Newegg Announces First Half 2024 Results

Rhea-AI Summary

Newegg Commerce (NASDAQ:NEGG) reported its first half 2024 results, showing a 14.5% decrease in net sales to $618.1 million compared to the same period in 2023. The company faced macroeconomic challenges and a slowdown in computer hardware sales. However, Newegg anticipates a rebound in the second half of the year, driven by expected upgrades of pandemic-era devices and the release of new AI-powered PCs.

Despite the sales decline, Newegg's adjusted EBITDA improved by 29% to $(7.3) million. The company is focusing on adjusting its size and structure to align with revenue outlook and is prioritizing core IT products and enhancing customer experience. Newegg also successfully renewed its credit agreement for an additional two years, providing borrowing capacity of up to $40-50 million depending on the time of year.

Positive

• Adjusted EBITDA improved by 29% to $(7.3) million
• Successfully renewed credit agreement for two years with $40-50 million borrowing capacity
• Anticipating rebound in sales during second half of 2024
• Maintained $132.0 million in inventory and $49.7 million in cash balance

Negative

• Net sales decreased 14.5% to $618.1 million
• Gross profit decreased 22.4% to $63.1 million
• Net loss of $25.0 million for the first half of 2024
• Active customers decreased to 1.1 million from 1.3 million year-over-year
• Repeat purchase rate declined to 23.0% from 27.9% year-over-year

Insights

Financial Analyst

Newegg's first half 2024 results paint a challenging picture, with net sales declining 14.5% to $618.1 million. The gross profit decrease of 22.4% is concerning, outpacing the revenue decline. However, there are some positive signs:

• Net loss improved from $29.3 million to $25.0 million
• Adjusted EBITDA improved from $(10.3) million to $(7.3) million
• Average order value increased from $390 to $401

The company's focus on cost management and core competencies could help stabilize performance. The renewed credit agreement provides financial flexibility, but declining active customers and repeat purchase rates need addressing for long-term growth.

Tech Industry Expert

Newegg's strategy to capitalize on emerging tech trends is promising. The focus on AI-powered PCs and next-gen CPUs aligns with industry direction. Expanding server offerings is smart, given the growing demand for cloud and edge computing. The ASUS NUC configurator partnership demonstrates adaptability to customization trends.

However, the 15% YoY decline in sales reflects broader industry challenges. The shortage of new product launches has impacted sales, but upcoming releases could drive a rebound. The company's pivot towards comprehensive server solutions and mainstream PC offerings, particularly targeting college students, could help diversify revenue streams and mitigate risks in a volatile market.

Market Research Analyst

Newegg's performance reflects broader market trends, with consumers delaying upgrades due to economic pressures. The decline in active customers from 1.3 million to 1.1 million and drop in repeat purchase rate from 27.9% to 23.0% are concerning, indicating potential market share loss.

However, the strategy to focus on AI-powered PCs and next-gen CPUs could reignite consumer interest. The emphasis on servers and partnerships with major brands like AMD, Intel and ASUS shows adaptability. The increase in average order value suggests that while fewer customers are buying, those who do are spending more. This could indicate a shift towards higher-value, premium products, which might help offset the decline in overall sales volume.

CITY OF INDUSTRY, Calif.--(BUSINESS WIRE)-- Newegg Commerce, Inc. (NASDAQ:NEGG) (the “Company” or “Newegg”), a leading global technology e-commerce retailer, today announced results for the six months ended June 30, 2024.

Newegg Chief Executive Officer Anthony Chow stated, “As expected, the first half of the year saw a slowdown in computer hardware sales due to ongoing macroeconomic challenges and a shortage of new product launches. However, we anticipate a rebound in sales during the second half as consumers begin to upgrade their pandemic-era devices. We believe the increasing availability, affordability, and capabilities of AI-powered PCs will strengthen our long-term outlook for core computer sales. We are particularly enthusiastic about the upcoming release of next-generation CPUs from AMD and Intel, which we expect to drive component sales and fuel demand for refreshed desktop systems among both consumers and system integrators.”

