Ag Growth International Inc. (AGGZF) CEO Tim Close on Q3 2020 Results – Earnings Call Transcript

… our place in the global food infrastructure, with demand fundamentally … will lead to steady continued organic growth. Despite an earlier and … activity levels picking up in Eastern Europe, Russia, Africa, and the … it’s in processing food or grain or FERC. …

Organic Cocoa Market Segmentation, Highlights, Expert Reviews 2020 to 2030 | FMI Report (COVID-19 Impact) | Kraft Foods Inc., Cargill Incorporated, Tradin Organic Agriculture B.V.

The MarketWatch News Department was not involved in the creation of this content.

   Nov 12, 2020 (MARKITWIRED via COMTEX) --

The certified organic cocoa market represents a very small share of the total cocoa market, estimated around 0.5% of total production. However, the demand for organic cocoa products are growing at a very strong pace, the supply side faces a strong challenge to meet the demand of organic cocoa. Since, farmers are paying ample amount for producing organic cocoa, production of organic cocoa is more in least developed countries. Organic cocoa has many nutritional benefits such as more fiber, iron, magnesium, copper, manganese and many other minerals. Moreover it also contains antioxidants, which helps to protect skin. Organic cocoa also helps to improve blood flow and lower blood pressure. Demand for organic cocoa products are very high in U.S, U.K and Germany, hence organic cocoa are supplied to developed economies of North America and Western Europe to manufacture organic cocoa products. Currently, Dominican Republic is dominating the organic cocoa market in terms of production that holds around 70 percent of the total market share; Peru, Ecuador and Mexico together hold around 20 percent of the market share in terms of production; rest around 10 percent is held by Bolivia, Ghana, Brazil and others.

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Revolve Group Inc (RVLV) Q3 2020 Earnings Call Transcript

Revolve Group Inc (NYSE:RVLV)
Q3 2020 Earnings Call
Nov 11, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Chris and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Revolve’s Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Thank you.

At this time, I would like to turn the conference over to Erik Randerson, Vice President of Investor Relations at Revolve. Thank you. You may begin.

Erik Randerson — Vice President of Investor Relations

Good afternoon, everyone, and thanks for joining us to discuss Revolve’s third quarter 2020 results. Before we begin, I would like to mention that we have posted a presentation containing Q3 2020 financial highlights to our Investor Relations website located at investors.revolve.com.

I would also like to remind you that this conference call will include forward-looking statements. These statements include our current expectations regarding the continued impact of the COVID-19 pandemic on our business, operations and financial results, and our outlook for net sales, product mix, gross margin, operating expenses, and capital expenditures for the fourth quarter. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon’s press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent Quarterly Reports on Form 10-Q, all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.

During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions, as we believe they more closely represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations and rationale for using each measure, can be found in this afternoon’s press release and in our SEC filings.

Joining me on the call today are our co-founders and co-CEOs, Mike Karanikolas and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we’ll open the call for your questions.

With that, I’ll turn the call over to Mike.

Mike Karanikolas — Co-Chief Executive Officer and Director

Thanks, Erik. Good afternoon, everyone and thanks for joining us today. Before we get into the details of the quarter, I’ll provide some higher-level thoughts on our longer-term vision. We founded Revolve 17 years ago with the goal of becoming the fashion destination for the next-generation consumer. From the beginning, our focus was on the customer experience, the utilization of data to drive decisions, and the creation of an authentic connection with our customer through our merchandise offering and marketing message. These areas of focus are still at the core of what we do today, and what differentiates us, and what we believe will continue to drive growth into the future.

As a brand known for the discovery of on-trend merchandise centered around aspirational experiences and lifestyle content, including social gatherings, travel, and special occasions, the current environment, impacted by COVID, has resulted in revenue pressure and what we believe is a temporary deviation from our historical growth pattern. Despite these pressures, we have been able to leverage the investments in our platform over time to produce notable increases in margin and profitability that we are excited to share with you today.

We believe the revenue pressures are temporary as people will eventually socialize in person again and travel will return. Until then, we’ll continue to invest in our brand and platform to set ourselves up to take advantage of what we believe, post-COVID, will be a strong rebound as a result of prolonged pent up demand.

With that longer-term framework as a backdrop, there are three key financial highlights of our third quarter that I want to call out: First, we delivered record EPS of $0.27 per share, record net income of $19 million and record adjusted EBITDA of $24 million. Adjusted EBITDA grew 66% year-over-year and EPS grew at an even faster rate.

Second, we achieved our highest-ever gross margins in the third quarter of 55.3%, a nearly 5 point increase from the second quarter and up almost 2 points year-over-year. The higher gross margin year-over-year was a key driver of our significant growth in profitability, and reflects a high percentage of net sales at full price in the third quarter and improved inventory dynamics.

Third, we generated $14 million of operating cash flow and $14 million in free cash flow, which was up 86% year-over-year, on the heels of generating $54 million in operating cash flow in the second quarter. We now have $159 million in cash on the balance sheet. Our strong balance sheet not only provides us with the capital necessary to navigate through this uncertain time, but more importantly, allows us to reinvest in the business to drive long-term growth.

I’m extremely thankful for all of our dedicated employees who have shown impressive collaboration and agility, day in and day out. Even with most of our teams continuing to work from home, the organization has remained laser-focused on ensuring the safety of our employees and maintaining exceptional service levels for our customers while continuing to drive efficiencies throughout the business.

Now, getting into the specifics of our third quarter results. Recall that on our second quarter investor call in August, we talked about the strong pace of recovery for much of the second quarter before net sales leveled off in mid to late June. As previously shared, our net sales in July and early August remained very slightly positive, increasing year-over-year in the low-single digits. The modest growth trend in net sales remained consistent through the end of August. The trend changed in September with the modest growth in July and August turning to a year-over-year decline in net sales in September, the first year-over-year decline since May of this year.

For the third quarter as a whole, net sales declined 2% year-over-year, which is a 10 point improvement on a sequential basis compared to the 12 point decline in net sales reported for the second quarter. While we are pleased with the 10 point sequential improvement for the quarter as a whole, we would have liked to see a stronger close to the quarter. As we look at the recent trends, there are a few things that we believe are contributing to the top line deceleration.

First, the impact of COVID-19 and more specifically, social distancing, continues to have a significant impact on our business. Our inability to host large scale in-person events has a lagging and growing negative impact the longer we are in a COVID-19 sheltered state. While the brand marketing team has done an incredible job pivoting into livestreaming content and other avenues of engagement, it is very difficult to make up for the millions of engagement points and billions of impressions that come with our in-person events. We are excited to reverse both of these trends in what we believe will be a strong and healthy post-COVID world.

Second, competition for keywords and other forms of digital advertising increased in the third quarter, particularly on a sequential basis compared to the second quarter when online advertising rates were still recovering from the March lows. We attribute the significant increase in online advertising investment in our product categories industry wide to traditional brick and mortar retailers shifting their focus online given the unprecedented increase in e-commerce penetration driven by COVID-19.

Third, and looking at the net sales trends from the second quarter to the third quarter, it’s important to note that net sales contributions from markdowns were very strong in the second quarter, helping the top line comp. While we were able to successfully work through our markdown inventory and rebalance our overall inventory levels, the significant reduction in markdown inventory entering the third quarter led to incremental top line pressure. At the same time, a lower mix of markdown sales and shallower markdowns helped drive the very strong margins and profitability in the quarter.

Aside from the strong Q3 financial results, I am encouraged by the positive impacts from continued operational enhancements on our platform and the customer experience initiatives that we continue to roll out in our international markets.

Our Operations team delivered phenomenal results, as we saw the impact of lower return rates as well as efficiency gains from automation and other investments we’ve made over the last 18 months continue to provide benefits.

Consider that fulfillment costs per order decreased 15% year-over-year, all the while maintaining best-in-class service levels with a record 99% of customer orders received by Noon Pacific Time shipping out the very same day. We believe this level of performance benchmarks very favorably compared to most other e-commerce companies.

Shifting to a discussion of our International business. We had a strong third quarter in our International markets, financially and operationally. Australia, Canada and Western Europe each delivered strong double-digit growth in net sales year-over-year, partially offset by a decline in Asia.

One of the most important strategies we can employ in international markets is to localize the country to provide the same great experience offered in the US. We recently announced that, for the first time, Revolve customers in Canada, one of our top five international markets have access to hassle-free returns at no cost, including refunds of all applicable duties and taxes. Our launch of all-inclusive pricing for Canadian customers is very important because by including duties within the price of the product up front, we eliminate the sticker shock at checkout and significantly streamline the process for merchandise returns.

