REVOLVE Group, Inc. (NYSE:RVLV) Q1 2020 Earnings Conference Call May 13, 2020 4:30 PM ET
Erik Randerson – VP, IR
Mike Karanikolas – Co-Founder, Co-CEO and Director
Michael Mente – Co-Founder, Co-CEO and Director
Jesse Timmermans – CFO
Conference Call Participants
Oliver Chen – Cowen
Mark Altschwager – Baird
Ross Sandler – Barclays
Kimberly Greenberger – Morgan Stanley
Edward Yruma – KeyBanc Capital Markets
Justin Post – Bank of America
Aaron Kessler – Raymond James
Michael Binetti – Credit Suisse
Bob Drbul – Guggenheim
Simeon Siegel – BMO Capital Markets
Susan Anderson – B. Riley FBR
Thank you for standing by and welcome to REVOLVE Group First Quarter Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today. Erik Randerson, Vice President of Investor Relations. Thank you. Please go ahead sir.
Good afternoon, everyone, and thanks for joining us to discuss REVOLVE’s first quarter 2020 results. Before we begin, I would like to mention that we have a posted a presentation containing Q1 2020 financial highlights to our Investor Relations website located at investors.revolve.com.
I would also like to remind you that this conference call will include forward-looking statements. These statements include our expectations regarding risk related to the continued impact of the COVID-19 pandemic in our business, operations and financial results, demand for our products, general economic conditions, our fluctuating operating results, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, our ability to track customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders, financial results in our guidance, market opportunities, our owned brand mix, our inventory position, our dilutive share count, our investments in customer experiences and fulfillment centers. These statements, which are subject to various risks, uncertainties and assumptions, could cause our actual results to differ materially from these statements.
These risks, uncertainties and assumptions are detailed in this afternoon’s press release as well as in our filings with the SEC, including our registration statement on Form S-1 that was filed with the SEC, our Form 10-K that was filed with the SEC on February 26, 2020 and the Form 10-Q that will be filed all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.
During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, free cash flow. We use non-GAAP measures in some of our financial discussions, as we believe they more accurately represent the true operational performance in underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of GAAP to non-GAAP measures as well as the description, limitations and rationale for using each measure can be found in this afternoon’s press release and in our SEC filings.
Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we’ll open the call for your questions.
With that, I’ll turn the call over to Mike.
Thanks Erik. Good afternoon, everyone. Thanks for joining us today. We hope each of your and families are safe and healthy. Today we’re only going to spend a limited amount of time on full Q1 results. Instead we’ll focus our attention on more recent business trends and how we’ve taken swift action to respond to the impact on our business from the COVID-19 pandemic. In our effort to promote understanding of recent business performance we will make some one-time disclosures to help everyone follow the most recent trends in our business.
With that I’ll start by touching on the first quarter. We started the quarter with some positive trends looking at January and February 2020 on a combined basis. We achieved net sales growth exceeding 20% year-over-year while improving inventory turns by approximately 20% year-over-year as well. The strong start to the year coupled with successful brand marketing events in January and February including participation in the ABC television program, The Bachelor. Gave us further confidence in our brand, messaging and assortment was resonating well with our customers.
Taking a deeper look at the top line results for January and February. Year-over-year growth in both the REVOLVE and FORWARD segments accelerate through the first two months of Q1, 2020 with particular strength in our FORWARD business in the international markets. The improved sales growth for our REVOLVE segment of 17% year-over-year in the first two months of 2020 came with an inventory decrease year-over-year in line with the strategy that we outlined over the last couple of quarters to work through our inventory position and improved inventory turns. These positive trends remain through the first week of March before COVID-19 became widespread in the US and the related stay at home mandates changed the trajectory for us and many other discretionary consumer product companies.
We have been known for our premium and our exciting and aspirational [ph] social media marketing focused on an experiential lifestyle. Overnight the special social occasion that often serve as a catalyst for customers to buy from REVOLVE particularly in the spring season had been put on hold. Music festivals, travel, parties, weddings and dining out among countless other events had all cancelled or postponed. Our largest and most impactful brand marketing event of the year, REVOLVE Festival was also cancelled.
This change in consumer behavior combined with the broad based reduction and consumer confidence in demand resulted in our net sales decline by almost 50% year-over-year in the final weeks of March. We view the current impact on our businesses as temporary and a function of the unprecedented environment. As we continue to engage with our customer through real-time adjustments to our merchandized offering and marketing message. We’re confident to remain well to the REVOLVE brand She Trust [ph] for fashion inspiration.
Now shifting to the more recent trends in the second quarter to-date. Net sales in April declined approximately 40% year-over-year improving from a nearly 50% year-over-year decline in net sales in the latter part of March. Most importantly, the magnitude of our net sales declines has been reduced every week for the past four weeks. Through the first 10 days of May, our year-over-year decline in net sales further improved to roughly 25% year-over-year decline. Traffic to our sites has improved meaningfully in the recent weeks turning positive year-over-year after declining year-over-year beginning in mid-March.
I’ll caveat these improving numbers by saying these are highly uncertain times, so while we’re encouraged by the improving trend. It’s entirely possible that things could get worse again in the coming days, weeks or month. We believe the improved sales trend reflects broader trends and consumer behavior over the time period as well as the great efforts by our marketing and merchandise teams to adeptly shift our messaging and product to align with the change in consumer interest in the current environment.
For example, if you looked at our website lately, you’ll see that we’re increasingly highlighting categories for the work at home and play at home lifestyle like loungewear, intimates and beauty including featured shops work-from-home chic and date-night-in. This merchandizing shift aligns with our customers recent shopping behavior consistent with the realities of sheltered-in place.
As you might imagine, categories like beauty and loungewear are performing very well right now. Whereas more formal pieces like dresses are not resonating in the current environment. On one hand, it is a near term headwind since dresses have historically been by far our top selling category and carry our highest gross margins. On the other hand, I’m excited about the growth and beauty as it gives us the opportunity to deepen our relationship with customers in a product category that tends to be a frequent purchase.
Sales in the beauty category increased 122% year-over-year in April and became our fourth largest category by sales volume. And in general we saw encouraging trends in other merchandize segments that our customer is historically less associated with REVOLVE. While the overall business trends remain extremely challenging. Our hope is that, we can exit this period with an expanded relationship with our customer due to the outstanding work of our marketing and merchandizing teams.
