uSell.com Reports Third Quarter 2017 Results

Revenue Increased 16% to a Quarterly Record of $28.9 Million
Gross Merchandise Volume (a non GAAP measure) Increased by 37% to a Quarterly Record of $34.0 Million

NEW YORK, NY / ACCESSWIRE / November 15, 2017 / uSell.com (OTCQB: USEL), a large market maker of used smartphones, today reported financial and operational results for the three-month period ended September 30, 2017.

Key Business Highlights for Third Quarter and First Nine Months of 2017:

Launched new platform to enable select buyers to purchase directly through an online portal
Continued to invest in warehouse operations in order to increase capacity, decrease processing lead-time, and provide device level traceability to suppliers
Largest supplier’s share of purchases dropped to 34% for the three months ended September 30, 2017, down from 62% during the same period in 2016
Gross Merchandise Volume (“GMV”), a non-GAAP financial measure, which we began reporting for the second quarter, increased by 37% and 30% for the quarter and the nine months ended September 30, 2017, respectively

Key Financial Highlights for Third Quarter 2017:

Revenues increased by $4,056,000, or 16%, to $28,873,000 for the three months ended September 30, 2017, from $24,817,000 for the three months ended September 30, 2016
Operating loss for the three months ended September 30, 2017 was $288,000, compared to $7,000 for the three months ended September 30, 2016, a change of $281,000
Net loss for the three months ended September 30, 2017 was $625,000, compared to $412,000 for the three months ended September 30, 2016
Adjusted EBITDA, a non-GAAP financial measure, was $203,000 for the three months ended September 30, 2017, compared to $590,000 for the three months ended September 30, 2016
GMV, which is a non-GAAP financial measure, increased by 37% to $34.0 million for the three months ended September 30, 2017, compared to $24.8 million for the three months ended September 30, 2016

Key Financial Highlights for Nine Months Ended September 30, 2017:

Revenues increased by $8,043,000, or 11%, to $81,142,000 for the nine months ended September 30, 2017, from $73,099,000 for the nine months ended September 30, 2016
Operating loss for the nine months ended September 30, 2017 was $546,000, compared to $1,075,000 for the nine months ended September 30, 2016, an improvement of $529,000, or 49%
Net loss for the nine months ended September 30, 2017 was $2,520,000, compared to $2,535,000 for the nine months ended September 30, 2016
Adjusted EBITDA, a non-GAAP financial measure, was $909,000 for the nine months ended September 30, 2017, compared to $793,000 for the nine months ended September 30, 2016
GMV, a non-GAAP financial measure, increased by 30% to $95.1 million for the nine months ended September 30, 2017, compared to $73.1 million for the nine months ended September 30, 2016

Nik Raman, Chief Executive Officer, commented, “During the quarter we saw continued growth in GMV, which is indicative of our success in expanding new and existing supplier relationships. Over the coming months, we will continue to invest in our online platform to enable our customers to self serve and take advantage of our increasing scale. We believe that these investments, coupled with those that we are making within our warehouse, will differentiate us from our competitors and create value for both our customers and suppliers.”

While quarterly revenues increased by 16% from the prior year, uSell saw a 37% increase in GMV for the quarter ended September 30, 2017 and a 30% increase in GMV for the nine months ended September 30, 2016. Gross margins increased from the prior quarter to 5.4% but were down from 8.3% from the prior year. Margins are driven primarily by supply and demand, but can also be impacted by the Company’s ability to make opportunistic purchases. Due to these factors, the Company cannot predict margins from quarter to quarter.

