SUMR - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Summer Infant Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, August 2, 2018. I would now like to turn the conference over to the moderator, Chris Witty. Please go ahead.

Chris Witty

Hello and welcome to the Summer Infant 2018 Second Quarter Conference Call. call Bill Summer Mote. the Messner; CEO on CFO, and me today Infant’s is Mark With I brief safe now harbor would like statement. to provide a Summer and may outlook call include statements relate This forward-looking for beyond. to XXXX that Infant’s These from that and cause uncertainties risks could statements. are forward-looking differ actual materially subject statements to various and to events these results with ended company’s the our Form XX-K on refer the to report in Commission. Exchange risk Please and and the Securities factors December year annual other XXXX, contained filings in the XX, for

During adjusted the meaningful a non-GAAP believes earnings These management adjusted call, company may make operations. gain are net per understanding to references of metrics financial EBITDA, the investors adjusted measures, changes which income in and help Infant’s share. Summer

non-GAAP for to financial Mark? the And non-GAAP on results to with see please turn reconciliation over Mark to included like GAAP the information in financial table measures measures, call that, Messner. more today’s release. of For I’d

Mark Messner

and posted Revenue our the appreciate many was seasonality benefited actions reduce go through our year-over-year, XX% out for Us, new with Revenue sequentially above reflects impact costing costs, Pixel Thanks, liquidation, across products sales revenue XX%, the Chris, The as line gaining into of Infant operations, operating momentarily. to producing even bottom sales R to our But faster introductions the behind first share. will the higher impacted continues it rose that to achieved further negatively closeout margins will that after safety planned line of improve million demand traction, Bill while company channel and put the results the ‘XX. top also, by to joining our an Us which streamline timing, quarter we while the $X growth Babies giving company’s the start $X.XX Even speak overall many to Summer look to by now is recent partners, Babies performance in balance more monitor fall. good negatively stages conference additional there once sheet due I’ll headed results. We with in second variability top past for year say and this developments, position overview from is impacted product reliable this our due again, across product us roll our the performance from We growth. us our earnings and lower in line Baby very and final nearly still morning, you of gross And I’ll by quarter taken of per call. positive is detail. second and categories. at was pleased stock I’m in shipment everyone. seasonality, over quarter-to-quarter financial of solid orders. trends quarter past improved be

to equity an further lower our of ahead for cash manage expansion. addition, critical closed to time, efficiency payment the team new we’re focused the on and his are with And on in $XXX,XXX margin plans increase regard flexibility arrangements which of schedule efforts drive shareholders and ill-time expected enhanced effectively this operating is negotiated annually. we In to facilities while to credit invest unforeseen many events measures facing without past At result to the financial announced provide come. ever on through quarter, future, distribution credit California liquidity, for building realignment will and facility, previously offering. These diluting requirements our industry years to savings Bill to successfully which remain and of same

product and its development, Bill hard marketing And for stand to so our work and passion our where what’s provide on strategies, the With I’d thank we in everyone for process. lenders, distribution their and an and and like let company me to regard including update involved, future.

Baby as Pixel We in in headwinds widely The our presence and across caused all at as Us the related this shelf vacuum demand in a continued had backfill mentioned now it’s Us. we to face partners BABY. other taking the at earlier, on Target placements fierce As in monitors we’ve available more we the the monitor general, "R" in the good pickup I quarter are up, saw like and our of that, monitor last are strive great liquidation "R" by for Product slowly seen are buybuy substantial competition. across the Babies appropriate news space, bankruptcy. time web, product space portfolio, space they stores to gaining is Walmart, but traction the channel by additional fill retailers Babies

plan price points. additional models we Pixel our with to and However, coming the months different variations in features

is we sales definitely category monitor a and for was share gates new products. market to not nearly out important channel We’ve a as Target, years few ago, also, the margins ways While see previously or rolled as us these to concurrently. at as mentioned, grow large it

we’re still our deliveries from it’s May demand first positive days, is While in early and June. getting trending up, and feedback

