SOURCE: uSell.com, Inc.

usell.com, Inc.

November 04, 2015 08:36 ET

uSell.com Issues Shareholder Update Letter

uSell's CEO Discusses We Sell Cellular Acquisition and Go-Forward Strategy

NEW YORK, NY--(Marketwired - Nov 4, 2015) - uSell.com (OTCQB: USEL), the leading US-based reCommerce marketplace that instantly finds cash offers for used smartphones and electronics, today issued a shareholder update letter.

To our shareholders:

I would like to set aside some time to discuss uSell's recent acquisition of We Sell Cellular. This acquisition not only marks a financial inflection point for our business, but it also combines two disparate but highly complementary business models within the trade-in industry.

This discussion must be set in the context of the larger macro environment in which uSell operates, and should be prefaced by a brief history of how the trade-in ecosystem has evolved to its current state.

A Brief History of Trade-in

Five years ago, trade-in was merely an idea. Less than 10% of consumers at the time reported selling their used mobile devices. The vast majority of these valuable devices wasted away in drawers. Numerous concepts arose to capture this untapped value, from websites that offered to purchase devices directly, to marketplaces that enabled consumers to sell devices peer to peer, to ATM machines that offered cash for smartphones on the spot, and finally to point of sale trade-in systems marketed through carriers and retailers.

At first it was unclear which of these was going to win, but these doubts have been erased over the last twenty-four months, as the wireless carriers realized that trade-in was their means of eliminating the costly smartphone subsidies that they had been funding. The dominant model that has evolved has two components: a leasing or financing component where the consumer is able to defer the cost of a device, and a trade-in component at the end of the term whereby the carrier can capture the residual value of the device. This model has achieved such rapid adoption that Apple offered its own solution in early September with the launch of its iPhone Upgrade Program. For retailers like Apple, this model offers a different opportunity: the chance to control the relationship with the consumer. Between the carriers and the retailers, it is estimated that these programs have already achieved between 60-70% adoption. Multiply this by the 150 million phones that were sold in the US in 2014 and you will find that the number of used phones in circulation is about to grow exponentially. Capturing the maximum value from these devices, at scale, is the challenge.

uSell's Approach

uSell has taken an iterative approach to positioning itself within the market, but from the very beginning we focused on the demand side of the equation. We recognized the value of connecting a global marketplace of smaller wholesalers, distributors, and retailers with supply that they could otherwise not access. Time and time again, the market told us that price was the primary driver of the entire industry. Analysis of consumer price elasticity indicated that price, more so than any form of paid marketing, was what drove consumer behavior. Over time, it became apparent that the way to increase price was to reduce risk and eliminate friction for our growing base of buyers. These reductions in risk and friction came in many forms: automated shipping and logistics, seamless payment processing, consistent grading of devices, and finally, the ability to sell devices in bulk with immediate shipment. Even as the market has shifted away from a pure direct to consumer model, the technology to reduce friction and efficiently scale our buyer base has become more relevant.

We Sell Cellular

While uSell has approached the problem of trade-in from the bottom up, with a focus on demand, We Sell Cellular has approached the problem from the top down, with a focus on supply. Over 14 years, We Sell Cellular has become an important and trusted outlet for devices originating in the carrier and retailer stores. As trade-in and early upgrade programs have exploded over the last two years, so has We Sell Cellular's business. In the trailing 12 months, We Sell Cellular has:

  • Achieved revenues of $61 million
  • Grown 100% year over year
  • Achieved adjusted EBITDA of $2.8 million
  • Turned inventory north of 15 times
  • Sold close to 500,000 devices

We Sell Cellular uses its highly experienced sales force not only to rapidly turn devices, but also to feed real time pricing information back to its purchasers, who can then make accurate buying decisions. Like uSell, it has determined that the key to extracting maximum value from used devices is to reduce risk for its customers and to provide consistent and accurate grading. Along these lines, it has developed a proprietary 45-point testing and grading system to ensure that its buyers have maximum insight into what they are purchasing. We Sell's philosophy of transparency and honesty has resulted in a brand that is highly respected in the wholesale industry.

The Combination

While We Sell Cellular has developed a highly attractive business, it has experienced three limitations to its scale: 1) access to capital, 2) the ability to scale its buyer base indefinitely, and 3) technology to automate its proprietary triage and grading process.

Over the last 12 months, We Sell operated with roughly 2 to 2.5 million dollars in working capital at any point in time. This severely limited its ability to scale its purchases. While it was able to fuel its growth by rapidly turning inventory, it has not been able to grow as rapidly as the market would have allowed had it been adequately financed. With the $8,000,000 debt facility that we have secured as part of this transaction, We Sell's capital constraint will be greatly alleviated. Due to the nature of We Sell's business, as the volume of devices grow, fixed costs grow much less rapidly, resulting in increased margins.

The second limitation relates to We Sell's inability to scale its buyer base indefinitely. The business currently operates with a small sales force that sells devices to a base of buyers that it has developed relationships with over the years. Due to its reliance on a traditional sales process, it is unable to adequately serve a large pipeline of smaller buyers that can often pay higher prices for devices. Most of We Sell Cellular's pipeline sits idle as its salespeople focus on serving its larger customers. With access to uSell's automated platform, We Sell can access a much larger, fragmented base of buyers in a more scalable and cost efficient manner.

A third benefit of the combination is related to technology enablement within We Sell Cellular's warehouse. While its proprietary processes have been developed and perfected over several years, much of these processes are still run on spreadsheets and are not fully automated. With the development of its Managed by uSell offering, uSell has developed technology that can automate much of the testing and grading process in We Sell's warehouse, which will ultimately increase operating leverage.

Moving Forward

While the acquisition of We Sell Cellular has been an exciting step for uSell, the work is just beginning. The next 12 months are critical, and we intend to fully seize the opportunity. From a strategic perspective, we will:

  • Strive to integrate the two companies and cultures seamlessly, and to combine our unique capabilities to better serve both our customers and suppliers
  • Use technology where appropriate to enable the We Sell Cellular business to scale
  • Make investments in technology that bring us closer to our goal of extracting maximum value from used devices, while minimizing risk
  • Focus on cash flow growth

Above all else, we will stay nimble and highly responsive to changing trends in the industry. While this industry is still young and will no doubt continue to evolve, we firmly believe that a combination of focus and flexibility will enable us to capture significant value for our shareholders.

Sincerely,

Nik Raman

CEO, uSell.com

About uSell.com, Inc.
uSell.com is a reCommerce marketplace that helps individuals, carriers, and retailers turn used smartphones into cash. uSell ensures that customers get the highest payouts with the least amount of hassle by facilitating risk-free transactions with professional buyers. For uSell's buyers, uSell offers a scalable technology, marketing, logistics, and analytics solution that provides a high volume of inventory at a low acquisition cost. Visit www.uSell.com and http://wesellcellular.com.

Forward-Looking Statements
This press release includes forward-looking statements including statements regarding synergies from the acquisition, anticipated operating and financial results post-acquisition, competitive advantages, the availability of additional financing, and future growth. 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 our ability to successfully integrate We Sell Cellular into uSell, our compliance with the conditions for accessing additional financing, changes affecting the business in which We Sell operates, anticipated material adjustments in We Sell's financial statements in connection with the required audit, competition from third parties, conditions of the future capital markets in general and for uSell common stock in particular. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K. 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

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