SUMR Brands ("SUMR Brands" or the "Company") (NASDAQ: SUMR), a
global leader in premium infant and juvenile products, today
announced financial results for the third quarter ended September
26, 2020.
Recent Highlights
- SUMR Brands reported net sales of $40.7 million in the third
quarter versus $41.5 million in the prior-year period, reflecting
higher demand across many of the Company’s core product categories
largely offsetting the impact from COVID-19 on certain brick &
mortar customers and international sales
- Net income was $2.2 million, or $1.03 per share, in the third
quarter of 2020 compared with a net loss of $1.7 million, or
$(0.79) per share, in the prior-year period; the 2020 third quarter
was favorably impacted by $0.17 per share related to a modification
of interest expense deductibility under the U.S. Cares Act,
resulting in a tax benefit
- Adjusted EBITDA rose to $4.7 million from $0.8 million in the
third quarter of 2019, and Adjusted EBITDA as a percent of net
sales was 11.4% in 2020 versus 2.0% last year
- G&A declined to $6.9 million in the quarter from $8.4
million in last year’s comparable period
- The Company announced October 16 that it had successfully
refinanced its debt facilities with Bank of America, with
annualized interest expense expected to be reduced by approximately
$2.0 million
“After a very positive second quarter, we
continued to strengthen the Company and build a foundation for
long-term success this period,” said Stuart Noyes, Interim CEO.
“Excluding one-time adjustments related to the Cares Act, we posted
adjusted earnings of $0.86 per share and Adjusted EBITDA of $4.7
million despite a slight decline in third quarter revenue due to
ongoing COVID-19 headwinds, a strategic move to direct import
select products, and our international restructuring. We focused on
mitigating the impact of the reinstatement of certain tariffs this
quarter by actively managing costs, maintaining price discipline,
and working to improve supply chain inefficiencies. Such steps have
been pivotal heading into the final quarter of the year as we
expect that softening consumer demand, additional challenges
anticipated due to COVID-19 resurgence, and further disruptions to
our supply chain will dampen top line results and impact margins.
At this point we anticipate Adjusted EBITDA may be 40%-60% lower in
the fourth quarter than in the third, as SUMR – and other companies
– deal with unusual levels of shipping congestion, container
shortages, lack of trucks, and other issues impacting inventory,
our cost structure, and time to market.
“In October we announced the completion of a
favorable debt refinancing with Bank of America, a significant
accomplishment for SUMR. Our improved financial position this year
allowed us to structure a less expensive credit agreement that we
expect will reduce interest expense by approximately $2.0 million
annually. We will continue to focus on using cash flow to de-lever
the balance sheet, whenever possible, while investing in e-commerce
initiatives and core product categories that fuel top line growth.
We are pleased with how far the Company has come in 2020 and are
focused on successfully meeting the challenges ahead – in the
fourth quarter and beyond.”
Third Quarter Results
Net sales for the three months ended September
26, 2020 were $40.7 million compared with $41.5 million for the
three months ended September 28, 2019. The Company’s results
reflect increased revenue across many key product segments –
including gates, potties, bathers, and playards – offset by lower
international sales and the lingering impact of COVID-19 on certain
brick & mortar retailers and product supply.
Gross profit for the third quarter of 2020 was
$13.5 million versus $12.6 million in 2019, while gross margin rose
to 33.3% in 2020 versus 30.3% last year. The gross margin increase
reflected a favorable mix of higher-margin product categories,
fewer closeout sales, and lower tariffs on certain products as
compared with 2019. Tariff exclusions received since December 2019
expired in August 2020. The Company has taken action to decrease
the impact through strategic pricing, supply chain management, and
cost reductions.
Selling expense was $2.8 million in the third
quarter of 2020 versus $3.6 million in 2019, and selling expense as
a percent of net sales was 6.9% in 2020 versus 8.7% last year. The
decrease year-over-year in total and as a percent of sales was
primarily due to lower freight and advertising costs.