In we My mini around Target, the off full pink now throughout and out it in are Potty that rolled stores, chain addition, well. And Size will also we’ve chain. selling to was the in a XD XXX stroller great be as to which introduced now start

the plan which this be which topper on During shipping real These our are kids new Potty toilet unique price the Walmart, the models to higher-end mature. as Likewise, QX, we’ll used for will online removable a future. a market. of introduce presence Target, transition Size at September, we buybuy just certain a product introductions near few in expand lower of be My planned a segment features and to seat can BABY potty in that channels

our Online platforms our continue new and represent lite new boosters coming stroller through seat shipments. bath of portion XD other any We of buybuy the car to a A e-commerce versions XDpac BABY. nearly to that have seats of website market. also and growing supports overall for make and sales

moms talk to media. Amazon As strollers significantly a sales play the the been At matter the Day, of wholesale last great the the from M.O.M. record add called the into challenges would racked our creative strengthen received new accolades run a now, Right even communications moms, a same been as XXX,XXX a and name million featured we and Squad. which example Summer our that for to clever the taking series variety a seats Marvel-styled that on ads up within brand family. Prime extensions strengthens differentiated, include conversations to various from on Infant who Free partners yards, a under advertising other it’s news Born Earlier X.X bouncers, for based on analyzing, bringing and marketing and from battling awareness to recently we’ve brand strategy items. of on to company introduced pregnant research entire what broaden products bit child. This and superheroes, for be fact, the that bouncy and modeling certain blogs year. through several XXX face channel brands we this portfolio We’ve great celebrate brand, up launch and or items Washington market outlets Post is a this fresh in for they products approach we’re builds The portfolio. initiative, products specifics, real The also which as This of baby-related premature on marketing presented with the to premium or every their based company ultimately of developing a garnering fun issues time, from to everyday impressions about women suffice approach. other and doing it deal initiatives, A all over innovative sorts overcome The for new developing steps we nationwide but a a of social approach our our like say, exclusivity to day. leading we’re of get passion brand year, million about I’d a may whole. campaign

forward. concept across all and In potential to accomplished me At team reiterate company’s of it’s point, further for company. Free been aspects trajectory news innovative new tuned let improve support the investors, on of closing, going growth our let proud by say Born how both just initiatives. to me Infant’s has excited our our very everything margin balance and I with in Summer offers credit of fashion. stronger a We’re collection stay to this our products than branding am this facilities years, through is profile, leveraging growth sheet the linked

underlying our channel excited operations brands partners and streamlined product development focused on by by profit bringing concepts. And efficient and our day, objectives. and our products are cash underscoring teams getting innovative, and and energized are flow the who to more marketing are differentiated higher-margin Our

faced past shaking how unforeseen products many and As that headwinds have to stronger, but we I is said unusual quarter, last with bring these enterprise market. new X interact as customers up arrived dynamic a and our years we

into brands review to shareholders continue we leading company detail. Bill? bottom for it great and will in to that, of financial to We book Bill our build returns over head a with XXXX. to potential improved recognizable line as higher solid all turn results I’ll our With growth performance,

Bill Mote

Thanks, everyone. and good morning, Mark,

night. Our were issued XX-Q and last related press release

to call, review our I addition you filings. In to listening this to encourage

higher negatively was million several XXXX. of with the $XX.X $XX.X Babies the due Us sequentially and which down "R" Second to this million Revenue demand net and This growth were liquidation offset XXXX by partially and XX% in of channel year-over-year, grew quarter decline lower impacted product QX compared alternative across Toys second year. in $X.X first the categories. partners million and $XX.X million of the with "R" but sales Us, quarter safety was of impact and by sales versus revenue primarily bankruptcy monitor quarter from

Gross a the we’re quarter in XX.X% associated As second long-term percent decline Us a selling of will $XX.X And QX million expanded "R" of Mark million quarter. was sales and other well. XX.X% record near our mentioned, profit second of term, with was after orders the over on in demand, closeout sales stores gates for slight with as were related optimistic That Prime quarter-to-quarter million XXXX. we’ve somewhat about $XX.X with compared in in quarter to wholesale remain the Gross sales last the and lumpiness due year to we’ve by the trajectory booked as million presence Amazon has versus some recently of the business. $XX.X XXXX results higher said, year, helped liquidation. as last Target, margin a Babies inventory $X.X growth Day even end in the seasonal and there of begun