Now I’ll shift to a discussion of how we’ve responded to the crisis. First and foremost, our number one priority is the health and safety of our employees and customers. Beginning in mid-March we transitioned all of our teams – who do not require them to be physically be in the office to work from home. For those remaining in workplace we’ve completely revamped our operating procedures to implement rigorous health and safety guidelines. These safeguards include administering daily temperature checks, establishing social distancing requirements, providing personal protective equipment such as mask and gloves, creating staggered shifts in the distribution center and frequent deep cleaning and sanitization.
We’ve always been known for our exceptional service levels and during this time period our e-commerce operations haven’t skipped a beat. Our customer satisfaction metrics were at record levels in March and April. We are particularly proud of this performance given numerous reports of significant fulfillment delays among other e-commerce apparel companies. As a way to even better serve our customers and establish even deeper relationships with them. In March, we launched our REVOLVE Loyalty program that we mentioned on the call last quarter. The loyalty program has been very well received in the early going.
I’m proud of our team for how everyone at REVOLVE has managed through these challenging times while keeping laser-focused on delivering outstanding service to our customers. Thanks to all of our team members for your hard work and sacrifice, for staying nimble and for your dedication during this challenging time. In addition to protecting our employees, we knew we also had to protect our balance sheet and liquidity. By the end of Q1, it was clear we had to move quickly and decisively to reduce our cost structure given the depth of the reduction to demand the uncertainty over how long the current trade might last.
In early April, we reduced cost across the board starting at the top. The first cut we made, was Michael and I reducing our annual salary to $1. We’ve also reduced just about every non-essential expense imaginable as well as cancelling or deferring all non-essential capital expenditures. The most difficult decisions were those involving our valued team members. The outcomes ultimately included salary, wage and hour reduction, furloughs into a much lesser extent layoffs. These were tough decisions and we continue to support our furloughed employees by providing health benefits and educating them on all aspects of the CARES Act. We’re also actively managing inventory receipts to preserve our cash and minimize inventory risk in this time where the level of future demand is uncertain.
Similar to the sales trend, we started off the year great in terms of managing our inventory balances and improving our inventory turns. At the end of February, our inventory had decreased year-over-year compared to the net sales increased of over 20% year-over-year and corresponding increase in our inventory turns. Upon the shelter and place mandates in mid-March we began to immediately reduce our future inventory commitments to better align with the reduced consumer demand. Managing inventory in this environment with rapidly changing demand expectations and shifting to customer preferences is a tough task, but we have a great line and planning team who have been with us for many years and have been able to react quickly.
Now I’ll pass it to Michael.
Thanks Mike and hello, everyone. So much has changed in just the past eight weeks. We’re proud of the decisive actions we’ve taken across our business to help protect our people and optimize the business for such a dynamic environment. I’ll continue with the discussion of navigating through the COVID-19 challenges and will focus my remarks on three core areas; first our brand marketing initiative. Second, owned brand and third, while confident REVOLVE is well positioned to navigate through the current challenges and emerge even stronger.
First, our brand marketing initiative. As I’m sure everyone knows REVOLVE is widely recognized for our impactful and aspirational brand marketing event that reach our customers through social media and our vast network of influencers. In a normal year, right now our brand marketing team and I would have just come off another successful REVOLVE festival and would be extremely busy planning and executing a series of events during our peak spring summer season. The 2020 is anything but a normal year.
We quickly mobilize the team around the new opportunity of engaging with our customer during current lifestyle of staying at home. Our customers love REVOLVE and love interacting with our brand on social media on a daily basis. So, we’re confident we can adapt well. In mid-March we launched hashtag REVOLVE AROUND THE HOUSE creating a tremendous amount of engaging and inspirational live content shows produce daily on Instagram Live that feature influencers, designers and celebrities.
REVOLVE AROUND THE HOUSE includes with some daily workouts, expert beauty tips, cooking classes and my favorite, the REVOLVE shopping network. Response has been exciting. For example, a recent episode feature [indiscernible] a global lifestyle influencer who is also fashion designer collaborating with REVOLVE for [indiscernible] own brand collection. Last week Ami [ph] hosted a live event from her house to launch a new line of shoes as expansion of her song with our collaboration more 100,000 people tuned in and sales through the collection have been strong. Validating the power of our live content and the strength of our collaboration with Ami [ph] as well. And just over five weeks we have produced over 50 Instagram Live segment that have been closed to five million times on Instagram Live or IGTV.
On the most exciting things – is that despite having significantly reduce our margin spend we’ve actually increased engagement with our core customer through the pandemic. There is more content being created, more comment, more likes and more shares. And even though we’re not able to host interest and events like REVOLVE Festival. Our Instagram reach on our REVOLVE handle has increased more than 30% year-over-year through the first nine days of May. We have adjusted our strategy and continue to drive awareness and engagement powering the foot growth towards websites as Mike mentioned.
Now let’s shift to discussion of owned brands. Owned brands are core to a long-term strategy and are key part of our value proposition. However with the onset of COVID-19 creating a great deal of uncertainty around demands with upcoming quarters. We have significantly reduced planned inventory received overall and even more aggressively with owned brands. In such an uncertain environment in the near term we believe we can more effectively manage our overall inventory levels by shifting more of our purchase through third-party inventory where we can make shallower [ph] initial inventory by the cost of broader range of style.
To be clear, this does not suggest in any way that our long-term strategy here has changed. In fact, the planned investments in owned brands discussed on last quarter’s conference call which are focused on broadening our range of capabilities and diversifying our supply chain have become even more relevant with the recent COVID-19 induced chains to consume preferences. Sheltering-in place has resulted in significant demand growth of such categories as denim, loungewear and athleisure. We are moving quickly to affect these changes in our merchandize assortment across both owned brand and third-party brand. We’re developing owned brand capabilities in these underpenetrated categories.
Before I turn it over to Jesse. I want to express my confidence why I believe REVOLVE is well positioned to navigate through the challenges of COVID-19 and emerge even stronger. First, our experience in ownership stake. We founded REVOLVE with the vision to own it forever and the decisions you make a view through this long-term lens. While COVID-19 is truly unprecedented Mike and I have deep experience navigating and surviving through challenging market cycle.
