1847 Goedeker, Inc. (NYSE:GOED) Q4 2021 Earnings Conference Call March 31, 2022 8:00 AM ET
Company Participants
Albert Fouerti – CEO
Maria Johnson – CFO
Conference Call Participants
Ryan Meyers – Lake Street
Adam Wilk – Greystone Capital Management
Peter Rabover – Artko
Operator
Good morning, and welcome to 1847 Goedeker Fourth Quarter and Full Year 2021 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions]
On the call today are Chief Executive Officer, Albert Fouerti and Chief Financial Officer, Maria Johnson.
First, please note that various remarks about future expectations, plans and prospects constitute forward-looking statements for the purposes of safe harbor provisions under the Private Securities Litigation Reform act of 1995. The company cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated, including the risks described in the company’s filings with the SEC.
Any forward-looking statements made on this conference call speak only as of today’s date on March 31, 2022, and the company assumes no obligation to update any of these forward-looking statements to reflect events or circumstances that occur after today. Second, we had a few special items in our fourth quarter results which we excluded from our trends for non-GAAP purposes, and we will reference these non-GAAP results in our remarks today. So please see our press release from this morning in our Investor Relations website for more information and our cautionary statement, which cover these topics in more detail. A replay of the conference call will be available on the 1847 Goedeker Investor Relations website this week.
At this time, I’ll turn the call over to Albert Fouerti for opening comments. Please go ahead, Mr. Fouerti.
Albert Fouerti
Good morning, and thank you for joining today’s call. Before getting into our results for the fourth quarter and the full year, I want to take a moment to reflect the past year. 2021 was a year of transformation for Goedeker and Appliances Connection. Through our June 2021 acquisition of Appliances Connection, we have evolved into a growth-oriented e-commerce platform, offering an expansive selection of household appliances throughout the United States.
When I became a CEO of the combined entity in September of last year, I knew we had our work cut out for us, and there would be both challenges and rewarding moments on the road ahead. I think that sums up the last couple of quarters. We encountered some unprecedented issues while still managing to rapidly grow in a profitable manner.
On my first official earnings call as a CEO, I lead a set of strategic initiatives developed along with the Board that should solify our foundation for long-term growth. We have made a meaningful progress on many of these initiatives and look forward to further executing in 2022. First, we have made a significant stride overhauling our leadership team with several key hires as well announcing the recent departure of senior leaders from the legacy Goedeker business. We have added new executives with decades of experience in supply chain, distribution, logistics, and home delivery, e-commerce, marketing and merchandising. These individuals are aligned with our mission and long-term vision and share our belief that we can take this business to the next level.
Moving forward, recruiting top-tier talent at all levels remain a major priority. Second, we created even deeper relationships with our customers in 2021. We experienced more than 30 million annual website visits compared to 10 million site visits in 2020, made over 450,000 white glove deliveries and now have over 670,000 product reviews and expert have used on the website. This resulted in a 53% customer retention rate.
Third, we have made progress in the early stages of our fulfilment network expansion. We have identified the geographic areas we want to be in to get closer to the customer and further penetrate markets that are experiencing the highest levels of housing development and home remodeling, although we currently are holding off on entering into agreements due to inventory and the supply chain issues we expect to add at least two new fulfilment centers over the next year.
Fourth, we are on track to announce our new name and brand ethos in the first half of this fiscal year. This will align with our vision to become a home and appliance platform that empowers customers throughout the purchasing journey from inspiration to installation. We are in the process of enhancing the content and resources available on our website that will ultimately help us create a meaningful relationship with our customers.
Lastly, we have made some early progress in our B2B solution offering. We have $20 million plus of new B2B project in the pipeline. As of Q1, and we are working to build on this pipeline throughout the remainder of the year. We expect that these will be longer-term projects that may take 6 to 18 months to come to fruition, but we believe this pipeline will materialize into significant B2B revenue growth in 2023.