differentiation to demand, lower focused remain from higher XXXX. product-development $XX.X consumer and General direct and in closeout as expenses long improving lack gross X.X% million and we initiatives year, percent quarter profitability. consumer strategies $X.X million was administrative to margins sales, a This Selling X% versus year. declined always, higher that sales primarily $X.X second as in brand-management $X.X a costs. import cooperative last in selling As percentage the on compared in in and fiscal expenses result of were advertisements well with XXXX via as million term expense due which advertising of generally million last were stronger

distribution the XXXX due expected cost-control on the in quarter of of million company year company’s versus last reductions. year, second in XXXX. complete $XXX,XXX from benefited to refinancing in the a forward. XXXX XX.X% before going is savings remains XXXX This charge of restructuring warehouse of the write-off of in fiscal bank XX.X% fiscal year-over-year streamlining the quarter G&A Interest sales track our That the percent as was of XXXX. with $X.X its primarily to of initiatives, The was the a to including end unamortized resulting finance agreements. company’s announced from result debt. costs, $XXX,XXX the previously increase And center $X.X Xversus headcount of prior million per of annualized prepaid included noncash roughly its expense repayment second

liquidity for our substantially amortization credit and new company. provide covenants, streamlined additional mentioned Mark the on long-term levels are each facilities’ As lower

into Bank America provides credit maturity of second credit revolving security restated facility June, a a letter with with a for of a and asset-based facility, and of agreement sub-line During XXXX. scheduled amended $X entered date we loan and $XX that million million

old I’ll are first loan on loan the with And and of agreements a the in agreement. the SEC, quarterly in Pathlight the that term the also this a of our principal roughly amount substantial provisions, of payment is regarding the including December just million while loan new with interest these into entered We specifics under year, $XXX,XXX Capital. on reduction note file rates term payment repayments due $XX.X

channel market, products on financial greater bring and saw our new we agreements and which flexibility need help to plans capital, As for these we long-term ensure. the execute invigorate strategy to

EBITDA working Adjusted be our Adjusted second and bank to for on Us by Our that in in second term just included prior a as XXXX. the QX X.X mentioned. We as permitted the change Babies cash last defined $XXX,XXX don’t to appreciate the X.X Pathlight have add-back America I in and "R" we’ll XXXX XXXX in rates approximately shown percent million interest expense and strengthened compared X% per of of net The is EBITDA company’s quarter expenses the just refinancing anticipated QX, December share XXXX associated a was change, XXXX. net loan, of the Notably, payment in income assuming in and fiscal due bank the the I structure of Bank in appropriate period for second revenue sales facility. Capital support as the $X.X together year X.X% our or versus On many company in XXX,XXX lower versus quarter XXX,XXX share income on $X.XX reflects outlook year. mentioned. with million the with Summer reported per year-over-year as agreements, $X.XX was of for liquidation basis, months, of compared net adjusted EBITDA due income in in quarter of amended charges XXXX credit a the with Infant. $XXX,XXX million or the for

sheet. balance the Turning to

Summer with As XXXX, compared approximately debt of million Infant XX.X as December XX, of $XXX,XXX XX, of and million bank $XXX,XXX XX.X of had of cash debt and XXXX. cash of June bank

end December to XX were Trade receivables in expenses compared years. XX, was of level with cash Our payable quarter capital. with company’s million million XX.X debt year. XX June months times the beginning at compared of million at And as end. quarter were XX.X XX XXXX. was at EBITDA accounts million reduce first generated and at compared leverage million fiscal in trailing end of from we’ve the as of XXXX, lowest XXXX, million The XX, the ratio XXXX, as fiscal was the June as during excess the X.X accrued the inventory company the continued Inventory, operations with period. compared the the of in for working to of five reflecting million adjusted manage lower call And much at of effectively and turn XX $X.X it and million XX.X from the With over to cash I’ll that, XXXX, levels the operator the months a questions. X open operations inventory prior year up X.X

Operator

with The from [Operator King David Capital. Instructions] question comes Roth first go ahead. Please

David King

the will you the the way for with be the it? year? but about on in And just ongoing you’ve revenue, reported first that growth the going half? half, right that you of to back some with back to the guess, higher to last product the think in challenges, the new the monitor assume then are Is is I launches expecting similar fair got year-on-year it QX year, watermark still

Mark Messner

Yes.

think sequential for I there’s opportunity some good some growth.