General and administrative expenses (G&A)
were $6.9 million in the third quarter of 2020 versus $8.4 million
in the third quarter of 2019, declining to 16.9% of net sales from
20.1% last year. The year-over-year change reflects lower labor and
other costs due to various streamlining actions taken by the
Company over the past year. Interest expense was $1.0 million in
the third quarter of 2020 versus $1.2 million in 2019.
The Company reported net income of $2.2 million,
or $1.03 per share, in the third quarter of 2020 compared with a
net loss of $1.7 million, or $(0.79) per share, in the prior-year
period. The company recorded a tax provision adjustment in the
third quarter related to changes in the interest deduction
threshold under the U.S. Cares Act, resulting in approximately
$0.17 of favorable impact on third quarter EPS.
Adjusted EBITDA, as defined in the Company’s
credit agreements, for the third quarter of 2020 was $4.7 million
versus $0.8 million for the third quarter of 2019, and Adjusted
EBITDA as a percent of net sales was 11.4% in the third quarter of
2020 versus 2.0% last year. Adjusted EBITDA in 2020 included $0.7
million in bank permitted add-back charges compared with $0.1
million during the prior-year period. Adjusted EBITDA, adjusted net
loss, and adjusted loss per share are non-GAAP metrics. An
explanation is included under the heading below "Use of Non-GAAP
Financial Information," and reconciliations to GAAP measures can be
found in the tables at the end of this release.
Outlook for Fourth Quarter
2020
SUMR Brands, similar to other consumer products
companies and retailers, is facing supply chain challenges in the
fourth quarter related to shipping, trucking, and logistics, making
it difficult to ensure a steady, reliable stream of inventory to
the Company and its customers. Such issues are negatively impacting
product supply and warehousing costs. While it is not the Company’s
normal practice to provide forward-looking financial information,
and does not expect to do so in the future, in light of these
near-term disruptions – along with ongoing tariffs, challenges due
to COVID-19 and softening consumer demand – the Company expects
reduced revenue and lower Adjusted EBITDA (by as much as 40%-60%)
compared to third quarter results. The Company is taking
appropriate measures to actively mitigate these issues when and
where possible.
Balance Sheet Highlights
As of September 26, 2020, the Company had
approximately $0.9 million of cash and $35.0 million of bank debt
compared with $0.4 million of cash and $48.6 million of bank debt
as of December 28, 2019. Inventory as of September 26, 2020 was
$24.5 million versus $28.1 million at the beginning of the fiscal
year. Trade receivables as of the end of the third quarter were
$30.8 million compared with $32.8 million as of December 28, 2019,
while accounts payable and accrued expenses were $37.3 million
compared with $32.7 million at the beginning of the fiscal
year.
Debt Refinancing
After the end of the quarter, the Company
entered into a Third Amended and Restated Loan and Security
Agreement with Bank of America, N.A. (the “Credit Facility”) that
replaced its prior $48.0 million asset-based revolving credit
facility (“ABL”) with Bank of America and $17.5 million term loan
with Pathlight Capital LLC. The new Credit Facility, solely with
Bank of America, consists of a $40.0 million ABL, a $7.5 million
term loan, and a $2.5 million FILO (first-in, last-out) loan, for
aggregate availability of $50.0 million. The Credit Facility
provides adequate liquidity for SUMR with significantly reduced
interest rates compared to the Company’s prior financing
agreements. After paying off existing debt, the Company had
approximately $9.0 million in availability under the Credit
Facility.
Conference Call Information
Management will host a conference call to
discuss the financial results Thursday, November 12, at 9:00 a.m.
Eastern. To listen to the live call, visit the Investor Relations
section of the Company's website at www.sumrbrands.com or dial
844-834-0642 or 412-317-5188. An archive of the webcast will be
available on the Company's website.
About SUMR Brands, Inc.
Based in Woonsocket, Rhode Island, the Company
is a global leader of premium juvenile brands driven by a
commitment to people, products, and purpose. The Company is made up
of a diverse group of experts with a passion to make family life
better by selling proprietary, innovative products across several
core categories. For more information about the Company, please
visit www.sumrbrands.com.
