping into 2025. Second, we expect yield growth to turn positive in 2024. Third, we expect a phased onboarding of the supply from our new iconic consumer brand partner in 2024 and 2025. And lastly, we expect further yield gains over time as the volume of our contextual data increases with the addition of Yahoo and other supply to our network, which will further enhance yield. As a result, we are initiating guidance for 2024 that includes strong top line growth and improving profitability. We expect revenue of $1.89 billion to $1.94 billion, which represents growth of 33% at the midpoint. We expect gross profit of $535 million to $555 million and ex-TAC gross profit of $656 million to $679 million. That ex-TAC is up roughly 25% year-over-year at the midpoint. We are reiterating our 2024 adjusted EBITDA guidance of over $200 million and free cash flow expectation of over $100 million. I will note that the adjusted EBITDA guidance represents a doubling of that metric versus 2023. Finally, we are expecting non-GAAP net income of $84 million to $104 million in 2024. We continue to be very by the addition of Yahoo to our business. Adam mentioned earlier we feel good about the progress with Yahoo, and we expect revenue on Yahoo to exceed $100 million in Q1. For competitive purposes and due to the fact that Yahoo’s supply has been fully integrated into our broader publisher network, we will treat disclosures around Yahoo similarly to how we treat other major publishers on our network on a going-forward basis. Finally, we are introducing Q1 2024 guidance. This quarter, we expect revenues of $387 million to $413 million, gross profit of $94 million to $106 million, ex-TAC gross profit of $123 million to $135 million, adjusted EBITDA of $10 million to $17 million, and non-GAAP net income of negative $15 million to negative $3 million. Let me finish by saying that we are happy with our fourth quarter performance, and excited about the step change growth that we are expecting in our business in 2024. The growth investments we have made in 2023, the additional scale that Yahoo is bringing, and the additional supply we will be onboarding as part of a new partnership with an iconic consumer brand is accelerating our journey towards becoming a must-buy for advertisers looking to reach consumers in the open web. With that, let me pass it back to Adam for some closing remarks. Adam Singolda: Thanks, Steve. I’ve never been more bullish about Taboola, and I’m so proud of our Taboolars’ dedication, passion, making us the high-performing company through the most difficult of times. We’re coming in strong into 2024, making it a record year for us. Revenue is growing 33% to $2 billion, ex-TAC is growing 25% to nearly $670 million, EBITDA is doubling to over $200 million, free cash flow is nearly doubling to over $100 million. And on the back of these numbers, we’re now seeing an authorization of $100 million of buyback, essentially looking to buy 6% of our company. As I mentioned, our industry is changing. And with companies like Netflix and Disney, Uber, DoorDash, Amazon, and more expending through advertising initiatives, I suspect we’re in the beginning of an exciting ad mania. Taboola has a chance of becoming the partner of choice to many of them. And as I said at the beginning of our call, in addition to Yahoo, I’m incredibly excited to have just signed another iconic consumer brand that validates Taboola’s advertising-in-a-box value proposition. Our vision is to become the recommendation engine for the open web, and build the very first multibillion dollar gateway for advertisers to reach publishers, OEMs, and apps outside of walled gardens. Today is a good day for us. I’m excited to get 2024 going. To everyone, thank you for being part of our journey. And with that, let’s open it up to questions. Operator? See also 16 Longest Lasting Jeans Brands of 2024 and 18 Most Tax-Friendly States to Retire in 2024. Q&A Session Follow Taboola.com Ltd. Follow Taboola.com Ltd. or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator Instructions] Our first question today will be coming from Andrew Boone of JMP Securities. Your line is open. Andrew Boone: Great, thanks so much for taking my questions. Adam, as we think about yield improvements in 2024 and the inflection that you guys are expecting, can you just help us understand what the key drivers, as well as what are products that are your key priorities in terms of improving yield over the next year? And then I want to step back and talk about a big-picture question for Yahoo and Taboola. If I go back and I think about 2022 pro forma revenue of kind of that $2.5 billion of gross revenue, is that still on the table? Is that still the roadmap as we think about maybe 2025 or what are the puts and takes as we think about that benchmark? Thanks so much, guys. Adam Singolda: Sure, thanks for the question. Good morning, everyone. So, on the Yahoo front, there’s a lot going on. And as you know, it’s number one investment as a company because we think this drive the most amount of value to our clients, our partners, and to Taboola itself in a competitive way as we’re adopting and going off to a new business. So, let me just drive in, into that. 2024, we’re starting strong. We’ve lapsed conversion already crossing the 60% adoption. As a quick reminder, Max Conversions is kind of our AI that allows clients and advertisers to work with us in a similar way to how they work with Google and Facebook, where they don’t have to tell us what is the CPC they want to bid or what is the CPM they’re looking to buy; they just give us their budgets. At times they give us their targets for what is worth — what is the client worth, we do the rest. It’s the fastest adopted product since I started Taboola, and it’s really fantastic. We’re seeing great case studies, not only from Taboola’s advertisers, now also with Yahoo advertisers migrating to Taboola’s technology. And we’re publishing those case studies because we’re seeing advertisers that essentially either are able to spend more or new advertisers that are churning less. And this is a really good metrics for us to follow. Again, we know as flower examples on my letter. But essentially just from a numbers perspective, we’re essentially seeing up to 50% boost in the amount of conversions at the same price. And in other times, we’re seeing the same amount of conversions, but the price is being reduced by 20%. These are serious numbers. And also, just from the client’s perspective, the experience they have working with us, it’s so much simpler and more easy to do than they have to do with — in the Epic industry, which I always argue one of the Achilles heels of the Epic industry is that we’re still working with advertisers the way we used to work 30 years ago, whereby everyone around us, mainly platforms and walled gardens have evolved to using AI. So, I want, by the end of this year, really the vast majority of Taboola’s business, as you know, approaching $2 billion, to be using AI, and CPC and CPM to be kind of a story from the past. That what’s coming next for us, and going to launch in H2, Max Revenue, this is on top of Max Conversion, it’s another sophisticated AI-based strategy allowing clients that know what is the price associated with a purchase to give us that margin and revenue growth they have, and we optimize for that. This is going to launch in the second-half of the year, which will be additive to Max Conversion. Gen AI is continuing to get great adoption by self-service. As you know, I love self-service. This is an opportunity to get kind of introduced to great new clients. There — a lot of times they come small, but they potentially become big, and one in every four creative titles and thumbnails you just saw with OpenAI, they’re now already the industry is talking about video creation, so who knows where that goes. But one in four creative is using gen AI, so that’s been great. E-commerce is another source of — a bolster in our yield in 2024. You may have seen that I mention in the letter that Associated Press just chose Taboola to launch its e-commerce business. You all know Times.com, you know advanced also working with us in e-commerce with turnkey, and now AP, that was a new announcement today, and all that is helping us to essentially attract new retailers and improve our, basically, weighted average yield across the network. Then you add data integration, we’re looking to expand our contextual data segments with Yahoo, that’s something that I’m very excited about, especially on the back of current H2 cookie deprecation, so that’s also going to compound our ability to drive yield. And last but not least, more advertisers. So, we’re migrating advertisers from Yahoo. We expect that to be fully complete in Q3. And these are best — the crème de la crème, best of the best. You see others, Samsung, and Citi, and Verizon, these are fantastic enterprise advertisers. All of those things, from the technology side, the data side, and the client side are compounding our yield expansion. And you may have seen also, and I mentioned that on earlier — on my remarks, that after two years of softness in yield that all of us have experienced in this industry, Taboola, we kind of assume that if nothing happens in the market, we will do better than the market. So, we assume that yield is back to growth in 2024. It’s in our budgets, it’s in our guidance. So, we expect all these initiatives to come to fruition. Stephen Walker: And then to your second question about $1 billion opportunity with Yahoo, the simple answer on that is yes, we still believe there is more than $1 billion of value in that partnership. It’s been — by the way, we did say that we expect to see $100 million in revenue from the supply in Q1, so that’s encouraging. That’s a good step towards that. Advertisers will be fully migrated only in Q3, so that’s also key to capturing the base value of the partnership. And then, from there, what we expect is that the revenue will continue to grow as we capture synergies to get us to the full billion dollar value. So, yes, we expect it. It’ll happen over time. Andrew Boone: Thank you so much. Operator: Thank you. [Operator Instructions] And our next question will be coming from Jason Helfstein of Oppenheimer. Your line is open. Jason Helfstein: Hey everybody. Just some clarification and then a question, so to be clear, so the $100 million in Yahoo, that’s not cumulative, that’s like for first quarter, correct? Adam Singolda: Correct, that’s $100 million on Yahoo supply in Q1. Jason Helfstein: And then, you said the fourth quarter obviously was like meaningfully below that. You’re not giving the number, but we have to guess. Just repeat the language you said, how much it was like the way you described in the fourth quarter? Adam Singolda: We said low tens of millions. Jason Helfstein: Okay. So, I mean like so kind of hit the elephant in the room here. I mean, if you play around with the math that means that like the kind of ex-Yahoo, the business is decelerating, but like that’s not really fair, right? Because at the end of the day you have certain amount of advertiser demand, there’s different publishing sources, different yields you’re trying to get. So, just how should we all look, we’re going to all kind of play with math for the next year to look at the kind of the with and without Yahoo impact. Like how are you thinking about that? Because I don’t think you’re describing the business is like slowing down. So, just how do you think about like the puts and takes around bringing that inventory in kind of like the yields you get out of that versus other inventory and like should we be doing that math on the growth ex-Yahoo and then just one quick follow-up on identity and cookies? Adam Singolda: Okay. So, I’ll take that first question and it’s a good question. So, first of all, we’re growing nearly $500 million in top line revenue this year, so 33% year-over-year, so obviously, strong growth. A good chunk of it is Yahoo, but not all of it. As you observed, the complexity of that is that Yahoo comes with both supply and advertiser demand. In the $100 million that we just talked about, that is Q1 and that’s revenue on the Yahoo Supply. And but it’s a mix of Taboola advertisers and Yahoo Advertisers. So, where the top line growth comes from over time is also migrating the Yahoo advertisers over and growing our overall advertiser base, thanks to this really great high quality supply we have. So, in order to get full growth, we need to go there. That’s Wave 1, and we expect to have the advertisers migrated by Q3. And then, as I mentioned before in answer to Andrew’s question, then Wave 2 is to start to grow the synergies to get to the full $1 billion of value. So, you are correct that it’s not as simple as you just bring over the supply and you’re done. We have to bring over the advertisers. It’s more complex. So, that’s kind of the way to think about it. And you’re right, our core business is still growing. It’s just that Yahoo will take time to get to the full ramp. Jason Helfstein: And then, just on Identity, you’ve talked in the past that you’re not dependent on cookies and so folks should be less concerned about kind of where we go from here. However, there’s going to be more identity metrics that obviously are going to be adopted and coming to the market, on third-party metrics like can you use those metrics to drive kind of even more yield even though you don’t need to use identity? Thanks. Adam Singolda: Yes. I think we’ll take the right thing about it is, from a downside protection in terms of risk that companies might have, we believe the risk is mitigated for two reasons. 1, we have the past with Apple deprecated cookies in 2020 and we did well. In fact, we actually accelerated yield, so that’s good. And the second thing is that we have a large amount of first-party cookies today as we store we reach 600 million people a day and people click on Taboola tens of billions of times. So, we think we have a good kind of setup for cookie deprecation. So, the way I think about it is, we can do well and potentially even grow because again, in the past, other demand came to us when it couldn’t find other channels and we were a good channel to spend money on. If there’s anything in the market that can accelerate that even further, we’ll take it. I just don’t — personally I feel comfortable because we don’t need any new solution to do well. I think we have what we need to cross that bridge successfully to our publishers and advertisers. And again, just as a reminder, the vast majority about 90% of our revenue comes from clients who buy from Taboola Direct. No programmatic, no agencies, which means that we have pixels on their pages. So, when someone moves from our publishers to their pages, we know we drove that conversion. So, that’s why we don’t need third-party cookies to demonstrate value to clients as they buy from us. This is a fundamental point. There is I feel there is potentially even further upside to yield, but the downside is mitigated. Jason Helfstein: Thank you. Operator: Thank you. One moment for the next question. Our next question will be coming from Laura Martin of Needham & Company. Your line is open. Laura Martin: Good morning, you guys. My first one is on political. So, globally, there’s a really strong election cycle going on in 2024. And can you remind us how that impacts your impression growth and your readership and how that flows through to revenue in a political year, please? And then I’ll ask my second one after that. Adam Singolda: Good morning, Laura. Thanks for the question. Hey, it’s up. So, the way we think about historically, we did see some bump in kind of demand coming on political season, but especially from video with some more kind of increase in video demand in our guidance and way we kind of like manage the business, we don’t assume that is coming. So, want to be conservative in terms of what might happen. There is also potential acceleration in traffic because there is more viewership and things of that nature. Again we don’t assume those things as a material kind of like financial benefit to us. But historically, we did see some nice bumps, but again nothing too significant that we would like to sort of embed in our planning. Laura Martin: Okay. So, that’s an upside driver because it’s not in the numbers, super helpful. By the way, they’re talking about $17 billion of spending in the U.S. alone. So, I think it might be a bigger political year than people than your historical lift. Adam Singolda: That’s good. Laura Martin: The second question I had for you, Adam is I’m really curious as you bring over these new types of advertisers that Taboola has never had with Yahoo like Verizon and Citi and these big enterprise, high quality branding customers. Is that, A, I’m really interested in what kinds of challenges or what kinds of things they need that your historical advertisers have not? And secondly, does it give you new product ideas when you think about the product roadmap? Are there things these types of advertisers are asking for that could sort of, if you develop them could really forever accelerate the trajectory of revenue growth of Taboola. What’s your point of view on that? Adam Singolda: Yes, this is it’s such a good question, because we obviously this is a very new type of segment of clients that get introduced to Taboola. Most of it right now is on the Yahoo side, right, like we’re filling that incredible kind of publisher with a mix of Taboola and Yahoo advertisers. But what we’re seeing is, first of all, they really appreciate the technology that we can bring to the table. So, they’re adopting Max conversion, our pixels and these are new things to them and it allows us and our account managers to and I think a lot of our account managers are always daily to see the graphs and to see the trends and these are really good trends, both in terms of increase of budgets and performance as it relates to conversion rates and CPA. So, it’s early days. It’s only $100 million. So, it’s still early days, but I’m seeing really good things and they are very happy. So, these clients want to spend time with us and the Yahoo team and this is all good beginning. Where I think it’s going is this potentially will allow us to develop new formats and kind of new experiences that those clients are used to getting either historically from Yahoo or on other channels. And I think that might open up a whole new way users would experience sponsored content and ads on its own network, as well as in Yahoo over time. So, I would say, stay tuned for potential UX innovation and formats and experiences that those brand advertisers are looking for that we are yet to offer. So, I do think they might make us even better, those clients. And we try to be humble. We’re learning. We’re asking questions, and we’re spending time with them. But I’m excited mainly by the performance. That’s the most important thing. But I’m sensing they would like us to further develop the way we present ads on the open web, and that might affect not only our relationship with Yahoo but whether how we render ads across our entire network, Disney and NBC and the rest of our great partners. Laura Martin: Thanks very much. Operator: Thank you. One moment for the next question. Our next question will be coming from James Kopelman of TD Cowen. Your line is open. James Kopelman: Good morning. Thanks for taking the question. The first one is for Adam. In the letter you referenced the amount of contextual data that Taboola has for AI and deep learning. Can you talk about how you view Taboola’s growing data set as a differentiator when it comes to training AI and leveraging generative AI over time? And then I have a follow-up for Steve. Adam Singolda: Yes, sure. So, as it relates to just the amount of data we have, I think the most important thing and I speak a lot about becoming the must-buy for the open web. And what I mean by that is, it’s a matter of how big is your actual gross revenue and your spend, because this is a good proxy for how reliant advertisers become on you, because you’re big enough that it’s worth their time to spend money with you. Because again, I think today the ad tech industry is a bit fragmented, or too fragmented for advertisers to rely on you. And I’m looking at companies like Snapchat and Pinterest and X, it’s in the $2 billion to $4 billion range and now we’re getting into that range. So, I think, first of all, the most important thing to become a must-buy is growing revenue and get that flywheel going so that advertisers want to work with you and it’s worth their time. Two, the footprint we have and the code on the page Taboola has, I would argue, is probably the largest in the open web or in the world. I don’t know of any company that has a first-party relationship with publishers like Taboola at our site, which really gives us first-party access to everything that takes place on the page, from