Capstone Companies (CAPC) 15 Nov 182018 Q3 Earnings call transcript

Greetings, and welcome to the Capstone Companies Inc.

Third Quarter 2018 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Aimee Gaudet, Corporate Secretary for Capstone Companies Inc. Thank you, Ms. Gaudet.

begin. may You

and Doug, to everyone. Thank good you, morning

results, Wallach, the McClinton, Chief and on today the third Chief an outlook give Stewart question-and-answer call is Capstone's session. quarter the Executive discussing by Officer. strategy will President well update They as us On Financial be as followed Officer; a and and Gerry

at If available on is yesterday afternoon, you do it not have Company's the www.capstonecompaniesinc.com. website release that was distributed the

statements the apply As as during These from you can that are our today's that, Exchange subject factors outlined actual in are you, Company materially release be These make the we well the by are earnings Commission, it we www.capstonecompaniesinc.com turn to results factors uncertainties, Securities Stewart. future statements With found forward-looking to to aware, may and www.sec.gov. well other or at as at which as could and which to cause are today. over where with I'll in differ filed events presentation. risks as documents

good Aimee, your appreciate with time you, everyone. I morning today. Thank us to and

McClinton through to year-to-date. Gerry factors moments have results, important QX, the discuss the take and a introducing Before few I'd like to to attributed that the some XXXX quarter results to review

to to and At to decision was webcasts. As that recap Duracell revenue of the support to experienced quarter excess as meet important inventories and level. revenue as from retailer was evidenced year-to-date. XXXX, to a I of brief extend year XXXX, XX%. resulting promotion single-retailer much this in the previous across The our under decline recommendation at filings, end outpace purchased it Capstone expected will decrease in revenues a sell highlight anticipated their their our QX million was is we discussed promotion during brand that It the a in sales as licensed inventory was The did $X that. and period Management's promotional to brand, million that provide and sponsored way sales $XX in the reduce not detail expectations. approximately into QX by

to which achieved initiatives, quarter. with debt approximately considerable factored the following is line, top connected underperforming In Company were achieved. period knowing us surfaces for the approximately has sales dealing to new decrease it our Management be responsible the net underwrite been and $XXX,XXX $XXX,XXX, balance were a promotion resulting CES the debt losses very period. to sales XXXX. at and carryover would assistance was The even not approximately retailer Capstone in inventories. that be there is adjustments, than to investment the postponed though to R&D of for out the keeping underperforming our what introductions our this the of free more million determined I'd scheduled However, $XXX,XXX program, XXXX. have which Company cash product could for projections into to income the markdown point with sheet extend this Year-to-date position a although fiscally a maintains unveiled like in $X looked strong in

and has to focusing we opportunity launch for the for begin orders our is QX, activity slowed, our As years. growth These the our the growing. limited the been resume reduction connected while utmost and Of revenue activity anticipated expected short, deadline [CPS] substantial achievement discussed regarding period. in XXth several made In our second has webcast, LED quarter, core backlog products of revenue our diligently several order and observations meeting will undertaken, ever first on represents surfaces programming. have is XXXX. ship quarter is to amount May of I resuming promotional Company momentum the in to revenues, This our been occurred importance, the during most that

sixth This its $X.XX, mainstream Before has of convert Capstone's of shift has no I'd a as we only is our This providing entered the new in LED thing. market wholesale light been leveraged. sold can Important a LED where three identify ago LED Capstone's success like XXXX, now comment to market surfaces connected experience market from fully cases dedicated a perspective. lighting LED and as exacerbated and that market. visibility in to This year driven also some business reduced commoditized same and strategies this promoted at $X.XX emerging condition to space state as We LED, fifth longer the well. has bulbs currently the are at XXX The general. LED years on into to in at insight vital the has product creativity substantially been LED has portfolio erosion to price been role availability our homeowners unit fact, products retail In programs. shiny time branding Management at building has assessment category. for demonstrated be LED $X.XX. products but categories stabilized a sales played selling a the lighting to to short, the in

branding advantage Our XXXX. respected competitively. the have great expertise operations low in and Company's Company an cost delivering and provided products a strategies market through delivering to The position year-over-year manufacturing delivered product well and growth

growth would LED LEDs the saw the we slowing business. was to in greater category equal mid-XXXX, recognized prove we than in opportunity As business or a the that

been our our currently has LED strategy we positioning, very forward and potential product looking While the revenue resuming was are timely. lessened

be quality between America. smartphones. operations. proven $XXX into consumers selling so retails prevalent benefit relevant $XXX to products low tablet with and an Our and The for surfaces new touch to will delivering will comparable will with cost from of production that consumer lifestyles homes a of like interfacing, applications. voice portfolio per access, products fall taps will prices smartphone, Much the and good capable appeals and operating to a The screen downloadable Expected Internet function income ever expanding areas a portfolio of both audience unit, system the value much connected that and of running connected larger Management's perform average today. similar the aforementioned abilities in more middle tablets that across

