Enjoy Technology, Inc.
Q4 2021 Earnings Call Transcript

Published: 23 Mar 2022

Operator:

Hello, and thank you for joining Enjoy's Fourth Quarter and Full Year 2021 Financial Results Conference Call and Webcast. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I will now turn the call over to Heather Davis, Enjoy's Vice President of Investor Relations.
Heather Davis:

Welcome to Enjoy's second earnings call as a publicly traded company. Today we will be discussing our fourth quarter and full year 2021 results, as well as our outlook for 2022. Today's call will include remarks from Enjoy's Chief Executive Officer, Ron Johnson, and Enjoy's Chief Financial Officer, Fareed Khan. In addition, Melissa Bates, Enjoy's Chief Growth Officer will join us later for the question-and-answer session. Please note that our CEO letter to shareholders can be found on investors.enjoy.com. During the call, we will use non-GAAP financial measures and performance metrics. You should refer to the information contained in the company's fourth quarter and full year '21 CEO letter for definitional information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measures. We will also make forward-looking statements including projections and estimates of future events, business or industry trends, or business or financial results, which are subject to risks and uncertainties. Actual events or results could differ materially from those projected in our forward looking statements. Please refer to our filings with the Securities and Exchange Commission, which contain important factors that could cause actual results to differ materially from the forward-looking statements. These documents can be found on our website at investors.enjoy.com. We do not undertake any duty to update any forward looking statements. And with that, I'll turn the call over to Ron.
Ron Johnson:

