CAPC - Earnings call transcript Q2 2019 | Capstone Companies, Inc.

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Operator

Greetings and welcome to the Capstone Companies Second Quarter 2019 Financial Results. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Aimee Gaudet. ahead. go Please

Aimee Gaudet

a and apologize to Stacy, Executive to I technical us everyone. Stewart we morning. Thank experience advance. should out good that like any from joining and point is I Chief location Capstone's would this Wallach If do you, difficulties traveling morning remote in President Officer, and

well an second Capstone’s They will Officer. on on call quarter financial and by Also XXXX Financial outlook the us today a Chief is as results, strategy the question-and-answer as discussing update Gerry the give McClinton, followed be session.

do the website not at If was you company's is have distributed it yesterday afternoon, www.capstonecompaniesinc.com. the that on available release

make as results to you could to are are today's statements actual subject during statements other cause and the from events materially As today. may presentation. as uncertainties, factors which aware, risks are that well forward-looking we where apply we differ These to future

outlined documents can well at in Commission, as which or our be release the These Securities Exchange the www.sec.gov. at by factors with www.capstonecompaniesinc.com filed are and earnings the found in as company

it turn I'll you, to that, With Stewart. over

Stewart Wallach

you, morning and everyone. I Aimee, your with us Thank time to today. appreciate good

to second moments planning Before results. review Gerry to quarter the I'd a the it and has XXXX how to year-to-date and just the McClinton results, financial like discuss introducing the strategic take few quarter company’s attributed to

the of establishing initiatives track branded QX and chain to now Thailand. in strong had the response deliver LED are we are As a QX important that Equally at developments as on remain indicated supply number in call, backlog products we Capstone are revenues. development. solid our developments conference apparent new in our our The to revenue achieved

a to out this tariff I remain in uncertainty point as China supply chains play U.S. concern. continue importers because

of tariffs well be provide to we to subject increased approach as will the not that positioned products are threat XXXX. We

the later further Connected Surfaces webcast. comment our on program will in I

the financials. review Gerry's Following of

to and that in our home first like portfolio Mirror major into emphasize would is the market. electronics the the smart of marks entry Smart However, I product milestone a company's Capstone’s finalization differentiating emerging

Gerry outlook At would after company's a this time, to question-and-answer followed the which, to review financials, by will I McClinton discuss session. like the I introduce

Gerry McClinton

Good Stewart. morning, you, Thank everyone.

straight go that’s revenue June has $X.X were XX, quarter let's of to million, been position the So the an $X.X approximately license second increase Capstone respectively, Net of and for million numbers. brand brand XXXX and very million. the ended to products $X.X from lighting The XXXX successful.

to brand the million generated In in $X.X Capstone compared XXXX. revenue $X.X quarter XXXX second million the

XX, The that's For months were launched revenue that the accounted June $XXX,XXX for six ended approximately $X.X newly XXXX from of period. increase million LED product XXXX. Light and for Bars powered net approximately $X.X battery revenues of an million

of marketing approximately June XX, XXXX. for months were respectively of sales three months For invested strong, and approximately funds, $X.X ended and the XXXX, six XXXX the the was very XX, program $XXX,XXX, $XXX,XXX XXXX. branded will through and XXXX The this $XXX,XXX respectively, and and million lights sell company through Capstone new the June support international $XXX,XXX, that and ended

Now, levels. this a primary level of driver revenues in support back to bringing was XXXX

in means deducted are the already that in funds marketing revenues net the they are gross reflected Now from revenue period.

So shortfall revenue company with QX recover the from even major the these to able was investments, XXXX.

months $XXX,XXX and three was XXXX respectively. ended XX, June approximately Gross profit XXXX $XXX,XXX for and the

in of XXXX. the was compared as an $XXX,XXX. Gross to XX.X% quarter in a second increase Now XXXX, that's as percentage Profit XX.X%

for a $XX,XXX. XX.X% XXXX month of respectively. XX.X%, was Gross six profit percent months XX, for and XXXX decrease revenue profit the $X,XXX,XXX approximately was and the That's ended a slight June XXXX and period respectively. and as six Gross $X,XXX,XXX, XXXX of

in fund the exclude we increased XX.X% would marketing compared to period increase revenue. the by Now for if to or gross purposes, of X% comparison of up as impact profit XXXX, $XXX,XXX the

XX.X% significantly XXXX. that's the in than higher So

for of $XXX,XXX. June XXXX, was ended in the Total to decrease operating three XX expenses months XXXX $XXX,XXX a compared that's as $XXX,XXX

months a the operating expenses to $X,XXX,XXX six total as ended $XXX,XXX. XX, $X,XXX,XXX June of in XXXX, decrease were compared XXXX, For that's