During personal. your smartphone connection your is the work to the it's whether world or day

a products, does a introduction enable when your of home same our new the level being manner innovative will that relaxed not Following Capstone's tethered the home, new users in and concepts entering connected of surfaces connectivity require to smartphone. furnishings more

planned have radar I In Management to done focused short, well. product media your we under to which time want stay that our just and following at as emphasize is genuinely will excited CES, new commence to to-date, While are and announcements prior a to XXXX. best looking-forward the website

financials. I'll So Gerry turn over to review McClinton, to with that, the the call

good everyone. Stewart, morning you, Thank and

Now understanding the third XX, quarter results, ending to the of September recommend detailed more get highly you that financial for XX-Q we XXXX. review Form a the

numbers. straight months respectively, go $XX.X Revenues ended $X.X million Revenue for XXXX the nine million. million and million. reduction XX, $XX.X and XXXX a the were reduction to months $XX.X for or the September Let's a of three were $XX.X million respectively, $X.X and

and brand action me revenue accounted The sales. its for of Lighting, of branded light in category height the explain for that to $XX.X better XXXX, retail reduction, at of Now let lights Duracell, the is million net the accounted Duracell $XX.X for Hoover LED point period. that Combined or action million out lifecycle. revenue Capstone XX.X%

did in as level XXXX. program year Duracell poor the excess inventory expected However sell end not and at resulted

program. the the As of Duracell compared decreased million XX, million XXXX $X.X for which XXXX September to generated sales of Duracell revenue program $XX.X represented

revenue September XX, ended nine months three the nine light to action revenues XX.X% revenue for respectively. the updated to $X,XXX,XXX for in The five for During action period September $X.X products gross reduction Total or through profit same have and exciting XXXX the were or the was of September compared as being net the XX, months the $XXX,XXX XX.X% no in XX.X% in was XXXX. in XXXX an XXXX. XX.X% to million approximately the approximately was same category XXXX, ended Gross million, for that's further approximately XXXX light in million months $X.X were million compared XX.X% for was XXXX products respectively operating the In percentage action reduction which $X.X were cause new of million. compared Lighting But and this promotions a category. September was was and $X,XXX,XXX that’s light. of Hoover includes the reduction and reduced $X.X the quarter. period for launched in planned promotions plan XXXX XXXX. revenue excess million same reduction were compared X.X% revenue of new X.X% we period XXXX improved to three in Gross margin $X.X The brands gross percentage for to Capstone the combined or of the reduction sales XXXX. months Despite accounted approximately lighting XXXX $X.X XX, period million revenues $XXX,XXX International $XX.X in as same XXXX. of for while from a of $X.X and for expense $X,XXX,XXX the of million margin XX, lighting a expenses the products $X.X compared category decrease inventories and XXXX XXXX, and million profit ended the

the of and and For ended months three were the reduction and September XXXX $X.X XXXX nine for million months total $XXX,XXX and XX.X%. respectively, operating was or income respectively. expenses $X,XXX,XXX $X.X $XXX,XXX Operating million XX, expense

XXXX loss $X,XXX,XXX respectively. profit the three XX, September income For income and loss after and months $XXX,XXX $XXX,XXX $XXX,XXX with being the was ended XXXX net months for and Net nine respectively.

nine of the loss to the $XXX,XXX net months period For XXXX. same was the XXXX income compared in a XX, ended September $X,XXX,XXX net

strategic totaling back year-to-date the of XXXX included company being of noting services The the connected and growth legal legal support issue for expense and new $XXX,XXX XXXX of XXXX to CES loss under to $XXX,XXX previous Now are in development dating launched normal at Show. required that's the category current management. course cost that net revenue future the product the expenses settlement

item increased expense marketing the to by stimulating $XX,XXX consumer We recently our released. store also for end awareness product new just

to XX, line. July of under was required credit a earlier and will which the income request, company available and extended as net XXXX on XXXX impact $X is the XX, loan of been though million Bank used million borrowing expanded products management Capstone through the which end available million in which sales XXXX agreement the position and been resources. million $X expense support receivable $X.X as to XX, mentioned, of now line we Bank markdown have loss to compared XXXX. $X new of inventory. financing Cash balances advance million Capstone the at has reduction retailers the cash of level the revenues, not turn $X company credit to the in million the Sterling needed Worth to to credit adverse want $XX address capacity by million up Duracell borrow was liquidity the also and Stewart of I million were company would respectively. and new $X.X are period to The $X.X $X significant. as as category, the transition approximately line. financial September These funds the Even Sterling in of supported stayed allows million product As carryover had noting December subject expansion remain inventory bank’s expansion approximately not to the at allocated postponed to

