Capstone Companies, Inc.
Q1 2021 Earnings Call Transcript

Published: 18 May 2021

[Operator:]

Greetings, and welcome to Capstone Companies, First Quarter 2021 Financial Results 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 is being recorded. It is now my pleasure to introduce your host Aimee Brown, Corporate Secretary. Thank you. You may begin.

[Aimee Brown:]

Thank you, Doug, and good morning to, everyone. On the call today is Stewart Wallach, Capstone's President and Chief Executive Officer; and Gerry McClinton, Chief Financial Officer. They will be discussing the first quarter 2021 financial results as well as give us an update on the strategy and outlook, followed by a question-and-answer session. If you do not have the release that was distributed yesterday afternoon, it is available on the Company's website at capstonecompaniesinc.com. As you are aware, we may make forward-looking statements during today's presentation. These statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today.

[Stewart Wallach:]

Thank you, Amie, and good morning to everyone. First, before we start discussion about what lies before us in the months ahead, I would like to express my appreciation for the continuing support we're receiving from the shareholder community. I am keenly sensitive to your interest in knowing as much as possible about the company's Smart Mirror program status. And toward that end, we will continue to communicate openly and honestly so that your expectations are aligned with our progress. Frankly, it is hard to contain the management's enthusiasm, as the major milestone of first deliveries is within reach. As we impatiently wait for the final testing and certifications of the Mirror program to be completed, we are readying ourselves to effectively execute the Capstone Connected and Amazon online programs, the plan to Google advertising campaign, paid social ad campaigns and email marketing to support the paid advertising. Accordingly, we will continue to draw your attention to these developments in real time, and share material events through PR releases ongoing. Following Gerry's financial review, I will highlight the drivers behind our business and discuss how these will affect our future performance. At this time, I'll turn it over to Gerry.

[Gerry McClinton:]

Thank you, Stewart and good morning everyone. We encourage you to review the filed Form 10-K report as Form 10-Q report is in our condensed format. During the quarter ended March 31, 2021, the company continues to be negatively impacted by COVID-19 pandemic. Revenue although higher than 2020 remain reduced as compared to pre-pandemic levels. Since the beginning of the year, we've been able to secure necessary financial support that will allow us to remain focused on operational objectives while providing the required funding for the Smart Mirror inventory and support programming for direct-to-consumer online business. As anticipated the online business will be driven through the capital connected an Amazon online marketplace. So let's take a look at the numbers, for the quarter ended March 31, 2021 and 2020 net revenues were approximately $438,000 and $149,000 respectively that's an increase of $289,000. The revenues were the result solely of LED promotional activity. International sales in the quarter were approximately $296,500 or 68% of revenue as compared to $100,000 or 68% of revenue in 2020.

[Stewart Wallach:]

Thank you, Gerry. Let's start the discussion today with an overview of the Smart Home segment as this is the space we will be participating in. Acknowledging the early Smart Home companies helps frame the potential that has been created for companies such as ourselves. While the success of Smart Home companies like Ring, SimpliSafe, and Nest are commonly known, the impact of their successes are far reaching and possibly less obvious.

[Operator:]

Thank you Our first question comes from the line of David Kuras, a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Thank you for taking my question. I was part of the last April 1 conference call. And my question was pertaining to that you mentioned something that gained my interest that you're getting numerous interest from different types of - industries in the biggest industry that sounds like a no brainer to me would be the hospitality industry that you mentioned last time? Is there any updates on that, is there any future plans to have a sales team go out to resorts and major hotel corporations like you know the big ones and hit that up?

[Stewart Wallach:]

David, Stewart Wallach thanks for your question. Absolutely, hospitality market is clearly identified in our growth strategy, but there's certain things that have to be accomplished of course, before we could even anticipate that. And so far as accessing the potential there it's relatively commonplace for us to deal in headquarters, and that's exactly what we would be doing. So if we were to talk to a flagship like Marriott we'd be doing at the headquarter offices. They do have programs in place which we have researched relative to procurement for future developments, interior design et cetera. We are familiarizing ourselves with that, but I want to emphasize the fact that, that will not be at the front end of our marketing strategy. We have to first exploit the market that's right in front of us identify the capacities and identify what additional business we want to entertain.

[Operator:]

Our next question comes from the line of . Please proceed with your question.

[Unidentified Analyst:]

First, I'd like to let you know how much the shareholder community appreciates your openness and can’t understand how difficult - we understand how difficult it is to give exact dates for these different milestones, because of the pandemic and whatnot. But today you mentioned being weeks away could you add a little more specifics on that for us, please?

[Stewart Wallach:]

Sure, Mike how are you today?

[Unidentified Analyst:]

Good thanks.

[Stewart Wallach:]

So here we go, as I referred earlier to the elephant in the room. At this point, our planning is based on a best case scenario of five to six weeks out and a worst case scenario of eight to nine weeks. Now this is in keeping with our first product Q2 goal date, which was to have initial shipments out within Q2, which of course is June 30. Our national launch in early Q3 which of course is July has always been in the plan. We have had a few ups and downs. We've had a few false starts. And I know that everybody's hearing this ad nauseam. But at the end of the day, the pandemic continues to plague us unexpectedly look particularly like we just had some more instances where our management team in Bangkok is now completely locked down in their hotels. They can't even get to the factory. These things usually pass in a week. The government's very aggressive over there relative to controlling pandemic, but we have had some difficulties because of it. And that's why we've been hesitant to provide exact dates. So I'm comfortable with the five to six weeks at the best case and eight to nine weeks in the worst case, and quite frankly after two years, I think we'll all agree that’s right around the corner. I've mentioned this in the webcast also, Mike that we will be updating in real time from this point forward of any expectations should they change. So at the end of the day, we're going full steam ahead and we're ready to pull the trigger on all our marketing, programming, et cetera in the next five to six weeks.