Newegg Chief Accounting Officer Christina Ching added, “In the first half of 2024, our industry faced continued macroeconomic challenges from high interest rates, inflation, and consumer spending shifts, thus resulting in a 15% year-over-year decline in sales. We are actively working to adjust our company’s size and structure to better align with our revenue outlook. As a result, our adjusted EBITDA improved by 29% in the first half of 2024 compared to the same period last year. We remain keenly focused on our inventory and cash balance, which, as of June 30, 2024, we maintained at $132.0 million and $49.7 million, respectively. In addition, on August 27, 2024, we successfully renewed our credit agreement for an additional two-year period. The credit agreement provides for borrowing capacity of up to $40 million from April 1 to September 30 and $50 million from October 1 to March 31 for each year during the renewal term. Looking ahead, our priority is redefining our company’s direction by concentrating on our core competencies in IT products and enhancing our customer experience to regain market share.”

2024 First Half Financial Highlights

• Net sales decreased 14.5% to $618.1 million for the six months ended June 30, 2024, compared to $723.2 million for the six months ended June 30, 2023.
• GMV (defined below) decreased 15.4% to $746.7 million for the six months ended June 30, 2024, compared to $882.5 million for the six months ended June 30, 2023.
• Gross profit decreased 22.4% to $63.1 million for the six months ended June 30, 2024, compared to $81.3 million for the six months ended June 30, 2023.
• Net loss was $25.0 million for the six months ended June 30, 2024, compared to $29.3 million for the six months ended June 30, 2023.
• Adjusted EBITDA (defined below) improved to $(7.3) million for the six months ended June 30, 2024, compared to $(10.3) million for the six months ended June 30, 2023.

2024 First Half Operational Metrics

• Average order value was $401 for the six months ended June 30, 2024, compared to $390 for same period in prior year.
• Active customers, defined as unique customer IDs with at least one item purchased on Newegg platforms in the past 6 months, totaled approximately 1.1 million as of June 30, 2024, a decrease from 1.3 million for the same period in the prior year.
• Repeat purchase rate, which is the percentage of active customers who made at least two purchases on Newegg platforms during the past 6 months, was 23.0% as of June 30, 2024, compared to 27.9% for the same period in the prior year.

Mr. Chow added, “Our strategic focus for the remainder of the year is threefold. We aim to aggressively capitalize on the surging demand for servers by expanding our product offerings, tailoring comprehensive service packages, forging strategic partnerships, and diversifying our Rosewill portfolio to include server chassis. Our goal is to become the go-to destination for server solutions, from hardware to expert services. Secondly, we plan to accelerate brand growth by expanding our mainstream PC offerings, particularly targeting college students through strategic partnerships with AMD and Intel. Lastly, we will work to strengthen our vendor relationships, as exemplified by our ASUS NUC configurator and build-to-order service, to deliver even greater value and customization options to our customers.”

About Newegg

Newegg Commerce, Inc. (NASDAQ:NEGG), founded in 2001 and based in the City of Industry, California, is a leading global online retailer for PC hardware, consumer electronics, gaming peripherals, home appliances, automotive and lifestyle technology. Newegg also serves businesses’ e-commerce needs with marketing, supply chain, and technical solutions in a single platform. For more information, please visit Newegg.com.

Follow Newegg on X (formerly Twitter), TikTok, Instagram, Facebook, YouTube, Twitch, and Discord.

Non-GAAP Financial Information

This press release presents certain “non-GAAP” financial measures. The components of these non-GAAP measures are computed by using amounts that are determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). A reconciliation of non-GAAP financial measures used in this press release to their nearest comparable GAAP financial measures is included in the schedules attached hereto.

GMV

The Company defines gross merchandise value, or GMV, as the total dollar value of products sold on its websites and third-party marketplace platforms, directly to customers and by its Marketplace sellers through Newegg Marketplace, net of returns, discounts, taxes, and cancellations. GMV also includes the services fees charged through its Newegg Partner Services (“NPS”) in rendering services for its third-party logistics (“3PL”), shipped-by-Newegg (“SBN”), staffing and media ad services, as well as the sales made by its Asia subsidiaries.

Adjusted EBITDA

Newegg calculates Adjusted EBITDA as net income/loss, excluding stock-based compensation expense, depreciation and amortization expense, interest income, net, income tax (benefit) provision, gain/loss from warrants liabilities, gain/loss from sales of investment, impairment of equity investment, and loss (income) from equity investment.