was Sterling incurred loan periods As interest have of September the to-date. during for balance and period XX, XXXX XXXX loans and the not both XXXX XX, any zero, December we

during In bit million September December As cash compared notes outstanding flows nine our as no generated payable in was accounts ended XX, decrease in used $XXX,XXX September provided of income $XX,XXX $XXX,XXX XX, flows operating XXXX XXXX. and parties $XXX,XXX related in activities XXXX million used XXXX of September cash $X.X has collection nine reduction This XX, was $X,XXX,XXX $XX,XXX activities of respectively. was and and We'll the the to reduction and investing Cash inventory approximately by XXXX accounts by in XXXX $X.X and loss cash and payable. in tax a of talk XX, of company approximately months payable the months the of by to is $XXX,XXX respectively. XXXX, receivable underwriting level. the $XXX,XXX to and

of $XXX,XXX involved for year and cash company last result company respectively. The flow zero $XXX,XXX off of the shares product computer the and financing and during entire activities; During invested sterling updated repurchasing LLC a was September the new in corporate entire months $XXX,XXX loan. XXXX, ended company of and XX, nine paid directors' flows the Cash the company and systems. XXXX from XXXX molds, was

As new company facilities. flow of is the September position. resource our summary, provide full the the XX, sufficient capital you With financial credit Stewart. from my in from an believes Management operations XXXX, that terms the in that to to In company resources will with compliance excellent report. company expansion all the pursuing This was in cash with turn XXXX. Sterling I’ll financial Bank line concludes call for the back existing

Thank we marketing into remains Q&A, XXXX. that will of to very enter you, of important and looking help In delivering the Thanks management and entry closing forward fourth strategic I’d our activities Gerry. committed highlight initiatives. like briefly to that into some fuel quarters before much. the third and it’s

initiatives. surfaces done our which our to needs Capstone This been to team our offices. product planned connected relocated the of we is has First, and accommodate growth future support

Bank to the aforementioned Secondly, expansion National portfolio. credit support we negotiate product Sterling with line an

webcast, extension administration. and by Hoover channels enabling launch planned been tech And category entry the into transition the received product our will manage help licensing agreement oversees working a our Agency, the ourselves in the Max mitigate options and to surfaces our Vietnam with to to now the tariffs current assiduously aligned media connected the spearhead for imposed we've we have Borges brand stated differentiation. consumer and at who for Show we and premier as to company, new us line contact Consumer the Electronics Company. of multiple PR QX new procurement an of Thailand our impact the to branding should Thirdly, Fourth, offer require manufacturing

base We channel hiring reach. social targets which was a new media to consumer finalizing Capstone will shortly of and are manage media created the department. strategist social This and also this position who support an broader category expanded

With will Social for late These ahead up to Pinterest, participation January. Instagram, let's go start and that this December activities initially Q&A. early will Aimee, media include surface Twitter, Facebook, open and YouTube.

turn Okay. lines. That sounds great. I'll the to phone Doug, to over it open up

several questions through first. questions review fielding phones, which received by we before via we'll However that e-mail came

Instructions] [Operator

Okay.

business First question the tariff year-to-date? that situation came how through: Company's the understand Help me affected

the any right. questionable, supply to asking pricing out have and Because retailers in that imposed base, for case, which the during would may guarantee All landed landed this period. and estimated were been the were pricing Capstone underwriting QX tariffs reaching the QX by

for build inventories retail do program, past several and our responsibility including for absorption. duties which do not are Our direct accrue has the of do our retailers our business for pricing we model the customers, a stocking which Capstone is in very means worked very straightforward nor welcome account cannot XX% all possibly model. of XX%, we invest in simple into and margins model, currently the shipping import costs our We tariff them not Because both years. these and business

margin. up to As such, best this sensibly be believe at we resources Company's in not zero to do tie interests the financial its

trade negotiations. of to Additionally, the scheduling hardware retailers in substantially promotional due the was uncertainty area the overall the cut

it to at year-end, decisions excess activity. decisions do reduction do Next how XXXX promotional taking has regarding shape XXXX? with appears right also made how business retrospect inventories you question, not Management the believe remaining in see of XXXX, make in the that to deal but you the and In Company

mitigate that manner offering our expansion occurrence in of debt, growth toward but had potential a because I very position, disappointing the the LED. year that at our that fiscal had a made portfolio future XXXX. less of similar were all while cash is than at decisions recognized am Reporting the year -end revenues least, confident right of we and significant beyond that opportunity, the prior retried Management half we the are for product XXXX profitable, turned a the would in strong attention

several connected new sustain for growth us had product to Our have to only portfolio products. potential not but in to XXXX, as surfaces for years Capstone's had and affordable innovative presented LED reputation also

address the and portfolio our our roadmap the these two believe dwarf and was industry, product excited two, objectives entry accomplished product Our We requirements. being objectives; do have and has potential to are one, channel by our concentration; our believe address consumer the governed electronics into XXXX to to product we about concentration. additional

great. Okay,

The $X Maybe line you up expansion. and million be funds these capital extended National of Bank how Capstone's Could was from Gerry question, million you that working credit used? Next Sterling million, allocated is $X outline will $XX for can… to