Now, shifting to the more recent trends in the fourth quarter to date. The softer year-over year net sales trends in September carried through to October with a high single-digit decline in net sales on a year-over-year basis. Similar to what we experienced in September, we continue to experience strength in the at home categories that is more than offset by the ongoing pressure in occasion-driven categories.

By geography, in October, international net sales continued to remain stronger than net sales in the US. However, we are very cautious due to the resurgence of COVID-19 cases and the corresponding social distancing restrictions in some of our largest international regions including the UK and Western Europe.

Before I turn it over to Michael, I want to reiterate how pleased I am with our ability to navigate through these challenging times. So, again, thanks to all of our team members for your hard work and resilience, for staying nimble, and for your dedication to exceeding our customers’ expectations.

Michael Mente — Co-Chief Executive Officer and Director

Thanks, Mike and hello, everyone. The strength of our business, the power of our brand, and most importantly, the incredible execution of our team, enabled us to deliver our most profitable quarter ever. Even surpassing our record profitability from last quarter. I’m truly proud of how much our team has accomplished during this extremely challenging period. This phenomenal execution has further strengthened our financial profile and positions us well to capitalize on the long-term opportunity ahead.

To expand on Mike’s opening remarks, we are focused on building the fashion destination for the next-generation consumer. Our customer comes to us for discovery and looks to us for inspiration. Even during this unique and challenging time, these shopping behaviors remain. We continue to provide a broad, yet curated assortment of the most on-trend merchandise that provides her with the ability to discover products that suit her lifestyle, whether it’s travel and social occasions, most recently, a more stay at home and active lifestyle. To complement our merchandise offering, we provide her with constant inspiration through authentic and aspirational lifestyle content. Important to this authenticity is providing content that connects with her on platforms she is engaging with and speaks to what’s happening in her life.

The team has done a great job of expanding into emerging social platforms and providing content centered around her current lifestyle. I am excited about the progress we continue to make on the merchandising and marketing fronts and believe that despite the challenges of the last couple quarters, we will emerge much stronger and even better positioned for the long term.

Starting with our merchandise. The ongoing reality of a more stay at home lifestyle has allowed us to further deepen the relationship with our customer by highlighting our offering of incredible fashion and design, in areas that were not top of mind until very recently. Our emerging categories such as beauty, intimates and loungewear are all strongly resonating.

Additionally, more than ever, our customer is demonstrating a healthy and active lifestyle, leading to greater opportunity in activewear and swimwear. Our results for the past two quarters demonstrate our ability to serve our customer in new ways and broaden how customers perceive Revolve’s product selection.

In the third quarter, sales in the at home and active categories of beauty, accessories, intimates, sweaters / knits and swimwear increased approximately 50% year-over-year on a combined basis. By further enhancing our merchandising strategy, we believe we can expand our share of her wallet over the long term. It’s incredibly important to us that whatever our customer needs, she can always come to Revolve as her trusted source of style.

An exciting example of one of the more prominent shifts in our mix is the beauty category, with net sales increasing more than 100% year-over-year for the second straight quarter as COVID-19 has been a catalyst for shifting beauty sales online. Beauty is a category where the majority of customers in our demographic look to influencers for beauty product inspiration, a great fit with our global network of influencers. In fact, this month we are launching a beauty gift box with mega-influencer, actress and model, Shay Mitchell, who has nearly 30 million Instagram followers.

An important component within our long-term merchandising strategy is the expansion of our Owned Brands. As we discussed on previous calls, we temporarily pulled back our Owned Brand offering as a response to the uncertainty and demand pressures introduced by COVID-19. The result was a trough in the number of new styles delivered in the quarter. We have already started making the investments necessary to increase our style production and assortment with a targeted 50% increase in the number of Owned Brand styles delivered as we exit the year, as compared to the third quarter.

Additionally, we had discussed making investments into the Owned Brand division to increase the diversity and quality of our product offering. I’m pleased to report that the early results are extremely encouraging, with a significant improvement in productivity per style, as compared to the same period last year.

While we are optimistic on the trajectory of our Owned Brands, bear in mind that despite the increase in new styles delivered in the coming months, due to inventory dynamics, we still expect a sequential decline in our Owned Brand penetration in the fourth quarter of 2020, before beginning to increase sometime in mid-2021.

Shifting to a discussion of our brand marketing strategy. We continued with a successful digital playbook in the third quarter, hosting several well-attended, virtual events. Similar to the shift in merchandising focus in this COVID period, we have also broadened our marketing message to address more aspects of her life. This was the concept behind REVOLVE U, an event we have been developing, even before COVID. Hosted in late September, REVOLVE U was a week-long virtual activation that included seven keynote speakers and over 300 influencers. This unique event increased our reach and followers across multiple social channels, and featured content focused on topics such as The Business of Social Media, Building a Brand, Career Journeys, Mental and Physical Health, and Entrepreneurship.

While we continue to expand and invest in new digital platforms such as IGTV, Instagram Reels, YouTube and TikTok, we are also excited to share that we have recently hosted a series of successful in-person events called Camp REVOLVE that included adherence to comprehensive safety precautions. Dipping our toe back into in-person events is important to build the brand and differentiating ourselves. Furthermore, our in-person events tend to capture more eyeballs, garner more press and generate more customer interactions, all of which are important drivers of traffic and new customers.

We are excited about the future that will include hosting regular in-person events with the added element of our new digital playbook, which we believe will be a very powerful combination. We are executing well while continuing to invest in our key growth initiatives during this challenging period. At REVOLVE, we are always focused on the long term, and I am confident we are well positioned to capture further market share in the years ahead, particularly with what we believe is an accelerated and permanent shift to digital commerce.

With that, Jesse will close out with some additional detail on the financial results and trends.

Jesse Timmermans — Chief Financial Officer

Thanks, Michael. As our results attest, we have continued to execute well in a very difficult environment.

For the second straight quarter, we achieved record net income and record adjusted EBITDA; we generated strong free cash flow that strengthened our balance sheet; and we drove our highest inventory turns in several years.

Now, starting with the third quarter results. Net sales decreased 2% year-over-year. As Mike mentioned, we began the third quarter with low-single-digit growth in July and August that was offset by a larger single-digit decline in September.

Occasion wear product categories faced the most significant headwinds since many special occasions remain on pause due to social distancing concerns, and as we worked through our markdown inventory in those categories in the second quarter. To provide some context regarding the impact of reduced markdown inventory on net sales in the third quarter, our largest category, dresses, is a good example. If year-over-year growth in markdown sales of dresses alone had remained consistent between the second quarter of 2020 and the third quarter of this year, our total net sales would have actually increased year-over-year in the third quarter.

Drilling further into the top line for the third quarter. By segment, REVOLVE segment net sales decreased 4% and FORWARD segment net sales increased 9% year-over-year.

Active customers were 1.5 million, an increase of 5% year-over-year. The trend is consistent with our commentary last quarter that we expected growth in Active Customers to further decelerate as the trailing 12-month metric captured a larger number of quarterly periods impacted by COVID as compared to the high customer growth quarters of last year. With the continued pressures on traffic and demand, we expect further deceleration in this metric until we start to cycle out of the suppressed COVID period.

Orders placed were 1.1 million, a decrease of 4% year-over-year. Average order value was $232, an increase from $204 in the second quarter of 2020, but remained 16% lower compared to Q3 of 2019. The year-over-year decline in AOV was primarily driven by a shift in net sales mix to at home product categories, such as beauty and loungewear with lower average price points, and a decline in net sales of dresses, which carry higher average order values. These AOV headwinds were partially offset by a higher mix of full price sales, our highest full price sales for a third quarter in over ten years, as well as a greater sales mix attributable to our higher price point luxury segment, FORWARD.

Partially offsetting the lower number of orders and the lower Average Order Value was a decrease in merchandise returned year-over-year. We attribute the lower return rate year-over-year to a combination of more deliberate purchasing behavior by consumers during the COVID-19 pandemic as well as a COVID-19 driven shift in mix to product categories with lower price points and lower return rates, such as beauty, and away from occasion wear, such as dresses, a category with a higher-than-average return rate. That said, we did experience a sequential increase in the return rate from the second quarter, but it remains well below the prior-year periods.

International net sales increased 18% year-over-year, outperforming the 6% decline in net sales in the US. As Mike mentioned, we experienced strength in western regions and emerging markets, partially offset by weakness in Asia.

Moving to gross profit. Consolidated gross margin was 55.3%, the highest ever reported for a third quarter and an increase of approximately 160 basis points over the prior year. This performance was much better than we anticipated, and reflects healthy increases in margin across both segments.

