Kaspien Holdings Inc. Reports Fiscal Third Quarter 2021 Results

Strong Results in Key Growth Areas Highlighted by 15% Increase in Subscription GMV, 15% Increase in Subscription Monthly Recurring Revenue, and 38% Increase Across Private Label Retail Brands

Continued Outperformance in Non-Amazon Segments, Including Target Marketplace and Other Emerging Channels, Accelerates Growth 127% Year-Over-Year

 Kaspien Holdings Inc. (NASDAQ: KSPN) (“Kaspien” or the “Company”), a leading e-commerce marketplace growth platform, today reported financial results for the fiscal third quarter ended October 30, 2021.

Recent Operational Highlights

• Fiscal third quarter 2021 Subscription gross merchandise value (“GMV”) increased 15% to $30.1 million (47.3% of total GMV), compared to $26.2 million (39.2% of total GMV) in the comparable year-ago period.
• Kaspien Private Label brands grew 38% over the comparable year-ago period. Sales from Kaspien Private Label brands improved largely as a result of being under end-to-end supply chain management. The Company believes these continued, strong results in controlled areas is indicative of broader sustained demand across the portfolio, which is currently being impacted due to global supply chain challenges.
• Amended existing loan agreement with Eclipse Business Capital, providing additional flexibility to execute on the Company’s long-term business initiatives and aligning capital sources with Kaspien’s growth goals.
• Appointed David Sayyed Vice President of Brand Growth. In this newly created role, Sayyed will leverage his expertise in strategic brand growth and developing frameworks to strengthen Kaspien’s brand portfolio of existing partner relationships as well as enhance the current services and offerings for customers.
• To better align with the growth goals of the Company and to support its aspirations of global scale, during the third quarter Kaspien introduced a newly architected Senior Leadership Team (“SLT”). Tenets of the SLT include: 1. improved value chain alignment with a clear focus on better serving partners and building an infrastructure to support that mission; 2. flatter organization structure, with greater emphasis on clearer accountability; 3. eliminated single points of failure; 4. more teamwork and collaboration with fewer communication barriers.
• Earned second consecutive and fourth overall ‘Best Places to Work Inland Northwest’ honor and recognized as one of Seattle Business Magazine’s ‘Washington’s 100 Best Places to Work in 2021.’ These acknowledgements highlight company-wide efforts to increase professional growth and development opportunities as well as an abiding dedication to work-life balance and spaces for creativity that define the ethos of Kaspien.

Management Commentary
“By focusing on controllable factors, including internal process adjustments, purchasing and inventory process optimizations, and strategic price increases among other areas, our team has showcased great agility in adapting to a constantly evolving macroeconomic environment,” said Kaspien CEO Kunal Chopra. “Despite global challenges, we were generally able to maintain margins during the quarter, which is a testament to our continued focus on supply chain flexibility. On the other hand, verticals that benefited from greater end-to-end process control showed continued strength during the period. Specifically, our private label brands grew 38% year-over-year, in large part due to consistent stock from proactive early inventory positioning. Non-Amazon marketplaces fared even better, registering 127% growth as a group, mostly driven by success on our new and growing Target+ Program. Our burgeoning subscriptions segment registered a stellar quarter as well, highlighted by a 15% increase in both GMV and MRR.

“Longer term, we are continuing to make investments in our people, processes and technology to grow Kaspien into a truly global e-commerce enterprise. As an example, we recently made several major adjustments within our senior leadership team and broader organizational structure, which are collectively designed to make us more nimble and better able to support our partners across all business lines. Right now, we are currently in the midst of peak holiday shopping season. While we believe the headwinds of the past few quarters should continue for the foreseeable future, the work we are doing today has allowed us to mitigate many of the most daunting tests, and we’ll have emerged even stronger once the tide has subsided.”

Fiscal Third Quarter 2021 Financial Results
Results compare 2021 fiscal third quarter ended October 30, 2021 to 2020 fiscal third quarter ended October 31, 2020 unless otherwise indicated.

• Net revenue decreased 17% to $32.2 million from $38.9 million in the comparable year-ago period. The decrease in net revenue was primarily attributable to ongoing supply challenges in the Company’s Fulfillment by Amazon (“FBA”) US segment, which were offset by continued growth in the Company’s other marketplaces.
• Gross profit decreased 17% to $8.0 million or 24.9% of net revenue from $9.6 million or 24.7% of net revenue in the comparable year-ago period. The decrease in gross profit was primarily attributable to a reduction in net revenue on the Amazon US platform. Gross margin year-over-year increased slightly as the leveraging of freight and warehousing costs was partially offset a decline in merchandise margin. The table below summarizes the year-over-year comparison of gross margin:

• Selling, General & Administrative (“SG&A”) expenses decreased 2% to $10.0 million or 31.1% of net revenue from $10.2 million or 26.2% of net revenue in the comparable year-ago period. The decrease in SG&A expenses was primarily attributable to a $1.1 million decrease in selling expenses related to the decline in net revenue.
• Loss from operations was $2.0 million, compared to a loss from operations of $612,000 in the comparable year-ago period. The increase in operating loss was the result of the decline in net revenue, partially offset by a decrease in cost of sales and SG&A expenses.
• Net loss was $886,000, or $0.36 per diluted share, compared to a net income of $2.6 million, or $1.39 per diluted share, in the comparable year-ago period. The net loss was driven by the decline in net revenue, partially offset by a decrease in cost of sales, other income of $1.6 million related to the settlement of an insurance claim and a decrease in SG&A expenses.
• Adjusted EBITDA loss (a non-GAAP metric reconciled below) was $1.4 million compared to adjusted EBITDA loss of $65,000 in the comparable year-ago period.
• As of October 30, 2021, the Company had $1.8 million in cash, compared to $1.8 million as of January 30, 2021 and $2.4 million as of October 31, 2020.
• Inventory at quarter end was $30.2 million, compared to $27.2 million as of October 31, 2020.
• As of October 30, 2021, the Company had $5.9 million in borrowings under its credit facility and had $6.8 million available for borrowing.

Fiscal First Nine Months of 2021 Financial Results
Results compare nine months ended October 30, 2021 to nine months ended October 31, 2020 unless otherwise indicated.

• Net revenue decreased 5% to $107.7 million from $112.8 million in the comparable year-ago period. This decrease in net revenue was driven by ongoing supply challenges in the Company’s FBA US segment, offset by improved performance from non-Amazon marketplaces and the subscriptions segment.
• Gross profit was $26.6 million or 24.7% of net revenue, compared to $28.2 million or 25.0% of net revenue over the comparable year-ago period. The decrease in gross profit was a result of decreased net revenue combined with higher warehousing and freight expenses. The table below summarizes the year-over-year comparison of gross margin:

• SG&A expenses decreased 10% to $30.9 million or 28.7% of net revenue from $34.5 million or 30.6% of net revenue in the comparable year-ago period. The decrease in SG&A expenses was due to a $1.0 million decrease in selling expenses related to the decline in net revenue and a $2.6 million decline in general and administrative expenses.
• Loss from operations totaled $4.3 million, an improvement from $6.3 million in the comparable year-ago period. The improvement in operating results was the result of the reduction in SG&A expenses.
• Net loss was $2.2 million, compared to a loss of $3.8 million in the comparable year-ago period. The improvement to net loss was driven by the reduction in SG&A expenses and other income of $3.5 million, which was offset by a slight decrease in net revenues.
• Adjusted EBITDA loss (a non-GAAP metric reconciled below) was $2.5 million, compared to a loss of $4.7 million in the comparable year-ago period.
• Cash used in operations was $10.0 million, compared to $15.3 million in the comparable year-ago period.

Key Performance Indicators (KPIs)
Unless otherwise specified, KPI data has been recorded as of fiscal quarter end (October 30, 2021).

• Fiscal third quarter 2021 GMV decreased 5% to $63.5 million, compared to $66.8 million in the comparable year-ago period. Subscription GMV increased 15% to $30.1 million (47.3% of total GMV), compared to $26.2 million (39.2% of total GMV) in the comparable year-ago period.
• Fiscal third quarter 2021 GMV per active partner decreased 4% to $81,300 from $84,700 in the third quarter of fiscal 2020. This decrease was due to the overall decrease in GMV during the quarter. However, the Company expects this metric to steadily grow over time as active partners derive more value from the Kaspien platform, leading to greater partner sales and increased engagement across more product lines.
• Total active partner count for period ended October 30, 2021 was approximately 781, including 628 retail partners and 153 subscription (Agency and SaaS) partners. In support of the Company’s focus on maximizing GMV per active partner, Kaspien regularly reviews and updates partner counts to optimize its use of resources on higher-value, active partners. The Company’s subscriptions partner base as of October 30, 2021 increased 47% compared to the comparable year-ago period.
• Subscription lifetime value to customer acquisition cost (“LTV:CAC”) ratio as of October 30, 2021 was 3.8x with an average payback period of 13 months. The increase in LTV:CAC was largely attributable to an increase in lifetime value, spread across a larger cohort basis, at a greater rate than the increase in costs to acquire a customer. The increased LTV was largely driven by a decrease in customer churn rate. Customer acquisition costs also increased during the period as a result of greater investments in acquiring high-value prospects as well as additional headcount increases to support anticipated future growth in subsequent quarters. As subscription partners continue to mature and adopt more features of the Kaspien platform, the Company expects these metrics to fluctuate less on a quarterly basis and generally improve over time.
• Retail lifetime value to customer acquisition cost as of October 30, 2021 was 8.1x with an average payback period of 7.2 months. The sequential change was largely attributable to an increase in customer acquisition costs as the Company focused on converting larger partners.
• During the fiscal third quarter, subscription monthly recurring revenue (“MRR”) increased approximately 15% to $151,000 compared to $131,000 at the end of the comparable year-ago period.
• Retail segment gross revenue per partner for the fiscal third quarter decreased 10% to $53,000 from $59,000 in the comparable year-ago period.

Conference Call
Kaspien will hold a conference call today, Thursday, December 9, 2021 at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results.

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