Additionally, on the B2B front, we rolled out build the Pro, Plus and design Pro Plus, which are interactive platforms on our website that enable designers and builders to conveniently build projects, price and purchase in one place. While I am proud of these milestones, they did not come without the set of challenges we have to navigate, including unprecedented supply chain headwinds that created inventory issues throughout the industry. Growing pains related to becoming a large company, including combining the Appliances Connection operations and other internal processes to the Goedeker businesses; transitioning the company to Appliances Connection platform from Goedeker’s, legacy system, which did not seamlessly plug in. Outstanding bills from the legacy Goedeker business that were settled in Q4, a leadership transition announced in late August. Public concern conveyed by certain shareholders, which ultimately led to management to refocus the company and an ongoing reassessment of our capital structure following shareholder feedback.
I would like to take a moment to address the last topic specifically. As you know, we announced that a share repurchase program have been approved by the Board in December. Following the announcement, we were restricted by blackout periods during the first quarter. However, the share repurchase remains top of mind for the management and the Board. While 2021 was certainly a year of challenges and transition, we were encouraged by the progress we have made, and we are looking forward to what we could accomplish in 2021. Our strong sales growth and positive EBITDA in the fiscal year 2021 represents a solid foundation that we could build on.
I will now conclude my initial remarks and turn it over to Maria Johnson to provide an overview of financial performance.
Maria Johnson
Thanks, Albert. Good morning, everybody. Net product sales for the quarter were $142.7 million, compared to $107.3 million pro forma sales for the fourth quarter 2020. Pro forma net sales for the full year were $541.7 million, compared to $367.7 million in 2020. Our full year sales came in on the high end of our previously stated guidance.
Gross profit for the quarter was $32.6 million and our margin was 23%. Pro forma gross profit for the year was $126 million with a 23.3% margin compared to $72.5 million with a 19.7% margin in 2020. Our gross margins also came in within our previously stated guidance.
Operating expenses for the quarter were approximately $26.2 million, with the largest expense items being general and administrative expenses of $7 million, which included several hundreds of thousands in outstanding build for the legacy Goedeker business that was settled in Q4, personnel costs of $6.3 million, bank and credit card fees of $6.1 million and advertising expense of $4.2 million.
Net income for the quarter was $3.8 million or $0.03 per diluted common share compared to a loss of $6.9 million or a loss of $0.07 per diluted common share for the fourth quarter 2020. For the full year, net income was $28 million or $0.17 per diluted common share, compared to a net loss of $11.2 million or a loss of $0.11 per diluted common share for fiscal year 2020.
Adjusted EBITDA for the quarter was $11.3 million with a margin of 8% and full year pro forma adjusted EBITDA was $48.7 million with a 9% margin. As of the end of 2021, the company had working capital of $16 million and incurred negative cash flow from operations of $18.3 million, which includes $34 million paid in refunds from cancellations for the legacy Goedeker business as we work to transition that business to the credit card authorization model.
Additionally, the company had cash and cash equivalents of $25.7 million at the end of the quarter, roughly flat to the prior year quarter.
With respect to our outlook, the combination of sustained supply chain disruptions, significant inflation and geopolitical uncertainty will impact us in 2022. We are still forecasting high teens to low 20 sales growth for the year and gross margins and adjusted EBITDA relatively flat to our 2021 results. We hope to would be able to refine our outlook over the course of the year is macroeconomic headwinds.
Now I will hand the presentation back to Albert for closing comments. Albert?