context to scrolling to clicks to purchases to things of that nature. And I think that’s growing exponentially, obviously, with Yahoo. So, this is, I think, one of the most important assets the company has, which is code on page exclusively for long term. And this is what gives us also predictability as a business to know that we don’t expect any big shift one way to the other. And then, as we look into Gen AI, I think it’s important to kind of reference what exactly is Gen AI can do to the market. Gen AI eventually is going to be a technology that is available to everyone. What’s going to make a difference from one company to the other is really the amount of data and the type of data you can prompt into the engine so you can get better outcomes. So, as an example, when an advertiser comes to Taboola and suggests thumbnails and titles for me, we are able to say, well, we’ve seen, let’s take an example, an insurance client comes to Taboola, we’re able to say, we’ve seen a billion dollars of insurance spent over the last few years, and we can prompt that into the engine, and then we’re getting really great, kind of authentic and new and original titles and thumbnails we can suggest to the client. So, I think what makes us special here is the amount of data we have, our size, and this is also why I love the Yahoo partnership, and as I mentioned in the letter, there’s another iconic consumer brand that is signed and starting to roll with us. All of those will give us more data to prompt into the Gen AI. And we have a senior person leading Gen AI, Taboola now. And I can tell you we’re working on very exciting things because I believe that the biggest opportunity Gen AI has to the advertising industry is to simplify the experience of buying ads. Today it’s very, very complicated to succeed. And I think Gen AI can make it really simple. So, what’s to come is our unique data into Gen AI and producing special creatives that others don’t have. James Kopelman: And then for Steve, high level, how should we think about the seasonality of both gross revenue and Ex-Tac in 2024, given the various moving parts around Yahoo, the new unnamed publishing partner, and your typical historical seasonality. And then, finally, I just want to ask about OpEx efficiencies. What are some of the ways that you’re able to limit headcount increases this year, even as you scale? Thank you. Stephen Walker: So, in terms of the seasonality, so Yahoo is like a very large publisher in our traditional core business. So, I think their seasonality is very similar to our historical pre-connect of the seasonality. So, that’s the way to think about adding them to our network. As a company, as we’ve become more and more fourth-quarter-dominated because of our e-commerce business in particular. And this year, obviously, with the bringing on Yahoo over the course of the year, we’ll be more back half loaded than usual as well. But generally, the way to think of seasonality with Yahoo is it’s like a large publisher and they have very similar seasonality to other large publishers. They’re number one or number two in news, sports, finance, and that is pretty much what the kind of core of our base is. So, that’s a way to think about seasonality. In terms of OpEx and how we control headcount here, I think we’ve shown pretty good cost discipline over the course of the last year. I mentioned in my prepared remarks that our OpEx for Q4 and in fact for all of 2023 would have been flat year-over-year except for the hiring that we did for Yahoo to support that. I would expect that our fourth quarter OpEx space is probably going to be similar to what it is the rest of this year. There may be a slight increase as a result of some additional hiring that we have to do for Yahoo, but we’re really working on kind of keeping a lid on costs. And the way we do that is we find efficiencies and we find ways to leverage the people we have to do more. Frankly, we’re using generative AI and other AI tools internally now to generate productivity and to improve things. So, for — and a great example, that is exactly what Adam talked about. Historically, our account managers who support our advertisers used to spend a lot of time helping the advertiser figure out what’s a good headline, what’s a good creative or image for this ad. Now we have generative AI tools that help them do it, can generate a dozen of them instantly, whereas it used to take a lot of thought and a lot of time to come up with a dozen. So, it’s all about productivity, finding ways to leverage your people across more accounts, and I think we’re doing a pretty good job of that. James Kopelman: Great. Thanks, guys. I appreciate all the color. Stephen Walker: Thanks, James. Operator: Thank you. One moment for the next question. Our next question will be coming from Dan Day of B. Riley Securities. Your line is open......»»
Revolve Group, Inc. (NYSE:RVLV) Q4 2023 Earnings Call Transcript
Revolve Group, Inc. (NYSE:RVLV) Q4 2023 Earnings Call Transcript February 27, 2024 Revolve Group, Inc. beats earnings expectations. Reported EPS is $0.05, expectations were $0.02. Revolve Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good afternoon. My name […] Revolve Group, Inc. (NYSE:RVLV) Q4 2023 Earnings Call Transcript February 27, 2024 Revolve Group, Inc. beats earnings expectations. Reported EPS is $0.05, expectations were $0.02. Revolve Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Revolve’s Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions] At this time, I’d like to turn the conference over to Erik Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin. Erik Randerson: Good afternoon, everyone, and thanks for joining us to discuss Revolve’s fourth quarter and full-year 2023 results. Before we begin, I’d like to mention that we have posted a presentation containing Q4 and full year financial highlights, to our Investor Relations website located at investors.revolve.com. I would also like to remind you that this conference call will include forward-looking statements, including statements related to our future growth, our inventory balance, our key priorities for 2024, including related investments, product category expansion, cost saving measures, international expansion and technology enhancements, our marketing events, our partnerships and our outlook for net sales, gross margin, operating expenses and effective tax rate. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon’s press release, as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our quarterly report on Form 10-Q for the quarter ended September 30, 2023, and in our annual report on Form 10-K for the year ended December 31, 2023, which we expect to file with the SEC on February 27, 2024, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we’ll also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they provide valuable insights on our operational performance and underlying operating results. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. And our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to GAAP measures as well as the definitions of each measure, their limitations and our rationale for using them can be found in this afternoon’s press release and in our SEC filings. Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente; as well as Jesse Timmermans, our CFO. Following our prepared remarks, we’ll open the call for your questions. With that, I’ll turn it over to Mike. Michael Karanikolas: Hello, everyone, and thanks for joining us today. We ended a challenging year in 2023 with a solid fourth quarter, highlighted by a return to growth in the Revolve segment, a year-over-year increase in our consolidated gross margin and encouraging early progress in our efforts to drive efficiencies in our global logistics operations. I’ll start by briefly discussing highlights for our fourth quarter results before shifting to the full-year 2023 and closing with our key priorities for 2024. Net sales were $258 million in the fourth quarter, a decrease of 1% year-over-year and a slight improvement from the 4% decline in the third quarter of 2023. U.S. net sales decreased 2% and were outpaced by international net sales increasing 7% year-over-year. Our international gains were highlighted by exceptional growth in Mexico and improved year-over-year growth in Europe and the UK, partially offset by declining sales in China and the Middle East. By segment, REVOLVE net sales increased 1% year-over-year in the fourth quarter, our first year-over-year increase in four quarters. FWRD net sales decreased 10% year-over-year, consistent with external reports from the luxury sector. As a relevant benchmark, Earnest Analytics reported that its credit card data reflects a 10% year-over-year decrease in luxury apparel spending by U.S. consumers during the holiday season. Now, moving below the revenue line. As a testament to our progress in rebalancing our inventory, our gross margin expanded to 52.0% in the fourth quarter, representing our first year-over-year increase in gross margin in six quarters. And with our inventory dynamics now in a very good place, in early 2024 we are back to year-over-year growth in receipts of new inventory for the REVOLVE Segment. Net income for the fourth quarter was $3.5 million, or $0.05 per diluted share, and adjusted EBITDA was $9 million. As expected, both profitability measures declined year-over-year. I will now shift to a review of our performance and accomplishments for the full-year 2023 before briefly touching on our key areas of focus for the coming year. From day one, Michael and I have approached the business with the customer at the center of everything we do. Even through a very challenging year, we continued to deliver an exceptional experience to our customer base of 2.5 million active customers, increasing our already exceptional customer satisfaction score by more than a full point year-over-year. Our active customers grew 9% year-over-year and we see a huge opportunity for further expansion, in the U.S and overseas. And, importantly, we drove a year-over-year decrease in our average cost to acquire customers in 2023. We believe the reduced CAC illustrates the strength of our brand and execution by our team in optimizing spend across channels and audiences within a competitive environment. Now, shifting to our top line results. Net sales in 2023 were $1.1 billion, a decline of 3% year-over-year, despite the healthy growth in active customers. Our customer demographic faced increased