Overview
The following discussion and analysis of our financial condition and results of
operations for the three months ended
The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed above in "Statement Regarding Forward-Looking Information" in this Form 10-Q. In addition, this section sets forth key objectives and performance indicators used by us as well as key industry data tracked by us.
Background and Basis of Presentation
On
Prior to the Separation and for the three months ended
In addition, for purposes of preparing the combined financial statements, prior
to the Separation, on a "carve-out" basis, a portion of our former parent's
total corporate expenses were allocated to us based on direct usage when
identifiable or, when not directly identifiable, on the basis of proportional
net revenue, employee headcount, delivery units, or square footage, as
applicable. These expense allocations included the cost of corporate functions
and resources provided by our former parent, including executive management,
finance, accounting, legal, human resources, internal audit, and the related
benefit costs associated with such functions, such as stock-based compensation
and the cost of our former parent's
Our unaudited financial statements for the three months ended
First Quarter Fiscal 2021 Highlights
Our operating results for the three months ended
• Net sales were$60.8 million , an increase of$10.3 million , or 20.4%, over the comparable quarter last year, reflecting increased net sales in our traditional channels, including increased international net sales. • Gross margin was 47.7%, an increase of 70 basis points over the comparable quarter last year. • Net income was$3.5 million , or$0.24 per diluted share, compared with net income of$1.8 million , or$0.13 per diluted share, for the comparable quarter last year. • Non-GAAP Adjusted EBITDAS was$9.6 million for the three months endedJuly 31, 2021 compared with$8.7 million for the three months endedJuly 31, 2020 . See non-GAAP financial measure disclosures below for our reconciliation of non-GAAP Adjusted EBITDAS. 21
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Results of OperationsNet Sales and Gross Profit The following table sets forth certain information regarding consolidated net sales and gross profit for the three months endedJuly 31, 2021 and 2020 (dollars in thousands): 2021 2020 $ Change % Change Net sales$ 60,768 $ 50,468 $ 10,300 20.4 % Cost of sales 31,785 26,737 5,048 18.9 % Gross profit$ 28,983 $ 23,731 $ 5,252 22.1 %
% of net sales (gross margin) 47.7 % 47.0 %
The following table sets forth certain information regarding trade channel net
sales for the three months ended
2021 2020 $ Change % Change e-commerce channels$ 16,608 $ 24,548 $ (7,940 ) -32.3 % Traditional channels 44,160 25,920 18,240 70.4 % Total net sales$ 60,768 $ 50,468 $ 10,300 20.4 %
Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their revenue from consumer purchases at their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of their revenue from consumer purchases at their brick-and-mortar locations.
We sell our products worldwide. The following table sets forth certain
information regarding geographic makeup of net sales included in the above table
for the three months ended
2021 2020 $ Change % Change Domestic net sales$ 56,530 $ 48,472 $ 8,058 16.6 %
International net sales 4,238 1,996 2,242 112.3 %
Total net sales
20.4 %
For the three months ended
New products, which we define as any SKU introduced over the prior two fiscal
years, represented 22.3% of net sales for the three months ended
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Gross margin for the three months ended
Operating Expenses
The following table sets forth certain information regarding operating expenses
for the three months ended
2021 2020 $ Change % Change Research and development$ 1,521 $ 1,230 $ 291 23.7 % Selling, marketing, and distribution 13,200 10,543 2,657 25.2 % General and administrative 10,039 9,494 545 5.7 % Total operating expenses$ 24,760 $ 21,267 $ 3,493 16.4 % % of net sales 40.7 % 42.1 %
Research and development expenses increased
Operating Income
The following table sets forth certain information regarding operating income
for the three months ended
2021 2020 $ Change % Change Operating income$ 4,223 $ 2,464 $ 1,759 71.4 %
% of net sales (operating margin) 6.9 % 4.9 %
Operating income for the three months ended
Interest (Expense)/Income, Net
The following table sets forth certain information regarding interest
(expense)/income, net for the three months ended
2021 2020 $ Change % Change
Interest (expense)/income, net
For the three months ended
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Income Taxes
The following table sets forth certain information regarding income tax expense
for the three months ended
2021 2020 $ Change % Change Income tax expense$ 849 $ 1,095 $ (246 ) -22.5 % % of income from operations (effective tax rate) 19.7 % 38.0 % -18.3 %