Use of Non-GAAP Financial
Information
This release and the referenced webcast include
presentations of non-GAAP financial measures, including Adjusted
EBITDA, adjusted net loss and adjusted loss per diluted share.
Adjusted EBITDA means earnings before interest and taxes plus
depreciation, amortization, non-cash stock-based compensation
expenses and other items added back, as permitted by the Company’s
credit agreements and detailed in the reconciliation table included
in this release. Non-GAAP adjusted net loss and adjusted loss per
diluted share means net (loss) plus unamortized financing fees and
other items added back, as permitted by the Company’s credit
agreements, adjustments related to changes in tax valuation
allowances due to the application of the CARES Act, as well as the
tax impact of these items, as detailed in the reconciliation table
included in this release. With respect to our forward-looking
Adjusted EBITDA for the fourth quarter, no reconciliation is
included in this release because the Company is unable to quantify
certain amounts that would be required to be included in the
comparable GAAP measure without unreasonable efforts, and the
Company believes such a reconciliation would imply a degree of
precision that would be confusing or misleading to investors due to
the high variability, complexity and low visibility with respect to
the items excluded from or added in the calculation of Adjusted
EBITDA. Such information is supplemental to information presented
in accordance with GAAP and is not intended to represent a
presentation in accordance with GAAP. The Company believes that
these non-GAAP financial measures provide useful information to
investors to better understand, on a period-to-period comparable
basis, financial amounts both including and excluding these
identified items, as they indicate more clearly the Company’s
operations and its ability to meet capital expenditure and working
capital requirements. These non-GAAP measures should not be
considered in isolation or as an alternative to such GAAP measures
as net income, cash flows provided by or used in operating,
investing or financing activities or other financial statement data
presented in the Company’s consolidated financial statements as an
indicator of financial performance or liquidity. The Company
provides reconciliations of these non-GAAP measures in its press
releases of historical performance. Because these measures
are not determined in accordance with GAAP and are susceptible to
varying calculations, these non-GAAP measures, as presented, may
not be comparable to other similarly titled measures of other
companies.
Forward-Looking Statements
Certain statements in this release that are not
historical fact may be deemed “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company
intends that such forward-looking statements be subject to the safe
harbor created thereby. These statements are accompanied by
words such as “anticipate,” “expect,” “project,” “will,”
“believes,” “estimate” and similar expressions, and include
statements regarding the Company’s expectations for performance in
the fourth quarter of 2020, including Adjusted EBITDA and revenue
expectations and softening demand, its efforts to mitigate the
impact of supply chain challenges, its efforts to mitigate tariffs,
the expected annualized interest savings on its refinanced debt,
and the Company’s actions to position the Company for future
growth, including de-levering the balance sheet and investing in
core categories. The Company cautions that these statements are
qualified by important factors that could cause actual results to
differ materially from those reflected by such forward-looking
statements. Such factors include the impact of the COVID-19
pandemic on the Company’s supply chain and consumer demand, U.S.
operations and sales in the U.S; increased tariffs, additional
tariffs or import or export taxes on the cost of its products and
therefore demand for its products; the Company’s ability to meet
its liquidity requirements; the Company’s ability to comply with
the covenants in its loan agreement and to maintain availability
under its loan agreement; the Company’s ability to implement and to
achieve the expected benefits and savings of its restructuring
initiatives; the concentration of the Company’s business with
retail customers; the ability of the Company to compete in its
industry; the Company’s ability to continue to control costs and
expenses; the Company’s reliance on foreign suppliers; the
Company’s ability to develop, market and launch new products; the
Company’s ability to manage inventory levels and meet customer
demand; the Company’s ability to grow sales with existing and new
customers and in new channels; and other risks as detailed in the
Company’s most recent Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and other filings with the Securities and
Exchange Commission. The Company assumes no obligation to
update the information contained in this release.
