Newegg(NEGG) - 2022 Q4 - Annual Report

Business Performance - Newegg Commerce, Inc. recognized a GMV of approximately $41 billion since 2005, processing over 187 million orders[193]. - In 2022, Newegg had 2.7 million active customers and offered more than 20 million SKUs across 1,605 categories[196]. - The B2C operations generated GMV of$ 1.7 billion in 2022, down from $2.4 billion in 2021, indicating a decline of approximately 29.2%[204]. - The B2B operations generated GMV of$ 379.5 million in 2022, down from $537.6 million in 2021, reflecting a decrease of approximately 29.5%[205]. - Newegg's Marketplace had over 9,500 sellers and approximately 20.0 million SKUs as of December 31, 2022[199]. - Newegg Marketplace generated GMV of$ 552.2 million in 2022, accounting for approximately 25.1% of total GMV[286]. - Newegg Global had a GMV of $31.3 million for the year ended December 31, 2022, down from$ 65.4 million in 2021[224]. - Newegg.ca generated a GMV of $159.3 million for the year ended December 31, 2022, compared to$ 244.3 million in 2021, indicating a decline[224]. - The company reported a GMV of $2,196.1 million for the year ended December 31, 2022, down from$ 3,028.4 million in 2021, indicating a decline in overall sales activity[329]. Financial Performance - Net sales decreased by 27.6% from $2,376.2 million in 2021 to$ 1,720.3 million in 2022, primarily due to a decline in GMV from direct sales and marketplace businesses[303]. - Gross profit decreased by 33.5% from $326.0 million in 2021 to$ 216.7 million in 2022, with a profit margin decline to 12.6% from 13.7%[305]. - Selling, general and administrative (SG&A) expenses decreased to $266.2 million in 2022 from$ 292.5 million in 2021, mainly due to a reduction in merchant payment fees and marketing expenses[306]. - The company reported a net loss of $57.4 million in 2022, compared to a net income of$ 36.3 million in 2021[302]. - For the year ended December 31, 2022, the company recorded a net loss of $57.4 million, compared to a net income of$ 36.3 million in 2021, primarily due to a decline in net sales and gross margin[314]. - The provision for income taxes increased to $14.1 million in 2022 from a benefit of$ 5.8 million in 2021, largely due to a valuation allowance of $17.5 million[313]. - Adjusted EBITDA for the year ended December 31, 2022, was$ 0.6 million, a significant decrease from $52.4 million in 2021, highlighting operational challenges[333]. - The company experienced a significant decline in consumer demand for technology products, attributed to economic uncertainty and extended product upgrade cycles[304]. Customer Engagement and Experience - Newegg achieved a 99.9% average delivery accuracy rate for orders directly fulfilled by the company as of December 31, 2022[196]. - Newegg's platforms provided over 4.6 million user-generated reviews as of December 31, 2022, enhancing the shopping experience[196]. - Newegg introduced flexible payment options, including a Pay-in-4 program, to cater to customer needs[198]. - Newegg's mobile app aims to enhance the shopping experience and provides tools for Marketplace sellers to manage inventory and orders[247]. - Newegg's "Hassle Free" return policy allows returns within 30 days for a full refund or replacement on items sold directly by the company[233]. - The company has adopted a zero-tolerance policy on counterfeit products, ensuring compliance among Marketplace sellers[233]. Operational Efficiency - The direct sales model accounted for approximately 70.3% of Newegg's GMV for the year ended December 31, 2022[208]. - The company fulfilled an average of over 21,994 parcels per day with a fulfillment rate of 95.8% for one-business day and 99.0% for two-business days in the U.S. and Canada[227]. - The company maintains nine fulfillment centers covering over 2 million square feet, enabling efficient order delivery across North America[229]. - Newegg's fulfillment and warehouse operations cover 1,863,912 square feet in North America[271]. - The company maintains approximately 1,062 servers and 262 network devices across its data centers[246]. - Newegg Logistics provides end-to-end e-commerce logistics solutions, launched in 2014, to streamline supply chain efficiencies for partners[220]. Marketing and Traffic - In 2022, 81% of traffic was free, while paid traffic accounted for 19%[239]. - Paid search engine marketing represented approximately 65% of total marketing spending and 11% of total traffic to Newegg's websites for the year ended December 31, 2022[241]. - Affiliate marketing accounted for approximately 27% of total marketing expense for the year ended December 31, 2022[241]. Leadership and Governance - Zhitao He has served as Chairman of the Board since March 2018 and has been instrumental in leading the company through significant transformations[364]. - Anthony Chow, the Global CEO, has guided the company through transformative years and has a strong background in e-commerce and logistics[371]. - The company has a diverse board of directors with extensive experience in finance, technology, and corporate governance[362]. - The Chief Financial Officer, Robert Chang, has been with the company for over two decades, overseeing financial performance and reporting[372]. - Newegg relies on "home country practice" for corporate governance, not having a majority of independent directors on its Board[390]. Compensation and Incentives - The CEO's cash compensation for 2022 was approximately$ 2.3 million, which included a $1.2 million bonus paid in February 2023[379]. - The aggregate cash compensation for executive officers for the year ended December 31, 2022, was approximately$ 4.3 million, including $1.7 million in bonus payments paid out in February 2023[379]. - The Profit Sharing Program awards bonuses starting at 30% of base salary (60% for the CEO), with payouts based 70% on GMV performance and 30% on adjusted EBITDA for 2022[380]. - The Newegg 2005 Incentive Award Plan allows for the issuance of a maximum of 82,952,149 common shares for equity incentive awards[381]. - The CEO's employment agreement guarantees a base salary of$ 1.1 million per year and a target bonus of 160% to 200% of his base salary[386].