See discussions below in regards to non-GAAP Financial Measures – GMV and Adjusted EBITDA

Technology and operational processes continue to play a key role for the Company in limiting its growth of fixed costs while increasing capacity, sales velocity, and average selling prices. The Company continues to invest in its online platform and has steadily transitioned more of its customer interactions online. Beginning in the fourth quarter, a subset of uSell’s customers will have the ability to purchase directly through an online portal, rather than by speaking to a sales representative. This new platform, in addition to its previously launched online auction platform, will enable the Company to drive the bulk of its customers online in the coming quarters.

uSell continues to invest resources in optimizing the processes and technology needed to test and grade devices in its warehouse, with the aim of increasing capacity and decreasing processing lead-time, while providing device level traceability to its suppliers. Management believes that these investments are important to make for two reasons: 1) they differentiate uSell from competitors of similar size that are looking to purchase from its suppliers, and 2) management expects the iPhone X launch to drive substantial trade in volume in 2018. By adding more value than its competitors and becoming the partner of choice to its suppliers, uSell believes that it will greatly benefit from industry trends as trade-in continues to increase in importance throughout the mobile ecosystem.

On the supply side, the Company has continued to diversify its supplier base, with its largest supplier’s share of purchases representing just 34% for the three months ended September 30, 2017, down from 62% during the same period in 2016. Management views supplier diversification, as well as expanding its relationships with existing suppliers, as long term initiatives, and is optimistic about its prospects over the next year.

Deloitte Global estimates that the global smartphone market was worth $17 billion in 2016, representing 50% growth over 2015. Furthermore, it forecasts that the growth rate of the used smartphone market is 4-5 times higher than the overall smartphone market and that it will likely accelerate through 2020 as both consumers and suppliers increasingly embrace the practice of selling or acquiring second-hand smartphones.

Financial Results for the Third Quarter Ended September 30, 2017:

Revenue was $28.9 million for the three months ended September 30, 2017, a 16% increase from $24.8 million for the three months ended September 30, 2016.

During the three months ended September 30, 2017 and 2016, 62% and 65% of the Company’s revenues, respectively, were originated in the United States, 19% and 24%, respectively, were originated in Europe and 13% and 8%, respectively, were originated in Hong Kong.

Gross profit decreased to 5.4% to $1.6 million for the three months ended September 30, 2017, compared to 8.3% for the three months ended September 30, 2016.

Sales and marketing expense increased $64,000, or 14%, from $469,000 during the three months ended September 30, 2016 to $533,000 during the three months ended September 30, 2017. The increase is primarily attributable to the higher fees paid as a result of the increased eBay sales during the three months ended September 30, 2017, compared to the three months ended September 30, 2016. With the We Sell Cellular acquisition and the Company’s newfound ability to source devices directly from the carriers, retailers, and manufacturers, uSell’s primary sales and marketing expenses have shifted from consumer marketing to paying out sales commissions and selling fees. Because the vast majority of uSell’s sales and marketing expenses are now paid to third party selling platforms, such as eBay and Amazon, any increases or decreases in these expenses are directly tied to sales for the period.

Operating loss for the three months ended September 30, 2017 was $288,000, an increase of $281,000 from a $7,000 operating loss for the three months ended September 30, 2016.

Net loss for the three months ended September 30, 2017 was $625,000, an increase of $213,000 from a $412,000 net loss for the three months ended September 30, 2016. The resulting EPS increased to ($0.03), as compared to ($0.02) for the prior year ago quarter.

Adjusted EBITDA, a non-GAAP financial measure, for the three months ended September 30, 2017 was a $203,000 income, a decrease of $387,000 from a $590,000 Adjusted EBITDA income for the three months ended September 30, 2016.

At September 30, 2017, uSell.com had $0.5 million of cash and cash equivalents, $3.4 million of restricted cash, $7.7 million of inventory and 20.2 million shares issued and outstanding.

Financial Results for the Nine Months Ended September 30, 2017:

Revenue was $81.1 million for the nine months ended September 30, 2017, an 11% increase from $73.1 million for the nine months ended September 30, 2016.

During the nine months ended September 30, 2017 and 2016, 67% and 65% of the Company’s revenues, respectively, were originated in the United States, 16% and 20%, respectively, were originated in Europe and 12% and 13%, respectively, were originated in Hong Kong.

