Luvu Brands, Inc. (OTC:LUVU) Q1 2023 Earnings Call Transcript
Luvu Brands, Inc. (OTC:LUVU) Q1 2023 Earnings Call Transcript November 18, 2022
Operator: Greetings, ladies and gentlemen, and welcome to Luvu Brands, Inc. Fiscal First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Alex Sannikov, the company's Chief Financial Officer. Mr. Sannikov, you may begin.
Alexander Sannikov: Thank you, Holly, and thank you to everyone who joined us today at Luvu Brands fiscal first quarter conference call. Joining me today is Louis Friedman, our Founder, President and Chief Executive Officer; and Jordan Friedman, our Sales Director. On Monday, we filed our quarterly report on Form 10-Q for the three months ended September 30, 2022, and issued an earnings release that highlighted the company's first quarter performance. There are a number of items that we look forward to discussing with you this morning, including Luvu Brands financial results for the three months ended September 30, 2022, recent developments in Luvu Brands operational activities, as well as the company's near-term plans for the future.
In conclusion of this call, we will be answering questions during the brief Q&A session. Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. This includes statements about our future expectations, financial projections and our plans and products. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company's filings with the SEC, which includes our press release. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on our call are based on assumptions and beliefs as of today, and we undertake no obligation to update them, except as required by applicable law.
Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release. Now with that completed, I'd like to start the call with a few words from Luvu Brands' Founder and CEO, Louis Friedman. Louis?
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Louis Friedman: Good morning, everyone, and thank you for joining us on Luvu Brands first quarter conference call. We delivered a strong quarter in what remains a highly dynamic operating environment. For the three months ending September 30, 2022, we reported record sales of $8.1 million, an increase of 29.5% over the prior year. Our company is driven by creativity and innovation. Our success comes from our balanced and diversified direct-to-consumer business, along with multiple channels of growth, coupled with outstanding digital marketing execution. Looking ahead to calendar year-end and to 2023, we continue to expect macroeconomic headwinds to persist but believe that our brands, our growth strategy and product development initiatives position us well to emerge strongly from this period.
As announced last quarter, we continue to implement initiatives designed to generate material cost savings, streamlined workflows and lowering operating costs. And while we seek to deliver increased sales in this environment, we are also laser-focused on profitability and higher margins. Thanks to the team's hard work, I remain confident in our ability to continue to execute into the holiday season and beyond. At this point, I'll turn the presentation over to Jordan, who will discuss our digital mass market approach to sales and brand awareness.
Jordan Friedman: Thank you, Louis. Good morning, everyone. This has been a really strong and exciting start to the year for us, and I'm extremely pleased with the results so far. Our marketing efforts are paying off as consumer demand continues to increase and extensive online distribution allows our customers to find our products in more locations than ever before. We raised awareness online through a multichannel marketing approach and by making products available on all major e-commerce sites related to our categories. We have three main brands: Liberator, Jaxx and Avana, all containing a variety of product categories. Jaxx is a lifestyle brand of luxury beanbags, modular outdoor furniture, daybeds and children's play seating.
Avana is our comfort product brand that integrates a sense of style combined with an unmatched lounging experience. While some of our products lend themselves to sales growth innately through Amazon and other marketplaces, other products reach success through mass retailers like Wayfair or regional furniture chains and specialty stores. Commercial outdoor furnishings and education accounts play their own role as well as continuing to keep business flowing throughout the year. With our extensive product offering and distribution network, each product can find the correct customer base, leading to ongoing and steady sales growth. For e-commerce, we flourish with any channel that allows us to edit and enhance their data and media content directly as our rich images, video and SEO-friendly product copy continue to impress customers and increase visibility.