Within the REVOLVE segment, we delivered gross margin of 57.2%, up approximately 180 basis points year-over-year. The REVOLVE segment margin benefited from meaningfully improved inventory dynamics exiting the second quarter of 2020 that contributed to a healthy inventory balance, leading to a year-over-year increase in the percentage of REVOLVE segment net sales at full-price, and a decrease in the depth of markdowns. These positive contributors to gross margin were partially offset by a year-over-year decrease in the mix of Owned Brands as a percentage of REVOLVE segment net sales, consistent with the outlook we shared on recent investor conference calls.

Within the FORWARD segment, we delivered gross margin of 42.9%, an increase of approximately 190 basis points year-over-year. The increase reflects a healthy inventory balance, shallower markdowns and a favorable mix of merchandise sold. We were encouraged to see an easing of promotional activity across the luxury space in Q3.

And now moving to the cost structure, where we delivered highly efficient results. For the second straight quarter, we achieved leverage on every major expense line item on the P&L.

Starting with Fulfillment. Fulfillment costs were 2.8% of net sales, an improvement of about 60 basis points year-on-year. The team did an outstanding job driving efficiencies while maintaining our top priority of protecting the health and safety of our employees and delivering a best-in-class experience for our customers. The automation launched last year was further expanded during the second quarter and is delivering a compelling return. We also continued to benefit from cost efficiencies resulting from a lower return rate year-over-year.

Selling and distribution costs were 13.8% of net sales, an improvement of approximately 80 basis points year-over-year. Once again, we benefited from reduced shipping costs due to lower returns and, to a lesser extent, efficiencies in payment processing and customer service costs.

Marketing costs were 12.5% of net sales, a decrease of approximately 250 basis points year-over-year. Marketing efficiency primarily reflects reduced brand marketing investments since hosting in-person Revolve events remained on pause. Our investment in brand marketing decreased by $3.2 million year-over-year and performance marketing investments decreased by the remaining $1.1 million in Q3.

It is important to note that our brand building investments will remain a key component in our long-term growth algorithm, so we do not expect the total marketing expense as a percentage of net sales to remain at the reduced levels we have reported for the past two quarters.

General and administrative costs were 11.7% of net sales in the third quarter, an improvement of approximately 60 basis points year-over-year. The reduced G&A cost reflects lower headcount and our COVID-19 cost containment efforts that were in place for a portion of the third quarter. In addition, as part of the Owned Brands reset that was accelerated due to COVID, we reduced costs in this area. As we start to rebuild and design into new product categories and get ahead of an anticipated return of demand, we will reinvest in this area over the coming quarters.

For the third quarter of 2020, we achieved record net income of $19 million, or $0.27 per diluted share, more than doubling the $0.13 in diluted EPS in the prior year. In addition to our strong operating results, our EPS comparison benefited from a lower tax rate in 2020, primarily due to excess tax benefits realized as a result of stock option exercises. Even when excluding these discrete tax benefits, our net income and diluted EPS would have each increased more than 65% year-over-year. We also reported record adjusted EBITDA of $24 million, an increase of 66% year-over-year, for a margin of 15.9%.

Moving to the cash flow statement. We had another outstanding quarter for cash flow generation. Free cash flow was $14 million, a year-over-year increase of 86%. For the nine months ended September 30, 2020, free cash flow was $74 million, more than doubling our free cash flow reported for all of 2019.

The strong cash flow generation significantly strengthened our balance sheet and liquidity. Cash and equivalents as of September 30, 2020 were $159 million, an increase of $8 million during the third quarter, despite the repayment of $9 million on our revolving line of credit. As we look ahead and think about capital allocation and the use of cash, our number 1 priority is fortifying our balance sheet to position us to invest in growth as we exit the COVID era, followed by strategic organic investments to drive long-term growth. Given our capital efficiency, we also have the opportunity to explore other investments, including opportunistic and disciplined M&A.

We are pleased with our inventory levels and the healthy inventory dynamics in the quarter. We ended Q3 with $74 million in inventory, a year-over-year decrease of 29%, but up $9 million from the second quarter as we started to reinvest to build a sufficient inventory level and appropriate inventory mix to support demand. By comparison, our net sales decreased year-over-year by only 2%, which illustrates our significant improvement in inventory turns.

Now, let me talk about the business trends since the third quarter ended on September 30th. Given the fluid and uncertain environment that we continue to operate in, we’ll again skip any traditional guidance. Instead, we will share some recent trends and assumptions to help in your modeling of the fourth quarter.

Starting from the top, as Mike mentioned, net sales in October were down by a high-single-digit percentage year-over year. In terms of product categories, we continue to see strength in new at home categories that has been offset by continuing headwinds in occasion wear categories, such as dresses and skirts.

From a macro perspective, we see a great deal of uncertainty affecting our customer demographic. COVID-19 cases around the world are reaccelerating, leading to increased restrictions on social outings that have been a key driver for our brand. When combined with the high unemployment rates and lack of new US stimulus measures, we see continuing challenges in the current environment.

Shifting to gross margin. The Q3 gross margin performance was well ahead of our initial expectations, benefiting from a higher mix of full price sales and shallower markdowns. Moving to Q4, we expect gross margin to come in more in line with the prior-year fourth quarter gross margin of 53% as a result of a lower mix of owned brand sales year-over-year, as well as what we expect to be a prolonged holiday promotional cadence.

For our Selling and Distribution and Fulfillment cost line items, we expect the combination of Selling and Distribution and Fulfillment expenses to be flat to slightly higher as a percentage of net sales in the fourth quarter when compared to Q4 of 2019. There are a couple factors contributing to this assumption.

First, as you have all heard, the major shippers are imposing surcharges on packages during the fourth quarter that are likely to drive higher shipping costs in Q4. Second, Fulfillment and Selling & Distribution have each realized efficiencies from the lower return rate year-over-year. In Fulfillment, we incur lower labor costs due to less time spent handling the returned units that come into the warehouse. And in Selling and Distribution, where the majority of the costs are shipping related, fewer returns means reduced shipping, packaging and payment processor costs.

Since bottoming out in the second quarter of 2020, our return rate has been increasing with each passing month, so we are planning for a sequential increase in costs as a result. We do, however, expect our return rate in the fourth quarter of 2020 to remain lower on a year-over-year basis. These cost pressures will be partially offset by continued efficiencies realized as a result of the automation and process improvements discussed earlier.

Marketing. We are planning for marketing as a percentage of net sales in the fourth quarter to remain approximately flat year-over-year. After two straight quarters of significantly reduced marketing spend and with our strong balance sheet, we believe it’s time to start pushing our marketing investment again to continue to build the brand, drive traffic and increase customer activity.

General and Administrative. On a year-over-basis, we are planning for G&A expense to be lower in the fourth quarter as compared to the prior year. Compared to the third quarter of 2020, we expect G&A expense to increase in Q4 since the temporarily reduced salaries and wages have been fully restored to their pre-COVID levels for our active employees.

To recap, we believe we have executed well during what is a very challenging environment with a focus on safety for our employees, efficiency in our operations and building a strong balance sheet. With a healthy base of inventory and our cash balance, we are shifting back into investment mode with an increase in our marketing investments, an increase in our inventory levels and assortment, and investments into our Owned Brand capabilities.

Now we’ll open it up for your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Edward Yruma with KeyBanc Capital Markets. Your line is open.

Edward Yruma — KeyBanc Capital Markets — Analyst

Hey, good afternoon, guys. Couple of quick ones from me. I guess first, do you think about inventory, you talk about mobility, hopefully improving at some point in the short to medium term, what do you start rebuilding inventory in anticipation of improved sales trends? And then I guess second, as a follow-up on the marketing, which I think you guys indicated you’re leading into. Are there particular categories you’re going to lean into? Is this kind of to hopefully keep top of mind as we head into like a stronger sales period kind of what’s the direction you have to take that into? Thank you.

Mike Karanikolas — Co-Chief Executive Officer and Director

Yeah, definitely, Mike here. So with regards to inventory, we’ve already begun building up our inventory position certainly from the lows and we think that will have beneficial impacts on the sales trends. Of course, at the same time, it’s a very uncertain environment, we think, and until we get to more of a post-COVID world. And it’s not just about the overall inventory levels, right. It’s above those — both those categories.

So we’re placing calculated bets at the appropriate levels that we can balance our revenue goals and our profitability goals. And I think you won’t really see us put our foot on the accelerator until the timing is a bit more clear in terms of kind of when the post-COVID world hits. But there’s definitely going to be some level of calculated risk taking in advance of that window to make sure that we’re poised to take advantage of that world, which we think is going to be a fantastic world for us. There’s going to have been a year or more of pent-up demand from consumers who haven’t been able to do the things that they love, the special social occasions that we’re known for. And so we want to make sure we’re ready and positioned with our inventory and marketing to take advantage of that situation as soon as it comes.