Newegg believes that exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and excludes items that it does not consider to be indicative of its core operating performance. Accordingly, Newegg believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating its operating results in the same manner as its management and board of directors.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of Newegg’s results as reported under GAAP. Some of these limitations are: although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation; Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to Newegg; and other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, operating profit and Newegg’s other GAAP results.

Cautionary Statement Concerning Forward-Looking Statements

This news release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our current expectations, opinion, belief or forecasts of future events and performance. A statement identified by the use of forward-looking words including “will,” “may,” “expects,” “projects,” “anticipates,” “plans,” “believes,” “estimate,” “should,” and certain other statements about the future may be deemed forward-looking statements, including those regarding the long-term outlook for core computer sales, the impact of next-generation CPUs on component sales and demand for desktop system, efforts to regain market share, strategies to provide server solutions, brand growth acceleration, and strengthening vendor relationships. Although Newegg believes that the expectations reflected in such forward-looking statements are reasonable at the time given, these statements involve risks and uncertainties that may cause actual future activities and results to be materially different from those suggested or described in this news release. These risks and uncertainties include changes in global economic and geopolitical conditions, fluctuations in customer demand and spending, inflation, interest rates and global supply chain constraints. Investors are cautioned that any forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements in this press release are made as of the date hereof. The Company takes no obligation to update or correct its own forward-looking statements, except as required by law, or those prepared by third parties that are not paid for by the Company. The Company’s SEC filings are available at http://www.sec.gov.

NEWEGG COMMERCE, INC. Consolidated Balance Sheets (In thousands, except par value) (Unaudited)
		June 30, 2024				December 31, 2023
Assets
Current assets:
Cash and cash equivalents		$	49,678			$	102,512
Restricted cash			3,435				3,962
Accounts receivable, net			36,576				80,383
Inventories, net			131,986				136,164
Income taxes receivable			2,706				3,226
Prepaid expenses			8,492				13,424
Other current assets			6,277				4,780
Total current assets			239,150				344,451
Property and equipment, net			56,413				61,479
Noncurrent deferred tax assets			1,756				1,607
Investment at cost			—				2,250
Right of use assets, net			70,109				77,150
Other noncurrent assets			10,998				12,110
Total assets		$	378,426			$	499,047
Liabilities and Equity
Current liabilities:
Accounts payable		$	110,771			$	206,588
Accrued liabilities			34,763				43,014
Deferred revenue			17,329				25,614
Line of credit			20,735				7,330
Current portion of long-term debt			262				268
Lease liabilities – current			14,301				13,730
Total current liabilities			198,161				296,544
Long-term debt, less current portion			939				1,110
Income taxes payable			1,981				1,981
Lease liabilities – noncurrent			60,766				68,126
Other liabilities			1,952				1,894
Total liabilities			263,799				369,655
Stockholders’ Equity
Common Stock, $0.021848 par value; unlimited shares authorized; 387,928 and 380,413 shares issued and outstanding as of June 30, 2024, and December 31, 2023, respectively			8,476				8,312
Additional paid-in capital			277,983				266,774
Notes receivable – related party			(15,186	)			(15,189	)
Accumulated other comprehensive income			(993	)			194
Accumulated deficit			(155,653	)			(130,699	)
Total stockholders’ equity			114,627				129,392
Total liabilities and stockholders’ equity		$	378,426			$	499,047

NEWEGG COMMERCE, INC. Consolidated Statements of Operations (In thousands) (Unaudited)
		Six Months Ended June 30,
		2024				2023
Net sales		$	618,119			$	723,249
Cost of sales			555,003				641,977
Gross profit			63,116				81,272
Selling, general, and administrative expenses			93,083				115,877
Loss from operations			(29,967	)			(34,605	)
Interest income			1,544				821
Interest expense			(440	)			(463	)
Other income, net			1,880				57
Gain from sales of investment			1,619				3,053
Change in fair value of warrants liabilities			(64	)			21
Loss before provision for income taxes			(25,428	)			(31,116	)
Benefit from income taxes			(474	)			(1,785	)
Net loss		$	(24,954	)		$	(29,331	)