Our in-house creative team is always during the best quality content to enhance our offerings every day. As long as we have great photography, enhanced content and innovative product designs, consumer demand increases naturally every year. Regarding our distribution network, we're constantly adding new e-commerce stores and retailers plus numerous large resorts, commercial, school and hospitality clients. Researching and adding new wholesalers is something we do daily. Likewise, with our innovative product designs and expertly crafted media content, new wholesale and commercial clients are regularly seeking us out. In existing channels, long-standing relationships with buyers gives us a leg up in terms of personal knowledge and history, which leads to greater placement and visibility.
In terms of advertising and marketing, we test and deploy many mediums, including Google PPC, Amazon PPC, print ads, strong e-mail campaigns, retargeting and abandoned cart e-mails, and many social channel advertising, including Reddit, Pinterest, Instagram and Facebook. Constant monitoring, AB testing, careful site placement and use of clever long-tail keywords keeps our advertising initiatives converting at a high level. We also continue to capitalize on being a made-in-America company. Wholesale partners and consumers regularly seek us out and applaud our American-made commitment. In the first quarter, we really took advantage of our domestic manufacturing as we were able to adapt and react instantly to changes in demand. When we experienced a large surge in Liberator business due to increased awareness of sexual wellness products, we were able to adapt and supply the inventory customers wanted at a time when international producers were twiddling their thumbs waiting on the next ocean container to ship.
Overall, our growth potential is stronger than ever and we're really looking forward to what we can deliver in the upcoming months and years to come. Now I'll turn this over to Alex Sannikov, Luvu Brands' Chief Financial Officer, to summarize some of the financial highlights for the first quarter 2023.
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Alexander Sannikov: Thank you, Jordan. I'll briefly touch on some of the financial highlights from the fiscal first quarter ended September 30, 2022. . For the first three months of fiscal 2023, net sales increased to $8.1 million from $6.2 million in the prior year's first quarter, an increase of 29.5%. Liberator sales increased 86% to $5.1 million from $2.7 million in the prior year. Jaxx product sales decreased 5% to $1.8 million compared to $1.9 million. And Avana product sales decreased 25% to $0.6 million from $0.7 million a year ago. Gross profit for the fiscal first quarter totaled $2 million compared to $1.5 million in the prior year. Despite the fact that the company continues to experience labor and raw material cost increases, gross profit as a percentage of net sales increased slightly to 24.5% from 24.1% in the prior year's first quarter.
Operating expenses for the first three months were approximately 17% of net sales or approximately $1,397,000 compared to 19% of net sales or approximately $1,176,000 in the prior year. Net income for the first fiscal quarter was $492,000 compared to net income of $227,000 in the prior year. And adjusted EBITDA was $675,000 compared to $398,000 in the prior year's first quarter. We continue to increase the quantity of products owned by our contractor in Mexico. It now is running at approximately 35% of all of our sewn products. Cash and cash equivalents on September 30, 2022, totaled $1,348,000 compared to $859,000 on June 30, 2022, and working capital increased from $774,000 on June 30 to $1,025,000 at the end of fiscal first quarter 2023.
Now I'd like to turn the call back to Louis for some additional comments regarding current development. Louis?
Louis Friedman: Thank you, Alex. We continue to increase brand awareness for Liberator by telling our story, building our community and launching new products. As background, Liberator started in 2002 with a single offering the Wedge/Ramp Combo. For over two decades, we've been the only company focused solely on the sex furniture, a market we created. We now offer over 60 novel products across the sexual wellness erotic lifestyle categories. Liberator products are designed to enhance intimacy for couples of all ages, shapes and sizes, regardless of physical limitations or sexual orientation. This quarter, Liberator sales increased 86%, primarily attributable to strong consumer demand from our digital and retail channels accelerated by exposure from Netflix series How to Build a Sex Room.
Our innovation and product engine are humming like never before. We are also adding new retail distribution strategy across all mass market channels. As a consequence of climate change becoming ever present, we incorporate sustainable practices, methodologies and designs across our brand portfolios to reduce our carbon footprint. This now wraps up our formal presentation. Operator, we'll now open the call for Q&A. After the Q&A, we'll have some additional closing comments.
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