Operator

Our next question is from Ross Sandler with Barclays. Your line is open.

Ross Sandler — Barclays — Analyst

Hey guys, just a question about active customer count. So that actually declined quarter-on-quarter for the first time. I know that’s a TTM number. But can you just walk us through how much of that is from just the overall environment and things like stimulus checks that are out of your control versus the reduction in marketing and — or maybe tougher time retaining customers. And it sounds like — I’m glad to hear that you guys are going to lean back in, starting now. But how are you thinking about balancing these record high EBITDA margins with just growing the top of the funnel and getting back out there with more customer acquisition. That’s the first question. And then just any learnings from the live streaming efforts thus far? How is that in terms of adding to your ability to kind of grow the funnel and attract new customers?

Jesse Timmermans — Chief Financial Officer

Yeah. Hey, Ross, this is Jesse. Sorry, I’ll start out with a couple of just quick details and then turn it over to Mike to talk a little bit more about the acquisition and the lean in. Yeah, you’re right, we did see active customers decline sequentially. And that’s largely an impact of the COVID world. We do think there was a benefit from the stimulus check and the extra unemployment that was happening through July. That started to hit us. And also the second wave of COVID cases and everything else that you hear out there. So there definitely is an impact there. And we anticipated that active customer number to come down sequentially from the plus 12%-ish [Phonetic] we were at the end of last quarter to plus 5% [Phonetic] now. And it’s a combination of both the new and the repeat, and that’s what tells us it’s largely a COVID impact. 45% of that active customer base is a repeat or an existing customer, but they contribute a much larger share of the revenue, so, important that we lean on that existing customer.

Mike Karanikolas — Co-Chief Executive Officer and Director

Yeah. And looking at the broader picture, Ross, we’re in a world today. We were in a world in the second quarter and in the third quarter as well. It doesn’t play to our strengths as a brand and as a retailer, be known for social occasions and living your best life. And we’re talking a period where those things were all true. So it’s due to the environment we’re facing. And then certainly, with the quarter-to-quarter dynamics, you have trailing 12-month number as well as some of the pressures that we acknowledged in the third quarter, where we saw, for example, the digital advertising markets getting much more competitive in the third quarter, not just on a sequential basis, but also on a year-over-year basis, where there are a lot of players stepping in, in a big way that they hadn’t historically.

And that — from a year-over-year comp perspective, that has an impact, but we feel great about the trajectory there. And as we discussed, we’re going to start leaning on the marketing as well, the inventory position, as we get closer to a post-COVID world, which it looks like these are the best information available should be sometime Q2 or Q3, and we want to be first there, so that we can leverage our brand that’s really going to work in that world.

Operator

Our next question is from Oliver Chen with Cowen. Your line is open.

Oliver Chen — Cowen and Company — Analyst

Hi, thank you. The September information is very helpful. On the down high-single-digit, what were some of the levers underneath that with average order value and transaction count? And what are some of the optimistic cases for how that could improve going forward? We would also just love your take on your commentary on owned brands. And it’s a dynamic — it’s such a dynamic environment currently. But what are you seeing that really helps inform the innovation that you have planned there, and the impact that it will have later to your prepared remarks on own brands? Thank you.

Jesse Timmermans — Chief Financial Officer

Yeah. Hey, Oliver, this is Jesse. I’ll take the first one and then kick it over to Michael. To our — as we said in our prepared remarks, we did see September come down in that high single-digit range. And that continued through October. The drivers there are really consistent with the remarks we made on both September and October. And lower average order value continues driven by those same factors of a shift in mix, offset by continued strength in full price. That was really strong in the quarter, which drove that margin. Better margins on the markdown merchandise, all centered around that improved inventory health. So, it’s a lot of the same as the commentary we made earlier and just the overall macro pressure.

Michael Mente — Co-Chief Executive Officer and Director

Thank you [Phonetic].

Jesse Timmermans — Chief Financial Officer

And I guess with — sorry, one more comment. I missed that last part of your question on kind of the back half of Q4. We’re not commenting on that. We’re just commenting what happened through October and November to date, it’s really volatile with elections and just such a short period of time. So kind of staying away from comments there and also kind of prepared for the prolonged promotional cadence in this holiday period, and back to the comments on margin that we made for the quarter.

Oliver Chen — Cowen and Company — Analyst

Okay, with [Speech Overlap] owned brands. Thank you.

Michael Mente — Co-Chief Executive Officer and Director

Hey, Oliver, yeah, with regards to own brands, I’m sure you want to recall that pre-COVID period, we were pulling back own brands and kind of resetting and regrouping there, continue to invest. And then with COVID, we really accelerated that because of the dollar commitment for style with our own brand division compared to third party, where we have a lot more flexibility. As of now, we’ve began to ramp up quite aggressively. I think Q3 will probably be our trough in terms of styles delivered and call it a ballpark, lose the 50% increase into Q4 and similar growth rates into Q1 and Q2 of next year.

So we’ll be — that margin that reinvestment period has already begun. On top of that, I’m very excited because it’s not just getting those numbers up, but also the diversity and the quality of the product is going to be much, much different and very, very exciting for us. Largely in times past, we were loosely — we’re very, very successful with China-based wovens, dresses and tops and such, and that’s been where the own brand division really thrived. We continue to make investments in other aspects of the supply chain.

Again, COVID really accelerated this and now better than knits business versus extremely important own brand division is doing very, very well with sweaters and knits and continuous investments in other categories. In ’21, we’ll be seeing continued investments in denim, continued investments in activewear. Actually, and also sustainable product as well. So we’ll be ramping up aggressively in the product that’ll be upcoming. Very, very excited, I think it’s going to be better than ever.

Oliver Chen — Cowen and Company — Analyst

Thank you very much. A final question on their your call out on large scale in person events is that — has that been different from how you previously observed the impact there and also how do you plan in this dynamic environment to be ready and what are the different risk factors are — there is like uncontrollable and controllable factors around the environment that we’re seeing. Thanks.

Jesse Timmermans — Chief Financial Officer

Yeah, large — in times past, large scale in person events were also synonymous with deploying large amounts of marketing capital in a very, very effective ways. And I think that’s been a playbook that we continue to expand and continue to expand. We started with smaller events, and we’re able to scale them, get more impacted more efficiency, and that’s something that for sure, we met.

We have things that have been starting to ramp up right now where capital vol, which we had to do instead of doing a large CLF and we did four separate groups instead of having all groups together at once. But we’re starting to ramp up in-person events. We have a number of options on the menu for Q1 and Q2.

We’ll have to be a little patient in terms of committing to anything. To see how the world plays out, we’re very optimistic as I’m sure the rest of the world is about the vaccine. And depending on how the environment is the events will just get larger and larger and the scale has been progressed. And ultimately, when we feel we’re in the safe world where we can all get together again and give each other hugs, probably see the largest scale event and the best party in the world coming through very, very soon.

Will evolve around the world in the roaring 2020s with a lot of people really just excited to whether [Indecipherable] and hanging with their friends, and that’s the time that we’re all looking forward to, and I’m sure our shareholders are really looking for that as well.

Operator

Our next question is from Mark Altschwager with Baird. Your line is open.

Mark Altschwager — Robert W. Baird — Analyst

Good afternoon. Thanks for taking my question. First, it’s more of a short-term question, but just given the plans to lean back into marketing, is it your expectation that you can drive some reacceleration from the down high-single digits over the remainder of the quarter? Some other levers you’re pulling from an assortment perspective or otherwise that would give you some more optimism for the holiday season?

And then just longer term, looking into 2021 in the spring and festival season, obviously, very important period for you. From where we sit today, it seems like we can’t really plan on events being back to normal by then. So I sure hope I’m wrong. So just — maybe just give us some insight on how you’re positioning yourself for the spring season. How much more aggressively do you want to lean into some of these stay at home categories, how responsive can you be? Should consumers shift back into the traditional fashion categories more abruptly than expected? And just any insight there would be great. Thanks.

Mike Karanikolas — Co-Chief Executive Officer and Director

Yeah, definitely. So we’ve begun increasing our marketing expenditures. At the same time, historically, the way we always play things is we go with the currents. And so we’re not going to — we’re not going to fight a brick wall just to achieve a certain number in quick dollars to work that we think are effective. But we do understand that we need to put dollars to work ahead of when we think the rebound will occur, particularly on the brand marketing side, where a lot of the impact of brand marketing is longer term in terms of the messaging, in terms of seeding awareness. So that’s really where we’re going to lean in on starting to ramp up investments as is practical given the environment because there’s still a lot of constraints within the environment as far as us making those investments to make sure that we’re well positioned as soon as the world turns.