Mike and I launched REVOLVE in 2003 in the aftermath of a recession that took place after the dot com crash and later we successfully navigated through the great financial crisis at a time when we still hadn’t taken outside capital. Through this all, we remain the two largest shareholders even after going public. In fact, we increased our ownership stake in recent months.
Next our business model. We’re very fortunate to have a business model that is incredibly capital efficiently and inherently resilient. Over the past four years, capital expenditures have averaged just 1% of net sales. Equally important for the majority of our cost structure we can pull leverage very quickly to adjusted changing macroeconomic environment. For example, our largest operating business marketing which is highly discretionary. The significant majority of our marketing spend in 2020 continues to be digital ads spend that we can adjust in real-time since we have no long-term commitment. We also have a strong financial position with more than $100 million in cash at the end of Q1. We have a strong established track record for generating cash flow. In 2019, we generated $46 million in cash flow from operations nearly 8% of net sales for the year.
Finally, we’re well positioned for accelerated consumer spending online. There’s no question that the COVID-19 pandemic could bring long lasting changes in consumer behaviour. When change has increased importance in e-commerce and increased challenges of physical retail. The concept of online shopping has never been more relevant than it is today. Much of the competition is dealing with high fixed cost and inventory buying [indiscernible] and it makes it harder for them to navigate the current challenges and adapt to consumer demand. As a result, we believe there’s going to be an acceleration to the shift of consumer spending online, benefiting capital efficient companies like REVOLVE that are well positioned to navigate through these tough economic times.
I’ll close with something I’m super proud of. We are in a position that allows us to leverage our supply chain expertise, our influencer network and our brand partners to give back to the community in support of our frontline workers. We’ve pledged to donate more than 200,000 medical grade masks to healthcare workers to help these heroes in their time of needs. To-date we’ve distributed more than 90,000 masks at hospitals and clinics across the country with an additional 140,000 in transit to donate to over 74 hospitals.
Now I’ll turn it over to Jesse to give you some more details on the financial results and trends.
Thanks Michael. Given all the moving parts in the current environment I’m going to do a less detailed review of our first quarter results today. As they’re not representative of our current business trends. As a result and in the spirit of transparency I’ll spend some additional time providing color on business trends since the end of the first quarter and some updated assumptions for the balance of 2020. I’ll also discuss our cost structure, capital spending plans and our balance sheet.
Starting with the first quarter results. For Q1, we reported 6% year-over-year growth in net sales continued GAAP and adjusted EBITDA profitability and we generated strong free cash flow of $8 million. Given the unprecedented change in the consumer demand environment late in the quarter due to the COVID-19 pandemic it’s important to look beyond the headline numbers.
As Mike mentioned, we came out of the gate strong for the first nine weeks of the quarter. Net sales growth exceeded 20% for January and February on a combined basis. The first week of March remained strong and year-over-year growth and traffic to our sites and mobile apps was outstanding during this nine-week period. A higher growth rate than any quarter in 2019. During the second week of March, we experienced a significant negative change in trend on both net sales and traffic to our sites co-incident with the escalation of the COVID-19 pandemic in the US.
As a result, by the time we exited the first quarter weekly net sales were nearly 50% less in the corresponding week in the prior year. This unprecedented change in our trajectory shows how much the stay at home mandates have impacted consumer spending. Turning into the top line, REVOLVE segment net sales in Q1 increased to 1% year-over-year for the full quarter but again it’s important to look beyond the headline numbers.
Before the negative impacts in March REVOLVE segment, net sales increased 17% year-over-year in January and February combined an improvement from the 13% year-over-year growth in Q4, 2019. Meanwhile the FORWARD segment performance was exceptional in the first quarter. FORWARD net sales increased 47% year-on-year. Its highest growth rate in several quarters despite the COVID-19 headwind late in the quarter.
Active customers continued to increase surpassing the 1.5 million mark for the first time. Orders placed increased 3% year-over-year despite a negative impact in March. Average order value was flat year-over-year at $259 despite headwinds in late March resulting from a material shift in net sales mix to at-home product categories such as beauty and loungewear with lower average price points.
International was bright stop for the quarter. With international net sales increasing 17% year-over-year despite being impacted in March. Looking at the months of January and February on a combined basis. International net sales were higher by more than 30% year-over-year just like in the US. The international net sales trajectory changing materially and became negative in late March due to COVID-19 impact.
With that being said, similar to the last few quarters in the first six weeks of this quarter the international business has continued to perform better than the US business. In part because the international business is diversified across many different regions and also because of the outsized impact of COVID-19 on the US consumer.
Moving to gross profit. Consolidated gross margin was 48.6% for the first quarter, a decrease of 290 basis points over the prior year. As indicated last quarter, we had expected a lower consolidated gross margin due to a higher mix of net sales from the FORWARD segment which carries a lower gross margin as well as the REVOLVE segment gross margin being lower year-over-year.
Within the REVOLVE segment, we’ve delivered gross margin of 50.1% in Q1 down 310 basis points year-over-year. As we discussed in the prior quarters, the REVOLVE segment margin was negatively impacted by a lower percentage of REVOLVE segment net sales at full price, deeper mark downs within the mark down product and a lower mix of owned brands. The COVID-19 pandemic brought additional gross margin headwinds as a result of the decrease demand as well as more promotionally external environment. In addition to a shift in net sales mix to product categories that carry lower gross margins.
Within the FORWARD segment not only did we deliver an acceleration of top line growth we also delivered strong gross margin. FORWARD segment gross margin was 39.7% an increase of 230 basis points over the prior year as a result of the merchandizing and marketing initiatives that we put in place after repositioning this business. Fulfilment which reflects the cost incurred to staff and operate our distribution center totaled $4.5 million or 3.1% of net sales as compared to 3.3% in the first quarter of 2019.
As a reminder, fulfilment is primarily comprised of variable cost that we can efficiently flex up and down with demand. We’re very pleased with our ability to deliver continued year-over-year efficiencies in fulfilment as a percentage of net sales for the second consecutive quarter. In the normal course of business, we would expect further efficiency gains as we have previously communicated. However, going forward during this period of reduced demand we now expect fulfilment cost as a percentage of net sales to be less efficient year-over-year for three reasons: first there’s a decrease in efficiency as a result of the important process changes we’ve implemented in our warehouse to ensure workers safety including social distancing and providing personal protective equipment. Second, the shift in product categories we discussed will result in a decrease in average order value, which is a headwind to fulfilment efficiency measured as a percentage of net sales. And third, the lower volume and the current environment means there’s less efficient utilization of our expanded warehouse capacity.