Albert Fouerti
Thank you, Maria. While we were able to hit our previously stated sales and gross margin guidance for the fiscal year of 2021, we feel strongly that this was a year of transition. In the early stages of our foundation building phase, we believe that 2022 will be a year to start making more meaningful progress on our key priorities that will drive growth, and we have already began to execute on these. As I highlighted in my opening remarks, with respect to margin, tight supply remained as a significant obstacle in the fourth quarter and generally throughout the year. As the supply chain improves, we expect to experience the benefit of rebates and promotional pricing through our vendor relationships. That, along our planned fulfilment network expansion will likely create some long-term margin expansion. We believe that by remaining focused on the following priorities, we will be able to pursue sustainable growth on undisputed category leadership, continuously improving our digital staff; employee targeted marketing delivering great content and value, providing fast, reliable shipping, offering expansive selection and sustaining expert customer care. I still believe, we are on the path to becoming a company with $1 billion in annual sales in the coming years.
I’ll conclude there. And at this time, I’ll ask the operator to open the call for any questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question will come from Ryan Meyers with Lake Street. You may now go ahead.
Ryan Meyers
The first question for me, I just wanted to dive into the guidance a little bit. So the high teens to low 20s growth number, is this growth over the $541 million pro forma number or the $362 million reported number?
Maria Johnson
Ryan, it is over the $541 million pro forma number. So we are expecting strong growth in 2022 definitely it’s not going to be as high as this year but still in high teens, low 20s.
Ryan Meyers
Okay. No, that’s good to hear. And then as a follow-up to that, just kind of — can you unpack the growth number a little bit and see a lot of this coming from price or volume? Or is it kind of a combination of both?
Albert Fouerti
So Ryan, this is — good morning. It’s Albert. We’re continuing on the same path that we’ve been doing for the past, I would say, 10 years. There’s a lot of organic growth in the company, and that’s what we’re focused on continuing our organic growth and continue on working on home fulfilment, delivery upgrading our infrastructure. So it’s still from the organic growth that we had in the pipeline from before.
Ryan Meyers
Okay. That makes sense. And then can you just give us an update on order fill rates and kind of how they track during the quarter and what you guys are sort of seeing here in the first half of 2022?
Albert Fouerti
Yes. So unfortunately, there was a huge impact and continued to be an impact in Q4, I would say, of 2021. Our fill rate went down and there was some impact on the fill rate. The auto-manufacturers having same struggles, some manufacturers that we add in terms of end of 2023, and that’s where we were a little bit saying that the growth is going to be limited because of the supply chain issue. But we are working on enhancing that. Obviously, as you guys saw in the last quarter, we’re continuing and enhancing on our inventory, upgrading our infrastructure fulfilment. We added a couple of more warehouses here in the New York market extended our size of the warehouse more inventory.
But the challenges are still there for 2022. Some categories are still not as good as they’re supposed to be. So our fill rate did go back down to 60s at some point going down to about 50% fill rate. So it is a tough challenge, but we are hopefully seeing some light done in the next I would say, Q2 or Q3 of 2022.
Operator
Our next question will come from Adam Wilk with Greystone Capital Management. You may now go ahead.
Adam Wilk
I just wanted to ask about sort of the guide for fiscal year ’22. On the EBITDA margin line, your commentary basically outlined for flat EBITDA margins, but your commentary about the state of the world and your business being affected in a number of ways, would maybe point to that not being the case. I’m wondering kind of where you might — you feel like you might be hit next year from a — or excuse me, this year from a cost perspective or if that’s just kind of along the lines of being conservative?
Maria Johnson
Yes. I think we are saying that in 2022, we do have some headwinds, but we are going to try to continue reducing our cost structure, continue working on streamlining our operations, and hopefully, even though we do have some challenges in 2022, we should be able to maintain both gross margin and EBITDA exactly the same level as 2021.
Adam Wilk
Okay. That’s helpful. And then on the fulfilment center agreements or the efforts in that area, I’m wondering maybe if you can dig into a little bit the timing between signing an agreement and getting everything sort of fully operational. And along those lines, if that’s a situation where maybe you wouldn’t benefit from open and fulfilment centers immediately versus kind of waiting it out. Is that kind of commentary internally about maybe seeing where things shake out with the consumer on the demand side? Or could you maybe help me understand why you kind of wouldn’t be pressing the gas in that area?