The two in XXXX XXXX to areas and marketing ended expenses impacted Sales $XX,XXX. reduction expenses. were sales $XXX,XXX, most $XX,XXX and of months for a June and the compared that’s XX, product marketing expenses respectively, operating and development three were

expenses $XX,XXX XXXX. to increase have as In royalty Borges the did $XX,XXX Promotional in no Marketing Max May, incurred $XX,XXX expenses product Solutions, which in XXXX. During services held did so we were quarter National XXXX. compared by related in sales, expenses of not there Hardware licensed also in we tradeshow to did attend reducing zero the Show we XXXX of which not the to we engage

six respectively, to $XXX,XXX months a and the XXXX XX, expenses June compared For that's and of sales marketing were ended XXXX, $XXX,XXX. $XXX,XXX, reduction

$XXX,XXX, and also Royalty commissions in expenses six were in in $XX,XXX and to compared respectively. XXXX XXXX the zero were XXXX. Sales zero months

in were of part savings did promotional advertising which However, expense offset not an increase we with XXXX. occur $XX,XXX in of and these

the months were that's $XXX,XXX, and XX, decrease Product respectively, for June $XX,XXX expenses a ended three $XX,XXX. of approximately development XXXX XXXX and

During invested an software development $XX,XXX XXXX. compared in of the to second for hardware the project, the company increase $XX,XXX Connected $XX,XXX in and quarter, as Surfaces

of XXXX to product a in six approximately as $XXX,XXX development $XXX,XXX expenses compared months ended XX, the For $XXX,XXX. decrease XXXX, June were

$XX,XXX. that project software was testing reduction $XX,XXX sample product During in did in the period, Prototype and XXXX, for $XXX,XXX and invest in XXXX. hardware that's compared the $XX,XXX compared to expenses a development Surfaces company of Connected in to development XXXX, $XXX,XXX

for the Our three $XXX,XXX was a of months samples attend the $XX,XXX compared to required that's didn't XXXX, $XXX,XXX. improvement for loss loss XXXX ended an June it. as we Operating were XXXX XX, in of Show, International Hardware not

compared an compared of the improvement in $XXX,XXX three to $XXX,XXX six $XX,XXX to performance loss an $XXX,XXX. approximately to the XX, loss the XXXX, XXXX, XX, June XXXX quarter after was For that's months XXXX. operating Net $XXX,XXX for was $XXX,XXX months XXXX, in June of in compared the ended improved

$XXX,XXX June months six to compared the net in compared loss For performance an was XXXX XXXX. $XXX,XXX the approximately ended of improved to $XXX,XXX XXXX, XX,

approximately in the state for funds, revenue to company that, up Summarizing and sales Surfaces, second development promote $XXX,XXX spent The $X.X investing by continued in strategic Connected $XXX,XXX XXXX. in it future the quarter. these continued marketing to financial spent And just marketing summarize XXXX, a million to we we were to in quarter objectives, $XX,XXX we of services. have that to has and $XX,XXX support compared accrued smart look take to at growth spent we performance management

$X.X increase the of $X.X gross that's months over marketing an Smart the performance company million, and $XXX,XXX the XXXX. $XX,XXX for XX, software, Summarizing financial were million six XXXX, Surfaces that, and $X.X Mirror in million the services. of Connected for ended XXXX Besides marketing development funds, for June sales invested

expensed months. So resolve financed funds investment We expense. that note this would the did debt or operating in Moreover, in of the total, marketing through was six through any provide the investment of $X,XXX,XXX XXXX. calendar also this cash remainder the were of in strategic not occurrence interest company invested strategic support and flow will

liquidity a at take the Let's and capital sources. look

respectively, of as that's was also of borrowing XXXX, XXXX bank agreement June availability, balances million, million cash we XX, $X.X had company and $X.X use Our approximately The $X.X $X.X and under which additional million. million. didn't a December reduction of the XX,

million it’s Bank our through XXXX. XX, July renewed XXXX, line and credit to Sterling on up National renewed note, June Of $X.X

As and was loan Sterling XX, balance of December XXXX, for June periods XX, XXXX the both Bank zero.