And then I think in terms of being to merchandise, mix and timing of pre-COVID, post-COVID kind of transitionary period, it’s going to be balanced. We’re willing to take some bets and be wrong there. Just because we think it’s such a huge opportunity to be there first with a great selection as soon as people are able to get out and do the things that they love. And it’s just perfectly aligned with what our brand is all about. So we’re willing to take a little bit of risk there. But obviously, I think if you look at our track record, we don’t take foolish risk, they are calculated manage risks.

Operator

Our next question is from Michael Binetti with Credit Suisse. Your line is open.

Michael Binetti — Credit Suisse — Analyst

Hey guys, thanks for taking all our questions here. I wanted to ask you a couple of things, I guess, the sustainability of the margins that you saw in the third quarter. Obviously, we heard Jesse’s commentary on some of the components for the fourth quarter. But maybe just some thoughts on when you think the mix brand — sorry, the mix of owned brands leap back higher year-over-year. And when the inventory in total will be back in line with sales.

And then I guess, do you feel like when you look at the customer, the active customer trends, do you feel like the — you lost a customer that was coming to you for markdowns, discounted product only? Or do you have data that that’s a customer that mostly lapsed or was it temporary lapse and that they’ll be back as the markdown levels normalize? And do you want them back, if so?

Michael Mente — Co-Chief Executive Officer and Director

Yeah, hey it’s Michael, I’ll take the first one and then kick it over to Mike on the customer component. As we commented on, we’re starting to already invest in inventory. Inventory is up $9 million sequentially. So, we’re starting to make that improvement. Our investment in inventory is still down meaningfully year-over-year. We don’t expect that line to cross until probably midyear next year. You have to, of course, consider the significant cuts we made this year, so there’s some comp dynamics as you look into 2021.

But we’re taking, as Mike mentioned on the previous question, some balanced risk as we look ahead into a post-COVID world. And then on gross margin and own brand, same thing, we’ve already started to make those investments. Those won’t kick in really until mid-2021 before we see that line start to cross, just given the timing and inventory dynamics there.

Mike Karanikolas — Co-Chief Executive Officer and Director

On the customer front, I think there’s a couple of dynamics going on, certainly there is the decreased level of markdowns, which are really pretty much historical lows in the current quarter as far as. If you look at how we normally perform in the third quarter, and so certainly there is some customers that aren’t buying now. But would buy if we have markdowns, and it’s great as the performance of the quarter was and is great as our momentum is. And in what we believe is our ability to manage inventory. We will have quarters in the future that have more markdown. So that customer will come back, then I think more importantly, we know that there is a huge portion of not customers out there that know us, that love us, that haven’t forgotten about us dying to shop, but I just don’t have the right occasions to shop in the ways that they normally shop.

I actually got note just this morning from a customer, we’re just talking about how much he loved Revolve and how much he was looking forward to shopping with us again as soon as COVID was over and her husband could run a business again. And I’m sure there’s many more stories like that out there. I have another customer that last earnings call she saw me on TV and reached out and you talked about how she loves us. She shops us all the time. She can only shop us for active. She’s pretty much only been topping us for activewear in the current period, but she can’t wait until things are back to normal and she can shop us for all the same things that you normally loves as more.

So the customer is there, she loves us. We’re really pleased with the results that we’ve had during this period given how opposite it is and what our brand is all about. And we’re going to make sure we make the good investments into marketing and our inventory position and just be operationally nimble so that when the post COVID world hits and when that pent-up demand is unleashed and everyone goes back to doing the things they love, we’re going to be there to take advantage of it.

Operator

Our next question is from Kimberly Greenberger with Morgan Stanley, your line is open.

Kimberly Greenberger — Morgan Stanley — Analyst

Great, thank you so much. I wanted to ask a question about Q4 marketing this year. It makes sense obviously to start investing back into marketing. I’m wondering if you did that in the month of October. And if so, did you see any knock on benefits to revenue in the month of October from that. And then as we look out to next year, should we expect to see marketing normalize back at that kind of 15% level or is there — are there any kind of savings that you think you’ll flow to the bottom line on that marketing line? Thanks so much.

Mike Karanikolas — Co-Chief Executive Officer and Director

Yeah, So on a sequential basis, we’ve been beginning to invest more and more in marketing with each month. I think we kind of briefly discussed some of the revenue trends in October and in how they were similar to what we saw in October. So I wouldn’t say we’ve seen the fruits of those investments just yet, but there’s a lot we do on the marketing side to the brand marketing that’s really kind of lagging and it’s impacted in terms of how our marketing funnel works. And so not to mention that October is a very unusual month with the COVID environment and also the election noise going on. So, I wouldn’t read too much into that.

And then in terms of looking into the future, we intend generally to invest just as much in marketing as we ever have. But we’re also not dogmatic about things. We play every environment differently, if any information comes out that suggests to us, it’s better to adjust our strategy, we’ll certainly do that. But we’ve said since we’ve — since we went public, and it continues to be the case that marketing is very important to us for spreading our brand message, proceeding awareness that we’re in the early innings in terms of the customers that we can capture with just over 2% penetration of our target market. And so it’s going to be a big part of our expenditures and strategy going forward.

Operator

Our next question is from Aaron Kessler with Raymond James. Your line is open.

Aaron Kessler — Raymond James — Analyst

Great, thanks guys. Maybe A couple of questions. First is on the promotional environment, any more color around that? Is it mostly traditional retailers? And second, maybe just on the content marketing, I think you talked about a little bit about that last quarter, gained some good traction there with some of the video. And I’d be interested in any thoughts on Instagram Reels kind of that as a platform for you guys as well. Thank you.

Jesse Timmermans — Chief Financial Officer

Mike, do you want to maybe take the content marketing side of things?

Michael Mente — Co-Chief Executive Officer and Director

Yeah, the content part, definitely. It’s been quite interesting. It’s really kind of it’s super interesting. As we’re talking about owned brands earlier, we were making moves in this accelerated moves. And the same goes to our in person events and such, REVOLVE U is something that we are planning for — it’s been in the brainstem recessions for maybe over a year or so, we thought that this would be the perfect time to execute something like that, where in-person parties and such are no longer relevant and such.

So in the future, we’ll definitely see a combination of these digital events that we’re doing combined with in person events and potentially integrate them. So very excited about that. Reels has been interesting. And I think we saw a tremendous boost in the outset. I think potentially, there was a push there where we’re seeing a lot of eyeballs, and we’ve seen things taper off a little bit.

So we’ll see how things evolve. I think it’s we’re very long-term minded. And I think Instagram stories is a good example of something that — on the outset wasn’t particularly impactful, but really steadily grew into something that was very, very important for us. So we’ll continue us to invest in Reels. And hopefully, that will — the consumer will continue to gain traction there, and it will be important part of our component.

Mike Karanikolas — Co-Chief Executive Officer and Director

And then with regards to the promotional environment. We’ve certainly seen an easing of things, particularly on the luxury side. But I think if you look at REVOLVE versus the broader market, things have eased much more sharply and probably ease isn’t the right word for our own markdown positions.

The consumer demand has shifted to be less markdown focused than it was, but at the same time, an area of active discussion during the was that we didn’t have enough markdown merchandise to meet the markdown demand from our consumers. And that’s a good problem to have, but it certainly had an impact on our revenue for the quarter.

Operator

Our next question is from Justin Post with Bank of America Merrill Lynch. Your line is open.

Justin Post — Bank of America — Analyst

Hey, thank you. just wondering. You’ve had some real efficiencies on the cost side for the last couple of quarters, your guidance and outlook kind of discusses some of those may be dissipating or making more investments. But when you think about a year or two, what are some of the lasting cost savings that might continue going forward? Thank you.

Jesse Timmermans — Chief Financial Officer

Yeah, sure. So I think if you just work down through the P&L, starting from the top fulfillment is an area where we do see lasting efficiencies. Combination of two factors there, really over time. And again, thinking longer term, one, and we refer to this a lot because it is meaningful, but the efficiencies gained as a result of the automation investments that we’ve made over the last 18 months. And then also capacity. We invested in a new warehouse last year that gives us 2 to 3x the capacity that we’re at now. So we should just — we should see natural leverage on that line item over time.