Gross profit increased to 6.5% to $5.3 million for the nine months ended September 30, 2017, compared to 6.5% for the nine months ended September 30, 2016.

Sales and marketing expense increased $358,000, or 28%, from $1,260,000 during the nine months ended September 30, 2016 to $1,618,000 during the nine months ended September 30, 2017. The increase is primarily attributable to the higher fees paid as a result of the increased eBay sales during the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016.

Operating loss for the nine months ended September 30, 2017 was $546,000, an improvement of $529,000 from a $1,075,000 operating loss for the nine months ended September 30, 2016.

Net loss for the nine months ended September 30, 2017 was $2,519,000, an improvement of $16,000 from a $2,535,000 net loss for the nine months ended September 30, 2016. The resulting EPS remained at ($0.13), as compared to ($0.13) for the prior year ago quarter.

Adjusted EBITDA, a non-GAAP financial measure, for the nine months ended September 30, 2017 was a $909,000 income, an improvement of $503,000 from a $793,000 Adjusted EBITDA income for the nine months ended September 30, 2016.

Non-GAAP Financial Measures

This press release contains two measures of financial performance not calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), GMV and Adjusted Earnings, Before Interest, Taxes, Depreciation and Amoritization (“EBITDA”).

GMV

The Company defines GMV as the total of uSell revenue plus revenue from the Special Purpose Entity (“SPE”). GMV is a non-GAAP financial measure because it includes SPE revenue which is not reportable in uSell’s financial statements nor is it in accordance with GAAP. See immediately below for a reconciliation between our revenue under GAAP and GMV.

Three Months Ended

September 30,

Percentage

2017

2016

Change

uSell Revenue – GAAP as Reported

28,873,000

24,817,000

SPE Revenue – non-GAAP

5,142,000

–

100

Gross Merchandise Volume – non-GAAP

34,015,000

24,817,000

Nine Months Ended

September 30,

Percentage

2017

2016

Change

uSell Revenue – GAAP as Reported

81,142,000

73,099,000

SPE Revenue – non-GAAP

13,946,000

–

100

Gross Merchandise Volume – non-GAAP

95,088,000

73,099,000

As mentioned above, the Company makes reference to “GMV,” a measure of performance not calculated in accordance with GAAP. Our management believes GMV is useful in evaluating uSell’s overall volume of transactions and in evaluating the SPE’s performance. Since all SPE revenue is generated by uSell’s management team and employees, our management believes it demonstrates how effective uSell’s business model is and its potential if it had additional capital. Investors should recognize that uSell will not receive all of the profits from the SPE assuming profitability; uSell receives a minority percentage of any distributions until the investor receives an agreed upon preference at which time the profit sharing shifts to uSell receiving a majority of the distributions.

Adjusted EBITDA

The Company makes reference to “Adjusted EBITDA”. Management has included Adjusted EBITDA because it believes that investors may find it useful to review our financial results as adjusted to exclude items as determined by management. Reconciliations of this non-GAAP financial measure to the most directly comparable GAAP financial measure, net loss, to the extent available without unreasonable effort, are set forth below. The Company defines Adjusted EBITDA as earnings or (loss) from continuing operations before the items noted in the table below.

The following table presents Adjusted EBITDA, a non-GAAP financial measure, and provides a reconciliation of Adjusted EBITDA to the directly comparable GAAP measure reported in the Company’s consolidated financial statements:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017

2016

2017

2016

Net loss

(625,000

)

(412,000

)

(2,520,000

)

(2,535,000

)

Stock-based compensation expense

132,000

92,000

374,000

364,000

Depreciation and amortization

359,000

505,000

1,082,000

1,504,000

Interest expense

337,000

405,000

1,973,000

1,090,000

Change in fair value of derivative liability

–

370,000

Adjusted EBITDA

203,000

590,000

909,000

793,000

Management believes Adjusted EBITDA provides a meaningful representation of the Company’s operating performance that provides useful information to investors regarding our financial condition and results of operations. Adjusted EBITDA is commonly used by financial analysts and others to measure operating performance. Furthermore, management believes that this non-GAAP financial measure may provide investors with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of the Company’s core ongoing business. However, while management considers Adjusted EBITDA to be an important measure of operating performance, Adjusted EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Further, Adjusted EBITDA, as we define it, may not be comparable to EBITDA, or similarly titled measures, as defined by other companies.