Company Contact:Chris WittyInvestor
Relations646-438-9385cwitty@darrowir.com
Tables to Follow
Summer Infant, Inc. |
|
Consolidated Statements of
Operations |
|
(amounts in thousands of US dollars, except share and per
share data) |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
September 26, 2020 |
|
September 28, 2019 |
|
September 26, 2020 |
|
September 28, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
40,704 |
|
|
$ |
41,523 |
|
|
$ |
119,256 |
|
|
$ |
130,486 |
|
|
Cost of goods sold |
|
|
27,168 |
|
|
|
28,928 |
|
|
|
79,178 |
|
|
|
89,599 |
|
|
Gross profit |
|
$ |
13,536 |
|
|
$ |
12,595 |
|
|
$ |
40,078 |
|
|
$ |
40,887 |
|
|
General and administrative expenses(1) |
|
|
6,890 |
|
|
|
8,353 |
|
|
|
21,766 |
|
|
|
26,255 |
|
|
Selling expense |
|
|
2,802 |
|
|
|
3,597 |
|
|
|
9,984 |
|
|
|
10,981 |
|
|
Depreciation and
amortization |
|
|
783 |
|
|
|
919 |
|
|
|
2,563 |
|
|
|
2,808 |
|
|
Operating income/(loss) |
|
$ |
3,061 |
|
|
$ |
(274 |
) |
|
$ |
5,765 |
|
|
$ |
843 |
|
|
Interest expense |
|
|
1,017 |
|
|
|
1,191 |
|
|
|
3,548 |
|
|
|
3,733 |
|
|
Income/(loss) before taxes |
|
$ |
2,044 |
|
|
$ |
(1,465 |
) |
|
$ |
2,217 |
|
|
$ |
(2,890 |
) |
|
Income tax
(benefit)/provision |
|
|
(166 |
) |
|
|
195 |
|
|
|
(70 |
) |
|
|
392 |
|
|
Net income/(loss) |
|
$ |
2,210 |
|
|
$ |
(1,660 |
) |
|
$ |
2,287 |
|
|
$ |
(3,282 |
) |
|
Income/(loss) per diluted share |
|
$ |
1.03 |
|
|
$ |
(0.79 |
) |
|
$ |
1.08 |
|
|
$ |
(1.56 |
) |
|
|
|
|
|
|
|
|
|
|
|
Shares used in fully diluted EPS |
|
|
2,155,791 |
|
|
|
2,104,207 |
|
|
|
2,120,044 |
|
|
|
2,098,886 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock based
compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP to Non-GAAP Financial
Measures |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
September 26, 2020 |
|
September 28, 2019 |
|
September 26, 2020 |
|
September 28, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
Net income/(loss) (GAAP) |
|
$ |
2,210 |
|
|
$ |
(1,660 |
) |
|
$ |
2,287 |
|
|
$ |
(3,282 |
) |
|
Plus: interest expense |
|
|
1,017 |
|
|
|
1,191 |
|
|
|
3,548 |
|
|
|
3,733 |
|
|
Plus: (benefit)/provision for income taxes |
|
|
(166 |
) |
|
|
195 |
|
|
|
(70 |
) |
|
|
392 |
|
|
Plus: depreciation and amortization |
|
|
783 |
|
|
|
919 |
|
|
|
2,563 |
|
|
|
2,808 |
|
|
Plus: non-cash stock based
compensation expense |
|
|
105 |
|
|
|
72 |
|
|
|
136 |
|
|
|
224 |
|
|
Plus: permitted add-backs
(a) |
|
|
709 |
|
|
|
100 |
|
|
|
2,376 |
|
|
|
838 |
|
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
4,658 |
|
|
$ |
817 |
|
|
$ |
10,840 |
|
|
$ |
4,713 |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EPS |
|
|
|
|
|
|
|
|
|
Net income/(loss) (GAAP) |
|
$ |
2,210 |
|
|
$ |
(1,660 |
) |
|
$ |
2,287 |
|
|
$ |
(3,282 |
) |
|
Plus: permitted add-backs(a) |
|
|
709 |
|
|
|
100 |
|
|
|
2,376 |
|
|
|
838 |
|
|
Plus: unamortized financing fees(b) |
|
|
- |
|
|
|
- |
|
|
|
266 |
|
|
|
- |
|
|
Less: Discrete (tax benefit)/provision(c) |
|
|
(362 |
) |
|
|
- |
|
|
|
(624 |
) |
|
|
- |
|
|
Tax impact of items impacting comparability(d) |
|
|
(199 |
) |
|
|
(28 |
) |
|
|
(740 |
) |
|
|
(235 |
) |
|
Adjusted net income/(loss)
(Non-GAAP) |
|
$ |
2,358 |
|
|
$ |
(1,588 |
) |
|
$ |
3,565 |
|
|
$ |
(2,679 |
) |
|
Adjusted earnings/(loss) per diluted
