Newegg Announces Q3 2023 Results
- New initiatives underway to develop new sales channels and expand U.S. marketplace efforts.
- Implementation of Geek+ autonomous robots to enhance warehouse operational efficiency.
- Inaugural $10.0 million share repurchase program announced to enhance shareholder value.
- Reduction in total inventory levels and maintaining a strong cash position.
- Net sales, GMV, and gross profit decreased significantly.
- Increased net loss and adjusted EBITDA for the nine months ended September 30, 2023.
Insights
Financial Performance Analysis: The reported decline in net sales by 16.0% and a 20.2% decrease in GMV (Gross Merchandise Volume) for Newegg Commerce Inc. reflects a significant contraction in the company's revenue streams. The gross profit erosion of 24.7% coupled with the widening net loss from $27.4 million to $44.0 million year-over-year for the nine-month period ending September 30, 2023, indicates deteriorating profitability. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) turning more negative from $(4.5) million to $(17.0) million further underscores operational challenges.
These financial metrics are critical for investors as they reflect the company's ability to generate profit and manage costs amidst macroeconomic headwinds. The inventory turnover improvement and reduction in total inventory levels suggest a strategic move to maintain liquidity, which is a positive sign for cash flow management. However, the revised full-year guidance projecting a net loss of up to $60.0 million raises concerns about the company's near-term profitability prospects.
Market Context and Competitive Positioning: Newegg's strategic initiatives, such as the expansion into new sales channels through Walmart.com and TikTok Shop, may offer avenues for growth, but the actual impact on the company's market share and customer acquisition remains to be seen. The technology e-commerce sector is highly competitive, with consumer demand heavily influenced by product innovation cycles, particularly in high-demand categories like GPUs (Graphics Processing Units). The mention of product shortages and delayed launch cycles could indicate supply chain vulnerabilities, potentially affecting Newegg's ability to meet consumer demand and maintain competitiveness.
The use of Geek+ autonomous robots for enhancing warehouse efficiency is indicative of the industry's broader trend towards automation to reduce operational costs. However, the benefits of such investments typically materialize over the long term and may not immediately offset current financial pressures.
Macroeconomic Implications: The challenging macroeconomic conditions, as referenced by Newegg's CEO, likely include factors such as inflation, interest rate hikes and consumer sentiment. These conditions often lead to reduced discretionary spending, which can adversely affect retailers like Newegg that deal in non-essential goods. While the company's efforts to manage inventory and cash position are prudent in such an environment, the broader economic outlook will continue to play a significant role in its performance.
The share repurchase program indicates management's confidence in the intrinsic value of the company, which can be a positive signal to the market. However, the effectiveness of this strategy in enhancing shareholder value amidst declining financial performance is a subject of debate among economists and investors.
“While we continued to experience lower-than-expected results in the third quarter due to challenging macroeconomic conditions and declining consumer demand, I am excited to share the launch of several new initiatives underway, including the development of new sales channels through Walmart.com and TikTok Shop, our renewed focus on systems and finished good categories, and the expansion of our
“Finally, I am pleased to have announced our inaugural
Newegg Chief Accounting Officer Christina Ching added, “We have started to see some moderation in the rate of decline in our business in the second half as a result of momentum from our Black Friday and Cyber Monday sales period.”
“Our team has moved swiftly to realize SG&A savings in response to declining demand this year, and I am pleased with our progress thus far in achieving substantial year-over-year savings. As a result of various one-time reduction expenses, we expect to see the full benefit of these initiatives in 2024. Separately, our full year projections were negatively impacted by a combination of external factors, including one-time product shortages and delayed product launch cycles, particularly in the GPU category.”