As XX, was XX, XXXX parties zero. periods for of XXXX both and June December related notes payable

at of dependent receivables, on payments are and operations primarily cash on for and cash adequate expectations, past the flows a to cash from from suppliers. months. performance levels our cash Now of daily least inventory the and XX the next current flow operations needs and line and expenses non-cash availability for income our meet of operations be anticipated adjusted on that timing expenditures credit capital to our company's believes hand, collections Based under net will management our the for

in the used usage in operating with provided was cash ended XXXX. increased activities, the six approximately resulting cash receivable June million $X.X XX, approximately by $XXX,XXX payable. and was months of offset in accounts partially accrued $XXX,XXX net allowances in decrease the approximately This in balances, in from loss by in levels. resulted accounts operating increase compared The sales $XXX,XXX, activities the flows period revenue million $XXX,XXX Cash from $X.X XXXX increase

for activities financing respectively. in June XX, XXXX was six flows months and XXXX and $XX,XXX the Cash ended zero approximately

period in compliance the a the $XX,XXX. of repurchased the the all credit cost to terms with at to-date existing At was During pursuing XX, company June of facilities. company XXX,XXX XXXX, shares

my report. This concludes

back it pass I'll So to Stewart.

Stewart Wallach

Gerry. you, Thank

in XXXX in growth. and definitely continue XXXX, specific position future. developments discussion for are are Capstone There Let's regarding that revenue the drive that the few to revenues expected company's a performance initiatives could contribute to continued and Capstone’s

supply Firstly, is transition. our chain

retail are many companies and this favorable partners to response core this had due while businesses regarding less our Chinese the plans, are to will of transition ahead as have were now we in in we As are opportunities attempting curve, open the our discussions our believe learned particularly expected, matter, with we was competitive. tariffs, goods

substantially price successfully portfolio sound. establish strategy will to the to-date. Capstone the to but the significant has emerging greater rapidly our Not potential Secondly, deliver electronics company products in participate have an than enable growth, marketed to it only revenue market, selling to we as a innovator in it as has proven average industry this is be the in

Capstone time upon supplier business which seen the capitalizing same our initially into which by a emerging was potential. success. growth Electronics Capstone its viable Home Smart initial as developed that Similarly, established the on business itself strong the as setting category an at LED provides with entry

continues electronics Smart Our entry as in will evolve. and our Home the grow to fuel allow product development proven market strengths us innovative category the into to

move on being company branded through session, gross highlight I'd months, like XXXX increased no six few Before products Capstone Two, that our by performance. sales the royalty One, to over XXXX. for transitioned period. products, reiterate fees licensed we a which from points the $X.X on in sales million to paid the the to resulted year-to-date Q&A

new product introduction well rich core is Light Capstone our LED innovative business Three, as performing of Bars. known to feature due the a

invest create which did. a to increased was product we price a in campaigns, opportunity strategy position through fact to could and would generate retail that sell in support higher that us provide the Our margins

first is presale Connected which device, Smart the Four, XXXX, the Smart Surfaces Home company website which July home a Mirror. its features launched in connected Capstone

You capstoneconnectedhome.com. can that at see

featured at part a lifestyle influential only product outlets. top our tech hosted to XX Capstone in over invitation located our by agency tech journalists smart featured the tier Five, as event and This exclusive City. York PR recently Borges, our event launch New showcase preview consumer mirror strategy, of Max was media -- and serve was from

marketing Sixth, we department, social XXXX. our expanded in strategy media a

and presence our for of focus the our its we the primary over and Google, ahead, broaden launch LinkedIn will targeting this the expand numerous company’s the In has weeks months intent preparation at the team’s been develop Instagram, six buying Facebook, in campaign Smart Pinterest Our platforms, reach demographics Mirror. and with reach time. populations past audiences on to following to the

website, to connected nearing follow And to the factory completed is OEM and successfully as up completion a our seven, Number which auditing capability FCCA eight, is factory presale Thailand, capacity. it this fall. and requirements, company our approved has partner planned in has Capstone launch website first its

we to mitigate China. additional produced administration current the made by webcast, of transition being previous tariffs As being in impact imposed in have this merchandise discussed on the we the

I early a commitment as disciplined and XXXX. very a deliveries of years our manner. you to OEM commence anticipate past our we demonstrated to the We directives, two as the productive QX understanding this strategic with have follow challenging, in strategy of from been have new but better trust, our partner provides

to We looming developed on the chain product are from potential XXXX. as new trade addressed lead dispute into we bullish resulting a have portfolio have us the supply and XXXX, we problem also

Capstone’s potential At I’d your exciting shareholders, welcome personally long our to this I’d you thank to like continued our chapter. time new new support to and for shareholders, time and to like

