Stock Terminal X. It traded down about 20% after the company reported low revenue growth and a sharp drop in operating profit in the fourth quarter of 2021. The stock completed a decline of almost 50% in just over a month – from the peak it climbed to the current low in early February. The share price reflects a loss of about 20% to investors in the company’s issue last year.
Terminal X, controlled by a group Fox , Is engaged in the import, marketing and sale of fashion and lifestyle details through the online trading site Terminal-X. According to the company, “Starting in the second quarter of 2021 and exiting closures, there has been a moderation in demand along with a moderation in growth rates relative to the corresponding quarters last year.” According to Terminal X management, the company’s growth rates in the first quarter of 2022 and in the short term are expected to be lower than the growth rates in 2021.
In the fourth quarter of 2021, the company recorded revenues of NIS 112 million, reflecting a growth of 3.7% compared to the corresponding quarter in 2020. Gross profit increased in the fourth quarter by a negligible rate of 0.2% to NIS 47 million, while the gross profit margin eroded to 42.1%, compared with 43.6% in the corresponding quarter.
The company noted positively the revenue growth in the fourth quarter, despite the fact that in the same quarter in 2020, online sales benefited from the closure of physical stores. Recall that in the corresponding quarter in 2020 the parking lots in the shopping centers were closed for 71 days (about 77% of the quarter period) while in the fourth quarter of 2021 the shopping centers were open throughout the period.
The company also reported that operating profit (before share-based payment and issue and other expenses) eroded in the fourth quarter by 69% to NIS 3 million and that adjusted EBITDA (operating profit before share-based payment, issue expenses, depreciation and amortization) decreased by 22.3% to NIS 10.8 million. The company ended the fourth quarter with a loss of NIS 6.8 million, compared with a net profit of NIS 7.1 million recorded in the corresponding quarter.
The loss in the fourth quarter was due to accounting expenses of NIS 7.3 million in respect of the cost of a share-based payment, as well as financing expenses of NIS 4.5 million (compared with NIS 1.1 million in the corresponding quarter). According to the company, the increase in financing expenses was mainly due to exchange rate differences in respect of the dollar in the amount of NIS 3.5 million.
51% revenue growth
In 2021 as a whole, Terminal X recorded revenues of NIS 341 million, reflecting a growth of 51% compared to 2020. According to the company, this growth is reflected in an increase in the number of visits to the company’s website (an increase of about 30%), the number of registered customers (an increase of about 52%), the number of orders (an increase of about 45%) and an increase in the average basket of about 6%), as well as from the effect of the closures in the first quarter of 2021, when the physical stores were closed.
Gross profit grew by 51.3% to NIS 154 million, and its share of total revenues was 45.2%, compared with 45% in 2020. The bottom line is that in 2021 the company recorded a loss of NIS 8.6 million, compared to a net profit of NIS 3 million recorded in 2021 According to the company, the main source of the loss is in a share-based payment that entailed expenses of NIS 12.4 million, in issue expenses and an increase in financing expenses as a result of exchange rate differences against the dollar in the amount of NIS 5 million.
The company’s management estimates that the rate of revenue growth in 2022 will be almost entirely from activity in Israel and will range between 15% and 30%. Management also estimates that the annual adjusted EBITDA rate from operations in Israel will be similar (or slightly lower) relative to the adjusted EBITDA rate in 2021.
The revenue growth rate now published is lower than the growth rate for 2022 that the company estimated as part of the IPO prospectus. The prospectus, published as stated in July 2021, states that “the Company’s Board of Directors set a target for growth in the Company’s revenues in 2022 at a rate of between 40% and 70% relative to revenues in 2021, assuming start operations outside Israel during 2022, with a relatively small share of revenues. The company will derive from the company’s operations outside Israel. “
Nir Horowitz, CEO of the company, said the most. Thanks to our growth strategy in Israel and abroad, we believe that in the medium term we will cross the NIS 1 billion mark per year threshold. “
Terminal X CEO: “We do not control expectations”
In a conversation with Globes, CEO Horowitz noted that “anyone who looks at the long term does not see anything bad, but anyone who looks per quarter and may have expected a net profit in the fourth quarter, was disappointed. It’s not something we said would happen but we do not control expectations. “
A profitable company expects to remain profitable.
“The company is profitable, but the investments we need for high growth are also high. The investments abroad are also high, and we said that.”
And is this the reason for the sharp decline in operating profit?
“Operating profit fell in the fourth quarter compared to the same quarter last year, but on an annual basis it is rising.”
True, but looking at the results of the fourth quarter now and seeing a slight increase in revenue and a slight increase in gross profit, as opposed to a sharp decline in operating profit.
“This is not the same company. We have built managerial infrastructure, we are looking ahead. We are investing in infrastructure that is supposed to grow the company to sales of more than NIS 1 billion. It will not happen with the same salaries, it is not comparable.”
The forecasts are also lower than what appeared in the prospectus.
“True, this is mainly due to a delay abroad, because there were many months that there were no flights and there was no one to meet with. Now everything is open and we are advancing with all our might. There is a delay in overseas programs, but in the long run this does not really change a quarter delay or two quarter quarters.
“Even the forecasts we published were only about the activity in Israel. If we do more things, it’s over. Then we did not necessarily reduce the forecasts, but we published forecasts only about Israel.”
The prospectus also talks about a relatively small part that will result from activity abroad.
“True, but also a small part of the mix is a big part of the numbers we are in today growing year on year. In addition, there are other reasons and we published them in the report, for example the Pot Locker site we thought the market was much earlier, launched and works well but not according to our forecast. And there are other reasons, but the main reason is the rejection in Greece. “