“We remain keenly focused on maintaining healthy inventory turnover and a strong cash position. Our current average inventory turnover is 40 days, and we have reduced total inventory levels from
2023 Q3 Financial Highlights
-
Net sales decreased
16.0% to$1,040.8 million $1,239.7 million -
GMV (defined below) decreased
20.2% to$1,265.0 million $1,585.0 million -
Gross profit decreased
24.7% to$118.1 million $156.9 million -
Net loss was
$44.0 million $27.4 million -
Adjusted EBITDA (defined below) decreased to
$(17.0) million $(4.5) million
2023 Updated Full Year Guidance
The Company currently expects to achieve the following financial performance for the current year ending December 31, 2023:
-
Net sales to be between
$1.42 billion $1.47 billion -
GMV to be between
$1.78 billion $1.83 billion -
Gross profit to be between
$160.0 million $165.0 million -
Net loss to be between
$56.0 million $60.0 million -
Adjusted EBITDA to be between
$(21.0) million $(25.0) million
Mr. Chow added, “We remain optimistic about the future of the business. We continue to innovate in important areas, such as social media and social sharing. As a key partner of TikTok Shop, we have substantially enhanced our social media presence and reach within the key Gen Z demographic. We also launched an innovative social sharing sales channel, Group Buy, in November. Group Buy is our daily deal offer that requires a minimum number of customers to register online each day in order to unlock an attractive deal. Group Buy is designed to encourage customers to share daily deals through social media in order to generate group excitement and attract additional traffic to our site. We believe these types of forward-looking initiatives continue to set Newegg apart in the e-commerce market.”
About Newegg
Newegg Commerce, Inc. (NASDAQ: NEGG), founded in 2001 and based in the
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 Company provides certain guidance on a non-GAAP basis but is unable to provide a reconciliation to the most directly comparable GAAP financial measure without unreasonable efforts, as the Company cannot predict some elements that are included in such directly comparable GAAP financial measure. These elements could have a material impact on the Company’s reported GAAP results for the guidance period.
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
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. 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. 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. |
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Consolidated Balance Sheets |
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(In thousands, except par value) (Unaudited) |
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|
September 30,
|
|
December 31,
|
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Assets |
|
|
|
|
||||
Current assets: |
|
|
|
|
||||
Cash and cash equivalents |
$ |
54,006 |
|
$ |
122,559 |
|
||
Restricted cash |
|
1,137 |
|
|
947 |
|
||
Accounts receivable, net |
|
51,582 |
|
|
83,517 |
|
||
Inventories, net |
|
142,303 |
|
|
156,016 |
|
||
Income taxes receivable |
|
989 |
|
|
5,173 |
|
||
Prepaid expenses |
|
9,265 |
|
|
16,999 |
|
||
Other current assets |
|
3,514 |
|
|
5,611 |
|
||
Total current assets |
|
262,796 |
|
|
390,822 |
|
||
|
|
|
|
|
|
|
||
Property and equipment, net |
|
62,793 |
|
|
45,075 |
|
||
Noncurrent deferred tax assets |
|
2,789 |
|
|
868 |
|
||
Investment at cost |
|
2,250 |
|
|
11,250 |
|
||
Right of use assets, net |
|
78,493 |
|
|
84,161 |
|
||
Other noncurrent assets |
|
9,397 |
|
|
9,919 |
|
||
Total assets |
$ |
418,518 |
|
$ |
542,095 |
|
||
|
|
|
|
|
|
|
||