macro pressures in 2023, which we believe contributed to the normalization of spending levels from the significant apparel spending in 2021 and 2022 coming out of COVID lockdowns. The normalization of purchases by our customers in 2023 is also evident in a key net sales retention metric. Recall that once a year we disclose the revenue retention from our prior-year cohorts, defined as the revenue retention rate from the previous year for all existing customers who had purchased from us in a prior year. Since this retention metric has experienced significant variability in the past four years for obvious reasons, we believe it is important to look past the peaks and valleys. In 2023, active customers placed an average of 3.42 orders, which is 8% higher than in 2019. Also importantly, the average of our cohort net sales retention rates reported over the past four years is 92%, which is higher than our 89% net sales retention rate reported in 2019. Looking at the category performance. While the net sales of dresses, our largest category, was pressured in 2023 after increasing nearly 50% in 2022 and expanding at an even faster rate in 2021. I am excited by our progress in emerging categories. Our emerging areas of beauty, men’s and home collectively increased by more than 20% in 2023, further validating our opportunity to expand our share of wallet and helping to offset the 5% decline in net sales from dresses. We executed very well on a primary goal we set for 2023: to rebalance our inventory for growth and efficiency. Successful execution of this initiative helped to drive a meaningfully higher mix of net sales at full price in the second half of 2023 when compared to how we started the year. This sets us up well entering 2024. And we continue to operate profitably and generate significant cash flow. While we are not satisfied with our adjusted EBITDA margin in 2023, our profitable and cash generative business remains a key competitive advantage. In 2023, we generated $43 million in operating cash flow and $39 million in free cash flow, an increase of 85% and 114%, respectively. Our consistent cash flow generation gives us the capacity to invest throughout the cycle at a time when many peers have no choice but to significantly reduce investment. Our strong cash flow has further strengthened our balance sheet with $245 million in cash at year end 2023, even while investing $31 million in stock repurchases during the year to enhance shareholder value. Our cash position has increased by nearly 4x compared to the $65 million in cash on our balance sheet at year end 2019. Finally, we meaningfully advanced our technology and personalization capabilities during 2023, further elevating the customer experience. Leveraging AI, we significantly improved the recommendation of similar items using visual images, expanding conversion opportunities and further elevating our navigation for customers. Driving continuous improvement in personalization and site navigation is particularly important since we offer a broad assortment of more than 100,000 styles at any given time. I will wrap up with a discussion of our key priorities for 2024, which are aligned with our focus on maximizing value over the long term. First, we will continue to efficiently invest to expand our brand awareness, grow our customer base and strengthen the connection with the next generation consumer. Michael will talk about our brand building initiatives in his remarks. Second, we will continue to build on the successful expansion of our assortment into adjacent product categories. We have earned our customers’ trust through the strength of our brands, platform, product curation and our excellent customer experience. The impressive growth of our beauty and men’s businesses in 2023 validates our ability to tap into this customer loyalty and trust to drive adoption in emerging categories. Third, we remain extremely committed to driving cost efficiencies within our global shipping and logistics operations while maintaining a laser focus on our outstanding customer experience. In 2023, we successfully ramped our newer east coast fulfillment center that brings us closer to many of our customers, which we believe will enable us to realize further cost savings and elevate service levels through shorter shipping distances. Supported by a new AI technology application that strategically optimizes inventory rebalancing between our fulfillment centers to match consumer demand, among many other initiatives, I am confident that in 2024 we will begin to drive efficiencies in our logistics costs year-over-year. Fourth, we will further expand our international presence, where we see exciting opportunities to invest in our customer acquisition and in further elevating service levels to drive growth. We recently launched a new marketing communications channel in Mexico that has helped us to increase consumer engagement and drive even faster new customer growth in what is now our third largest market outside of the U.S. Finally, we will further enhance our technology stack and leverage AI and other technologies across the business to drive growth and efficiency. Michael and I are huge believers in the power of AI. Since day one, we have leveraged our own proprietary technology to run nearly all aspects of our business, delivering capital efficiency that is highlighted by our capital expenditures averaging only 0.6% of our net sales since 2016. We believe our data-driven mindset and culture of technology innovation positions us well to continue to expand the use of AI technology throughout the organization to drive results. To summarize, we have an unwavering focus on driving profitable growth and market share capture in the years ahead. Like many companies, we continue to face a host of challenges in the current environment and we have a lot of work to do. But in contrast to most fashion e-commerce peers, we have a profitable and cash generative business, proven financial discipline, and key competitive advantages that together enable us to confidently invest in the large opportunity ahead of us. I would like to thank our talented and passionate team for their incredible efforts, persistence and innovation that reinforces my confidence in our future. Now, over to Michael. Michael Mente: Thanks, Mike, and hello everyone. As I reflect on 2023, I am proud of our team for overcoming a variety of headwinds to deliver profitability and significant cash flow that further strengthened our balance sheet. We continued to build our brands through innovative and impactful marketing strategies, in the U.S. and overseas. These marketing efforts helped us to increase our active customer base by 9% in 2023, while even further raising the bar on our already outstanding service levels. And customer trust in our brands and delight in our shopping experience helped us to successfully expand into emerging product categories, an exciting long-term opportunity. Most important is that we continue to invest and innovate throughout the company to strengthen our foundation for future growth, which we remain very confident in. I am excited to continue the momentum in these areas this year. Shifting to the industry landscape. Since our third quarter earnings call in November, there has been a lot happening in our space, particularly among luxury e-commerce peers. Two of the larger luxury ecommerce retailers were recently acquired in distressed buyouts and there is another large luxury e-commerce competitor listed as a discontinued operation by its parent company. And as reported by the Wall Street Journal, Business of Fashion and WWD, there have also been reports of luxury retailers not paying their brand partners on time. While these recent industry headlines may worry some investors, we are excited about the opportunity for us to benefit from industry turmoil. For instance, a major luxury brand group has already announced they will no longer sell their products through one of the e-commerce peers I referred to. As a profitable company with consistent cash flow generation and focused on creating value over the long term, we believe we are well positioned to emerge as an even stronger player. Our 20-year history has taught us that periods of market disruption can be a great time for us to invest when some others in the space are forced to retrench. With that as a backdrop, I will focus my remarks on our strategy to leverage our financial strength and position in the market to invest in our brand, acquire customers and gain market share over the long term. With the large market opportunity that we believe lies ahead of us, continuing to invest in our core domestic customer remains our number one priority. A highlight of our fourth quarter was the opening of our brand elevating REVOLVE and FWRD Pop Up shopping experience in Aspen, just in time for the holidays. Launched with a private event hosted by our FWRD Creative Director, Kendall Jenner, we have created something truly special in an aspirational town with a high concentration of wealth. Aspen is also a celebrity hotspot and a nightlife fashion playground where everyone dresses to impress. The REVOLVE and FWRD Pop Up was prominently featured in Vogue’s ranking of the top five designer popups to visit this winter, the only multi-brand retailer featured among iconic luxury brands like Louis Vuitton. And people are visiting and spending while they are there. Foot traffic for the first two months of operation has been impressive, highlighted by appearances from A-listers including Rihanna, Mariah Carey, Lori Harvey, Alessandra Ambrosio, Stella Maxwell, brand partner and snowboarder Shaun White, and featuring experiential events co-hosted by coveted brand partners including Miu Mui, Charlotte Tilbury, Jonathan Simkhai, Rhude, Eterne, and Nour Hammour. Also exciting is that the Pop Up is our first true integration of our highly complementary segments, REVOLVE and FWRD, under the same roof. In addition to the brand integration that is consistent with our growth strategy, consumer demand at the Pop Up is highlighting our opportunity to further expand into adjacent seasonal categories where our brands are not top-of-mind, such as outerwear, and across a broader range of price points, from beauty products at $25 to handbags of nearly $100,000. Most compelling is the customer engagement in our Aspen Pop Up. More than half of all customers at the pop up are entirely new customers to our brands, reinforcing our opportunity to grow our