NEWEGG COMMERCE, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
		Six Months Ended June 30,
		2024				2023
Cash flows from operating activities:
Net loss		$	(24,954	)		$	(29,331	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			5,739				6,331
Allowance for expected credit losses			1,193				(469	)
Provision for obsolete and excess inventory			1,569				3,906
Stock-based compensation			15,022				17,923
Gain from sales of investment			(1,619	)			(3,053	)
Change in fair value of warrant liabilities			65				(21	)
Loss on disposal of property and equipment			52				184
Unrealized gain on marketable securities			(10	)			(1	)
Deferred income taxes			(169	)			(1,916	)
Changes in operating assets and liabilities:
Accounts receivable			42,426				25,912
Inventories			2,223				14,292
Prepaid expenses			4,913				4,268
Other assets			8,959				3,955
Accounts payable			(95,388	)			(82,097	)
Accrued liabilities and other liabilities			(15,036	)			(19,446	)
Deferred revenue			(8,182	)			(15,398	)
Dues from affiliate			—				2
Net cash used in operating activities			(63,197	)			(74,959	)
Cash flows from investing activities:
Payments to acquire property and equipment			(1,212	)			(26,750	)
Proceeds on disposal of property and equipment			15				60
Proceeds from sale of investment			2,076				3,412
Net cash provided by (used in) investing activities			879				(23,278	)
Cash flows from financing activities:
Borrowings under line of credit			41,098				27,594
Repayments under line of credit			(27,474	)			(1,153	)
Repayments of long-term debt			(132	)			(134	)
Proceeds from exercise of stock options			95				1,078
Payments for employee taxes related to stock compensation			(241	)			(411	)
Payments for shares buyback			(3,503	)			—
Net cash provided by financing activities			9,843				26,974
Foreign currency effect on cash, cash equivalents and restricted cash			(886	)			727
Net decrease in cash, cash equivalents and restricted cash			(53,361	)			(70,536	)
Cash, cash equivalents and restricted cash:
Beginning of period			106,474				123,506
End of period		$	53,113			$	52,970

Schedule 1 Reconciliation of Net Sales to GMV
		Six Months Ended June 30,
		2024				2023
		(in millions)
Net Sales		$	618.1			$	723.2
Adjustments:
GMV - Marketplace			153.0				198.7
Marketplace Commission			(12.7	)			(18.2	)
Deferred Revenue			(5.8	)			(9.3	)
Other			(5.9	)			(11.9	)
GMV		$	746.7			$	882.5

Schedule 2 Reconciliation of Net Loss to Adjusted EBITDA
		Six Months Ended June 30,
		2024				2023
		(in millions)
Net loss		$	(25.0	)		$	(29.3	)
Adjustments:
Stock-based compensation expenses			15.0				17.9
Interest income, net			(1.1	)			(0.4	)
Income tax benefit			(0.4	)			(1.8	)
Depreciation and amortization			5.7				6.3
Gain from sale of investment			(1.6	)			(3.0	)
Loss from change in fair value of warrants liabilities			0.1				—
Adjusted EBITDA		$	(7.3	)		$	(10.3	)

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240828738369/en/

Newegg Commerce, Inc.:

Investor Relations

ir@newegg.com

Source: Newegg Commerce Inc.

FAQ

What were Newegg's (NEGG) net sales for the first half of 2024?

Newegg's net sales for the first half of 2024 were $618.1 million, representing a 14.5% decrease compared to the same period in 2023.

How did Newegg's (NEGG) adjusted EBITDA perform in the first half of 2024?

Newegg's adjusted EBITDA improved by 29% to $(7.3) million in the first half of 2024, compared to $(10.3) million for the same period in 2023.

What is Newegg's (NEGG) strategy for the remainder of 2024?

Newegg's strategy includes capitalizing on server demand, expanding mainstream PC offerings, strengthening vendor relationships, and focusing on core IT products and customer experience enhancement.

How much borrowing capacity does Newegg (NEGG) have under its renewed credit agreement?

Newegg's renewed credit agreement provides for borrowing capacity of up to $40 million from April 1 to September 30 and $50 million from October 1 to March 31 for each year during the renewal term.