Liabilities and Equity |
|
|
|
|
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Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
$ |
143,301 |
|
$ |
207,147 |
|
||
Accrued liabilities |
|
30,806 |
|
|
51,003 |
|
||
Deferred revenue |
|
15,970 |
|
|
31,028 |
|
||
Line of credit |
|
7,157 |
|
|
6,056 |
|
||
Current portion of long-term debt |
|
259 |
|
|
269 |
|
||
Lease liabilities – current |
|
12,868 |
|
|
14,265 |
|
||
Total current liabilities |
|
210,361 |
|
|
309,768 |
|
||
|
|
|
|
|
|
|
||
Long-term debt, less current portion |
|
1,154 |
|
|
1,404 |
|
||
Income taxes payable |
|
739 |
|
|
739 |
|
||
Lease liabilities – noncurrent |
|
70,047 |
|
|
74,838 |
|
||
Other liabilities |
|
417 |
|
|
124 |
|
||
Total liabilities |
|
282,718 |
|
|
386,873 |
|
||
|
|
|
|
|
|
|
||
Stockholders’ Equity |
|
|
|
|
|
|
||
Common Stock, |
|
8,305 |
|
|
8,230 |
|
||
Additional paid-in capital |
|
258,362 |
|
|
232,776 |
|
||
Notes receivable – related party |
|
(15,189 |
) |
|
(15,189 |
) |
||
Accumulated other comprehensive income |
|
43 |
|
|
1,114 |
|
||
Accumulated deficit |
|
(115,721 |
) |
|
(71,709 |
) |
||
Total stockholders’ equity |
|
135,800 |
|
|
155,222 |
|
||
Total liabilities and stockholders’ equity |
$ |
418,518 |
|
$ |
542,095 |
|
||
NEWEGG COMMERCE, INC. |
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Consolidated Statements of Operations |
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(In thousands, unaudited) |
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Nine Months Ended
|
||||||
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|
2023 |
|
2022 |
||||
Net sales |
$ |
1,040,819 |
|
$ |
1,239,698 |
|
||
Cost of sales |
|
922,692 |
|
|
1,082,774 |
|
||
Gross profit |
|
118,127 |
|
|
156,924 |
|
||
Selling, general, and administrative expenses |
|
171,550 |
|
|
198,425 |
|
||
Loss from operations |
|
(53,423 |
) |
|
(41,501 |
) |
||
Interest income |
|
1,740 |
|
|
700 |
|
||
Interest expense |
|
(909 |
) |
|
(573 |
) |
||
Other income, net |
|
559 |
|
|
4,744 |
|
||
Gain from sales of investment |
|
5,060 |
|
|
1,669 |
|
||
Change in fair value of warrants liabilities |
|
25 |
|
|
979 |
|
||
Loss before provision for income taxes |
|
(46,948 |
) |
|
(33,982 |
) |
||
Benefit from income taxes |
|
(2,936 |
) |
|
(6,625 |
) |
||
Net loss |
$ |
(44,012 |
) |
$ |
(27,357 |
) |
||
NEWEGG COMMERCE, INC. |
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Consolidated Statements of Cash Flows |
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(In thousands) (Unaudited) |
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Nine Months Ended
|
||||||
|
|
2023 |
|
2022 |
||||
Cash flows from operating activities: |
|
|
|
|
||||
Net loss |
$ |
(44,012 |
) |
$ |
(27,357 |
) |
||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
9,655 |
|
|
7,944 |
|
||
Allowance for expected credit losses |
|
37 |
|
|
679 |
|
||
Allowance for related party receivable |
|
- |
|
|
(25 |
) |
||
Provision for obsolete and excess inventory |
|
3,387 |
|
|
6,495 |
|
||
Stock-based compensation |
|
25,881 |
|
|
24,395 |
|
||
Gain from sales of investment |
|
(5,060 |
) |
|
(1,669 |
) |
||
Change in fair value of warrant liabilities |
|
(25 |
) |
|
(979 |
) |
||
Loss on disposal of property and equipment |
|
218 |
|
|
435 |
|
||
Unrealized loss on marketable securities |
|
- |
|
|
55 |
|
||
Deferred income taxes |
|
(1,942 |
) |
|
(6,653 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
31,772 |
|
|
6,714 |
|
||
Inventories |
|
10,332 |
|
|
90,894 |
|
||
Prepaid expenses |
|
7,725 |
|
|
5,731 |
|
||
Other assets |
|
12,253 |
|
|
(2,371 |
) |
||
Accounts payable |
|
(63,842 |
) |
|
(76,527 |
) |
||