share (Non-GAAP) |
|
$ |
1.09 |
|
|
$ |
(0.75 |
) |
|
$ |
1.68 |
|
|
$ |
(1.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
(a) Permitted add-backs consist of items that the Company is
permitted to add-back to the calculation of consolidated EBITDA
under its credit agreements. Permitted add-backs for the
three months ended September 26, 2020 include special projects $582
($163 tax impact), board fees $77 ($22 tax impact), and severance
related fees $50 ($14 tax impact). Permitted add-backs for
the three months ended September 28, 2019 include board fees $98
($27 tax impact), and special projects $2 ($1 tax impact).
Permitted add-backs for the nine months ended September 26, 2020
include special projects $1,758 ($492 tax impact), severance
related fees $298 ($84 tax impact), board fees $238 ($67 tax
impact), and restructuring costs $82 ($23 tax impact).
Permitted add-backs for the nine months ended September 28, 2019
include severance related fees $511 ($143 tax impact), board fees
$299 ($84 tax impact) , and special projects $28 ($8 tax
impact). |
|
(b) Write off of unamortized financing costs associated with the
reduction in Company's Bank of America credit facility, reflecting
a $266 ($74 tax impact) charge for the three months ending March
28, 2020. |
|
(c) The discrete tax benefit is attributable to modifications of
interest expense deductibility under the U.S. CARES Act, which had
a $0.17 positive impact on earnings per diluted share in the third
quarter of 2020. Excluding solely the impact of this
adjustment, adjusted earnings per share would have been $0.86 for
the third quarter of 2020. |
|
(d) Represents the aggregate tax impact of the adjusted items set
forth above based on the statutory tax rate for the periods
presented relevant to their jurisdictions. |
|
Summer Infant, Inc |
|
Consolidated Balance Sheet |
|
(amounts in thousands of US dollars) |
|
|
|
|
|
|
|
|
|
|
September 26, 2020 |
|
|
December 28, 2019 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
871 |
|
$ |
395 |
|
Trade receivables, net |
|
30,757 |
|
|
32,787 |
|
Inventory, net |
|
24,460 |
|
|
28,056 |
|
Property and equipment, net |
|
5,205 |
|
|
8,788 |
|
Intangible assets,
net |
|
12,613 |
|
|
12,896 |
|
Other assets |
|
8,753 |
|
|
8,621 |
|
Total assets |
$ |
82,659 |
|
$ |
91,543 |
|
|
|
|
|
|
|
|
Accounts payable |
$ |
29,460 |
|
$ |
25,396 |
|
Accrued expenses |
|
7,858 |
|
|
7,289 |
|
Current portion of long-term debt |
|
656 |
|
|
875 |
|
Long term debt, less current portion (1) |
|
32,130 |
|
|
45,359 |
|
Other liabilities |
|
4,506 |
|
|
7,041 |
|
Total liabilities |
|
74,610 |
|
|
85,960 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
8,049 |
|
|
5,583 |
|
Total liabilities and stockholders’ equity |
$ |
82,659 |
|
$ |
91,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Under U.S. GAAP, long term debt is reported net of unamortized
financing fees. As a result, reported long term debt is
reduced by $2,197 and $2,398 of unamortized financing fees in the
periods ending September 26, 2020 and December 28, 2019,
respectively. Long term debt also includes the PPP Loan of
$1,956 and PIK interest of $366 in the period ending September 26,
2020. |
|
|
|
|
|
|
|
|
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