customer base. And our existing customers and fans have been thrilled to experience and interact with our brands in real life. Customers are spending significantly more per transaction in the Aspen pop-up than they typically do online, while returning products at a very small fraction of our typical return rate for products purchased online. So, we are very pleased with the learnings from the pop-up so far. If you are in Aspen in the coming weeks, please stop by and see us. As we look ahead, we have some very exciting plans for further investment in our brands in 2024, including a fresh take on our experiential marketing events that we are known for as well as some impactful partnerships in the works that we will be able to share more details on in the coming months. In addition to the large domestic opportunity, we continue to see a very large opportunity to further expand our share in international markets. In recent months, we have been incredibly active in elevating our brands with aspirational lifestyle events around the globe in key regions including Tokyo, Singapore and the Netherlands, creating brand heat and excitement on social media and press channels coinciding with a solid quarter for international net sales growth in Q4. One reason we chose to activate in Asia during the fourth quarter is that Asia has our largest social media following outside of the U.S. It’s a true testament to the strength of our brands globally, especially considering that we have not yet made significant investments in the region. Drilling into the details by country, China has our second largest social media following after the U.S., underscoring our opportunity for future growth in Asia. For our recent marketing events in Singapore and Tokyo, content creators were beyond excited to work with us in international markets, collectively delivering more content than we expected of them and contributing to the success of our largest-ever marketing event in Asia. Influencers enthusiastically traveled from China, Taiwan, India, Korea, Australia, Vietnam, Malaysia, Philippines, Europe, Canada and the U.S. to participate in our events. Their collective social following exceeds 100 million followers on Instagram on a combined basis. Of note, nearly half of the hundreds of millions of social media impressions generated by our Singapore marketing event were on native Chinese social media platforms including Douyin, Red, Weibo and WeChat. In fact, three of the top Chinese influencers generated 30 million views on Douyin alone. It has become a very important part of our international strategy to expand our presence and awareness on these Chinese social media and e-commerce platforms that have a very powerful influence on Asian consumers. I couldn’t be more pleased with how well our Singapore event delivered against this objective. I’ll close with a discussion of our investment in emerging product categories, an area where we see a great deal of opportunity to both acquire new customers and capture more share of our existing customers’ wallet. Beauty net sales increased 49% year-over-year in the fourth quarter, expanding to 5% of net sales from 3% in the fourth quarter of 2022. Even with such gains year-over-year, 5% of net sales remains well below the double-digit penetration for Beauty net sales that is typical among premium department stores. Contributing to our incredible beauty results was very effective merchandising with the addition of several high impact new beauty brands. Our beauty momentum has remained strong with recent launches of beauty brands including Tarte Cosmetics, Off-White Beauty and Dundas Beauty. I am also excited about our fast-growing Men’s business, supported by an increased marketing focus and merchandise assortment. Men’s has performed extremely well in some key international markets, contributing to our impressive growth in Mexico throughout 2023. While relatively small today, the scale of these areas of business are growing at an attractive rate. Beauty generated $42 million in net sales in 2023, up from just $11 million in 2019. We are targeting for the emerging offerings of Beauty, Men’s and Home to contribute more than $100 million in 2024 on a combined basis. And this expectation does not include contributions from our plan to expand into additional apparel categories this year to further solidify us as the destination for more aspects of our customers’ lives, supported by marketing initiatives to increasingly emphasize newer categories where we see opportunity. In closing, with the strength of our brand, our strong financial position, our fast paced and nimble operating structure, and our innovative, entrepreneurial mindset, we believe we are well positioned to take market share in the years ahead and build a larger and more powerful collection of brands than we have today. We remain incredibly excited about what lies ahead of us this year and for many years beyond. Now, I will turn it over to Jesse for a discussion of the financials. Jesse Timmermans: Thanks, Michael, and hello everyone. I’ll start by recapping our fourth quarter results and then close with updates on recent trends in the business and commentary on our cost structure for 2024. Starting with the fourth quarter results. Net sales were $258 million, a year-over-year decrease of 1%, and a 3-point improvement from our comparison in the third quarter of 2023 as we continue to navigate a challenging environment for consumer discretionary spending, particularly in our luxury segment. REVOLVE segment net sales increased 1% and FWRD segment net sales decreased 10% year-over-year in the fourth quarter. By territory, domestic net sales decreased 2% and international net sales increased 7% year-over-year. Active Customers, which is a trailing 12-month measure, increased by 33,000 customers during the fourth quarter. This growth expanded our active customer count to 2.5 million, an increase of 9% year-over-year. Our customers placed 2.0 million orders in the fourth quarter, an increase of 3% year-over-year. The increase in orders placed was offset by a decrease in average order value, or AOV, of 1% year-over-year to $303, as well as a year-over-year increase in return rate. Shifting to gross profit. Consolidated gross margin was 52.0%, at the high end of our guidance range. The increase of 57 basis points year-over-year primarily reflects a higher mix of net sales at full price and an increased mix of net sales from the higher margin REVOLVE Segment, partially offset by a lower mix of Owned Brand net sales within our REVOLVE Segment compared to the fourth quarter of 2022. The gross profit comparison at the segment level is more favorable at REVOLVE than FWRD, underscoring our great progress in rebalancing the REVOLVE Segment inventory. Moving on to operating expenses. A high-level summary is that much better-than-expected efficiency in selling and distribution expenses in the fourth quarter was largely offset by our general and administrative expenses coming in higher than our outlook. Fulfillment costs were 3.5% of net sales, slightly better than our outlook, and higher year-over-year as expected. Selling and distribution costs were 17.8% of net sales, around 120 basis points more efficient than our fourth quarter outlook, and an increase of 24 basis points year-over-year. Our efforts to drive reductions in our global shipping and logistics costs are starting to become visible on our P&L, partially offset by a higher return rate year-over-year in the fourth quarter. Our marketing investment also came in more favorable than expected, representing 16.4% of net sales, an increase of 104 basis points year-over-year. The increase reflects a planned increase in brand marketing investment and a shift in the timing of events in the fourth quarter of 2023 as compared to the prior year, partially offset by year-over-year efficiency improvements in performance marketing as a percentage of net sales. General and administrative costs were $34.7 million, an increase of 21% year-over-year that included $2.8 million of non-routine import and export fees and an additional $600,000 in costs for the legal matter mentioned last quarter that has now been settled. Our tax rate was 28% in the fourth quarter, up from 24% in the prior year. Net income was $3.5 million, or $0.05 per diluted share. The 56% year-over-year decline in net income primarily reflects our increased marketing investment year-over-year and increased G&A expenses year-over-year. Adjusted EBITDA was $9 million, a decrease of 40% year-over-year. Moving on to the balance sheet and cash flow statement. For the full-year 2023, net cash provided by operating activities was $43 million and free cash flow was $39 million, an increase of 85% and 114% year-over-year, respectively. Contributing to the strong cash flow metrics were improved inventory dynamics, partially offset by lower net income. Inventory at December 31, 2023 was $204 million, a decrease of 5% year-over-year. The year-over-year decline was four points steeper than our net sales decline, demonstrating the important progress we have made in rebalancing our inventory. As of December 31, 2023, cash and cash equivalents were $245 million, an increase of $11 million, or 5% year-over-year, and we had no debt. Since the end of 2019, we have increased our cash balance by $180 million. Our strong financial position enabled us to continue to invest in the business while returning capital to stockholders through the repurchase of Class A common shares as part of our commitment to enhancing shareholder value. During the fourth quarter, we repurchased nearly 1.3 million Class A common shares at an average price of $13.94. Approximately $69 million remained on our $100 million stock repurchase program at year end. Now, let me update you on some recent trends in the business since the fourth quarter ended and provide some direction on our cost structure to help in your modeling of the business for 2024. Starting from the top. The top-line pressure we experienced in the fourth quarter has continued, with net sales through the first eight weeks of 2024 decreasing by a mid-single digit percentage year-over-year. To provide context for our net sales trending for the 8-week period through February 25, remember that in early 2023, we had a much larger assortment of markdown inventory than we do today. Notably, our net sales at full price have increased slightly year-over-year through the first eight weeks of 2024, while our markdown sales