We recorded income tax expense of
Net Income
The following table sets forth certain information regarding net income and the
related per share data for the three months ended
2021 2020 $ Change % Change Net income$ 3,457 $ 1,789 $ 1,668 93.2 % Net income per share Basic$ 0.25 $ 0.13 $ 0.12 92.3 % Diluted$ 0.24 $ 0.13 $ 0.11 84.6 %
Net income of
Non-GAAP Financial Measure
We use GAAP net income as our primary financial measure. We use Adjusted EBITDAS, which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Adjusted EBITDAS is defined as GAAP net income/(loss) before interest, taxes, depreciation, amortization, and stock compensation expense. Our Adjusted EBITDAS calculation also excludes certain items we consider non-routine. We believe that Adjusted EBITDAS is useful to understanding our operating results and the ongoing performance of our underlying business, as Adjusted EBITDAS provides information on our ability to meet our capital expenditure and working capital requirements, and is also an indicator of profitability. We believe this reporting provides additional transparency and comparability to our operating results. We believe that the presentation of Adjusted EBITDAS is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to neutralize our capitalization structure to compare our performance against that of other peer companies using similar measures, especially companies that are private. We also use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. We believe it is useful to investors and analysts to evaluate this non-GAAP measure on the same basis as we use to evaluate our operating results.
Adjusted EBITDAS is a non-GAAP measure and may not be comparable to similar measures reported by other companies. In addition, non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of non-GAAP measures through the use of various GAAP measures. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDAS. Our presentation of Adjusted EBITDAS should not be construed as an inference that our future results will be unaffected by these items.
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The following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the three months endedJuly 31, 2021 and 2020, respectively (dollars in thousands): Three Months Ended July 31, 2021 2020 GAAP net income $ 3,457 $ 1,789 Interest expense 46 - Income tax expense 849 1,095 Depreciation and amortization 4,179 5,388 Related party interest income - (336 ) Stock compensation 752 298 Transition costs - 251 Technology implementation 272 - COVID-19 costs - 223 Non-GAAP Adjusted EBITDAS $ 9,555 $ 8,708
Liquidity and Capital Resources
We expect to continue to utilize our cash flows to invest in our business,
including research and development for new product initiatives; the hiring of
additional employees; growth strategies, including any potential acquisitions;
to repay any indebtedness we may incur over time; and the development of our
independent information technology infrastructure, including the implementation
of our enterprise resource planning systems. We estimate that our information
technology infrastructure will cost a total of approximately
The following table sets forth certain cash flow information for the three
months ended
2021 2020 $ Change % Change
Operating activities
Operating Activities
On an annual basis, operating activities generally represent the principal source of our cash flow.
Cash used in operating activities was
Our inventory has increased during the three months ended
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effect on our sales and profitability in future periods. In addition, increased
demand for sourced products in various industries could cause delays at various
Investing Activities
Cash used in investing activities was relatively flat for the three months ended
Financing Activities
Cash used in financing activities was
Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company, including the establishment of our independent information technology infrastructure and enterprise resource planning systems, any acquisitions or strategic investments that we may determine to make, and our ability to navigate through the many negative business impacts from the COVID-19 pandemic. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.
We had
Other Matters
Critical Accounting Policies
The preparation of our consolidated and combined financial statements in
conformity with GAAP requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting periods. Significant accounting policies are summarized in Note 2 of
the Notes to the consolidated and combined financial statements in our Annual
Report on Form 10-K for the fiscal year ended
Recent Accounting Pronouncements
The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2-Recently Adopted and Issued Accounting Standards to our consolidated and combined financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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