[Operator:]

Our next question comes from a line of , a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Good morning, Stewart, I'm Crew, can you give us a quick insight to how many preorders do you have on the books and how many units you actually expect to sell over the next year?

[Stewart Wallach:]

That will vary obviously I can't possibly tell you what we expect to ship over the course of the year. It's a new program, its emerging category. This is why we've always referred to data points relative to the market potential. It's why I referenced companies that that will be competing in the same space like Ring, and SimpliSafe, et cetera. That is the space will be competing in. Quite the fact Ring started, I guess around that fourth year, and they were bought out for over $1 billion last year by Amazon. I'm sure that they couldn't anticipate that type of success by simply bringing technology to a doorbell. But at the end of the day, the projections are difficult. However, that being the case, when you start to take a look at the size and the enormity of the market, consider the fact that there's over 110 million homes just in America that have broadband subscriptions. So do the math, at 1.5 of 1%. We're talking about crazy numbers.

[Unidentified Analyst:]

I understand.

[Stewart Wallach:]

So our biggest concern, I think my biggest challenge, the balance of this year is going to be capacity. And I'm anxious to take that monster on, as soon as we start booking. Now the first part of your question relative to preorders, one of the things we did, which I thought was the right thing to do was we contacted people that had preorders initially, and we asked them to cancel those orders. Those orders were on the Capstone Connected home site, that site doesn't exist any longer. What we did Barry was we converted to a concept of reservation. However, because it's a reservation, it's not guaranteed. So I don't have credit card supporting that. What I can tell you though, is that our phones ring every day, from the people that we asked to cancel the orders plus the new reservations. And people are calling every day saying when am I getting my Mirror, please get me my Mirror. So we certainly haven't lost any interest. In fact, the mere fact that we've been a little quiet on it seems to be raising their enthusiasm. But I'm hesitant to give you those numbers because as I said, they're variable, they're not guaranteed. Suffice it to say this, the first inventories that we put in airplanes are sold, they'll be gone. Soon as they hit Amazon's warehouse and as soon as they hit, they'll be moving out to the Capstone Connected customers as well as Amazon customers. I will also tell you this that we have in development and in manufacturing, and this will help you possibly conclude some numbers for your benefit would be we are placing orders, we have actually placed orders for well over 1,000 Mirrors and that's the first initial shipments in July.

[Unidentified Analyst:]

Great.

[Stewart Wallach:]

So that'll give you some idea, I'll put a little color to that question. I hate to avoid questions, but I hope you understand that these things these questions, whatever answers we have come back at me on a pretty regular basis of and quoted as what you said this. And I haven’t stated for that reason all right.

[Unidentified Analyst:]

One last question, will you be reaching out to the big box warehouses again, to sell this product?

[Stewart Wallach:]

All right, so interesting question and obviously you've been a longtime investor so you've followed our career here you know, we're very strong as a big boxes.

[Unidentified Analyst:]

Yes.

[Stewart Wallach:]

The big boxes have already reached out to us and said when are, we going to have a discussion about this new category. Here is the interesting thing about big box retailers, particularly the warehouse clubs variance. They don't launch new products never have it's not part of their business strategy. So they were waiting to see us create the market and they've already called and said we see your website. We know what you're doing of course they know me for a very long time. So they follow us. But at the same time, I've had to tell them honestly, I don't know that we're going to be providing product for you to distribute. One, you're going to have or we're going to have a significant compromise on our margin. And two, I don't want to cannibalize the retail price positions that we think will be very sustainable at a substantial level. So the door is always open to us on the big box. I don't have any problem getting meetings at the highest level of those companies. We are going to gauge our performance online. We're going to be very smart about this. And quite frankly, if we don't need or want to have a pop-in volume at the expense of margin that I think this will be a decision we'll make. I don't think we're going to be forced to make that decision. I think this is going to be an option that will choose to do.

[Unidentified Analyst:]

Well. That's the greatest place to be. Thank you for taking….

[Stewart Wallach:]

Yes I think. Thank you, Barry.

[Operator:]

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

[Stewart Wallach:]

Well, I know today was a brief session. And the financial performance was not riveting but certainly it's up ticking. I can't tell you how much our management is looking forward to next month. This is exciting. We've got so many things in the works relative to promotional possibilities, opportunities, ideas and we're just standing by until the very first product passes the certification testing, and is in route to the States. But it's been a pretty long trip here. And we are just minutes away. So bear with us. I hope you understand that. We're sensitive to your interest in seeing this happen sooner than later. But I can tell you no more sensitive than I am, as the largest shareholder. And Dr. Postal and myself as you know, we continue to financing early in the year. We have not sold any stock. We are very, very excited about this. And we can't wait to launch the product over the course of the next month or two. So, we'll keep you informed. As I mentioned, we're going to do real time updates. And if there's anything really substantial relative to development in the channels, et cetera. Then we'll also contemplate having marketing's update webcasts. So stay tuned. And again, thank you all for your support.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.