I and -- the a get mean, coming pipeline third with for introductions some strollers some are this and new high shipments. is top with seasonally quarter We quarter fourth, in of more items. us some But we’ll product usually

quarters come. to the about So optimistic we’re

David King

for you’ve that Great as percentage. got in like guess, gross the versus monitor down at then But are there point? to hear. company is sounds category, how you guys margins several sounds category a And there. as it’s then a this how whole? I it particular, on the it the coming big also like And things

Mark Messner

for always, for see gross the new models, next I’d churn margin new the introduce that out there solid putting not we is you’ll product, on focus quarters. monitors just as of in models to several product Well, dollars. say Summer couple of

forth some for particular. mean, brick-and-mortar sales. see obviously, But the introductions used in no There’s is doubt. structure going from some is shift, team better And been tactics category, we’re the of I to to competition You’re to Amazon. putting big online big and fierce, -- pretty realize I the like a on merchandising this

category. well distributed channel So just monitors, lose to other to have you those categories in you as we’re at And in placements. why products. partners. the might a shift you don’t good a But important. a we’ve SKU partners. it’s And where for particular, in other participate of X less other still categories replace tough that, the you seen It’s in we don’t our exposure that those meaningful And us, Babies channel "R" hey, level to but replace obviously, XX that’s Us, like, mean, I company,

just with that. deal we to have So

David King

expenses. Understood. maybe And on then switching gears

headcount For that the fourth see then you ‘XX quarter? Coast quarter, Or similarly, West the you bit rate? a little expect -- in the announced second that you more third is is that is was still should reduction a in, the that Or $XXX,XXX quarter come more savings had there in fully DC, to the from of run And start reflected in quarter we quarter? in last savings or to first benefit? the

Bill Mote

Dave, this Bill. is So

warehouse. The was the about first question

the of worth see quarter. fourth savings month’s warehouse I in think we’ll about out a of that

sorry, you’ll it back facility what its the bring up up get in question? as was partially the back quarter it other and full So fourth we to efficiency. see I’m

David King

The QX that was rightfully the reduction headcount, headcount quarter, announced reflected rate? run last in

Bill Mote

Yes.

fully continue to more seeing run for in rate reflected we be efficient. You’re to And the look it ways now.

savings for that’s a big for So now, us.

efficiencies get for overall, If almost think, areas quarter delta, there try that’s million, focus going you there’s nothing other look this alone. right the today. $X think I we’re But to but I year-over-year the it’s to at to organization

David King

liquidity, I new lastly hope be reasonable guess, on that time leverage? at down your to thoughts lower improved point? some to Where me. frame? expect on last and amortization. and able like or Congrats pay front, what any Okay. would times the you from And that credit facility the X.X are I and to Do still get guess, then that try you

Bill Mote

the It’s fees with Yes. million. there that note important refinancing almost to were that totaled $X.X

So the down. down. paying our think we pay to have capital we’ll But continued And I we see tightly, on debt we as wouldn’t to just debt would working even be continue manage if lower that focus refinanced.

flow push to cash continue I think flow. year-to-date cash And we debt. generated million operating $X.X operating pay in create down to we’ll to

think going be to there to capital. try working we’re use I will areas as grow So where though, we

So straightforward much less I That just leverage covenant. have don’t a now want to you. ratio leverage we be is that with critical

you only structure If covenant an higher. last one one wanted a it recall, of was availability, just away of covenants. million have It’s X. the FCCR the only With we if move get the covenant, perspective a -- of springing above we XX% Right X. reasons was one loan, $X this to too of And whichever we covenant. or we had, onerous it availability FCCR our with is the from from test why -- that’s now, within way is

not have to the credit of the covenant. we manage away less trying company leverage. perspective on But same for much we’re focusing from going time, move a from -- So it’s critical the at to

Operator

Instructions] [Operator Okay.

question a We from [Ph] have Ed Weiss.

Unidentified Analyst

from pretty going you, on two you feel kind you significantly. tell what that. just great job to the What levels of inventory was an I in Can you idea something -- the I terms quarter The you’re Babies to questions. Babies "R" Us. me I Us gross job that had think give of course, liquidation And inventory, that margin question down through so second level given forward? obviously, want the the fairly Is do the you on is, that. about in in "R" managing can great mean, do that about hold basis? think gross that Is some though, be then liquidation seemed the well up at? thought, had gross What margins margins at you pressure go-forward I indicated you a sustainable?