About uSell.com, Inc.

uSell.com, Inc. is a large market maker of used smartphones. uSell acquires products from both individual consumers, on its website, uSell.com, and from major carriers, big box retailers, and manufacturers through its subsidiary, We Sell Cellular, LLC. The Company maximizes the value of these devices by reclassifying them, adding value to them, and moving them throughout the world to those who want them most. In order to serve its global and highly diverse customer base, uSell leverages both a traditional sales force and an online marketplace where professional buyers of used smartphones can buy inventory on-demand. Through participation on uSell’s online platform and through interaction with uSell’s salesforce, buyers can acquire high volumes of inventory in a cost effective manner, while minimizing risk.

For more information, please visit www.uSell.com and http://wesellcellular.com.

Forward-Looking Statements

This press release includes forward-looking statements including statements regarding our investments in our online platform and in our warehouse and the impact expected from these investments, the future growth of our online platform, future supplier diversification, and the expectations from the new iPhone launch. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include competition from large retail stores and wireless operators, our continued success in reducing dependence on a few suppliers, our ability to react quickly and the availability of sufficient capital when supply of smartphones increases, the expected growth and usage of our technology platform, the security of our online platform, our ability to further or maintain our relationships with large wholesalers, favorable reviews of new iPhones and other new releases and willingness of consumers to continue to trade-in their phones for expensive new phones with minor technical changes. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2016. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

Contact Information

Nik Raman
Chief Executive Officer
p212-213-6805
nik@usell.com

uSell.com, Inc. and Subsidiaries
Consolidated Balance Sheets

September 30,

December 31,

2017

2016

(unaudited)

Assets

Current Assets:

Cash and cash equivalents

$
477,610

$
1,657,422

Restricted cash

3,440,837

982,064

Accounts receivable, net

396,186

430,171

Inventory, net

7,658,053

8,874,099

Prepaid expenses and other current assets

94,834

130,141

Total Current Assets

12,067,520

12,073,897

Property and equipment, net

181,921

191,957

Goodwill

8,448,759

Intangible assets, net

3,142,337

3,724,466

Capitalized technology, net

884,424

934,193

Other assets

61,750

124,358

Total Assets

$
24,786,711

$
25,497,630

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable

$
4,208,200

$
4,328,422

Accrued expenses

1,366,616

916,961

Due to related party

48,991

–

Promissory note payable

–

673,332

Deferred revenue

229,152

374,098

Capital lease obligations

14,029

10,664

Total Current Liabilities

5,866,988

6,303,477

Promissory note payable, net of current portion

8,310,148

6,441,000

Capital lease obligations, net of current portion

49,851

47,986

Total Liabilities

14,226,987

12,792,463

Stockholders’ Equity:

Convertible Series A preferred stock; $0.0001 par value; 325,000 shares authorized; no shares issued and outstanding

–

Convertible Series B preferred stock; $0.0001 value per share; 4,000,000 shares authorized; no shares issued and outstanding

–

Convertible Series C preferred stock; $0.0001 value per share; 146,667 shares authorized; no shares issued and outstanding

–

Convertible Series E preferred stock; $0.0001 value per share; 103,232 shares authorized; no shares issued and outstanding

–

Common stock; $0.0001 par value; 43,333,333 shares authorized; 20,154,999 and 20,134,999 shares issued and outstanding, respectively

2,015

2,013

Additional paid in capital

71,464,215

71,089,882

Accumulated deficit

(60,906,506
)