Selling and distribution cost which consist primarily of shipping, merchant processing fees and customer service were $21.8 million or 14.9% of net sales a slight decrease from 15% of net sales in the first quarter of 2019. As a reminder, selling and distribution costs are almost entirely variable primarily tied to the number of orders processed. During Q1, we were able to offset general price increases with greater efficiencies to maintain the overall level of selling and distribution cost as a percentage of net sales.
Looking forward, during this period of reduced demand and similar to fulfilment cost. We expect the lower average order value resulting from the category mix shift and mark downs will put pressure on this line item when expressed as a percentage of net sales. Marketing costs were $22 million or 15% of net sales as compared to 14.2% in the first quarter of 2019. As a reminder, historically about 75% of our annual marketing expense relates to performance marketing on digital channels. Within this performance marketing component, we have the ability to flex our investment up and down in almost real-time making this area highly variable of sales.
Shifting to brand marketing, with the current social distancing guidelines. We have cancelled or postponed many of our brand marketing events that had been planned for 2020. Including the REVOLVE Festival initially scheduled for April. As a result, we now expect our investment in performance marketing to represent a larger share of the overall marketing spend in 2020 than the 75% in recent years. We are targeting a reduction in total marketing spend as a percentage of net sales as a result of the reduced brand marketing investment and a continue balancing of performance marketing spend.
General and administrative cost which primarily consist of salaries and wages were $18.9 million or 12.9% of net sales in the first quarter as compared to 14% of net sales in the first quarter of 2019. The year-over-year reduction in G&A was mainly due to non-reaching [ph] cost incurred in the first quarter of 2019 as well as the efficiency gains with scale as this line item is largely fixed.
After we recognized the pandemic significant impact on consumer demand, we moved quickly to reduce G&A cost. As Mike mentioned in early April, we announced the outcome of very difficult decision to temporarily reduce personnel related costs. To give you some content, we expect these actions will temporarily reduce our cash, G&A cost by about 40% from the prior run rate. We will see the full impact of these actions beginning in May. For the first quarter of 2020 net income was $4.2 million or $0.06 per diluted share. Adjusted EBITDA was $5.6 million for a margin of 3.8%.
Moving to the cash flow statement, we operate a highly capital efficient business as demonstrated by our capital expenditures of just over $500,000 in the first quarter less than one-half of 1% of net sales. We generated $8.1 million in cash flow from operations and $7.5 million in free cash flow for the first quarter of 2020. This cash flow generation further strengthened our balance sheet. As of March 31, 2020, we had net cash of $73.6 million since liquidity is especially important in these uncertain times late in Q1, we drew down $30 million from our existing line of credit. Our first draw on the line in over two years. With this, we ended the first quarter with total cash and cash equivalents of $103.6 million.
We ended the quarter with $101 million in inventory, an increase of 4% year-over-year slightly lower than our 6% increase in net sales year-over-year. As Mike mentioned inventory trends improve through the first two months of the quarter before decreasing in March when we felt the impact of COVID-19.
To preserve our cash and liquidity going forward, we have been very focused on managing inventory receipts for the balance of the year. We have reduced our intake of inventory for both third-party brands and owned brands. With a greater proportion of the reduction coming from owned brands. Looking ahead, we have modeled several different scenarios to gauge the potential impact of COVID-19 on our business and balance sheet.
It is important to note, that while we are certainly hoping for a scenario where consumer demand recovers. We’re managing our cost structure under the assumption that business conditions remain very challenging for the rest of the year. Most important, we believe we have the flexibility built into our cost structure, the financial levers and adequate liquidity to manage through the downturn and be in a position of strength when the economy recovers.
Now let me talk about business trends since the first quarter ended. Starting with the balance sheet, the combination of our capital efficient model, our active management of working capital and cost reduction measures to be implemented enabled us to maintain our cash balances through the end of April and into the first 10 days of May. Moving to the income statement, as Mike mentioned net sales in April declined approximately 40% year-over-year improving from nearly 50% year-over-year decline in net sales in the final weeks of March.
Most important, the magnitude of our net sales declines has been reduced every week for the past four weeks and through the first 10 days of May, our year-over-year decline in net sales further improved to a roughly 25% decline year-over-year. this improvement came despite a very tough comp as our REVOLVE Festival event usually held in April was postponed along with countless travel plans, social gatherings and many other events that serve as a catalyst for our customers to buy from REVOLVE. The average order value in April was $204 a decrease of more than 20% from the AOV reported in the first quarter of 2020. Primarily due to the COVID-19 induced mix shift I mentioned previously having an impact on the full month of April.
With that, I’ll turn to our full year 2020 assumptions. Without a doubt, the pandemic has created significant headwinds for our business. The duration and the extent of the pandemic is highly uncertain and the economic impact could last much longer. So, while it wouldn’t be appropriate to give traditional guidance in such a fluid environment or offer some insights. Seasonality, although our business is not overly seasonal like traditional retailers with sales concentrated around the gift giving holiday season. It’s worth noting that the timing of the COVID outbreak coincided with the start of what is typically our highest selling period of the year leading into the summer and festival season.
As a result, for modeling purposes related to the current quarter ending on June 30, we expect the COVID-19 restrictions to negate the historical patterns of the second quarter typically being our peak period for net sales and gross margin. Average order value, we see average order value drifting meaningfully lower with continued mark down pressure and a continued mix shift towards lower price point categories as demonstrated by the April average order value decreasing more than 20% from the first quarter AOV, as I just mentioned.
Gross margin, on last quarter’s conference call. We talked about our expectation for gross margin pressure in 2020 particularly in the first half of the year. The pandemic brings additional gross margin pressures. So, we now expect our gross margin for the rest of the year to come in lower than our previous projections and lower than the 48.6% in the first quarter of 2020. We expect this margin pressure to continue during this time of uncertainty for three mains reasons: first, our decision to shift more of our inventory buys into third-party styles with lower unit minimums in the near term while focusing owned brands on a more limited range of styles. Second, the shift in net sales makes away from our highest margin category addresses to comparatively lower margin product categories such as beauty and third, the sharply lower consumer demand and a correspondingly increased promotional environment has put additional pressure on mark downs.