Accrued liabilities and other liabilities |
|
(26,589 |
) |
|
(33,339 |
) |
||
Deferred revenue |
|
(15,063 |
) |
|
(15,713 |
) |
||
Net cash used in operating activities |
|
(55,273 |
) |
|
(21,291 |
) |
||
Cash flows from investing activities: |
|
|
|
|
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Payments to acquire property and equipment |
|
(28,756 |
) |
|
(8,610 |
) |
||
Proceeds on disposal of property and equipment |
|
60 |
|
|
1 |
|
||
Proceeds from sales of investment |
|
14,060 |
|
|
5,419 |
|
||
Net cash used in investing activities |
|
(14,636 |
) |
|
(3,190 |
) |
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Borrowings under line of credit |
|
27,502 |
|
|
46,211 |
|
||
Repayments under line of credit |
|
(26,098 |
) |
|
(45,757 |
) |
||
Repayments of long-term debt |
|
(199 |
) |
|
(209 |
) |
||
Proceeds from exercise of stock options |
|
1,163 |
|
|
2,366 |
|
||
Payments for employee taxes related to stock-based compensation |
|
(628 |
) |
|
— |
|
||
Net cash provided by financing activities |
|
1,740 |
|
|
2,611 |
|
||
Foreign currency effect on cash, cash equivalents and restricted cash |
|
(194 |
) |
|
641 |
|
||
Net decrease in cash, cash equivalents and restricted cash |
|
(68,363 |
) |
|
(21,229 |
) |
||
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
||
Beginning of period |
|
123,506 |
|
|
104,330 |
|
||
End of period |
$ |
55,143 |
|
$ |
83,101 |
|
||
Schedule 1 |
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Reconciliation of Net Sales to GMV |
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For the Nine Months Ended
|
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|
2023 |
2022 |
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(in millions) |
|||||||
Net Sales |
$ |
1,040.8 |
|
$ |
1,239.7 |
|
||
Adjustments: |
|
|
|
|
|
|
||
GMV - Marketplace |
|
278.5 |
|
|
409.3 |
|
||
Marketplace Commission |
|
(25.5 |
) |
|
(37.7 |
) |
||
Deferred Revenue |
|
(10.5 |
) |
|
(12.1 |
) |
||
Other |
|
(18.3 |
) |
|
(14.2 |
) |
||
GMV |
$ |
1,265.0 |
|
$ |
1,585.0 |
|
||
Schedule 2 |
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Reconciliation of Net Loss to Adjusted EBITDA |
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For the Nine Months Ended
|
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|
|
2023 |
|
2022 |
||||
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|
(in millions) |
||||||
Net loss |
$ |
(44.0 |
) |
$ |
(27.4 |
) |
||
Adjustments: |
|
|
|
|
|
|
||
Stock-based compensation expenses |
|
25.9 |
|
|
24.4 |
|
||
Interest income, net |
|
(0.8 |
) |
|
(0.1 |
) |
||
Income tax benefit |
|
(2.9 |
) |
|
(6.6 |
) |
||
Depreciation and amortization |
|
9.9 |
|
|
7.9 |
|
||
Gain from sales of investment |
|
(5.1 |
) |
|
(1.7 |
) |
||
Gain from change in fair value of warrants liabilities |
|
— |
|
|
(1.0 |
) |
||
Adjusted EBITDA |
$ |
(17.0 |
) |
$ |
(4.5 |
) |
||
View source version on businesswire.com: https://www.businesswire.com/news/home/20231222910165/en/
Newegg Commerce, Inc.:
Investor Relations
ir@newegg.com
Source: Newegg Commerce, Inc.
FAQ
What are the recent results announced by Newegg Commerce, Inc. (NASDAQ: NEGG)?
What were the major factors contributing to the lower-than-expected results for Newegg Commerce, Inc. (NASDAQ: NEGG)?
What initiatives is Newegg Commerce, Inc. (NASDAQ: NEGG) undertaking to improve its business?
What financial initiatives has Newegg Commerce, Inc. (NASDAQ: NEGG) announced to enhance shareholder value?
What were the financial highlights for Newegg Commerce, Inc. (NASDAQ: NEGG) for the nine months ended September 30, 2023?
What is the updated full-year guidance for Newegg Commerce, Inc. (NASDAQ: NEGG) for 2023?
