Envela (US:ELA)2023-11-07 16:00Business Segments - Envela Corporation's consumer segment focuses on the recommercialization of luxury hard assets, including diamonds, and operates brands such as Dallas Gold and Silver Exchange and Charleston Gold & Diamond Exchange [113]. - The commercial segment operates brands like Echo and ITAD USA, focusing on recycling electronic components and IT equipment, with an emphasis on compliance and data sanitization services [124]. - On September 12, 2023, Envela purchased all issued and outstanding stock of Kretchmer, which will be incorporated into the consumer segment [123]. - Envela's consumer segment relies on purchasing products from secondary markets, with gross profit dependent on timely sales and market conditions [118]. Financial Performance - Net income for the three months ended September 30, 2023, was $1,707,493, a decrease from $3,317,709 in the same period of 2022, representing a decline of 48.6% [140]. - EBITDA for the three months ended September 30, 2023, was $2,287,902, down from $3,993,572 in 2022, reflecting a decrease of 42.7% [140]. - Consolidated revenue for the three months ended September 30, 2023, was $36,266,271, a decrease of 20% from $45,197,686 in the same period in 2022 [155]. - Gross profit for the consolidated segment decreased to $9,734,282, down 18% from $11,855,657 year-over-year [155]. - Operating income fell to $1,950,189, a decline of 44% compared to $3,458,608 in the prior year [155]. - Net income decreased by 49% to $1,707,493 from $3,317,709 in the same quarter of 2022 [167]. - Earnings per share for the three months ended September 30, 2023, was $0.06, a decrease of 50% compared to $0.12 for the same period in 2022 [170]. Revenue Breakdown - Consolidated resale revenue decreased by $8,893,575, or 22%, to $30,797,325 for the three months ended September 30, 2023, compared to $39,690,900 in 2022 [145]. - Consumer segment resale revenue fell by $4,365,692, or 15%, to $23,807,040, while commercial segment resale revenue dropped by $4,527,883, or 39% [145][146]. - Recycled revenue for the three months ended September 30, 2023, was $5,468,946, a slight decrease of $37,840, or 0.01%, from $5,506,786 in 2022 [147]. - Total consolidated revenue for the nine months ended September 30, 2023, was $134,958,838, a slight decrease of 0.2% from $135,252,502 in 2022 [173]. - Consumer resale revenue increased by 5% to $94,172,640 for the nine months ended September 30, 2023, compared to $90,014,891 in 2022 [174]. - Commercial resale revenue decreased by 23% to $23,114,611 for the nine months ended September 30, 2023, down from $30,200,026 in 2022 [175]. - Recycled revenue increased by 18% to $17,671,587 for the nine months ended September 30, 2023, compared to $15,037,585 in 2022 [176]. Profitability Metrics - Gross profit from resale operations decreased by $2,122,601, or 22%, to $7,593,938 for the three months ended September 30, 2023, compared to $9,716,539 in 2022 [150]. - Consumer gross profit from resale operations decreased by $459,763, or 14%, to $2,791,390, while commercial gross profit decreased by $1,662,838, or 26% [151][152]. - Consolidated gross profit for resale decreased by 8% to $25,103,167 for the nine months ended September 30, 2023, down from $27,320,120 in 2022 [178]. - Consolidated gross profit for recycled increased by 19% to $6,803,064 for the nine months ended September 30, 2023, compared to $5,724,571 in 2022 [181]. Expenses and Income Tax - Selling, general and administrative expenses decreased by 5% to $7,446,380 from $7,862,085 year-over-year [157]. - Selling, general and administrative expenses increased by 9% to $23,714,237 for the nine months ended September 30, 2023, compared to $21,707,789 in 2022 [186]. - Income tax expense rose dramatically by 396% to $317,967 from $64,061 year-over-year [165]. - Income tax expense increased by $1,389,582, or 961%, to $1,534,187 for the nine months ended September 30, 2023, compared to $144,605 in 2022 [193]. Cash Flow and Capital Expenditures - Cash flows provided by operating activities totaled $3,469,991 for the nine months ended September 30, 2023, a decrease of $4,255,149 from $7,725,140 in 2022 [199]. - Cash flows used in investing activities increased by $841,177 to $1,285,362 for the nine months ended September 30, 2023, compared to $444,185 in 2022 [200]. - Cash flows used in financing activities decreased by $401,138 to $2,049,209 for the nine months ended September 30, 2023, compared to $2,450,347 in 2022 [201]. - The company expects capital expenditures to total approximately $4,000,000 over the next 12 months, driven by equipment purchases and potential property acquisitions [202]. - The company has an outstanding capital commitment of $100,000 for the build-out of a consumer building purchased in Phoenix, Arizona [202]. Market Conditions and Strategic Outlook - The company is monitoring economic impacts from inflation and geopolitical conflicts, which have led to fewer customers selling items [130]. - Envela's strategy includes organic growth and strategic acquisitions to enhance its commercial segment, aiming to increase recurring revenues and expand margins [127]. - The company believes it has sufficient capital resources to meet working capital requirements, but may seek additional loans if significant growth in retail and wholesale jewelry sales occurs [204]. - The company has historically funded working capital needs through operations and may adjust inventory levels to meet unforeseen requirements [205]. - There are no off-balance sheet arrangements that materially affect the company's financial condition or operations [207].