Aimee Gaudet

Stewart. you, Thank

the received to address some I’d we up the lines, that via Before email. opening of like questions

see to Can momentum share mentioned great building through LED First with continuing investments QX, to at this XXXX. you question, is us products revenue support for backlog this through revenues it point? these the you

Stewart Wallach

past, that cetera. logistical, et reasons for we discuss the All retail, numbers, backlog or they whether adjustments levels, in right can be to to specific not because subject be various prefer inventory as

backlog for However, to I'm minus plus only place is at on this this inquiry comfortable or saying, time. our products in $X million color XX% some LED approximately

Aimee Gaudet

Great.

update outside Next last that. of develop company’s China. you trade question, at you on chain Stewart and Maybe the an the answer China dispute provide Can webcast, that? revealed referenced efforts supply with can the to Stewart the

Stewart Wallach

approved from which this, webcast, we in the was deliveries I new think, partner, QX we just commence the just in of recently anticipate OEM XXXX. earlier covered stated as to

Aimee Gaudet

Gerry you. the very second $XXX,XXX. gross for at question is thank you, Okay, profits directed were to this quarter strong

as You gross compared gross margin quarter, this product future was Will XX.X% maintain a mentioned in percent revenue XXXX. releases margin to this in trends? of positive XX.X%

Gerry McClinton

For compared months XXXX. of is XXXX the margin XX.X% revenue six gross in to XX.X% of

overall slight XXXX. this period gross after $XXX,XXX of product funds performance so the a marketing what special battery invested in that new lighting additional is a Now than that’s And makes we includes decrease, reflects mix however, achieved XX.X% that Capstone’s product. margin was this more

and mix will year. to we trending the we at if be We approximately through hadn’t compare, if continue So that gross the the then product margin XX.XX%. envision made trend current investment

Aimee Gaudet

Gerry. Thanks, Great.

that have XX, note you Sterling to through million Smart will generated that to line XXXX. credit I million the opportunities up reduced had will excuse Bank feel portfolio? -- Do be limit renewed the or the growth June me, question, $X.X $X.X Next Home

Gerry McClinton

Yes, let that answer one. me

You've working requirements capital already have bank without numbers any relying went self-funded we financing. through, the we seen investments, all our that of and on from

around made review adequate As our they requests is our place XXXX. that the should a needs has that is can million will even be any Capstone, very funding, so they available relationship as have banking But we important very in additional that require request more nine for should turn such short may very it the of Sterling in order. it years, be business needed. clear and will have, supportive bank $X.X additional it for been as

So I'm that we’ll very cover. comfortable

Aimee Gaudet

And which you impact do you maybe question Stewart retail Great, another dispute. thanks. with negatively the We question up, actually could to going trade have see is, on our regards pricing the can… sales? products

Stewart Wallach

I'll fill that. Yes,

I most the say, companies, would For yes.

retail chain XXXX, to in time. an transition not the However, its need at concurrently did identified have new Capstone established that supply launch and products that

a was launch line design because first remain product strong. and the the retail yet of and higher Light at feature positioned Bars, Our sets, sales and the very was

XX%, seen in such this marketplace established XX% as Had been XXXX, same been would more, consumers have to if increase much sales as the negatively in retails as the product not impacted. have would and

shelf. have I think products this with established that companies today situation many on the is that are faced the

this to competitive our XXXX. key once working, shift our again, supply QX And early short, as chain In to is be strategy its will Capstone anticipate commence as posture. we maintaining of

Aimee Gaudet

question, featured website. Thanks, the mirror Stewart. time Last regarding at one the Capstone will current only plans there your presale when line and happen? What your that Smart Home extending product on Mirror are is for

Stewart Wallach

to portfolio line CES in Capstone XXXX five exhibition. for the show. line form the the anticipate be Okay. I calls for public to trade now and expanding introducing completed this at being the the product will six right factors additional product time

Operator

first comes ahead. Our instructions] Please [Operator MicroCapClub Schellinger Mike LLC. go question from with

Mike Schellinger

pre-orders have gone far? the the comment how curious on Connected for was thus could you I Yes, if Surfaces