Hello, and thank you for joining me today. We're excited to provide you with an update on our fourth quarter and full year 2021 financial results to discuss the operating environment we have been navigating and provide perspective on the year ahead. I will begin my remarks with a quick update on overview of our fourth quarter 2021 performance, and provide some context to how we are doing so far in the first quarter of 2022. Then Fareed will provide additional details regarding our 2021 financial results. And we will finish with questions-and-answers. During the fourth quarter, we were challenged by supply constraints, particularly for the newest Apple products launched at the end of the third quarter as we mentioned during our last call. Unfortunately, supply constraints remain throughout the quarter and this had the expected effect on our financial performance. Fourth quarter global revenue came in at $22 million, an increase of 23% year-over-year. Revenues were at the lower end of our guidance range, which assume no material improvement in product availability. We also expected that the inventory pressures would be transitory and are pleased it appears that the inventory access has improved during the current quarter. In the fourth quarter we made the strategic decision to invest in Mobile Store capacity, which impacted profitability negatively. However, we believe this investment and capacity will allow us to grow revenue during the year ahead. Therefore, we will not belabor the fourth quarter results but rather spend time focusing on the strategic progress we've made in 2021 that has us so excited about the growth opportunities we anticipate for 2022 and beyond. With inventory currently headed in the right direction, exciting new capabilities ramping up and our partners potentially opening up new opportunities for Enjoy, we are excited for 2022. We are also happy to report that we launched strategic initiatives, including technology changes, which should mitigate future inventory challenges similar to what we experienced during the fourth quarter. Most importantly, we expect to have the ability to take future orders without possessing inventory in time for the fall 2022 new product introductions. Looking back, it would have been an advantage to have this capability in place given the challenges in Q4. But as a category pioneer, we continue to learn and gather insights from the challenges we face to improve our execution. Before I talk about our accomplishments in 2021, and outlook for 2022, for those new to the Enjoy story, let me briefly outline our vision for Enjoy, and how we got to where we are today. Enjoy started with a very simple question, what if the best of the store could come to you? Since fewer people are going to stores and we expect this trend to continue, the world's best companies have to figure out how to take the store to the customer. Premium brands depend on beat customer engagement. As customers upgrade their devices every two or three years, companies will want to take advantage of this moment to share what's new. We believe the home is the next frontier for commerce. And we have built a great head start and helping our partners win at home with our Commerce at Home platform. Over the last eight years, we have steadily and purposefully built out our Commerce at Home platform to create what we see as a new gold standard for customer service to help our partners win at home. Today we have access to over 200 million customers in the United States, United Kingdom and Canada, serving over 50% of the combined population. These efforts led us to where we are today, a public company that we believe is poised to scale and expected to experience rapid growth in revenue and profitability. Today Enjoy's entire portfolio of at-home retail experiences is powered by our Smart Last Mile, a comprehensive platform combining local inventory management, full time employees and proprietary technology that provides our partners with a single omni-channel Last Mile go-to-market solution. We expect that this platform can deliver products quickly and efficiently to the door or through the door with trusted home experiences that drive incremental revenue and outstanding customer satisfaction. We see ourselves as an integral part of our partners Last Mile, doing all that we can to the partner can win at-home. Our platform provides a unified solution that is tech driven and customer centric, eliminating the need for partners to integrate with other providers, or cobbled together functionalities from multiple sources. The Last Mile is hard. And we are fast. The majority of visits we deliver are same day or next day, because we have forward deployed inventory in our Mobile Stores, which can be minutes away from the customer. Our highly trained experts set up and activate devices and can take trade-ins providing value on the spot. But we don't stop there. Ready with the vehicle filled with the right merchandise, our experts offer hardware, software subscription services on the spot, saving customers a trip to the store. Importantly, we believe we provide the deep engagement our partners desire. Our lifetime Net Promoter Score of 88 validates the value of this experience to shoppers. We think we have a unique ability to deliver what customers desire most when they shop; convenience, speed, and a personalized experience which positions Enjoy to become a coveted and comprehensive Last Mile provider, loved by both our partners and customers worldwide. Thanks to our comprehensive platform, and significant enhancements underway we believe we are better positioned than ever to make sure our partners win at-home. Let's look at '21. '21 was an eventful year for Enjoy. I couldn't be more proud of the team and want to personally thank each Enjoy team member for their incredible contributions and creativity during a very challenging period. Our team's perseverance through a daunting healthcare crisis has been profound and is deeply appreciated. During October 2021, we completed our business combination with Marquee Raine Acquisition Corp and debuted on the NASDAQ raising additional capital to accelerate our growth and launch Enjoy on our journey as a public company. Over the course of 2021 we increased the number of Mobile Stores we operate and developed robust programs to recruit, train and retain the best experts. Despite a challenging labor market, we exceeded our hiring goals, and we believe that we successfully attracted amazing talent to our teams. We remain committed to our policy of hiring employees, rather than independent contractors and we successfully expanded our Mobile Store capacity during the year, ending with a global consolidated average of 859 Mobile Stores in December. We expanded and deepened our relationships with partners in 2021. We substantially expanded our partnership with Apple and expect to continue to do so in 2022. And we have plans with our Telco partners that we expect will more than double the number of customers served during the year ahead. A strategic new capability we added during 2021 was the ability to deliver products to the door in addition to our through the door experiences. This offering will significantly deepen our relationships with partners as we provide quick and efficient deliveries to their customers. Best of all, we gain operating leverage by utilizing our existing infrastructure of our Enjoy houses and Mobile Stores. We believe our proprietary platform technology is the key to continue to expand our value propositions for partners and customers. We added new capabilities in 2021 One of the most profound new technology capabilities was Live Catalog, a smart merchandising tool which enables us to bring the best of the store directly to customers. Live Catalog allows customers to have visibility into all products in our mobile store and the local Enjoy house to purchase on the spot, which we believe meaningfully increases Enjoy's revenue per visit. We have a number of enhancements to Live Catalog that will roll-out during 2022. We see 2022 is shaping up to be a great year. Our focus this year is on scaling our business with existing partners, leveraging the Smart Last Mile, structurally improving our inventory position and achieving mobile store profitability. through leveraging our proprietary technology. We expect to deepen our relationships with each of our partners, as our partners have expansion plans in place for Enjoy. In North America, these include geographic expansion, and new channels to serve. During the second and third quarters, we plan to expand to an additional 40 markets in North America, allowing us to reach nearly 100 markets in the U.S. alone. Additionally, we have been asked to serve additional channels by our North American partners, which we expect more than double the number of customers we are currently able to reach today on their behalf. We look forward to sharing more about these initiatives on a future call. The second focus area is our Smart Last Mile platform, which we launched during the fourth quarter of 2021. We believe speed is essential to online shopping and will continue to accelerate in importance in the years ahead. Our partners want to be fast because speed drives online conversion. And superfast speed requires local forward deployed inventory. We believe we are becoming an extension of our partner supply chains as our Enjoy houses in combination with our partners regional warehouses optimize inventory management and deliver speed. During the year ahead, we expect to manage a higher percentage of our partners inventory as products are shipped directly to us increasing speed and reducing costs for our partners. But that's not all. We have a multifaceted strategy to improve inventory. By doing deliveries in addition to experiences, partners send us more inventory. We also will serve a higher share of the partners new customers in the year ahead, which partners use the most wanted inventory to secure. Finally, we're implementing technology allowing us to take orders before we have secured inventory for future visits. We expect this to be operational around the third quarter of this year in time for the fall season. Finally, we believe we have a path to mobile store profitability. During the previous eight years we believe we have built infrastructure, Enjoy houses and mobile stores to deliver mobile retail at scale. Mobile store profitability is a function of the number of visits and revenue per visits. This year as we drive more volume through this infrastructure, we believe we will be well positioned to achieve mobile store profitability. As Fareed will discuss in more detail, we see accelerating year-over-year growth as each quarter progresses, and have a clear line of sight to achieving full year revenues between $160 million and $200 million. We are providing a broad range because it's early in the year, and we are still learning about the potential in new opportunities. We also expect to see expanding mobile store margins and profitability as we build scale. With that, I'll turn it over Fareed to provide more color on our 2021 financial results and our current outlook for 2022.
Fareed Khan:

Thank you, Ron, and thank you all for joining us. Today I'll start with a quick summary of our 2021 results, cover the fourth quarter and finish with some perspectives on our outlook for 2022. Overall, we believe 2021 demonstrates our fundamentals are solid, and we are well positioned for strong growth in 2022. For the 12 months ended December 31 2021, we generated $81 million in net revenue representing 34% year-over-year growth. North America segment revenues increased $21.9 million, or 47% for the year. Europe revenues were $12.5 million, down $1.2 million. And as we mentioned on the last call in the U.K., we are shifting our revenue model towards a more variable structure that we believe offers more upside potential over time, but during the transition reduces our revenue per visit. We've also reduced our mobile store footprint during this transition. Cost of revenue, reflecting our direct operating costs associated with our Mobile Stores, including expert compensation, vehicle lease expenses, fuel and other items were $112.9 million out from $41 million in the prior year, primarily reflecting investments to expand our mobile store capacity. Our mobile store loss for the year was $31.9 million. Our operations and technology expenses of $92 million increased $26 million over the year, driven by the expansion of our network to support expected growth and our expanding geographic coverage with Apple. This also reflects higher expenses in recruiting, training and onboarding with our full time experts, and investments in market level frontline leadership because we continue to scale. We also continue technology investments in areas Ron mentioned earlier. General and administrative expenses of $58 million reflected investments in public company readiness, transaction related costs, and higher insurance and audit fees associated with being a public company. Our net loss for the year was $221 million. Adjusted EBITDA was a loss of $166 million. Primary adjustments were stock based compensation costs higher than the prior year through the close of the transaction and from direct non-recurring transaction expenses. We ended the year with a cash balance of $86 million. Let me now turn to our results for the fourth quarter. As Ron mentioned, our growth was materially constrained throughout the year by supply constraints stemming from supply chain issues facing our partners. These issues impacted our ability to meet the very strong seasonal demand and the additional volume generated by Apple's new product introductions in the latter part of the third quarter. Without a material improvement in supply, we finished the quarter with revenues towards the lower end of our guidance. We believe these supply constraints negatively impacted our revenue by roughly $2 million to $2.5 million each week, and well over $25 million for the quarter. As a result, total revenues of $22 million were up 23% year-over-year and 19% sequentially. North American revenues grew 41% to $19.5 million versus the prior year period. And this growth was achieved despite the inventory constraints as a result of the expansion of our key partnerships with AT&T, Apple, and Rogers. Europe revenue was $2.7 million for the fourth quarter, up from $2.4 million in the third but down year-over-year, reflecting the transition I discussed earlier. A second important factor in the quarter was our strategic choice to substantially increase our mobile store capacity to be ready for accelerated growth as product availability improved. Our daily Mobile Store count average 770 for the quarter. We ended the quarter with an average daily Mobile Store count of 859 for the month of December. We added 256 daily Mobile Stores from our Q3 monthly exit in September to December. These additions were directed at our North American markets, reflecting our successful expert recruiting and onboarding efforts during Q3. The third factor was the new capability we scaled up during the quarter focused on quick and efficient deliveries to the door. As Ron mentioned, this additional capability to our Smart Last Mile platform is expected to unlock new growth opportunities as we move forward. And we believe these to the door visits represent incremental demand and the opportunity to convert these visits into through the door experiences. As you would expect these to the door deliveries do not generate the same revenue per visit, as would a complete through the door experience. But we can also complete these visits much more quickly. The three factors I just covered impacted our fourth quarter results in the following ways. First, supply constraints impacted the total number of visits we were able to achieve, which constrained our revenue growth. Second, the expansion of our Mobile Store footprint overall and the launch of through the door visit capacity during the quarter. Both important strategic decisions for the long term constrained our short term progress towards Mobile Store profitability, and our daily revenue per Mobile Store metric in particular. Our daily revenue per Mobile Store is a function of revenue per visit, and visits per day. During the quarter as we have throughout the year, we have been making steady progress on revenue per visit, as we attach more solutions during our visits. This has been driven by several factors including Live Catalog, cross-partner selling of Apple services and Telco visits, and more in home visits that are inherently more engaging for the customer. Our visits per day were well below what we need for Mobile Store profitability during the fourth quarter. We did not have the supply to keep our stores busy enough to achieve the visits per day necessary for profitability. Our daily revenue per Mobile Store metric reflects these dynamics and progress on revenue per visit and experience visits was offset by fewer visits per day. With that additional context for our top line performance, let me now turn back to other P&L items. Our cost of revenue totaled $35.9 million sequentially up from $27 million in the third quarter, and $23.9 million in the prior year reflecting the investments and expanding our Mobile Store capacity I just mentioned. Mobile Store loss was $13.7 million for the period and turning to OpEx lines, operations and technology expenses were $27.1 million for the quarter, up $8 million from the prior year, and $3 million sequentially from the third quarter driven by recruiting, onboarding and training costs associated with expert hires and Mobile Store capacity additions. General and administrative costs were $21.5 million, excluding stock-based compensation which was $7 million during the quarter, and driven primarily by the close of the transaction. Our G&A was roughly flat with our third quarter results. Our net loss for the quarter was $70.8 million. Adjusted EBITDA for the quarter was a loss of $54.2 million. We ended the quarter with a cash balance of $86 million, reflecting the proceeds from the close of our transaction with in October. Our goal for the spec transaction last year was to raise capital well above the investments we needed to drive all future growth. Our proceeds from the transaction were less than we'd planned for, and we are pursuing several avenues to fund our growth. These avenues include working capital, debt and equity solutions, with support from our partners and investors to meet our needs. And we expect to update you shortly on our progress. As far as outlook, we expect strong and accelerating growth during 2022. We have set the stage with our investments in Mobile Store capacity, and a network ready to support the accelerated growth we see ahead. We expect first quarter year-over-year revenue growth to be in the mid-20% range. During the quarter while we've been seeing improvements in product availability, inventory constraints continue to impact revenue. This product availability limits the number of visits we have the Mobile Store capacity can deliver. With improving product availability and visit growth, we expect improving new economics and Mobile Store margins. While we don't expect to be profitable at the Mobile Store level in the first quarter, we are setting the stage to achieve Mobile Store profitability for the full year. For the full year, we expect revenue to be in the range of $160 million to $200 million. As Ron mentioned, we're providing a range because it's early in the year and the full impact of new initiatives are being finalized with our partners. We expect each quarter will have stronger year-over-year growth than the prior. Finally, we expect minimum incremental investments in headquarters expenses and facilities CapEx for 2022 our priorities to leverage our existing infrastructure to achieve improved profitability. And with that, I'll turn it back over to Ron.
Ron Johnson:

Thank you Fareed, and thank you everyone for joining today's call. Before we wrap up, I'd like to reiterate how proud I am of Enjoy and our employees have continued showcase a remarkable amount of resilience throughout evolving and continuously learning uncertain operating environment and how confident I am of Enjoy's near and long term future. We believe Enjoy has kicked off 2022 from a position of strength with solid partner relationships, a clear first mover advantage and proprietary technology that will allow us to keep doing what we do best, positioning our partners to win at home. Together, we plan to continue to listen to and address the demands of our partners and their customers, solve for their pain points through our enhanced premium last mile platform and deliver the quick personalized experiences they expect from us. We thank you again for your support, and believe that best is yet to come. With that, we'd like to open up the call for questions. Thank you.
Operator:

The first question is from a line of Marvin Fong with BTIG. You may proceed.
Marvin Fong:

Thanks for taking my questions, congratulations on the progress. I guess I'll just start with a general question. You know, inventories clearly important, how should we think about when we read in the news, about factories, closures in China and so forth, with some of your larger technology partners, what type of, impact did that have to you guys in terms of sort of your confidence level that you'll be able to secure that the inventory, you need to meet your objectives, your revenue objectives for the year?
Ron Johnson:

Yes, this is Ron, thank you for the question. Inventory has a big impact on our business. As we just talked about for Q4, it had a major impact. Unfortunately, the worldwide pandemic had an impact on supply chain. It impacted our ability to deliver as many visits as we had planned for and was an adverse impact. As Fareed said though, inventory is improved each month of the first quarter every month, it gets stronger. If you look at today, our access to inventory is not an impediment to Mobile Store profitability. However, as we look forward, it's hard to predict what's going to happen in worldwide geopolitical events with COVID in China, and we don't have access to information that you wouldn't have access to. And so, our goal is to mitigate inventory impacts by major structural changes. We talked about that a little bit in the call. Example, when we do a Smart Last Mile, we are doing a larger share of our partners business. Therefore, they have to afford to play more, inventory to us. As we go to the door and through the door, we get access to more, inventory. We're very focused on the most important skews, it's not just having enough, inventory today, we have enough inventory, you have to have the most popular skews. We're working closely with all our partners, for them to give them to us. One reason they're doing that is we are now serving a higher percentage of their new customers. Almost all Telco partners will reserve their most popular skews to attract people could be from another carrier. And in a variety ways, we're going to see more - and serve more of those. But the most important initiative is one, you know, as looking back, I wish we hadn't placed for last holiday, which is the technology change that allows us to take orders, even if we don't have inventory. So if a product is two week out, because of supply chain, we could take an order now. And the product would be shipped to us to deliver the customer in two weeks. As we mentioned, that will be in place for next year's holiday. Our goal is to take inventory as an impediment of the business and make it strength. And that's what we instituted through the year. But inventory is in pretty good shape right now. As we mentioned it's improved every month. It had a big impact in Q4. It did have an impact in Q1, but we don't expect it to be a major issue going forward, subject to worldwide events.
Marvin Fong:

That's great to hear. And I would like to just double click on that, that ability to take orders without having to inventory I think that was an issue - in the last quarter or two. So how specifically, are you prioritizing the channel now - as compared to say, a customer who's putting in an order or you know, at an AT&T store or physical store? Are you are you basically at parity in terms of priority now? Because I know before you weren't able to do that. So with this third quarter new capability, is that how - you always potentially be at parity in terms of priority?
Ron Johnson:

Yes, this is a capability that has existed within like, for instance, an AT&T store for years. It is a capability that we did not have at Enjoy. During our first six years of delivering visits, we never had more than a two, two to three week challenge, from launch to when product became available. This year was much greater because of the pandemic. As I mentioned, we sure wish we had it in place, but we're doing that now. What that means is some went into a carrier store, or went online to AT&T, they would have the same date of availability. It would arrive either at the carrier store, or at our Enjoy house at about the same time, and there's no impact on customers. But we would have equal access to inventory in a situation where inventory is not currently available.
Operator:

Thank you, Mr. Fong. The next question is from the line of Barry Sine with Spartan Capital. You may proceed.
Barry Sine:

Good evening, thanks for taking my call. I wanted to ask about the guidance number, the $160 to $200 million for 2022. And better understand some of the expected drivers of that, are you looking to grow Mobile Stores more through the door, more visits per day, revenue per visit, U.K. is also a project, what are the key drivers of getting to that guidance number you've given out?
Ron Johnson:

Yes Barry this is Ron I'll take that if you don't mind. We have added Mobile Store capacity we did throughout the fourth quarter. Our partners want us to lean in more we're coming out of the pandemic. More and more people are shopping online. We look at our partners, and they tell us how many stores they want to operate, they want us to operate. And we're working really hard to meet those. We had very good success, as we mentioned previously, recruiting, and we're having better success retain employees. So we're operating more Mobile Stores, we continue to increase our Mobile Store footprint during the quarter, because our partners are leaning in with additional opportunities for us. We'll be serving new channels as an example, in the month ahead. We'll be expanding to 40 more markets in North America all of these things drive growth. When we get the next holiday, we'll be able to take back orders as part of new product launches. And so, we have given a range of a wide range of $160 million to $200 million, because it's early in the year. But we do expect to more than double revenue year ahead, working with our partners on a variety of initiatives.
Barry Sine:

And also on the guidance number if you could give us a little sense of the seasonality that you expect normally, and then you know for this year, I'm guessing with things like back-to-school and the holiday season and new iPhone launches, that revenue will probably be back end loaded. And you've already given us a sense of what first quarter is going to be?
Ron Johnson:

Fareed, do you want to take that question?
Fareed Khan:

Yes, sure thanks for the question, Barry. So you're right I mean, we see steady and accelerating growth as we go through the quarter. And part of that is we will be lapping this year's Q4, which obviously did not have the strength given the inventory situation. Our typical seasonality is sort of a 40-60 split, with the strongest quarter being the fourth. This will be a little bit more weighted towards the second half, partly because of the lap of Q4 and also the initiatives that we've been talking about build through the year. And there is, a couple of new opportunities that we'll be talking about in our Q1 call. The other thing I just mentioned for our plan for this year, it's very focused around our core businesses. So we're really centered, around driving top line growth, and watching that flow through Mobile Store profitability, and through the P&L. So it's really about core markets, core partners, building scale, and that's going to be the strongest flow through from revenue down through Mobile Store profits, which will shift to positive and then through EBITDA.
Ron Johnson:

And I'd like to add thank you Fareed. Barry, you talked about the U.K. As you know last year was a repositioning year in the U.K., we are in the return to growth mode. As you know, invested in Enjoy last year, they're highly committed to partnership. We cover 80% of the U.K., we've changed our business model to get to what works in the U.S. where we have a higher variable revenue component. We've made tremendous progress on revenue per visit in the U.K. So we are adding stores as we speak. We're working with our partner on many new initiatives. As an example, I travel quarterly have a top to top meeting with the CEO of BET as part of a quarterly business review. But we have plans in place to return to growth, return to scale in the U.K., and achieve visit volumes that are close to a percent to the population as we will achieve in United States. So we went committed the U.K. and have started to open stores again, and drive more revenue in the U.K.
Barry Sine:

Okay, those are my questions. You were right. I did want to ask about U.K., but thank you, Ron.
Ron Johnson:

Thank you.
Operator:

Thank you, Mr. Sine. The next question is from the line of Dana Telsey with Telsey Advisory Group. You may proceed.
Dana Telsey:

Good afternoon, everyone. Ron, you touched on a couple of new initiatives, even with the expanding partnerships, that seemed to be coming to the forefront in 2022. And what I think that was highlighted was the ability to take future orders without possessing the inventory and time for the fall 2022 new product introductions? How is that going to work in terms of the labor model and delivery to the consumer with the service aspect of labor just any expansion there? And then when you talk about going to the door, not through the door, does that suggest an adjustment to the existing business model? And what does it do to margins and profitability? Thank you.
Ron Johnson:

Thank you, Dana. It's nice to hear from you. I'll take your second one first. As you know, we launched the Smart Last Mile - we call the Smart Last Mile. That's our delivery platform that lets us deliver to and through the door of visits. During Q4, we got good by going to the door. This quarter, we began turning Sony pick delivery into an experience. And there are days we do that 50% of the time. I think for - recently we've been about 40% of the time, when someone picks simple delivery, when we communicate them advanced and say by the way, we can help you a little bit. They choose help. And so a lot of those deliveries become experiences. And we want to increase the share of that going forward. The reason we do that is a lot of people who shop online, you know, having an in home experiences new experience. We could be just as fast to the door as we are through the door. And that becomes a competitive advantage for our partners. So we want to grow our volume with them by going to and through the door. But every chance we get, we try to convert that to the door visit into an experience. It also lets us and we operate stores, we operate experience store and delivery stores every morning, the first thing we do is make sure our experience stores are full. And so, if we happen not to have a full store for the day, at max capacity, we'll put in the delivery because all of the experts that are best at converting - at delivering a great experience that, generates revenue. So the to the door is to drive more experiences and to get deeper with our partners, right. Now when we start taking orders with that inventory, there's really no change, the customer will pick an experience in the cart. And so it will show up in the shopping cart, I can have an experience two weeks from now or three weeks now when that, products available, the inventory we ship directly to our Enjoy house. And then we would do business as usual. We'd let the customer know we're on the way. We look forward to providing a Mobile Store experience. We would go through the door and do that. So it's directly in line with our business model, which is to deliver these life enriching mobile retail experiences. It just assured that we have the inventory, which should reduce the volume risk that we experienced this last quarter.
Dana Telsey:

And then on the labor model, what are you seeing in terms of labor, hiring, retaining wages and the impact on the cost side of the business?
Ron Johnson:

You know that for me, really one of the highlights of last year was in a difficult labor market. We were able to achieve our hiring goals. And we brought on really talented people that are off to a great start delivering experiences for Enjoy. One of the reasons we have so many new opportunities with the partners that we can't talk about today is because the quality of visits that we deliver during Q4 and continue to deliver. We spent more time with customers we generate more revenue per experience. We added more solutions and that's because the people we brought under our team. We also, as we talked about, have been working hard to retain people. And our retention is getting better and better month-by-month and it's not just one thing. Part of it is compensation, but part of it is career path, part of it is refocused on training. As we look forward, labor is the biggest component of our Mobile Store cost. But we're able to build our team at our current base rate. And as we add higher variable - compensation methods for a team, that's what keeps them here and offsets any issue that an employee might have with inflation. And we expect as we deliver on those compensation programs, for them to create the same contribution to margin that we've experienced previously. So our compensation program is designed to offset issues related to inflation that will undoubtedly appear in the labor market.
Operator:

Thank you, Ms. Telsey. The next question is from the line of Will Power with Baird. You may proceed.
Charlie Ehrlich:

It's Charlie Ehrlich on for Will, thanks for taking the question. I guess three I just wanted to ask about the 2022 guidance. Can we expect, you know, more growth to come from the U.S. or more from Europe or how should we think about I guess, just the split between U.S. growth and Europe growth, specifically on the Mobile Store front?
Fareed Khan:

Thanks for the question, Charlie. So you'll see the growth primarily driven from our North American segment, we will be adding stores in Europe. We'll be continuing to grow. But as we talked - we've talked about and we're really focusing there on making sure we get you know, the unit economics, right, we build a great team, we kind of get the fundamentals in place. And then we can sort of step on the gas in terms of growth. So you will see Mobile Store additions in Europe, you will see growth. We see a huge potential there over time. But we want to, you know, accelerate at the right time. What we see in North America, though - is terrific partners. We've got great momentum there. We've got the infrastructure in place, in terms of market coverage, in terms of the Mobile Store additions that we've made. And so it's really about capturing the existing potential that we already have, as well as some new opportunities that we'll continue to talk about as the year progresses. And that includes the market expansions. So the core driver of our business is going to be North America this year. But we still see a lot of potential international markets as well, longer term.
Charlie Ehrlich:

Yes, thanks Fareed. And then just wanted to ask about cross-selling in the U.S., how is that gone in Q4 and in Q1? And do you have any plans to expand that beyond just North America?
Ron Johnson:

Melissa you want to take that?
Melissa Bates:

Happy to, thanks for the question, cross-selling continues to be successful, and we're continuing to focus on it. We have it live and we are - so we are working on expanding with existing partners. As we've discussed with you in the past and shared in our investor deck. We think this is a real opportunity to continue to grow our revenue per visit and revenue per experience. And as we get more visits with our Smart Last Mile platform, we see this as a significant revenue driver in the future.
Operator:

Thank you, Mr. Power. Next question is from the line of Eric Sheridan with Goldman Sachs. You may proceed.
Eric Sheridan:

Great, thank you for taking the questions. Maybe a few in terms of the back end, loaded nature to the year is there anything you can do in advance of that seasonality to secure inventory. So you don't find yourself in the situation? You found yourself in the second half of 2021 by sort of given commitments or elements of deepening those partnerships at the carrier or the retailer level? That would be number one. And then number two, in terms of some of the investments you might have done in the second half of 2021. Are you able to put sort of $1 amount around some of the investments that might have been accelerated against the Smart initiative that don't yet have revenue attached to it so we can better understand some of the leverage dynamics on the profitability as you move through 2022? Thanks so much.
Ron Johnson:

Thank you, Eric. I'll take the first then Fareed can take a second. You know, on the inventory side, the most important thing, if I look strategically we're doing is every partner now views are Enjoy houses in U.S. we have 56 of them as an extension of their supply chain. Most today of inventory only held in regional warehouses, typically three, maybe four, that they serve customers across states with, they now view our Enjoy houses as local inventory that they can forward deploy to. I mentioned - in going forward, goods will come directly from the manufacturer to our Enjoy houses. So we're not subject to the allocation that we had in the past from the partners' regional warehouses all of that gets more, inventory into our system. And as we deliver like double the volume this year, with new initiatives with going to the door with serving better customers, all of that - to more, inventory in our Enjoy houses that will help mitigate the risk in the fall season. Obviously, Eric, we can't get new product launch inventory add when it launches. And when you get to Q4, that's when our partners typically launch their new products. That's not going to change because of us. We can't make any commitments to that that others don't do our inventories consigned. So we have to do is be able to take inventory, the moment the product launches. And that's what our new technology is going to enable us to do. So this year, we had to wait until inventory became available to receive that to take visits. Next year, the moment the products is announced and orders are taken we'll be in line with every other, you know, customer of Apple, whether they're at AT&T or other partners. And so, we really can't plan ahead on the new product launches. But we can't secure more, inventory for all of the ongoing skews through the different initiatives I talked about. So we expect to get to a point where inventory isn't a major risk to the business model.
Fareed Khan:

And Eric, just to follow-up on your second question that kind of gets to, you know how we show leverage in 2022. Let me start by two really important ones. The first is the Smart Last Mile capability, and how that allows us to, you know, combine to the door and through the door, it opens up additional channels, it creates more scale for our business, it creates more density in markets. And really allows us to be an omni-channel partner with our key partners. So that's really - that's a big one. The second one is the investments we've made in Mobile Store capacity to be able to scale rapidly going into this year. And that plays out in terms of leverage in the following way. So if you think about Mobile Store profitability, we've been making progress on revenue per visit, our core issue in Q4 has been visits per day. And as we get more visits, we're going to see this per day improve, that's going to have a shift in our daily Mobile Store revenue. And in addition, visits will lower our Mobile Store cost structure as well as we have more productivity in both vehicles and expert counts. So that is going to be a key driver of our Mobile Store profitability as we get through the year, the secondaries have been, we really don't envision adding a lot of infrastructure in 2022. We've talked a lot about market coverage. We've talked about the investments we've made in our warehouses. And we intend to really leverage that as we go through this year, we'll have some market expansions as Ron's talked about. But we're also thinking about entering those markets, because these are typically smaller markets, either with very capital light solutions, or thinking them as almost an extension of markets that we're already in sort of like a hub and spoke. So there's, minimum incremental investments in our ops and technology line. We'll be - having focused IT investments around things like backorders - as we've talked about. There'll be some investments in frontline leadership to support our Mobile Store expansion as we go through the year. But most of the costs there have already been put into place. And so that's going to drive strong leverage through that line. And then finally on G&A, as I mentioned, you know, if you take out the sort of transaction related items in Q4, our G&A costs were roughly flat with Q3 and we expect to be able to maintain flat G&A as we go through the year. In fact, you're looking for opportunities to be even more efficient as we go. So the incremental revenue, driving will drive incremental, Mobile Store profit will still be on that path. We've talked about in terms of revenue per visit growth, with the same leverage Live Catalog, cross partner selling, you know, through the door, and a lot of our leverage through the OpEx lines as we go forward. So there's really, it's those types of investments that we've already made. There's no sort of new partner or new technology platform that is going to drive our revenue growth this year. It's really, you know, existing partners, existing geographies, flowing through the infrastructure we have in place.
Operator:

Thank you, Mr. Sheridan. The next question is from the line of Lamont Williams with Stifel. You may proceed.
Lamont Williams:

Just a question, I mean, you're moving I think e-markets in North America, what kind of store – barrel do you need to support that, and how should we think about the number of stores for this year after the investment capacity for last year, and I'm applying much an impact in 1Q particularly as it relates to the ability to go from the door?
Ron Johnson:

Great, let me take that if I could. We're working through the plans for these 40 additional markets. And when we signed this before, we expected this to be about a 20% addition to our store growth. And we're working through the exact details, it could be a little more, could be a little less, because we've got to get the details and how the new channels will be serving will impact the opportunity in those markets. As Fareed said though, we expect them to be very capital light. We've been working in Canada, over the last couple of years on small market strategies. And we can do that without having to build an Enjoy house for example. We view we've got to leverage all, of our existing infrastructure and investment that includes our existing - our Enjoy houses we've already built. The inventory we already have. It includes the delivery stores, we already have. So we're going to leverage our infrastructure to serve these markets, many of which will be satellites of the pristine Enjoy houses. And so we expect these markets to deliver very profitable growth. And we are going to work inside that and we'll give you more detail as we go forward. Lamont is there other question…
Lamont Williams:

Also saying Omicron, the impact of Omicron as well you're seeing in, 1Q is much of an impact?
Ron Johnson:

Melissa, take the one through the door?
Melissa Bates:

Yes, happy to. So what we see and we've talked about this is that when we go through the door indoors, the customer experience is superior and our revenue per visit is higher. That's because you're able to do more in the home than you are outside. With Omicron and any new future variant, we are focused on making sure our customers - the customers and our experts are safe, and their safety comes first. And there are many safety protocols that we have in place so that we can keep them safe even when we're going through the door. So what we have found, and this is a broad generalization, but what we have found is that in general, customers are getting more comfortable, especially as the world opens up with us coming into the home. So we are working with our teams to keep them and the customers safe. While continuing to go through the door leverage tools like our Live Catalog, which we see works incredibly well, especially when we're going through the door to make sure that we're delivering the best customer experience and commerce home experience possible.
Lamont Williams:

Okay thanks.
Ron Johnson:

Okay, we are we are going through the door more. The vast majority of our visits in the U.K. are through the door experiences - over 50% of our experiences in the U.S. now are through the door. And we're closing that nearly 50% in Canada. So as Melissa said, customers are more comfortable experts more comfortable. We want to get back we can't wait to get back to when we're doing 90% through the door that will have a great impact for the experience we provide and our revenue per visit. But we are going through the door more and that's a really good thing for everybody.
Operator:

Thank you, Mr. Williams. The next question is from the line of Anthony Chukumba with Loop Capital Market. You may proceed.
Anthony Chukumba:

Thank you so much for taking my question. So you mentioned, you sort of alluded to the fact that the spec proceeds were a bit disappointing. And you're exploring sort of other financing alternatives and that. And I guess, do you have any even directionally like, how much capital you're looking for and what timeframe? You're looking to raise that capital? Thank you.
Fareed Khan:

Sure yes, I can take that. So you know, our original target for our spec was well above what we needed to get to cash - cash breakeven. So I wouldn't take the difference between what we raised and that original spec target is finding means what the gap is it's a smaller number than that. As I mentioned, we're working through multiple channels where - obviously seeking non-dilutive options first, and looking at a variety of avenues for that with both partners and investors. In terms of requirements, we want to be landing additional capital, at least a portion of that, you know in the - certainly in the first half of the year. But we've got nothing to kind of announce today. Just know that we're working through them. We'll be back shortly with some news.
Operator:

Thank you, Mr. Chukumba. The next question is from the line of Gene Munster with Loop Funds. You may proceed.
Gene Munster:

Hi Ron, I apologize if I missed this. But when we think about the Smart Last Mile, big picture, one, two, three years plus down the road, give a sense about how much revenue will come from the Last Mile to the door versus through the door?
Ron Johnson:

Hi Gene, thank you for that. I think the vast majority of our revenue is going to come from through the door experiences. You know, that is what makes us great. Now, there are a lot of partners, a lot of consumer electronics companies that need to find a way to deliver speed. You know, the cast of characters, whether its or Google or Samsung, they're all interested in speed getting through the door. Many of them don't have their own store networks. So they can't do what an Apple does, or a Target does many have inventory in regional warehouses. We offer solution for them. And so, we're excited to work with many of them to bring to the door experiences. But in all cases, we want to offer that customer a through the door experience. As I mentioned, we're having great success at this moment with people who pick delivery, when we let them know that a trained expert full time employee is coming, who can help them out. Nearly half are choosing that today. And so given that the first priority for our partners is to send their customers to an experience and that's what they pick. The second priority would be a delivery, knowing that we can convert some of those. We expect the vast majority of our revenue to come from through the door experiences this year, and two and three years out.
Operator:

Thank you, Mr. Munster. There are no additional questions waiting at this time. So I will pass the conference over to Ron Johnson for any closing remarks.
Ron Johnson:

Yes, I just want to thank all of you for listening in today. You know, we didn't have the quarter you want to have in your first quarter as a public company. It's really difficult anytime you miss $2 million or $3 million in revenue a week, because of - an inventory issue. And looking back, we could have addressed that with the technology change we'll put out next year. In spite of that, I'm really proud of the team that we continue to invest in our Mobile Store capacity that we built our team that we strengthened our relationship with our partners, and we have tremendous opportunities to pursue in the year ahead. We do expect as Fareed said to have significant growth this year. We're targeting revenue between $160 million and $200 million, which will more than double the customers we serve double of revenue year-over-year. And as we see are improving Mobile Store profit every month. We have a clear path to Mobile Store profitability. So we look forward to the year ahead. We look forward to updating you in a couple of months in mid-May as we give our Q1 earnings recap. At that time we can expect to update you on a lot of subjects we talked about on the call today. Whether it's financing, whether it's new initiatives we'll update you in May and look forward to that, but thank you for joining the call and thank you for your support in Enjoy.
Operator:

That concludes today's call. Thank you for your participation. You may now disconnect your line.

Enjoy Technology, Inc. Q4 2021 Earnings Call Transcript

Enjoy Technology, Inc.
Q4 2021 Earnings Call Transcript