As we mentioned, there is a return rate component there. So we do anticipate returns to tick up slightly sequentially, hopefully, lower than our peak times last year in that 55% range. So we do hope some of that return dynamic does play out in a post-COVID world, but not banking on that one. Selling and distribution will continue to be pressured there as shipping costs go up year-on-year pretty consistently. We’ll look to make improvements over time with an increasing AOV over the longer term, that should give us some easing there. Marketing, we talked about, we’ll continue to make investments. They’re not banking on really any leverage on that line item over time. And then G&A which is largely fixed. So with scale, we’ll get leverage on that line item.

Operator

Our next question is from Bob Drbul with Guggenheim Partners. Your line is open.

Bob Drbul — Guggenheim Partners — Analyst

Hey guys, good afternoon. Just a couple of quick questions for you. I think the first one is, when you talk about September trends, October trends and in November, with the performance of international, can you maybe give us a little color on what you saw on the international markets? That’s my first question. And the second question is are you partnering with any of the top TikTokers as you think about how the world is changing these days versus Instagram? That would be helpful. Thanks.

Mike Karanikolas — Co-Chief Executive Officer and Director

Yeah. So with regards to the international markets, we saw strength in the third quarter, particularly in our western markets. So in Western Europe and Australia, Canada. We saw double digit gains in those markets. So we feel very good about our progress and trajectory there. Certainly, in the near term with resurgence in COVID in Europe and exercise some kind of near term caution to kind of headwinds in the current quarter, but I feel great about the trajectory there.

And then offset by some weakness in Asia. Asia is an area where we’re starting to make, I think, some more meaningful investments and have some interesting partnerships that we’re working on, but not quite there yet. And so hopefully, as those things come to fruition, we’ll see some gains there. And then also, Hong Kong has always been — or has been for a while, our most important Asian market and that region has been very troubled for a number of quarters now with the rest.

Michael Mente — Co-Chief Executive Officer and Director

Yeah. When it comes to TikTok, I would probably phrase it, we haven’t worked with the top TikTokers, we have worked with the top fashion TikTokers, where we see the top TikTokers getting tens of millions of views and then create insane numbers. But the content really is a fashion focus, and it really isn’t quite aligned with our brand. But the top fashion TikTokers are very, very much in line with our brand, and we have worked with them, and we plan to work with them much, much more. We see the content to be a little bit more in-depth compared to Instagram. Where it’s really numerous kind of styling tips and outfits and a lot of richer content. To me, it’s a little bit more akin to YouTube than Instagram, which I think is right in between is very, very exciting.

And we will continue to do a lot more. The one — the only disadvantage with TikTok being an earlier platform is that the access to data and kind of like our tools aren’t as developed as Instagram tools that we’ve had for nearly 10 years now. So whether it be our in-house things or that — the numbers that TikTok out at to see in-house, or that’s third-party APIs have won’t be as robust as Instagram for a little bit. But the encouraging numbers that we have are very exciting, and no doubt, we’ll see a lot more Revolve on TikTok.

Operator

The next question is from Roxanne Meyer with MKM Partners. Your line is open.

Roxanne Meyer — MKM Partners — Analyst

Great. Good afternoon and thanks for taking my questions. My first question is on dresses. Wondering if you could provide a little bit of color about the performance. Obviously, you’ve got quite a number of subcategories. So, curious if they have all been weak? Or there have been pockets of strength in some of them? Also curious, what percent of 4Q dresses typically represent and perhaps how they’re positioned this year given your investment in other categories?

Mike Karanikolas — Co-Chief Executive Officer and Director

Yeah. When it comes to categorization and sub-categorization, it becomes like a very, very complex situation because the way we look at categories is multi-dimensional. Of course, overall, we see dresses down quite a bit compared to our other categories. But within dresses, there’s sub-categories and there’s end uses that are doing very, very well. So we kind of will sometimes share high level category data that kind of illustratively tell the story of how the business is performing. But as you go deep and deep, there’s strong pockets of success across the Board. I think one thing is — this is an interesting fun one to me that we saw that activewear dresses was extremely strong. It’s kind of like the cross-pollination of activewear, which, of course, that one loves. In this pandemic time period, we’re doing extremely well with a traditional Revolve category. So that’s something that seems very, very exciting to us, but yet small.

But Jesse, do you want to talk about Q4 dynamics in terms of categorization and such, it’s definitely going out dresses and there’s certain categories, we have various degrees of going out dresses. I’m sure we’ll suffer but there’s also other categories that are very holiday oriented that will be — will boost, which we anticipate such as sweaters and knits and such.

Jesse Timmermans — Chief Financial Officer

Yeah, yeah, sure. Just to give some more context, maybe even beyond Q4 on the dress mix. Historically, it’s been at or slightly greater than a third of our business. Then in Q2, you saw that drop off meaningfully to closer to 20%. We did see some recovery into Q3. So dresses did improve sequentially. And I think the most exciting part about that sequential improvement is that, that came from full price dress sales. As we commented on the prepared remarks, we saw a significant decrease in the amount of markdown dress sales from Q2 to Q3. So exciting to see that dresses come back in a full price way. And then the Q4 skews, slightly higher on dresses compared to other quarters of the year, just given that occasion wear dynamic. But not meaningfully. So we’ll continue to see similar pressure on dresses as we have in the last quarter or two until we get into a real post-COVID world.

Operator

Our next question is from Matt Koranda with Roth Capital. Your line is open.

Matt Koranda — Roth Capital — Analyst

Hey guys, thanks. Two for me. The first one is just overall orders per active customer look a little lower on a like-for-like basis year-over-year and sequentially. So it’s understandable that you’ve got certain existing customers that may pull back in this period. But any detail you can provide on sort of order frequency between older and newer cohorts and what you’re seeing in terms of differences between those would be helpful.

Jesse Timmermans — Chief Financial Officer

Yeah, sure. [Speech Overlap] Sorry, go ahead. Do you have one [Phonetic]?

Matt Koranda — Roth Capital — Analyst

Sorry. Yeah. The other one was on return rates and just, I get they’re headed higher and in the short term, it depends on mix. But is there anything you guys can do structurally to bring those levels down and take advantage of kind of the lower rates that you’ve enjoyed over the last quarter or two here in the pandemic?

Jesse Timmermans — Chief Financial Officer

Yeah, yeah. I’ll take the first one there, and then Mike can comment on longer-term return dynamics. We did see that order frequency come down, but keep in mind that sequentially, it did kick up very slightly from Q2 to Q3. So we’re encouraged about that. And we’re still running higher than our historical averages. If you look back pre-2019, late-2018. So it’s still a very active customer. And it came from both the new and the repeat side. Really, the customer dynamics, to a large extent, near the results on our financials where you see her purchasing at lower AOVs, shifting from dresses into beauty. You saw, as we discussed earlier, a large kind of markdown component in Q2 that shifted to a large full price component in Q3.

Also a grade that we’re seeing beauty represent — the percentage of beauty products from new customers doubled this quarter compared to the prior year. You saw an offset there in dresses. But kind of largely the customer still behaves relatively consistently with how she has in the past and just some quarter-to-quarter dynamics with shift in merchandising mix and AOVs.

Mike Karanikolas — Co-Chief Executive Officer and Director

And then in terms of the longer-term trajectory with return rates, it’s very difficult even for us to disaggregate the impact of COVID and some of the longer-term things we’re working on, but we’re certainly hopeful that some of the things we’ve been working on will hopefully hold up post-COVID, not to the same level, certainly we’re seeing here on return rate, but that we’re hoping we’ll get some gains on the return rate dynamics, kind of various factors, including some category mix shifts that should potentially stay post-COVID due to investments we’ve been making on our side in terms of our quality and presenting the product inaccurately and kind of other things we’ve been working on internally as well as some other, I guess, more proprietary levers that pull [Phonetic] that we’re hopeful will have an impact. It just so happens, a lot of those things came to fruition at the same time as COVID hit. So we’ll have to see post-COVID to what extent those initiatives hold up.

And then long, long term, we’re very bullish on return rate improvements. We think there’s a lot that can be done in the online world to better communicate to customers what products are the products you’re going to love, not just on the site, but once you get them in person and once she tries them on. And so that’s always an area that we’re investing in.

Operator

We have time for one more question. Our last question is from Ralph Schackart with William Blair. Your line is open.

Ralph Schackart — William Blair — Analyst

Great. Thanks for squeezing me in. Two questions, if I could. Jesse, you talked about September declines in the high single-digit range. Can you maybe give us some perspective on the linearity of the declines in September and then this really change or the trajectory change in October, just see more deceleration, acceleration, was it fairly steady? And then just in terms of when a vaccine rolls out and the world starts to open again, what’s the lead time you need to plan your larger in-person events? Thank you.