Stewart Wallach

process. This site analytics is Hi, many we people will of site, and delivery. media is the we're the order two-step are speaking. Mike. provides trigger that time cart the sale then item, actually doing course a What of gauging and the the the how the people is us social reviewing through Stewart how actually at many The are

at projection of we will. relative you transferred you and the be charged. hopeful So, will the is is for running in is credit those until were time card carting, for if are available for to with we what which ahead sale product share I not that can what sale But

many of the initial Monday. been our can is any advertising initiated not into put fact see projection, social even the cart had our But we that analytics, this ahead it I actually once substantially considering have and media campaign how from again, until

we a So we'll of But better in read have expectation. tracking weeks. a couple are ahead

an there's and site, We to, in have Las designed early into Vegas prior we the of give are talk the the to of the to that on we hands any hoping honest feedback. for place us put that would in us put Show. and you'll in through, This ideally XXX time flow the for review that mirrors place. if would have adjustments they users campaign them was to to adopter initial recommend initial users all to would product feedback and agree Electronic experience so if we See their that the

Mike Schellinger

is Okay, terms only other supplier. is of exposure different when quick tariffs, that like guess, made one do transition a great. exposed? have transitioning what to on products I'm great our in so tariffs And wondering, you progress completed of -- now between a question, regarding guys to rates, have the portion and I and

Stewart Wallach

me Keep has our business put it let in me model mind been. way. Mike, let this to Yes, you what

business are China partners, ship FOB been be record. Our model whether has in the this point where of we and time our until it retail up Costco, Sam's importer

in with So, that they are are the fact tariffs. the dealing ones

ourselves, Part we was and allowed something you to from to of And also prudent in us participation well, not distance model. part, modify generating to our $XXX,XXX if it received we've sales want our will, in business it's That was remain tariffs. through invest campaigns. in paying didn't any did the them increased we that in was assist a past investment on sell but it the done actually what

to that not Light featured Bars, product -- on the the the four. that round round. has tariffs, second first will be and featured of three Qs subject most be said, will being in of That been that our We're

the of knows their course situation, what vest, pretty the into is made end go cards is close investments their been we we've a control it's process keeping my slightly to day-by-day really Nobody that's everybody don't to dynamic. because will that. retails at So And the consideration, campaigns, in marketing up the already already of the taken understanding, expect. day, is

we're QX are So, our we're expecting booked positioned, in very some through and QX. sell well and promotions strong

Mike Schellinger

Okay, that's a good position.

then end. follow-up other just So one to I'll that,

transition all to ones or the how transition does work? that just So the plan products, is higher volume the

Stewart Wallach

issues to to the So -- there's are overseas. business what tariffed, things course, we a tariffed here's had aren't that and address. right what of issues all, partner capacity we is have in first then, -- plan of is now of of And find there's

for I said, us, curve So -- the and relinquishing as to of have think But on this, is I approach way somewhat we our this. supply we entire are chain. unique ahead

involved that of will certain arranged they come in is longer to but in the factory to China, way be chain, which just continue we've of be elements OEM OEM the us, not not factory, and that, will in China. or they to an supply will introduced is done business so we've same located We're coming out China, sold the that coming no

a who the not specific complex this into of it's item. shipping any They In China. we are There as an add it's and the requirements has words, do and can next initiate doing of over are audit we capabilities. primary kind I different we produce capable the can molded the pretty product, So to partner product plan, outside identified supply product there we've now, again, to chain said passed PCB Right it. to followed could just other states. boards, electronic our

of that competitive purchases is is we assembly way time easiest the a the the problem the that's such on part, arranging can the remain the real in supply least challenge. component chain the So, over work

supply will walk those new the down replace be is investments we and the take would will we that some to supply they moreover, key need in, into investments pieces goal and going potentially month, say But a time for chain to over XXX,XXX entirely when outside and our the markets. then products make Now can a be into that sit the government long-term support to chain. will with that partner

Mike Schellinger

Okay, thank you.

Stewart Wallach

You bet, Mike. Thanks.

Operator

for further are As Stuart no the to closing turn would questions, like there I over floor comments. to

Stewart Wallach

I’m we've days I Capstone everybody But point. and know the have chain. transition to bigger are been Stacy. I for of and indicated will able been revenue Capstone you, the we China project, finalize the Well, pretty over Connected in lot this sure XXXX, again last people on really has few last us particularly, capabilities our months, Thank the encouraged the very, at two outside supply want concerns thank than hectic time what to market very by I in show a the for as which its

about of this and long in what Lot hours are in into sight initiatives two and company exciting result for the XXXX. the never we management. measures Both hard the of I’m for goal. these very lost optimistic of will these work very

months I shipments of Connected shipments should you'd forward in reporting be there our care our toward about, our to that particularly, China. end, Capstone progress And and initial ahead something the to initial project the that look hear outside

to that. thank your So of keep we for again you will you advised once And continued want support.

Operator

today's conference. your This Thank participation. you concludes for

Capstone Companies (CAPC) 15 Aug 192019 Q2 Earnings call transcript