(58,386,728
)
Total Stockholders’ Equity

10,559,724

12,705,167

Total Liabilities and Stockholders’ Equity

$
24,786,711

$
25,497,630

uSell.com, Inc. and Subsidiaries
Consolidated Statements of Operations

Three Months Ended

September 30,

Nine Months Ended

September 30,

2017

2016

2017

2016

Revenue

28,872,702

24,817,307

81,141,673

73,098,642

Cost of Revenue

27,314,910

22,750,001

75,863,429

68,319,317

Gross Profit

1,557,792

2,067,306

5,278,244

4,779,325

Operating Expenses:

Sales and marketing

532,757

468,624

1,617,531

1,259,524

General and administrative

1,312,713

1,605,398

4,207,210

4,594,637

Total operating expenses

1,845,470

2,074,022

5,824,741

5,854,161

Loss from Operations

(287,678

)

(6,716

)

(546,497

)

(1,074,836

)

Other (Expense) Income:

Interest income

–

429

–

429

Interest expense

(337,352

)

(405,192

)

(1,973,281

)

(1,090,325

)

Change in fair value of placement rights derivative liability

–

(370,000

)

Total Other Expense, Net

(337,352

)

(404,763

)

(1,973,281

)

(1,459,896

)

Net Loss

(625,030

)

(411,479

)

(2,519,778

)

(2,534,732

)

Basic and Diluted Loss per Common Share:

Net loss per common share – basic and diluted

(0.03

)

(0.02

)

(0.13

)

(0.13

)

Weighted average number of common shares outstanding during the period – basic and diluted

20,150,640

20,123,042

20,143,783

19,995,689

uSell.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

Nine Months Ended September 30,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

(2,519,778

)

(2,534,732

)

Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:

Depreciation and amortization

1,082,093

1,504,049

Stock based compensation expense

374,335

363,604

Amortization of debt issue costs into interest expense

1,063,545

348,393

Loss on disposal of property and equipment

–

112,284

Change in fair value of placement rights derivative liability

–

370,000

Recovery of bad debt expense

–

(1,876

)

Changes in operating assets and liabilities:

Accounts receivable

33,985

237,545

Inventory

1,216,046

2,003,507

Prepaid and other current assets

35,307

142,396

Other assets

12,608

11,912

Accounts payable

(120,222

)

257,615

Accrued expenses

449,655

(54,647

)

Due to related party

48,991

–

Lease termination payable

–

(5,000

)

Deferred revenues

(144,946

)

(524,324

)

Net Cash and Cash Equivalents Provided by Operating Activities

1,531,619

2,230,726

CASH FLOWS FROM INVESTING ACTIVITIES:

Website development costs

(406,703

)

(435,116

)

Restricted cash

(2,458,773

)

(3,528,073

)

Cash paid to purchase property and equipment

(18,770

)

(69,019

)

Security deposits

–

(8,435

)

Net Cash and Cash Equivalents Used in Investing Activities

(2,884,246

)

(4,040,643

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from note payable

8,572,400

2,000,000

Principal repayments of note payable

(8,080,000

)

–

Payment of capital lease obligations

(9,456

)

–

Cash paid for debt issue costs

(310,129

)

(49,551

)

Net Cash and Cash Equivalents Provided by Financing Activities

172,815

1,950,449

Net (Decrease) Increase in Cash and Cash Equivalents

(1,179,812

)

140,532

Cash and Cash Equivalents – Beginning of Period

1,657,422

1,047,786

Cash and Cash Equivalents – End of Period

477,610

1,188,318

SUPPLEMENTARY CASH FLOW INFORMATION:

Cash Paid During the Period for:

Interest

806,059

744,931

Taxes

18,193

–

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Adjustment to goodwill for inventory valuation

–

42,198

Common stock issued in connection with note payable

–

402,500

Purchases of property and equipment through capital leases

14,686

55,129

Elimination of Placement Rights Derivative Liability

–

1,500,000

SOURCE: uSell.com, Inc.

ReleaseID: 482005

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