Jesse Timmermans — Chief Financial Officer

Yeah. On the September-October dynamic, it was pretty consistent across the two months. Of course, there’s day-to-day and week-to-week dynamics, but for September and October, largely similar with a lot of dynamics at play in those couple of months with the second wave COVID and a lot of just macro pressures and external pressure. And then on the large scale events, the team can react very quickly. You saw that as we headed into COVID in their ability to quickly pull back on events, and restructure and recreate kind of and move into this live streaming and content. So we’re optimistic, and they can move really fast to get into events when the time is right.

Michael Mente — Co-Chief Executive Officer and Director

Yeah, Michael here, just additional commentary is that there’s a number of events that are really on the shelf ready to go. It’s really about a matter of which one do we pull when and kind of eyeing that through maybe the next couple of months and just early next year, we are there, ready to go and we very looking forward to it. And I think it will continue as the vaccine or that maybe pre-vaccine we’ll have some activities going. Post vaccine, we are locked and loaded with the capital and with the plans and the desire to go. So very excited.

Operator

And there are no further questions at this time. I’ll now turn the call back to management for closing remarks.

Mike Karanikolas — Co-Chief Executive Officer and Director

Well, thank you, everyone for joining us today. Thanks again to our team. And on this Veterans Day, a very special thanks to those that have served our country. Thank you for your sacrifice.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Erik Randerson — Vice President of Investor Relations

Mike Karanikolas — Co-Chief Executive Officer and Director

Michael Mente — Co-Chief Executive Officer and Director

Jesse Timmermans — Chief Financial Officer

Edward Yruma — KeyBanc Capital Markets — Analyst

Ross Sandler — Barclays — Analyst

Oliver Chen — Cowen and Company — Analyst

Mark Altschwager — Robert W. Baird — Analyst

Michael Binetti — Credit Suisse — Analyst

Kimberly Greenberger — Morgan Stanley — Analyst

Aaron Kessler — Raymond James — Analyst

Justin Post — Bank of America — Analyst

Bob Drbul — Guggenheim Partners — Analyst

Roxanne Meyer — MKM Partners — Analyst

Matt Koranda — Roth Capital — Analyst

Ralph Schackart — William Blair — Analyst

More RVLV analysis

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Revolve Group’s (RVLV) Management on Q3 2020 Results – Earnings Call Transcript

Revolve Group, Inc. (NYSE:RVLV) Q3 2020 Earnings Conference Call November 11, 2020 4:30 PM ET

Company Participants

Erik Randerson – Vice President-Investor Relations

Mike Karanikolas – Co-Founder and Co-Chief Executive Officer

Michael Mente – Co-Founder and Co-Chief Executive Officer

Jesse Timmermans – Chief Financial Officer

Conference Call Participants

Edward Yruma – KeyBanc Capital Markets

Ross Sandler – Barclays

Oliver Chen – Cowen

Mark Altschwager – Baird

Michael Binetti – Credit Suisse

Kimberly Greenberger – Morgan Stanley

Aaron Kessler – Raymond James

Justin Post – Bank of America Merrill Lynch

Bob Drbul – Guggenheim Partners

Roxanne Meyer – MKM Partners

Matt Koranda – ROTH Capital

Ralph Schackart – William Blair

Operator

Good afternoon, my name is Chris and I’ll be your conference operator today. At this I would like to welcome everyone to the Revolve’s Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

At this time, I’d like to turn the conference over to Erik Randerson, Vice President of Investor Relations at REVOLVE. Thank you. You may begin.

Erik Randerson

Good afternoon, everyone, and thanks for joining us to discuss REVOLVE’s third quarter 2020 results. Before we begin, I would like to mention that we have posted a presentation containing Q3 2020 financial highlights to our Investor Relations website located at investors.revolve.com.

I would also like to remind you that this conference call will include forward-looking statements. These statements include our current expectations regarding the continued impact of the COVID-19 pandemic on our business, operations and financial results, and our outlook for net sales, product mix, gross margin, operating expenses and capital expenditures for the fourth quarter.

These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements, including the risks mentioned in this afternoon’s press release as well as other risks and uncertainties disclosed under the caption Risk Factors and elsewhere in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent quarterly reports on Form 10-Q all of which can be found on our website at investors.revolve.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.

During our call today, we will also reference certain non-GAAP financial information, including Adjusted EBITDA and free cash flow. We use non-GAAP measures in some of our financial discussions, as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to, the financial information prepared and presented in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations and rationale for using each measure, can be found in this afternoon’s press release and in our SEC filings.

Joining me on the call today are our Co-Founders and Co-CEOs, Mike Karanikolas and Michael Mente, as well as Jesse Timmermans, our CFO. Following our prepared remarks, we’ll open the call for your questions.

With that, I’ll turn the call over to Mike.

Mike Karanikolas

Thanks, Erik. Good afternoon everyone, and thanks for joining us today.

Before we get into the details of the quarter, I’ll provide some higher-level thoughts on our longer-term vision. We founded REVOLVE 17 years ago with the goal of becoming the fashion destination for the next generation consumer. From the beginning, our focus was on the customer experience, the utilization of data to drive decisions, and the creation of an authentic connection with our customer through our merchandise offering and marketing message. These areas of focus are still at the core of what we do today and what differentiates us, and what we believe will continue to drive growth into the future.

As a brand known for the discovery of on trend merchandise centered around aspirational experiences and lifestyle content including social gatherings, travel and special occasions. The current environment impacted by COVID has resulted in revenue pressure and what we believe is a temporary deviation from our historical growth pattern. Despite these pressures, we have been able to leverage the investments in our platform over time to produce notable increases in margin and profitability that we are excited to share with you today.

We believe the revenue pressures are temporary as people will eventually socialize in person again and travel will return. Until then, we’ll continue to invest in our brand and platform to set ourselves up to take advantage of what we believe; post-COVID will be a strong rebound as a result of prolonged pent up demand. With that longer-term framework as a backdrop, there are three key financial highlights of our third quarter that I want to call out.

First, we delivered record EPS of $0.27 per share, record net income of $19 million and record adjusted EBITDA of $24 million. Adjusted EBITDA grew 66% year-over-year and EPS grew at an even faster rate. Second, we achieved our highest ever gross margin in a third quarter of 55.3%, a nearly five point increase from the second quarter and up almost two points year-over-year. The higher gross margin year-over-year was a key driver of our significant growth in profitability and reflects a high percentage of net sales at full price in the third quarter and improved inventory dynamics. Third, we generated $14 million of operating cash flow and $14 million in free cash flow, which was up 86 percent year-over-year, on the heels of generating $54 million in operating cash flow in the second quarter. We now have $159 million in cash on the balance sheet. Our strong balance sheet not only provides us with the capital necessary to navigate through this uncertain time, but more importantly, allows us to re-invest in the business to drive long-term growth.

I’m extremely thankful for all of our dedicated employees who have shown impressive collaboration and agility, day in and day out. Even with most of our teams continuing to work from home, the organization has remained laser focused on ensuring the safety of our employees and maintaining exceptional service levels for our customers while continuing to drive efficiencies throughout the business.

Now, getting into the specifics of our third quarter results. Recall that on our second quarter investor call in August, we talked about the strong pace of recovery for much of the second quarter before net sales leveled off in mid to late June. As previously shared, our net sales in July and early August remained very slightly positive, increasing year-over-year in the low single digits. The modest growth trend in net sales remained consistent through the end of August. The trend changed in September with the modest growth in July and August turning to a year-over-year decline in net sales in September, the first year-over-year decline since May of this year.

For the third quarter as a whole, net sales declined 2% year-over-year, which is a 10-point improvement on a sequential basis compared to the 12-point decline in net sales reported for the second quarter. While we are pleased with the 10-point sequential improvement for the quarter as a whole, we would have liked to see a stronger close to the quarter. As we look at the recent trends, there are a few things that we believe are contributing to the top line deceleration.

First, the impact of COVID-19 and more specifically, social distancing, continues to have a significant impact on our business. Our inability to host large scale in person events has a lagging and growing negative impact the longer we are in a COVID-19 sheltered state. While the brand marketing team has done an incredible job pivoting into live streaming content and other avenues of engagement, it is very difficult to make up for the millions of engagement points and billions of impressions that come with our in-person events. We are excited to reverse both of these trends in what we believe will be a strong and healthy post-COVID world.

Second, competition for keywords and other forms of digital advertising increased in the third quarter, particularly on a sequential basis compared to the second quarter when online advertising rates were still recovering from the March lows. We attribute the significant increase in online advertising investment in our product categories industry wide to traditional brick and mortar retailers shifting their focus online given the unprecedented increase in ecommerce penetration driven by COVID-19.

