SOURCE: AHAlife Holdings Inc.

AHAlife Holdings Inc.

August 11, 2016 10:56 ET

AHA Surpasses 1M Users With Acquisition of Kaufmann Mercantile

NEW YORK, NY and SYDNEY, AUSTRALIA--(Marketwired - August 11, 2016) -

ACQUISITION
AHAlife Holdings Limited (ASX: AHL), AHA (ahalife.com) the online luxury marketplace known for revolutionizing the design and lifestyle e-commerce space through curation, today announces its second acquisition of 2016 with the purchase of the Kaufmann Mercantile (kaufmann-mercantile.com) assets, including users, brands, and website. Kaufmann Mercantile is an online store focused on high-quality products with timeless design, spanning from homewares to accessories, gardening tools and office and kitchen supplies.

The transaction further cements AHA as the leading international marketplace for consumers of quality luxury designer items.

Kaufmann features 300 makers from 20 countries with a user base of approximately 265,000 and roughly 75,000 customers. The acquisition will expand AHAlife's existing users by around 30% after removing duplication across the two sites.

          
The Combined Business:         
   AHAlife  Kaufmann  Combined
      Mercantile   
Registered Users  836,000  337,000  1,100,0001
Brands  4,000  300  Approx. 4,300
Product Margin  50%  52%  50%+
Average Order Value  $180  $150   
 
1 After removing duplication of email addresses
  

Kaufmann Mercantile launched in 2010 with a simple idea: to "change the way people purchase products". The site began as a blog exploring the history and use of high-quality products and materials then transformed into an online shop beginning with eight key items, now home to over 1,000 items and more than 350 online articles.

Similar to the Bezar acquisition, both are asset purchases where the primary value paid for by AHA is in acquiring the registered user base. Consideration for Kaufmann will be in the form of ordinary shares issued from AHAlife Holdings Ltd (ASX: AHL) to the value US$140,000 at A0.45 per share (equivalent to approximately 400,000 shares) to the founders and investors of the privately held Kaufmann Mercantile Inc. The CEO and founder, Sebastian Kaufmann, will join AHAlife as Chief Curation Officer in July 2016.

Key Terms:

  • Consideration US$140,000 paid through the issue of new AHL shares (at A$0.45)
  • Purchase of all Kaufmann Mercantile assets unencumbered (no liabilities or corporate entities acquired) including;
    • The full Kaufmann user and customer list;
    • Kaufmann IP; designs, website, trademarks;
  • Good faith transition of suppliers and brands;
  • Sebastian Kaufmann to enter non-compete for 6 months; and,
  • Shares escrowed for 6 months.

The AHAlife and Kaufmann Mercantile brands are highly complementary and well aligned, leveraging a strong commitment to high quality designers and loyal customer audiences. While the Kaufmann Mercantile online store followed a traditional e-commerce model of holding inventory, post-acquisition, Kaufman Mercantile will be a storefront on AHAlife.com and converted to an inventory-less model leveraging AHA's marketplace technology platform.

Bezar Acquisition Update

In February 2016, AHAlife successfully on-boarded 150,000 registered users acquired from Bezar. Since that time conversion rates and sales continue to perform in line with expectations. During the on-boarding process AHA developed an efficient process for integrating brands and customers into the AHAlife technology platform. The ease at which such integrations were able to take place was an important factor in management's decision to opportunistically pursue the acquisition of Kaufmann Mercantile.

AHA's scale and efficient proprietary technology have provided the necessary advantage over competitors such as Bezar and Kaufmann Mercantile who were overly burdened by operating costs and the cost of managing an inventory model -- two key elements where AHA differs. In acknowledging this advantage, AHA has been able to purchase the assets of these two companies on favourable terms.

APPENDIX 4C and Trading Update

AHA's underlying operating cash outflow (EBITDA) for the quarter to June 30, 2016 was US$1.4M (compared to the previous quarter of US$1.6M) and a 4C reported Net Operating Cash Outflow of US$1.7M (compared to the previous quarter of US$2.6M). Closing cash balance at June 30, 2016 was US$4.52M.

Despite Q4 being traditionally a low season in the retail calendar, AHA achieved +54% growth in Booked Sales on pcp to finish the full year with Booked Sales of US$7.4M representing growth of +105% on the prior year.

During the quarter, management also implemented a number of initiatives to further refine and increase efficiency throughout its operating activities, with a view to improving individual transaction margins. These initiatives, such as improved freight and shipping costs, have driven down monthly operating costs in Q4 and are anticipated to further realise savings in FY17 as AHA progresses toward positive EBITDA.

Key Highlights

  • +105% growth in Booked Sales for the year ended 30 June 2016. Full year Booked Sales of US$7.4M (A$9.9M)
  • +205% growth in Registered Users to 836,000 (before the addition of Kaufmann Mercantile users). Post-acquisition, User growth of +300% to 1.1million
  • +52% growth in Brands / Designers
  • Q4 Booked Sales growth of +54% on pcp
  • Continued improvement in operating cash burn as illustrated below including improvement in Gross Margin (+1.1pps)
  • Further automation of key functions resulting in headcount reduction savings
  • Savings initiatives have reduced break-even revenue threshold from US$25M to $US16M, depending on paid and unpaid channel mix.
  • Continued improvement in operating cash outflow (EBITDA)

The execution of the above strategies in FY16 has grown AHA from 274,000 registered users to over 1.1 million, and from 2,500 independent designers & artisans to 4,000 making AHA the largest and the dominant online marketplace for luxury lifestyle goods (home, gifting, beauty, accessories) globally and setting the foundation for a sustainable and growing business.