And finally, capital expenditures. We now expect total capital expenditures of approximately $2 million, a decrease of 60% from our prior guidance. The situation remains very fluid and uncertain. We will continue to monitor trends. We will remain focused and disciplined and we will take the actions that we believe are necessary to manage our financial position through this very challenging time.
Now I’ll turn it back over to Mike to close our prepared remarks.
Thanks Jesse. We’d like to take this opportunity to once again thank our great team for their dedication, agility, hard work and sacrifice demonstrated through this difficult time. This is one of the most challenging periods we’ve experienced in our 17 years of operating the business, yet our experience has proven that business is not a straight line. Our successful track record has been established through numerous business cycles and we’re confident in our ability to manage through this and come out stronger on the other side.
With that, I’ll turn it over to the operator for your questions.
Your first question comes from the line of Oliver Chen from Cowen. Your line is open.
It’s encouraging that trends have been less bad and also the traffic momentum. What are your thoughts for going forward in terms of how traffic may manifest and also the step down in AOV? When might AOV stabilize and how do you see dresses as a percentage of mix trending in that context? Would also love your thoughts on some uncontrollable factors around mark downs and mark down management and how to do that in a brand appropriate way so that the customer loves you for the long-term? Thank you.
Definitely, thanks Oliver Mike Karanikolas here. So a lot of questions there, I may forget some of them. I’ll start with from the top. So with regards to traffic, we’ve seen some really encouraging traffic trends in the past four to six weeks with traffic continue to increase each week and positive year-over-year traffic trends in the most recent weeks. So we feel good about that going forward and what’s really encouraging about that traffic. Is a lot of deposit trends are being driven by organic traffic and our marketing teams have really done a great job connecting with the consumer in the primary, so we would expect those trends to continue?
I feel with regards to rest of the year, it’s a highly uncertain environment. So with regards to dresses for example, we’ve seen a definite recovery there. But at the same time next coming months are going to be very difficult to predict. And so it’s difficult for us to say what dress demand is going to look like in the fall and the very reason that we’re shifting our inventory buys little bit towards products with the half shot on minimums so we can take our reduced risk there.
Thanks Mike and on mark downs, what is the best way to manage it in this dynamic environment. The gross margin guidance is very helpful. What are your expectations for how the market plays may look as a lot of competitors are likely over inventoried?
Yes definitely, so we have seen – being a very promotional environment out there. And it’s dynamic. So, we react on a weekly basis to what we see out there. I think in the current environment consumers are expecting more promotions and mark downs and they’re gravitating towards promotions and mark downs. So, we’re kind of trying down to straddle a fine line. Well we make sure we do give consumers what they want and right now that is more mark down products. But also, be careful about, protecting our brand and being very targeted with the mark downs and promotions and trying to make them interesting versus, more kind of mass type promotions where anything [technical difficulty].
Okay and my last question is about permanent changes from the at home experiential. What are your thoughts on permanent changes in terms of how you may approach marketing or not? With what you’re doing and what may stay for the long-term whether that be the live streaming or the shopping network and what kind of positive learning’s have you had from the crisis? Thank you.
Oliver, Michael Mente. Hi, everyone. Hope you guys are all safe and healthy. When it comes to engaging with the consumer we really just have to kind of dance with – be their best friends, when times were a different day she was wanting to travel, wanting to go music festivals, we’re there with her. When she’s at home we’re providing her that experience. We’re working out with her. We’re giving her comfortable clothes to wear and whatnot. So, it’s really going to unpredictable. It’s going really be a reflection of how the world REVOLVE is what, we feel really good that these new methods that we’re connecting with Instagram Live and IGTV, areas that we were investing before, all things that we will continue to nurture overtime.
We think ultimately this has really allowed us to expand our relationship and deepen our relationship across – the way we communicate, quite similarly to the way across our merchandizing categories we were able to deepen that relationship by providing her other categories that we weren’t particularly known for, we really had that emotional connection for her. So ultimately, this is blessing in disguise. We’re looking back despite all of the pain that of course we’re experiencing in the short-term of really having a deeper broader relationship in just the REVOLVE that you knew of times passed.
Thanks job on all the agility, best regards.
Your next question comes from Mark Altschwager from Baird.
And thanks for taking my question and hope everyone is doing well. I was hoping you could talk about your strategies on client acquisition and how, if at all those strategies are changing in light of the current backdrop and specifically, I was hoping you can comment on digital marketing and whether the decline in cost in some channel to something. You may be able to lean into in the months ahead.
Definitely Mike Karanikolas here. So there hasn’t been – I would say high level change to our strategy, but assuming a lot of tactical changes as we reacted quickly to the situation. So, we have seen the cost of traffic could go down substantially since this pandemic started. It’s the same time we’ve also seen the consumers have been converting less. Consumers still have time to shop and look at things, but they’re little bit more hesitant to pull the trigger. Particularly for a brand like ours where a lot of the merchandize historically and even currently is geared towards merchandize you wear when you’re going out and you’re going into an event, time to look your best and consumers just aren’t there yet.
So, on the positive side I’d say we’ve seen marketing costs stabilized. Marketing costs were up a little bit year-over-year on the digital side as we – as the crisis first hit and then actually in recent weeks, we’ve seen some efficiencies there. So, it’s not we’re going to take on a week-by-week basis. Traffic is cheap but also consumers aren’t converting as well, so we’re trying to be disciplined there.
And your next question comes from Ross Sandler from Barclays.
Couple questions. If you had this your revenue between the stuff that’s working right now at home, beauty and loungewear you mentioned and everything else kind of your legacy normal stuff. How big would that first bucket be in terms of revenue? Can you talk about how quickly given your kind of more nimble supply chain? How quickly can you move that direction if we’re going to stay in this mode for a little while?
And then second question is, Jesse if we back out REVOLVE Fest which was I think in late April last year and we try to compare kind of underlying growth rate excluding big events that down 25 from May might be kind of down like a lot less than that on a go forward basis once you get past the peak of your seasonality. So, is that right way to think about it because you see potentially like a flat type growth rate as we get into 3Q, any color there just on the impact from REVOLVE fest on that down 25 in May? Thank you.