have decreased as our inventory today is substantially healthier. With much healthier inventory entering the year, the proportion of our net sales at full price and our gross margin are also much healthier in early 2024 as compared to the same period in 2023. To assist in your modeling of net sales for the full first quarter of 2024, I also want to highlight that our net sales comparison for the upcoming month of March is easier than the year-over-year comparison we faced through the first eight weeks of 2024, consistent with our commentary on our fourth quarter 2022 earnings conference call last February. Consistent with recent performance, net sales comparisons in the REVOLVE segment continued to outperform the FWRD segment year-over-year in early 2024. Lastly, I would like to point out the difficult comparison we face in international markets in the first quarter, as our international net sales increased 16% year-over-year in the first quarter of 2023. Shifting to gross margin. We expect gross margin in the first quarter of 2024 of between 51.4% and 51.9%, implying a nearly two-point increase in gross margin year-over-over compared to the first quarter of 2023. For the full-year 2024, we expect gross margin of between 52.5% and 53.0%, an increase of about 90 basis points year-over-year at the midpoint. Fulfillment: We expect fulfillment as a percentage of net sales of approximately 3.5% for the first quarter of 2024. For the full-year 2024, we expect fulfillment costs of between 3.3% and 3.5% of net sales, approximately flat year-over-year, at the midpoint of the range. Selling and Distribution: We expect selling and distribution costs for the first quarter of 2024 to be approximately 18.1%, which implies our first year-over-year decrease in selling and distribution expense as a percentage of net sales in three years. For the full-year 2024, we expect selling and distribution costs of between 17.8% and 18.0%, an expected decrease of roughly 50 basis points year-over-year at the midpoint of the range, as we continue to realize the efficiency efforts we invested in during 2023. Marketing: We have an active calendar of brand building events in the first quarter, including two impactful events held in Las Vegas around the Super Bowl and dozens of events in Aspen at the REVOLVE and FWRD Pop Up. As a result, we expect marketing in the first quarter of 2024 to be approximately 16.0% of net sales. For the full-year 2024, we expect our marketing investment to represent between 16.0% and 16.2% of net sales, consistent with our marketing investment of 16.1% of net sales in 2023. In terms of sequencing, in 2024, we expect marketing as a percentage of net sales to be more linear than in recent years, particularly in the second quarter. General and Administrative: We expect G&A expense of approximately $33 million in the first quarter of 2024 and between $130 million and $133 million for the full-year 2024. This implies a 4% year-over-year increase in G&A costs for the full-year 2024, at the midpoint of the guidance range, as we continue to invest in longer term growth initiatives. We expect G&A expense in dollar terms to be fairly steady throughout the year. And lastly, we continue to expect our effective tax rate to be around 24% to 26%, both in the first quarter and in the full-year 2024. To recap, we closed out a challenging year with a solid fourth quarter, highlighted by a return to gross margin expansion year-over-year that we expect will continue in 2024. We also expect to drive efficiencies in our largest operating expense category, selling and distribution costs. And finally, we expect to continue to leverage our financial strength and invest in the attractive long-term opportunity ahead of us. Now, we’ll open it for your questions. See also 20 Countries with the World’s Best Skin and 15 Highest Quality Cheeses in America. Q&A Session Follow Revolve Group Inc. (NYSE:RVLV) Follow Revolve Group Inc. (NYSE:RVLV) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] Your first question comes from the line of Mark Altschwager from Baird. Mark Altschwager: Maybe to start out, I was hoping you could elaborate a bit more on the quarter to date and the positive full price selling trends you’re seeing. I guess just any reads from the festival season early on here, anything you’re going to be doing differently this spring from a marketing perspective that we could watch for? I know you called out the easier comparison, but just wondering any other dynamics beyond that, which you think could drive a sustained positive inflection in the growth rate as we move through spring. And then I had a follow-up on margin. Michael Karanikolas: Yes. So we feel really good about the trends we’re seeing early in the quarter with regards to full price sales. And I think it’s a reflection of all the work we’ve done on the inventory side, REVOLVE in particular, looks quite healthy. FRWD, we still have some work to do, but really promising trends on that side. As we move through the spring, that’s always one of our core seasons. And it’s still a bit early. We haven’t kind of hit that season full on yet, but we’re certainly optimistic we’ll see some better trends on the sales side as we move through the course three months of March and then April and May. Mark Altschwager: And then the selling and distribution, nice progress there, I think, 100 basis points, over 100 basis points better than your plan in the fourth quarter. And I think you’re looking to sustain at or below the 18% for the year. What are the implicit assumptions you’re making there for the trajectory of return rates? And just as we unpack that, I mean, are you able to quantify some of the efficiency savings you’re seeing from some of those more controllable initiatives? Jesse Timmermans: Yes. Thanks, Mark. We probably won’t quantify specifically those initiatives. We put a lot of good work into those in 2023. So it’s great to finally see those coming through in the P&L. But maybe for some of the other assumptions that do impact that line item. AOV, we’re assuming is flat to slightly positive for the year. And in return rate, we are modeling in a flat return rate. So we’re optimistic that we can make gains there, and we’ve got a lot of good things in the works, but we’re not modeling that in at this point. And then I think keep in mind also that Q1 typically has a slightly lower AOV and that’s why you see the, in part where you see the Q1 guidance of 18.1%, a little bit higher than that 18% or kind of that 17% to 18% for the full year. Operator: Your next question comes from the line of Anna Andreeva from Needham. Anna Andreeva: Great. Congrats, guys. Nice results. We had two questions. I wanted to follow-up on the G&A expenses. You mentioned the accrual that you saw in the fourth quarter. But can you talk about what’s driving what looks like double-digit growth in 1Q and also for the year? And also secondly, looking at category performance, great to see beauty and men’s working well. The fashion apparel and dresses continue to decline. So can you talk about what are you doing specifically to improve trends there? Are there fashion trends that you see in apparel as ’24 unfolds that REVOLVE could capitalize on? Jesse Timmermans: Yes, sure. Thanks, Anna. And I’ll take that first one on G&A and then pass it over to Mike and Michael for the second part of that question. Yes. We did have some non-routine items in the quarter. If you pull those out, it was closer to in line with the guidance that we gave. But to your point, that does mean that Q1 is higher than Q4 on G&A. So a couple of things to keep in mind there. One, we make our merit adjustments, our salary increases in January of every year and two-thirds of that line item is people. So there is a sequential increase there. And then also, we do have incentive bonuses, incentive compensation in G&A. And given the results of this past year, bonuses were not accrued to the full amount, obviously. And then in the full year for 2024, we’re starting off in January with the expectation that we meet our targets. So there’s a difference in the accruals for the incentive compensation. Operator: Your next question comes from the line of Edward Yruma from Piper Sandler. Edward Yruma: Just trying to understand a little bit more on the gross margin expansion both for the quarter and for the year. Is it just driven by lower markdowns? Or at this point, are you now assuming that mix, either more dresses or private label as a positive gross margin driver for the balance year. Jesse Timmermans: Yes. Thanks, Ed. So it’s largely the former an increase in that full price sales mix for the year. We did close out 2023 for the full year at 79%, which is in line with 2019. So very healthy. But if you remember in the first part of the year, especially the first half of the year, we are very suboptimal in terms of full price mix. So that’s the largest driver there. And then we continue to make inroads just in kind of the third-party margins in general. We’re not factoring in an increase in owned brand mix for 2024. So that’s not part of it. And then forward Revolve mix always has an impact. And based on the results today, as we commented, we’re seeing REVOLVE outpace FWRD, which — and REVOLVE carries a higher margin than that FWRD segment. Operator: Your next question comes from the line of Michael Binetti from Evercore ISI. Michael Binetti : A couple for me. I guess on the — in the U.S., you talked a lot in the — well, you talked about in the prepared remarks about international. How are you thinking about plans to grow the U.S. in 2024? Just curious your thought there on how to get back to positive. And then on the pop-up store, you guys have been fairly dogmatic about sticking to e-commerce only. And certainly, there’s a lot of advantages to staying there — your core channel, you have a lot of compounded excellence there. But when you see the turnout that you spoke of at these pop-up stores, the sales metrics, the new customer connections may be a way to extend the efforts you’ve made to make points of shipment and points of product returns closer to the consumer. It seems like there could be some inches that you could scratch. Is there like a potential for this business to have a small fleet of high-impact stores or key cities strategy on stores at some point? Michael Karanikolas: Yes, definitely. So as we think about — just taking the first part of your question, as we think about growth for 2024, for us, it’s just about