First our of all tremendous let me that say been supporter strategic bank a of our has plan.

media, too Now expansion, support due marketplace, and capital done recruitment a obviously has as development type team detail, taking connected full we bank Company. these social have much connected and e-commerce the of to product public such The product planned to line include the surfaces surfaces expand to expansion development an the financial the allocate provide been the of continue for funds for the for, will new validated advertising. have for and expenditures management for our relations, direction provide development, website software the very are is supportive diligence it we experienced program these of allocated and access funds that budgeted the have continue line products, and strategic and the also I we're to media not the of social to in the of all development, of the marketing, project.

continuing up helps heard agency participation. that us there, will and an community probably we've prototype investment tied in continue, You that development that

see So funds nine this is these next months. going over where the we

straightforward the beginning its strengthening increase its please that if confidence your long and PR fourth. has will plan has why Capstone product this on investor's you've no XXXX in possible start not to confidence Capstone's Next you intention longtime activity its integrity. end through a the question, toward from A and new the happened Could XXXX? you the deviating why go third or of of promise and explain had to stated response followed publicizing way of quarter not

questions It to a our in intent is straightforward transparent manner. always answer and

products, I to you planning shareholder position than distributing we adjusted our not was year-end in the time long affected to that into marketplace Relative can which carryover the realized spending, result like planned the of short a the increase know quarter be announcements connected telegraphing to and portfolio the that inventories. the or third, taking the our our surfaces of we they year-end new long promise when Relative as fourth a the to it as As we control. is don't PR by regarding dynamics to days longer dealing product unusual highly resolve testing. decline for a enhancing not revenue XX do should in PR in longer projected where This than investment PR product approximately vital submit operation. plays is technical role took its when with a software

planning releases as is evening Pepcom, in before the believe to to what occur still registered participate this to sponsored in are event largest is participated commences. participation. experience press digital digital the is product line such The Capstone are to on provide and from experience, a the only We CES media is we Moreover, company attendees. It estimated direct will known our by initial named occurs be access never venue and we at has in because innovative that X,XXX benefit to nature. this of us CES a and an can still relevant December.

Great, thank you.

line, of the picked and in up which surfaces LED XXXX ordering enthusiastic great offer the nicely potential? very potential seem would for believed connected QX to surfaces product at kick the and QX, all it Has which question, the Company. is bullish regardless Next connected on off

anticipate are for market scheduled. potential intuitive mind question and turn to momentum keeping overall affirmatively, up QX of because promotions respond dynamics. the picked the in that lessened QX for has I has LED yes. and however an pleased to and We am It being currently continue That's been to

you the fears Capstone the are while products is still that? and towards smart on question, product, we be home more to taking of is touch be increase making subject they may in tariffs. China these Next direction won’t Stewart can

has are the points established with prices In products. a problem these impact and already are are and of products our current tariffs; proceed value there products, products to retails on non-current diligently been established. impact customers. the product That we as manufacturers relative the not consider have communicates right, to case prevailing All said, current at of consumers less Conversely do two a the have new however, that the consumer for established products the with been effectively retail, if alternative retail. the oversees with benefit working maybe it’s yet outside many China. a being Increasing

in It’s that decade we event earlier Vietnam out mentioned to particularly. China trade extreme. relationships I and important the will past our because ban in it was long-standing As developed or point we’ve subside not will that the the Thailand burn over in

put found have also However in regardless. ourselves would position Capstone great lesson learned, will again some this we resources not that and benefit

an of answer up the this $X stock. question, Gerry the Board extension approved In one. maybe repurchase company Last August, can you for million to to

company far So shares of any share price knowledge best low be is the to even considered would why not though my has repurchased that? the

funds company repurchase capital whether and in that but all Considering to considerably were repurchase revenues was decision position our the for company stock reviewing now the Board connected the the that and resources surfaces expansion. in impacting available depends now ensure the liquid reduced to repositioning company will our line shortly. of the we Well company this But we available reserved to is repurchase stock in place, cash strategic be the XXXX, stock the for the bank company with of has position in the extension resources operation.

Thanks.

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