Yes, sure. Thanks Ross. So, starting with the first one in that category mix and maybe focusing it on the REVOLVE segment since that is the biggest and we’ll pick on dresses. Dresses has historically been over a third of the business on REVOLVE and that’s been very more highly penetrated on the owned brand. So to give you some content on the largest category and then if you look at some of the smaller ones like beauty that’s been growing triple digits in the recent period since COVID hit, that’s been in the low single-digit percentage of total net sales for REVOLVE and with that triple digit sales growth that’s definitely taking share and there’s some puts and takes on that, benefit in terms of return rates where dresses is the highest return rate category offset then with the benefit of beauty which is the lowest return rate category.
We also have the negative impact of AOVs and ASPs shifting from what has historically been very high price point for us, the dresses in that $130, $140 price range down to a beauty product that’s in the 40s. So that’s some color on the product mix. And then in terms of seasonality in REVOLVE Festival. There definitely some impact there historically April and May have been two of our strongest months of the year and without those big events like REVOLVE Festival we’re losing out on a lot of [indiscernible], a lot of impressions and lot of just exposure. So, if you take what we’ve been drilling out in the recent period and especially in April when compared that to non-April month of last year that could you give some indication of what that might look like. I think it’s pretty aggressive to say we’d get to flat if you do that comparison, but there definitely is an impact there.
I can go and touch a little bit I think there was a middle question there in terms of supply chain and I think we still are very excited and quite proud of the how the team has responded and I think when it comes to Q3, we view what we have a much more balanced, a much more well-rounded and adjusted merchandizing mix in relation to this new period that we all are experiencing together. It just as – this crisis has accelerated things such as e-commerce in a lot of the way our lives are adjusted has accelerated some of our internal initiative as well. As early as next month we’ll be seeing some of the loungewear product coming from local supply chain which we’re very excited and very proud of, both the product that we’ve coming as well as. The way the team has responded. Going into the back half of the year and next year, we’ll be activated and adjusted to the new life and our customers new needs.
Your next question comes from Kimberly Greenberger from Morgan Stanley.
Thanks for all the great details and transparency, you’ve provided on the call. It’s been extremely helpful. I wanted to start since with the FORWARD segment if I could. Looking to the first quarter you had 47% growth at FORWARD. And you gave some of the January, February for REVOLVE as opposed to March. Did you see a similar pattern in the FORWARD segment with growth in January and February and then a decline in March? Or were the three months more similar on the FORWARD segment? And then just reflecting on the April and the May month today, color that you gave. Are you seeing a different trend between the REVOLVE segment and the FORWARD segment here in the second quarter or are the trends relatively similar to one and other?
Thanks Kimberly. It was a pretty extreme impact there starting in the second part of March. Definitely did impact on all segments. We did see strong growth especially in the first two months from both segments and then we saw that significant hit in March that extended through April. FORWARD is a smaller part of the business and a little bit more skewed internationally and a little bit more skewed on the mark down side. So, on the week-to-week there is a little bit noise on February seasons pluses and minuses and that comes through, especially on international where we saw international perform better relative to the domestic business. Again, on FORWARD probably a little bit better than the REVOLVE segment just based on those dynamics plus the calms [ph] in the prior year.
Okay, great Jesse. And then just a follow-up question on the gross margin. You indicated that you’re expecting gross margin this year to be below the 48.6% level which obviously suggest some more severe pressure throughout the year even then you experienced I think in Q1. And I’m wondering if you saying that or you expect the greatest pressure in the second quarter or do you think more likely to see sort of similar rates of pressure in the second quarter through the fourth quarter?
It’s a really tough one. And because it is so uncertain it’s hard to say, really what back half of the year is going to do. We have more visibility into the recent periods. We’ve locked in April in the first couple of weeks of May here. So that’s the known and what we’ve seen is greater compression on that margin. And also, Q2 has historically been our highest margin period of the year. So, I think we’ll definitely see more pressure and that’s the guidance that we’ve given the rest of the year will be below 48.6% that we saw on Q1. So, the target is how it’s going to play out quarter-to-quarter.
Okay, thank you so much and hope everyone stays safe.
Thanks you too.
Your next question comes from Edward Yruma from KeyBanc Capital Markets.
I guess first I’m not sure this is noble or discernible. But any sense as to how much of a lift you may have gotten from stimulus. Do you see an outsize bump that week or the week then it started to hit? And any sense kind of how consumer behavior trending post that? And then as a follow-up I know you guys are very carefully managing receipts. How successful have you been able in particularly kind of fall, winter, seasons from a curbing the states perspective? Thank you.
So, with regard – of the stimulus. We did see a sizable bump the week the stimulus hit but what’s really encouraging is that in general the progressive week since then have continued on an upward trend. So, for that reason we think the stimulus did have a big impact. It’s not the major driver improving trend that we’re seeing here. So, I think the other thing also that we’ve seen a similar improving trend in international markets. We’re actually on the international side of the past four weeks have all been positive in terms of revenue year-over-year. So, we think it didn’t have any impact, but we don’t think it’s the dominant factor in play.
And then with regards to the inventory receipts for the fall. We’ve been very successful in making adjustments there. Our partner has been very gracious and working with us side-by-side to get the right levels of inventory bringing in those seasons. I think the only thing I’d caution is that it is a very highly uncertain environment and we’ve seen an improving trend here. But we’re also preparing for the possibility that the trend could shift in the other direction because it’s a very fluid situation.
Your next question comes from Justin Post from Bank of America.
Maybe two questions and one follow-up. first on FORWARD the fee acceleration you saw in the first two months, was that addition a lot of new customers or were you seeing orders per customer go up, just kind of wondering what was working and how the inventory was resonating better? And then secondly, back to the REVOLVE Fest question. I know that hurt in April that comp, do you think not having REVOLVE Fest also was a headwind in the first 10 days of May and then I have one follow-up. Thanks.
So, with regards to FORWARD, we did see a first volume increase in new customers as well. So, it was a terrific first two months to the year. I’ve cautioned with FORWARD though that, there are some unique aspects to the first two months that I think resulted in particularly outsized growth. We’re still very happy with the trends that FORWARD has shown progressively quarter-to-quarter. But I think that 47% number and even higher number we saw on the first two months was a bit of an outlier driven in part by some really strong international marketing activity, within our international team that I think it was a bit one-time in nature.