continuing to invest in the things that make sense, continue to invest on the brand side, make sure we nail the merchandising mix and the position with the consumer. And I think with a much healthier inventory position, particularly on the REVOLVE side, we’re well positioned to do that. Certainly, it’s been a bit frustrating the past 18 months, not seeing the growth we’re accustomed to. But the market opportunity remains huge. We have very low penetration in our target customer base. Also, just kind of touch on — the store thing as it relates to the growth opportunity, the fact that over half of the customers we saw at the pop-up store were new customers, again, I think, validates that opportunity to a lot more share to take, all the category expansion we’re doing. So we think that the potential is quite huge. And obviously, we need to execute well to make sure we’re seizing it at the appropriate pace, and we’re hopeful that things will start to turn as we progress through the year. And then as we think about physical stores, we have always felt like REVOLVE has an incredibly strong brand. And we also feel like physical stores aren’t going anywhere. We’ll have to see where the ultimate balance of physical versus digital ends up. But physical in our view will always be an important channel. And so yes, I think that is an exciting opportunity for us. We’re not going to go after it just to chase share. If we go after it, we’re going to make sure we’re doing it in the right way, in a profitable way. I think as you mentioned, there’s a lot of upside opportunities with it, particularly for our business, which has such a high return rate. That can be a great traffic driver and help reduce return costs and increase sales from those customers coming in. And then the Aspen store results. And certainly Aspen is a unique location. We’ve had a lot of marketing activities supporting it. So it’s a bit early to extrapolate too much from it. But certainly, at the surface level, the numbers are quite compelling that we see there. So that’s certainly an interesting data point for us and has us thinking more and more of what the potential opportunity there is. And as a result of the traction that we’re seeing, we do anticipate testing out the Aspen location a bit longer than we originally anticipated or as originally anticipated, just as a pure pop-up event we think it’s interesting to consider the potential further than that. Operator: Your next question comes from the line of Kunal Madhukar from UBS. Unidentified Analyst: This is Jason on for Kunal from UBS. I have a couple of questions. The first one is Macy said this morning, they’re closing about 150 stores nationwide. And what’s curious how you guys are digesting this news? At a high level, like as more physical retailers pull back, how much could REVOLVE benefit from it? And I have a follow-up. Michael Karanikolas: Yes. We’ve always said that one of the biggest sources of market share gain out there is a lot of these legacy retailers, particularly kind of the mid and higher end and certainly Macy’s does have stores like that. And the Bloomingdale’s business and some higher end Macy’s stores. I think it’s reflective of the broader department store business that has been seeing share for years. And so for us, I think this is just kind of another data point in an ongoing multiyear trend that should we execute well, it should mean very good things for us. Unidentified Analyst: Got it. The second one is a quick one. Can you help us understand sort of the — how the inventory levels and gross margin would trend for the rest of this year? And in terms of men and beauty, can you help us understand sort of the typical AOV profile for those two categories? Jesse Timmermans: Yes. So on the first one, the inventory and margin trends. I think you can see in the guidance that we gave with the Q1 being 51.4% to 51.9% and then the full year being 52.5% to 53%, we do see sequential improvement throughout the year. There’s also seasonality there. So Q1 is typically lower than, say, Q2 that has a higher ratio of full price. And then inventory, I think in total, we’re excited to be back into moderate growth mode there with bookings being positive year-on-year after a year of correction in 2023. But it is the tale of two cities there with REVOLVE as we’ve commented in much better shape than the FWRD. So we still have some work to do on FWRD, but revolve starting off the year very well. And then you had Men’s and I think Beauty, was it both those Men’s and Beauty? Unidentified Analyst: Kind of the styles there? Men’s and Beauty. Yes. Jesse Timmermans: So beauty is the, I guess, the most different with significantly lower AOV, but with that comes a much lower return rate. So those are the biggest differences between Beauty and kind of the core business. So when you get down to a contribution margin level that puts and takes there relatively balanced out. And then I would say Men’s is closer to the women’s business, a lower return rate on Men’s. And then a slightly different product mix on men’s when you think about that versus a women’s that’s one-third dresses, plus or minus, and then men’s being more kind of shoes and the apparel portion. Operator: Your next question comes from the line of Jim Duffy from Stifel. Jim Duffy: I wanted to focus on return rates for a moment, encouraging to see some sequential improvement in returns. I’m curious, is that seasonality or some of the specific initiatives that you guys have started to put in place? Are you beginning to see some benefits from those? Jesse Timmermans: Yes. Thanks, Jim. Yes, it was good to see that sequential decrease. That said, don’t get too excited about it because there is some seasonality factor there. If you go back to pre-COVID times, there’s typically about a point sequential decline between 3Q and 4Q. We did see a larger sequential decrease than that this quarter, but there’s also a lot of other mixed components and things going on there. But I think it was good to see. I just don’t want to get too far ahead of ourselves. And we are — to the second part of your question there, we are still very optimistic on a lot of the initiatives we have going into that return rate initiative, but not factoring that into the model yet for 2024. Operator: Your next question comes from the line of Rick Patel from Raymond James. Rakesh Patel: Can you talk about the health of the consumer. I’m curious if there are any changes to the way people behave in the fourth quarter relative to earlier in the year as we think about things like trade down, sensitivity to price points and so on and what your underlying assumptions are for how this evolves as you go through ’24? Michael Karanikolas: So in the fourth quarter, we saw some, I’d call it, mildly improving trends on the REVOLVE side. And we’ve talked about in the past how REVOLVE kind of the full price off price ratios are a bit more a function of its own inventory mix and what’s going on in the broader market. But I would say kind of mildly better in the fourth quarter, but I wouldn’t say kind of anything that shows us a clear inflection point. FWRD continues to be challenged and mentioned earlier on the call, some of luxury sector data, and I think particularly multi-brand e-commerce apparel continues to be challenged in the luxury segment. So we haven’t seen the inflection points we’d like there. We feel confident in FWRD’s positioning and confident in its ability to grow over the long term, but the progress has been a little bit slower there than we’d hoped for. Operator: Your next question comes from the line of Simeon Siegel from BMO Capital Markets. Simeon Siegel: Maybe to follow-up on that a little bit. So any way to break apart your active customer performance between REVOLVE and FWRD and maybe the comments about the luxury market dislocation. Just how are you thinking about what the time line should look like for you to see the turn in that business? And maybe both speak to the revenues, which I think you were, but then also the gross margin. Jesse Timmermans: Yes. So on active customers, breaking that out between REVOLVE and FWRD, not exactly, but largely tracks to the revenue performance that we’re seeing, where we’re seeing more activity on the REVOLVE side, more positive activity on the REVOLVE side and then more pressure on the FWRD side. And then also kind of reflective of the revenue mix between domestic and international, more positive activity on international than on the domestic side. So you can kind of generally align sales and the new customer growth there, which then impacts active customers. We do expect the active customer growth number to come down. I think that’s an important note, given that last Q1 and Q1 of 2023, we had a record number of new customers. Now a lot of that growth came from markdown customers, given our mix and the inventory repositioning that we’re going through at that time. So a really good, healthy customer base. The customer activity is healthier than the pre-COVID levels. But there are some near-term dynamics that we’re working through there. And then the second part of your question? Simeon Siegel: Just for — I think, I don’t know, Mike or Michael, you had made the comment that this could be good to the market dislocation amongst the online luxury peers. So just how are you thinking about what the time line or different expectations that you’d expect to see to be able to see that turn. And again, I think that generally speaks to the revenues, but it would be also just helpful to hear your perspective on the gross margin opportunity there. Michael Karanikolas: Yes, we’re certainly hopeful we’ll start to see some inflections in the back half of the year. And we saw some inventory to work through, but we believe the dislocation in the online luxury world should provide meaningful opportunities for us, and we’re getting closer to seeing the kind of inventory trends we want on the FWRD side of the business. So hopefully, we see those margins improve and the sales trends improve in a significant way coming to the back half of the year. Operator: Your next question comes from the line of Janine Stichter from BTIG. Janine Stichter: I understand you’re not planning to own brand penetration to grow this year, at least based on how you’re buying the inventory. I was wondering if you could speak to some of the opportunity there just to retool the own brand mix and maybe fill in some of the gaps in the assortment. And we noticed the