Bill Mote

level somewhere your are address I’ll on Ed, range. the turn turns current So question. X.X X.X, inventory first in The the

to wanted company, X recall, you we’ve at If we the past, somewhere as said be around a in turns.

inventory low number. obviously, So that’s a

the you in let you have of installing inventory all our managing re-racking. us we But that, space Though, the the and to installation point, we’re we’ve with project working space to we’re indicated at you warehouse If this to that to we’re we’re also in through doing have. tightly, a clear efficient California make recall, low where when addition and the construction that will is equipment down so racking, be for the in facility more manage capital reasons trying necessary machinery. one the do because

by folks, bump we’ll code to gets gets that put city for because all that back want and customers’ to our have approved orders. we’re racking facilitating X.X, the we the a make we’ll And see bit, number As in. and more up likely space sure fire that inventory of only the up

Mark Messner

just Well, Yes. that. to addition one

focus direct ours, Another of instead center. that of on more that distribution items import our customers is through to do to go directly

to there little So that’s question a factor in sorry, second bit. then going And again? I’m

Unidentified Analyst

What margins about of did maybe -- if coming you number. liquidation. the kind gross Us gross margins? kind -- -- the us mean, -- you discount What I I liquidation Babies that much that tell -- How the can some impact have how product of you obviously, much "R" of out haven’t the did of did the mean, Yes. on

Mark Messner

Bill. ahead, ahead. Go go Yes,

Bill Mote

year, at basis from out So is only calling it’s to reason it’s our off only Ed. XX% really And XX gross we’re the points margin. about be it last goal

to sell define in marketplace. which sales, on things margin related changes them. in closeout the below is XX% mix number that There’s also are of most that as going So we closeout are that we when

those maybe lower And but business the have "R" terms. some margins less Us over businesses have program have retailers to We large that taken more Babies subsequent shutdown.

X%. up the bottom X%. low you even margins can EBITDA X.X%, past, in to the When been are is see we’ve Adjusted lower. at the that as line, So slightly as

So it’s line. actually the playing through P&L the nicely bottom to

margins, which variance our margin expectation is that XX%. where Although, for it is our from creates short-term

Operator

Epstein Scott question Retail. from a have with We Instructions] [Operator [Ph]

Unidentified Analyst

I it asked there the to the started getting pronounced. Obviously, regarding I just, you. at of BRU mean, that’s year, when recent was off in guess, more to years some When from QX last I Dave hit So been seasonality. in drop I’m business, to really And guessing this impact has the questions look QX. back

QX in of QX? So QX to $X trying is the the sense the I’m is $X.X and in a of get million, less just line? million, impact built-in that revenue headwind what to

Bill Mote

Yes.

try to that let’s So break out.

remember, did in the and bulk import everybody started "R" that for off the and So my this until fell had last the back Amazon BRU last direct into just in September, the late just business quarter they third year. call, last we in top Toys off I we we in And onetime of the I’m if QX that of head, shipment the facts as I’m situation part recalling my well, think year on year of year. space recalling the with correctly. year, of both seasonality a Us last that addition saw, to Actually, really some

what I So shipments. year we seasonality, But DI be that’ll we see this big that but didn’t there saw still is the think next onetime the for quarter. saw still we

seeing the when then that -- at BRU fact DI we’re you course, So the didn’t situation and of the happen year-over-year, look comparable again you’re year-over-year. the

Unidentified Analyst

that is line? show then gross savings the And warehouse, up be going savings? is an Or Okay. SG&A that the to the margin from in going to

Bill Mote

fourth of And said, I that, like G&A. half will quarter. show actually late the up That’s probably in

Operator

further queue. for back to conference any like Messner the the in I Mr. to over turn closing Okay. no Mark There would remarks. are questioners

Mark Messner

call, Well, we up joining to thank forward day. with you conference good everybody and for look a our next Have time. catching

Operator

The conference concluded. for attending presentation. now has you Thank today’s

You may disconnect. now

Summer Infant (SUMR) 4 Aug 182018 Q2 Earnings call transcript