Albert Fouerti
Sure. We need to have the correct inventory at the correct locations and enough of it to service that market. And transitioning — finding a lease, obviously, now as you guys know, the lease market or the pricing has been sky rocket in the past couple of months, I would say. But it’s not the issue, the issue is we want to make sure that we have enough inventory to fulfil that particular area in that particular product with the correct inventory right now, for us, it’s literally just changing the PO address where you want to deliver it to — if you deliver them to New Jersey, you could move them to Florida. That’s not the major issue.
A major issue you want to have an operation that’s cost effective. You don’t want to open up a warehouse. It has 20 to 30 people. The high lows machinery, that’s not that big of a deal for us to have the personnel to get it up and running. That’s usually about three months but having enough inventory, having enough orders to make that warehouse cost effective, is what’s our key to it, routing the inventory to have an equivalent amount of inventory down in Jersey or Florida or California or Texas, is not a big issue. All we have to do is just upgrade and segregate the inventory according to the locations. But we want to make sure that we have a streamline of that inventory and that sporadic type of inventory, and that’s what it is right now. Replace a PO six months ago, sometimes literally a year ago and it comes all at once or you get a few of them at a time. The manufacturers don’t have real DTAs or real expectation. We need to have real expectations really so we can route the inventory correctly.
Adam Wilk
Okay. Great. That’s helpful. And then last one, just to reiterate, you — would it be fair to say you will be starting your buyback program as soon as possible for the year?
Albert Fouerti
Assuming that were blackout periods or — yes, allows us to do it.
Operator
[Operator Instructions] Our next question will come from Peter Rabover with Artko Capital. You may now go ahead.
Peter Rabover
So I just wanted to make a comment that your press release did say that your growth guidance is off the actual results. So I would encourage you to put out an 8-K correcting that to their pro forma results because I’m sure there will be some confusion in the market this morning. So I guess that’s the first comment.
I guess I wanted — I had two bigger kind of questions. One is I was hoping that you guys would discuss sort of your long-term capital structure goals and how you plan to get there? And obviously, there’s a lot of dilution with the warrants. And I mean anything you can talk to us other than the share buyback, that would be — and maybe your, I guess, capital allocation strategy and how you think about it in general would be great.
Albert Fouerti
To your point, as you are aware of our stock buyback program already, but to be honest with you, we’re not in a position right now to comment to speculate, but we don’t really have any tariff guaranteed action so far, but it is a minor management and the Board, and we’ll continue focusing on creating a structure for the company.
Peter Rabover
Okay. I appreciate that. I guess my second question was more your growth this year teens to 20%. I was curious whether you have the ability to kind of parse that out between your, I guess, economic growth versus e-commerce taking a bigger share from the existing — from the retail market? And so how that dynamic is playing out, whether — what you’re seeing in terms of market share from e-commerce in general?
Albert Fouerti
Sure. Great question. So to your point, this is a very fragmented business. And we know that — we’ve known that for quite a while, and that’s why we entered this market. So we know where we don’t have to, right? There’s a lot of independent retailers. We know that they’re not going to last for too long, especially with this economic environment that’s happening right now. They don’t have the platform, the structure and the websites and they’re absolutely type of businesses. And we know that’s an ever-changing business. It’s not going to last in it’s not sustainable type of business.
And that’s really where we focused on in the beginning, and that’s why we entered the business, we understood the business, and we’re going to continue focusing on that aspect of it. And that’s where we see a lot of organic growth; we’re going to capture a lot of fragmented dealers that’s out there in the market that are going to be in that market. We’re going to be able to service the market a lot better, a lot more efficient and have real good long-term continuous relationship with our customers, and that’s how we retain a lot of our customers. We give them and provide them a differentiated experience and they’re going to get from anywhere else out there.
Operator
This concludes our Q&A session as well as the conference. Thank you for attending today’s presentation. You may now disconnect.
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