And then I’m sorry, what – the second half of your question?
Sure yes. You mentioned REVOLVE Fest was a headwind in April which we would expect. I was wondering if you thought the REVOLVE Fest not having that also was an impact on the first 10 days of May so that actually depressed the May number a little bit. And then my second question was on the return reserve, it was down quite a bit year-over-year. Is that all mix or was there other things going on with the return reserve? Thank you.
Sure. But with regards to REVOLVE Festival and the impact on May. We do think there’s an additional impact in May as well. But it’s much less than the impact we’ve seen in April. I wouldn’t read too much into layering additional headwinds on top of the trends that we’re seeing. Again, because I think the macro environment has been so uncertain. I think for the May numbers REVOLVE Fest will be impacted more in differently in those numbers. And then with regards to return reserve, I’ll let Jesse handle that one.
Thanks Mike. And just to clarify on the return reserve and make sure we’re talking the same terminology here. I think bifurcating that between rate and return reserve. So, the return rate has decreased and that’s largely due to the mix of sales both in terms of shift towards the lower price point, lower churn rate categories like beauty. Also, the incremental mark downs which a large portion of our final sales so there’s no return rates on that product. But then I think the return reserve is also an important thing to call out because as this folds into liquidity.
When you’re drawing at a constant rate, whatever that is 5%, 10%, 20%. You’re selling that much products and approximately 50% is coming in, when you have such an abrupt shift like COVID-19 where you go from positive growth to negative growth you essentially have a cash call on those returns that were sold at the higher rates and you’re not selling at as higher of rate going forward. So essentially that 50% return on the higher volume is offsetting the sales that are going out on the lower volume. We’re seeing on the cash flow statement and that return reserve is really that cash call on returns coming in. So, from a liquidity standpoint that had a large impact especially in the back half of March. So, given our cash balance holding we feel good especially good about how that’s played out.
Operator, next question please.
Your next question comes from the line of Aaron Kessler from Raymond James.
First maybe talk about categories where you’ve had to invest more as a result of kind of the stay in place, many thoughts into kind of some the beauty investments. I mean how does this change your thinking longer term into some of these other categories? And then just also just to recovery that you referenced in May, was this kind of across all categories or is it still mostly in the more stay at home categories including the ones you noted on the call? Thank you.
The team has done an incredible job on the beauty side. We’ve had an incredible selection across all the sub-categories that across beauty. So, when she was looking for a range of products, we had them there for her. And the great thing is that, a lot of beauty business is really driven by reorders so we’ve been able to offer a whole range of skincare, hair care, self-care, tanning, across the board and we’ve been able to replenish and chase into that business. So that beauty is very, very favorable for us in terms of lack of mark downs and also very, very low return rates.
So, I think this has been an awesome opportunity where we really introduced our customer to another aspect of our business. I think – a new age next generation department store is familiar with us for ready to wear floor and such shoe, remember the first floor [indiscernible] beauty counters are so we think – also been able to expand our marketing messaging engaging beauty. We expect and anticipate – very, very long-term. I think we’ve seen great success and great retention with our beauty business as nation once earlier so we’re very, very encouraged.
With regard to the other categories again very – a little bit similar story. The loungewear, an aspect of the business is something we’ve had to chase into aggressively and we’ve done that both for the third-party and our owned brand. So, there’s going to be much larger presence there over the long-term. And ultimately, this [indiscernible] not so much of a swing but more of a balance I would say, whereas category mixes from the loungewear category to the extreme end of very fancy dresses and event wear gowns. We don’t see it as of course know shift has been dramatic in terms of percentage change. But if you look at the type of categories itself has been a lot more balanced and we are very, very excited about being able to communicate and connect with our consumer across all of our needs.
Got it. Great and just the recovery in May was that kind of across all categories or still mainly in kind of denim leisure, athleisure type of categories?
Yes, so that recovery was across all categories, we saw broad based improvement.
Great, thank you.
Your next question comes from Michael Binetti from Credit Suisse.
Thanks for taking a shot at the guidance here and helping us understand how you’re thinking about the business during a very tough period. Obviously the speak about go forward at all. I want to ask about the gross margins a little bit. Jesse, I think the guide post you gave of lower than first quarter for the year puts us down more than 500 for the year or maybe more than 550 for the year. Is there any – I agree your comment that the visibility is really low particularly in the second half. I’m assuming I mean 2Q is down a lot for you to take us that low for the year. is there any kind of guide post you can give us on how to think about the magnitude in 2Q just to help us with the model a little bit? And then any thought you could give on maybe some any kind of basis point guidance on how much of that is going come from mix of owned brand versus compressing margins in the different businesses first party, third-party versus the category shift you spoke to?
Yes, sure. And like you said it’s really difficult time to try to provide any guidance. We’re trying to do our best to put those guide post out there and help out. One the cadence throughout the year. I think it’s fair that 2Q is going to have a more meaningful year-over-year decline in Q1 just based on the comps again. 2Q historically is our highest margin quarter of the year and that’s laid out last year as well. We did over 400 basis points better in Q2 last year than we did in Q1, so it’s Q2 this year coming in lower than the Q1 we did. There’s an expansion of the year-over-year decrease in 2Q. Some of these events – maybe to try to help a little bit for the rest of the year.
And it’s important to break it out between the COVID period and non-COVID period. During this COVID period one impact that accelerated or is having a more meaningful impact, is that shift from owned brand to third-party with lower minimums on third-party. Where in the near term we can manage both the inventory and reaction better by doing by making that shift. Over the long-term and hopefully it’s shorter than longer, we can go back to that pre-COVID cadence and target that we can maybe hit it on last quarter’s call.
I think from a magnitude perspective. I think you can think about the combination of full price mark down mix and a lower mark down margin having the largest impact followed by this third-party owned brand mix with more of a shift towards the third-party than anticipated on the previous quarter’s calls. And then also which I think we mentioned but just to call out as well. As we have the shift from REVOLVE to FORWARD that lower margin segment FORWARD. Offset partially and very partially by improved margins on the FORWARD side.