Marianna Hewitt at the launch, it feels a bit more casual, more versatile than what we’ve usually seen from the owned brands. Just was hoping you could speak to the strategy there. Michael Mente: Yes. On a high level, it’s kind of like the categories or kind of like the broad categories, dresses, bottoms, that sort of stuff. One lens that we break down and share information, but also internally, we review end use and kind of segmentation even more important. So we’ll see the diversification away from the categories other way, diversification into the zones outside of our historic strength like going out close warm weather. — into areas of the wardrobe, areas of the closet and other — the floors on the department store that we aren’t just top of mind. So Marianna was as a strong zone into kind of a little bit more sophisticated, a little bit more sheet, a little bit more casual or potentially a little bit more modern workplace as well. The health collection, which is going stores also been a lot more casual away from dresses in terms of other aspects of the customers’ lives, and we’ll continue to see more and more diversification knowing that the customer loves us and the customer trusts us. And ultimately, there’s just so much more opportunity to connect with her on different levels of what she needs. Janine Stichter: Great. And then can you just remind us how much higher margin the owned brands are versus the broader assortment? Jesse Timmermans: Yes. We haven’t specifically quantified that other than to say it is meaningfully higher than the third-party. So we just leave it there. But it is an important long-term gross margin driver, especially on the REVOLVE side and then some opportunity longer term on FWRD as well. Operator: Your next question comes from the line of Oliver Chen from TD Cowen. Oliver Chen: You made a lot of progress in rightsizing inventories. How should we think about the modeling of the inventory relative to sales growth going forward and those distinctions? Also, as you think about categories, where were you outperforming or had opportunities for chasing if there were some in terms of outperforming versus underperforming categories? And then finally, you’ve been very creative and proactive with artificial intelligence. Would love your thoughts on how material this may be? It can definitely apply to supply chain and fraud detection, but it can also apply the very creative aspects. How would you help decipher what might actually be needle moving as you engage in that innovation? Jesse Timmermans: Yes. So I’ll take the first couple there, Oliver, and then pass it over. So on the inventory modeling, this quarter we closed with inventory down 5% on net sales down 1%. So an improved gap there from what you’ve been seeing earlier in the year. We do expect that overall gap to close in sales growth, inventory growth to roughly align. And again, just as a reminder, REVOLVE in much better shape. So that positive gap call it, on REVOLVE is much healthier versus FRWD where we still have work to do going into the year. But having — going into the year with healthy full price, healthy margin and back into kind of inventory booking/receipts growth mode, we’re pretty excited about it. And then outperformance versus underperformance, it’s dresses down 5%, apparel down 8% and then offset by really strong growth in handbag, shoes and accessories of plus 7%. And then kind of the highlight was beauty at plus 28%. So that continues to really outperform. But I would say, no significant misses on missing demand or the opposite. We feel like we’re in pretty good shape as we enter the year outside of FWRD. Michael Karanikolas: Yes. And on the artificial intelligence side, it really has the aspect to touch every area of the business. So certainly, it’s already had an impact on all the sort of things that we do. I think more broadly, most aspects of general operations can see some sort of benefit there. In terms of the website experience, there’s a ton of opportunities in terms of personalization and new ways of product discovery in search and kind of browsing the website that we’re actively working on both with third parties and also with our own internal team, which is tremendous. On the buying and planning side, it can assist with those buying and planning decisions, which maybe is a sub-aspect to supply chain, but a little bit more interesting one than warehouse rebalancing. And then to your point on kind of the most creative aspects, right, there’s a ton of potential within imagery. And certainly, there’s a lot of, I think, really exciting examples out there where we’ve all seen the power of what generative AI can do with imagery. Getting it to the point where it’s productionized is something that we’re working on. And by productionized, I mean you can do it consistently in a cost-effective way and in a repeatable way. And that’s something our teams are actively working on. And I have confidence that, that is something that’s going to occur sooner rather than later across the industry, and we certainly hope to be a leader there. And that kind of enables you to do so many more things than you could prior, right, where you can really customize the experience in the imagery to the individual user in terms of what those products looks like because we would hope to be able to kind of customize things and generate a lot more options than we could without the help of artificial intelligence. Oliver Chen: Last follow-up. Performance marketing, it’s been a little more rational, but fairly volatile. What are you assuming for your customer acquisition cost? And anything you’re seeing with keywords and also in light of the dislocation we’re all speaking to? Michael Karanikolas: Yes. So performance marketing is something that we’ve always kind of played quarter-by-quarter with obviously trying to keep things in a certain range in terms of our overall spend as a percentage of sales and then the various internal targets we have in terms of acquisition costs. So I’d say, overall, we’ve seen what I would call a more challenging environment in the past couple of quarters despite the improvement in marketing efficiency that you saw. So hopefully, we start to see things turn there. But for now, I can say, it’s a little bit more challenging environment to be able to deploy the spend that we’d like and the efficiencies that we’d like to see. But that’s always been kind of the case across the years where you have some periods where it’s a little bit tougher and then some periods where opportunity opens up. Operator: Your next question comes from the line of Ashley Owens from KeyBanc Capital Markets......»»
Here’s What’s Driving the Revenue Growth and Profitability of Shopify (SHOP)
RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its “RiverPark Large Growth Fund” fourth quarter 2023 investor letter. A copy of the same can be downloaded here. The Russell 1000 Growth Index (RLG) returned 14.16% and the S&P 500 index returned 11.69% during the fourth quarter of 2023, […] RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its “RiverPark Large Growth Fund” fourth quarter 2023 investor letter. A copy of the same can be downloaded here. The Russell 1000 Growth Index (RLG) returned 14.16% and the S&P 500 index returned 11.69% during the fourth quarter of 2023, indicating a strong performance by the stock markets. RPX yielded a respectable 19.74% return as well. The S&P and RLG had annual returns of 26.29% and 42.68%, respectively. RPX gave back 51.57%. In addition, please check the fund’s top five holdings to know its best picks in 2023. RiverPark Large Growth Fund featured stocks like Shopify Inc. (NYSE:SHOP) in its Q4 2023 investor letter. Headquartered in Ottawa, Canada, Shopify Inc. (NYSE:SHOP) provides a cloud-based commerce platform. On February 23, 2024, Shopify Inc. (NYSE:SHOP) stock closed at $76.24 per share. One-month return of Shopify Inc. (NYSE:SHOP) was -8.74%, and its shares gained 88.34% of their value over the last 52 weeks. Shopify Inc. (NYSE:SHOP) has a market capitalization of $98.135 billion. RiverPark Large Growth Fund stated the following regarding Shopify Inc. (NYSE:SHOP) in its fourth quarter 2023 investor letter: “Shopify Inc. (NYSE:SHOP): Shopify shares were our top performer in the quarter following a strong 3Q earnings report that included better than expected revenue growth and substantial margin expansion. We wrote in October, after Shopify was our worst performer, that the stock had been volatile, despite the fact that the company’s underlying business has been “steadily improving following a post-Covid e-Commerce slowdown.” The most recent quarter, reported in early November, was a continuation of this steady recovery. Revenue growth of 25% was 3 percentage points better than investors expected and an acceleration over last year’s 3Q growth of 22%. More impressively, SHOP reported operating income margins of 16%, 600 basis points ahead of investor expectations. Free cash flow margins were also 16%, and the company guided 4Q free cash flow margins to the “high teens.” A combination of new merchants to the company’s platform, increased adoption of SHOP’s offerings by existing merchants, and e-commerce market share gains (SHOP merchants US sales on Black Friday grew 24% year over year vs US E-commerce in aggregate growing 7.5%) are driving this revenue growth and profitability. Last year, 10% of US retail e-commerce sales flowed through SHOP, second only to Amazon, and the company is still enjoying significant tailwinds as retail merchants of all sizes adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services, such as its digital wallet Shop Pay, should continue to drive revenue growth of more than 20% per year over the next several years, accompanied by re-acceleration of operating margin growth and FCF generation.” A customer service desk staff helping a customer with ecommerce services. Shopify Inc. (NYSE:SHOP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Shopify Inc. (NYSE:SHOP) was held by 68 hedge fund portfolios, down from 69 in the previous quarter, according to our database. We discussed Shopify Inc. (NYSE:SHOP) in another article and shared Baron Fifth Avenue Growth Fund’s views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors. Suggested Articles: 20 Highest Quality Skincare Brands in 2024 15 Best Family Vacations on a Budget for $5000 14 High Growth Consumer Stocks to Buy Disclosure: None. This article is originally published at Insider Monkey......»»