KEY MILESTONES & FY17 OUTLOOK

Marketing Channels Optimization & Strategy

Over the past 12 months, AHAlife and its management have leveraged its proprietary technology platform to scale the luxury marketplace by deploying capital raised in July 2015 through data-driven testing of multiple strategies across multiple channels including limited offline display and online channels; paid social, search, affiliates, display advertising; business development partnerships; email, SEO-driven organic, and via the mobile App.

The behaviour and profitability of each cohort of customers acquired through these channels is being tracked and analysed to identify the most profitable and most frequently repeating customers. The business is utilising this information to focus on those channels and strategies that have the highest LTV and retention rates. Despite being a positive driver for acquiring new customers a large proportion customers acquired through paid or discount channels have not migrated to a higher AOV. As a result of the learnings and investment over the last 12 months, the business is now better placed to target a more sustainable channel mix which will see a move away from certain unprofitable paid channels to drive sustainable profitable growth.

Looking forward management intend to focus significant energy on the merchandising levers within the business which will enable AHA to remain creative in its approach to the marketplace. A curated product offering is the nucleus of the business as it seeks to delight, entertain and reward the ever expanding customer base.

The Company has also sought to optimise its criteria for accepting brands into the marketplace and tightened its standards in order to maintain a higher AOV and sustainable business. This is expected to attract more long-term consumers with higher repeat rates, driven by value and quality of the merchandise rather than discounting.

As we enter FY17, we expect that the average order value will begin to climb as a result of these changes.

Progress Towards Profitability

In June, AHA moved away from free shipping in the US and introduced a minimum AOV. This decision counters the acquisition of customers who are unlikely to move up in AOV and has led to reduced expense, incremental shipping revenue and a generally higher quality customer.

Further, in leveraging its increase in sales, the business has been able to renegotiate improved pricing with its main shipping providers which together with passing on shipping costs for lower AOV sales, delivered substantial cost reductions to AHA.

Through technology automation and efficiency improvement the business has also stripped surplus cost from its overheads. The underlying cost base of the business has seen a step change reduction from these developments to the point where -- subject to the Company maintaining budgeted levels of sales -- anagement believe the break-even point will be achieved at a lower revenue hurdle than previously budgeted.

While break-even is also expected to be achieved with a lower growth rate in sales given a reduction in sales sourced from profitless paid and discounted channels, it puts the Company in a strong position to not require additional funding based on the current business plan.

Management remain consistent in their belief that, based on the budgeted growth rate, the company will begin to record positive cash flow in November and December 2016. Management further believe that by the second half of calendar 2017 the company will begin to record positive monthly cash flow on a consistent basis.

Adjustments to the Appendix 4C

The YTD figures for this quarter's 4C have been adjusted for the following items:

  1. Reclassification of payments associated with the ASX listing and RTO in July 2015
    • $547k of professional fees from Q1-Q3 have been reclassified from '1.2(a) Payments for Staff/Supplier Costs' to '1.20 Other Cash Flows Relating to Financing Activities'
  2. Reclassification of New Customer Marketing Offers
    • Following a decision by the auditors of the Company, costs associated with marketing offers given to new customers have been reclassified as a revenue reduction from its previous classification as a Cost of Goods Sold.
  3. Adjustment to Opening Cash - FY16
    • In order to align the treatment of cash on hand in the parent company prior to the July 2015 acquisition with that used in the presentation of the FY16 Annual Report, an amount of US$0.5m has been adjusted between the Opening Cash balance and Payments to Staff/Supplier Costs.

The Company will be holding an investor conference call on Thursday July 28th at 10am (AEST) in relation to this announcement.

  
Dial-In Numbers: 
  
Australia +61 2 8090 8323
U.S. +1 (657) 220-3242
U.K. +44 (0) 330 221 9929
Canada +1 (647) 317-4262
  
Conference Number:429-484-486
  

About AHA
AHAlife Holdings Limited (ASX: AHL) is a digital marketplace for consumers of luxury items and designer products. The Company's 836,000+ customers purchase items directly from a community of 4,000 handpicked designers and artisans in 45 countries. AHA's business model involves a drop-ship approach, allowing wholesalers to ship directly to customers leaving no inventory risk for the Company. For more information, please contact AHA Investor Relations on the details above.

About KAUFMANN MERCANTILE
Kaufmann Mercantile is an online store focused on bringing grounded, meaningful experiences into people's busy lives through high-quality products with timeless design, spanning from home wares to accessories, gardening tools and office and kitchen supplies. The company's product ethos lies in choosing only the best products and creating its own when the best is unavailable -- doing the hard work for customers.

Kaufmann Mercantile started as a blog, Kaufmann Mercantile 'Field Notes,' which then evolved into an online store, featuring a library of essays on the history of materials, how-to guides and Q&As with makers, artists and designers, delving into the lifestyle and ethos behind the products on its website. The content now serves as a supplement to Kaufmann Mercantile's online store of high-quality everyday classics and tells the story behind the movers and shakers.

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