Okay, thanks for that. And then I guess as a follow-up, how do you look ahead guys as you think rebuilding the business post-COVID here? How much of a gross margin change we see now this year do you think remains structurally versus how much you think you can recapture? If you think about the fact that you guys had very, very high levels of full price selling relative to the retail peer group. I don’t know you said longer term you can try to return to the mix of first-party, third-party brands. But maybe FORWARD keeps growing faster, maybe some of these lower gross margin categories are bigger opportunity and that’s structural and maybe just the levels of full price selling come down. How should we think about when you think as we look at 2021 and whenever is recapturable [ph]?
So, we don’t view this as any kind of long-term shift. Now there maybe some longer-term shifts at the margins like say on some of the category mix shift. But I think the right way to view this as an opportunity and hopefully not playing that much into the overall margin. With regards to the two major components, the mark downs, the third-party versus owned brand mix. Both of those are temporary. Certainly, it’s in more promotional environment right now and everyone has a lot more inventory than usually planned pre-pandemic and so that’s going to reflect accordingly in the numbers. And then with regards to owned brand, third-party. This is a temporary shifting strategy because the economics are better for us in this pandemic situation that is highly uncertain in terms of outlook. And also, where the economics are different in terms of kind of production minimums and investments and [indiscernible] style and cost of that nature.
So, the major shift we’re receiving this year is just a function of us maximizing economics of the current period. We’re going to be prepared as soon as the pandemic is over to immediately bounce things back to a level more comparable to what we talked about previously which were still dialed back a little bit right and kind of closer between 2018 and 2019 mix and then from there continue to grow that business.
Your next question comes from Bob Drbul from Guggenheim.
Couple questions from me. I think on the first part, on the move the shift to 3P, is lot of that existing brands that you sold before, are you getting new brands in terms of that piece of the business? And I guess in a situation like this with the balance sheet that you have, are you seeing any opportunities from like an emerging brand perspective where designer or someone might have some liquidity issues and that will be something consider adding to your own portfolio?
Yes, the majority of shift to 3P has been with existing brands and vendors, brands that we’ve haven’t lost any relationships. But on the fringes, there’s also been the addition of some new vendors in categories that are becoming more important things like loungewear on the smaller end, we work with 500 plus, third-party brand. But there have been some very recent additions to the market place. Long-term wise in terms of partners or brands. I think you know of course serving our customers is number one and great product is essential. So, if there are brands that are need the support and help and there’s an opportunity for partnership that’s something we definitely known allowed to explore. I think you know as of right now it’s quite early in this crisis. But in the future those opportunities present themselves will be very open.
Got it and just two more quick ones. On the international business specifically April, May. Can you talk about country-by-country what you’re seeing or what you’re seeing in terms of the ramp back up? And then, the last question is essentially you talked a little bit about some of the stimulus check impact. Are you seeing more customers use the after-pay financing vehicle at all just any changes from the Q1 into April, May? Thanks. And that will be it from me.
So, with regards to the positive international trends. I can add some more color I think broadly internationally as well as some sort of regional color. So, in addition to international being positive for past four weeks. I would say in general we saw in our international regions they were hit less hard [technical difficulty] more quickly and we’ve seen positive trends that are fairly broad based internationally now. International that represents a lot of country, so there’s probably no point in timing our history for every single country is turning in the right direction. But in general, I can say is very broad based in terms of what we’re seeing including heavily hit area such as Western Europe we’re seeing some really positive sales trends.
Your next question comes from Simeon Siegel from BMO Capital Markets.
I hope you’re all doing well through this. Sorry if I missed it. Can you speak your view on the go forward direction of cost per influencer and performance marketing? And then can you guys just talk how you’re approaching, you mentioned conversion. So just looking at reflecting in the fact that margin April both in [indiscernible] recent traffic with buried in the sales trend. Can you just talk to the what you’re seeing with conversion in your approach to what’s driving that?
So, on a go forward basis. I would expect marketing expenses to be generally in line as a percent of sales year-over-year, so call it flat. Now that’s a broad general guidance. We’re going to be tactical in taking advantages of opportunities when they’re and go back when they’re not there. But I think is kind of an initial and kind of flag post, that’s the way I would view it. And then in terms of conversion rate trends, we’re seeing some recovery on conversion rate. But it has not been as strong as the recovery on the traffic side. Meaning so, that’s something that we have to see in terms of the full recovery on merchandize sale side.
Thanks a lot. Best of luck for the rest of the year.
We have time for one more question. Your last question comes from Susan Anderson from B. Riley FBR.
Thanks for fitting me in. two questions on the cost saves. Should we think of all of that being in second quarter is there anything also that we should think about for the back half of the year? And then also, when you think about the consumer. How are you thinking about them getting back to spending on fashion apparel again or at the levels that they have been spending? And then also, how are you thinking about competing I guess with the stores when they open up? Obviously, a lot of promotions will be going on, but just keeping that consumer the eyeballs on your website versus going out to the store?
This is Jesse. Thanks for the question. On the cost saving initiatives. Those really started to take place in mid-April. So, April is kind of half month impact there and the second quarter we won’t see equal impact. We’re going to monitor things on a week-to-week, month-to-month basis to determine how – if we have to go deeper or less deep on those cost reduction initiatives. We’ve attempted to variabalize [ph] the business as much as possible, so we can make those adjustments as much as in real-time as possible. We planning for a much kind of continued depressed environment in terms of the cost structure planning so that we can survive and come out stronger in the end of this and then maybe I’ll pass it on for the discussion on eyeballs.
With regards to you know stores open and such, I think when shelter-in place or stay at home guidelines are lifted. We think the consumer is really going to be excited not to go into physical stores to really spend time with their family, spend time with friends. Really do the joyous activities that were lacking in kind of this quarantine, lockdown type period and that’s exactly where we thrive so any offset in terms of access to physical stores. We think we’ll be more than compensated and boosted with. [Indiscernible] the activities that have been withheld in this time period, they’ll be thriving.
Great, thanks so much.
And I’ll now turn the call back over to management for final remarks.
Thank you, guys. It’s been of course a crazy time period but most importantly we’d want to thank our team. It’s been extremely challenging across the board from – some of the just fundamental as the way we do things from working from home and of course all the sacrifices that everyone is making across the board. So, we’re all doing our best and I think ultimately this will show up in the mid-to-long-term results. So, we’re very proud of everything that’s going on. We look forward to with the long-term future. We continue to thrive together.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
Originally published on Seeking Alpha