Third and looking at the net sales trends from the second quarter to the third quarter, it’s important to note that net sales contributions from markdowns were very strong in the second quarter, helping the top line comp while we were able to successfully work through our markdown inventory and rebalance our overall inventory levels, the significant reduction in markdown inventory entering the third quarter led to incremental top line pressure. At the same time, a lower mix of markdown sales and shallower markdowns helped drive the very strong margins and profitability in the quarter.

Aside from the strong Q3 financial results, I am encouraged by the positive impacts from continued operational enhancements on our platform and the customer experience initiatives that we continue to roll out in our international markets. Our Operations team delivered phenomenal results, as we saw the impact of lower return rates as well as efficiency gains from automation and other investments we’ve made over the last 18 months continue to provide benefits.

Consider that fulfillment costs per order decreased 15% year-over-year, all the while maintaining best-in-class service levels with a record 99% of customer orders received by noon Pacific Time shipping out the very same day. We believe this level of performance benchmarks very favorably compared to most other e-commerce companies.

Shifting to a discussion of our International business. We had a strong third quarter in our International markets, financially and operationally. Australia, Canada and Western Europe each delivered strong double-digit growth in net sales year-over-year, partially offset by a decline in Asia. One of the most important strategies we can employ in international markets is to localize the country to provide the same great experience offered in the US. We recently announced that, for the first time, REVOLVE customers in Canada, one of our top five international markets have access to hassle free returns at no cost, including refunds of all applicable duties and taxes. Our launch of all-inclusive pricing for Canadian customers is very important because by including duties within the price of the product up front, we eliminate the sticker shock at checkout and significantly streamline the process for merchandise returns.

Now, shifting to the more recent trends in the fourth quarter to date. The softer year-over year net sales trends in September carried through to October with a high single-digit decline in net sales on a year-over-year basis. Similar to what we experienced in September, we continue to experience strength in the at home categories that is more than offset by the ongoing pressure in occasion driven categories. By geography, in October, international net sales continued to remain stronger than net sales in the US. However, we are very cautious due to the resurgence in COVID-19 cases and the corresponding social distancing restrictions in some of our largest international regions including the UK and Western Europe.

Before I turn it over to Michael, I want to reiterate how pleased I am with our ability to navigate through these challenging times. So, again, thanks to all of our team members for your hard work and resilience for staying nimble and for your dedication to exceeding our customers’ expectations.

Michael Mente

Thanks, Mike, and hello everyone. The strength of our business, the power of our brand, and most importantly, the incredible execution of our team enabled us to deliver our most profitable quarter ever, even surpassing our record profitability from last quarter. I’m truly proud of how much our team has accomplished during this extremely challenging period. This phenomenal execution has further strengthened our financial profile and positions us well to capitalize on the long-term opportunity ahead.

To expand on Mike’s opening remarks, we are focused on building the fashion destination for the next generation consumer. Our customer comes to us for discovery and looks to us for inspiration. Even during this unique and challenging time, these shopping behaviors remain. We continue to provide a broad, yet curated assortment of the most on trend merchandise that provides her with the ability to discover products that suit her lifestyle, whether it’s travel and social occasions or most recently, a more stay at home and active lifestyle.

To complement our merchandise offering, we provide her with constant inspiration through authentic and aspirational lifestyle content. Important to this authenticity is providing content that connects with her on platforms she is engaging with and speaks to what’s happening in her life. The team has done a great job of expanding into emerging social platforms and providing content centered around her current lifestyle. I am excited about the progress we continue to make on the merchandising and marketing fronts and believe that despite the challenges of the last couple quarters, we will emerge much stronger and even better positioned for the long-term.

Starting with our merchandise. The ongoing reality of a more stay at home lifestyle has allowed us to further deepen the relationship with our customer by highlighting our offering of incredible fashion and design, in areas that were not top of mind until very recently. Our emerging categories such as beauty, intimates and loungewear are all strongly resonating. Additionally, more than ever, our customer is demonstrating a healthy and active lifestyle, leading to greater opportunity in activewear and swimwear.

Our results for the past two quarters demonstrate our ability to serve our customer in new ways and broaden how customers perceive REVOLVE’s product selection. In the third quarter, sales in the at home and active categories of beauty, accessories, intimates, sweaters, knits and swimwear increased approximately 50% year-over-year on a combined basis. By further enhancing our merchandising strategy, we believe we can expand our share of her wallet over the long term. It’s incredibly important to us that whatever our customer needs, she can always come to REVOLVE as her trusted source of style.

An exciting example of one of the more prominent shifts in our mix is the beauty category, with net sales increasing more than 100% year-over-year for the second straight quarter as COVID-19 has been a catalyst for shifting beauty sales online. Beauty is a category where the majority of customers in our demographic look to influencers for beauty product inspiration, a great fit with our global network of influencers. In fact, this month we are launching a beauty gift box with mega influencer, actress and model, Shay Mitchell, who has nearly 30 million Instagram followers.

An important component within our long-term merchandising strategy is the expansion of our Owned Brands. As we discussed on previous calls, we temporarily pulled back our Owned Brand offering as a response to the uncertainty and demand pressures introduced by COVID-19. The result was a trough in the number of new styles delivered in the quarter. We have already started making the investments necessary to increase our style production and assortment with a targeted 50% increase in the number of Owned Brand styles delivered as we exit the year, as compared to the third quarter.

Additionally, we had discussed making investments into the Owned Brand division to increase the diversity and quality of our product offering. I’m pleased to report that the early results are extremely encouraging, with a significant improvement in productivity per style, as compared to the same period last year. While we are optimistic on the trajectory of our Owned Brands, bear in mind that despite the increase in new styles delivered in the coming months, due to inventory dynamics, we still expect a sequential decline of our Owned Brand penetration in the fourth quarter of 2020, before beginning to increase sometime in mid-2021.

Shifting to a discussion of our brand marketing strategy. We continued with a successful digital playbook in the third quarter, hosting several well attended virtual events. Similar to the shift in merchandising focus in this COVID period, we have also broadened our marketing message to address more aspects of her life. This was the concept behind REVOLVE U, an event we have been developing, even before COVID. Hosted in late September, REVOLVE U was a week-long virtual activation that included seven keynote speakers and over 300 influencers. This unique event increased our reach and followers across multiple social channels and featured content focused on topics such as The Business of Social Media, Building a Brand, Career Journeys, Mental and Physical Health, and Entrepreneurship.

While we continue to expand and invest in new digital platforms such as IGTV, Instagram Reels, YouTube and TikTok, we are also excited to share that we have recently hosted a series of successful in person events called Camp REVOLVE that included adherence to comprehensive safety precautions. Dipping our toe back into in person events is important to build the brand and differentiating ourselves. Furthermore, our in-person events tend to capture more eyeballs, garner more press and generate more customer interactions, all of which are important drivers of traffic and new customers.

We are excited about a future that will include hosting regular in person events with the added element of our new digital playbook, which we believe will be a very powerful combination. We are executing well while continuing to invest in our key growth initiatives during this challenging period. At REVOLVE, we are always focused on the long-term, and I am confident we are well positioned to capture further market share in the years ahead – particularly with what we believe is an accelerated and permanent shift to digital commerce.

With that, Jesse will close out with some additional detail on the financial results and trends.

Jesse Timmermans

Thanks, Michael. As our results attest, we have continued to execute well in a very difficult environment. For the second straight quarter, we achieved record net income and record adjusted EBITDA; we generated strong free cash flow that strengthened our balance sheet and we drove our highest inventory turns in several years.

Now, starting with the third quarter results. Net sales decreased 2% year-over-year. As Mike mentioned, we began the third quarter with low-single digit growth in July and August that was offset by a larger single-digit decline in September. Occasion wear product categories faced the most significant headwinds since many special occasions remain on pause due to social distancing concerns, and as we worked through our markdown inventory in those categories in the second quarter. To provide some context regarding the impact of reduced markdown inventory on net sales in the third quarter, our largest category, dresses, is a good example. If year-over-year growth in markdown sales of dresses alone had remained consistent between the second quarter of 2020 and the third quarter of this year, our total net sales would have actually increased year-over-year in the third quarter.

Drilling further into the top line for the third quarter. By segment, REVOLVE Segment net sales decreased 4% and FORWARD Segment net sales increased 9% year-over-year. Active customers were $1.5 million, an increase of 5% year-over-year. The trend is consistent with our commentary last quarter that we expected growth in Active Customers to further decelerate as the trailing 12-month metric captured a larger number of quarterly periods impacted by COVID as compared to the high customer growth quarters of last year. With the continued pressures on traffic and demand, we expect further deceleration in this metric until we start to cycle out of the suppressed COVID period.

Orders placed were $1.1 million, a decrease of 4% year-over-year. Average order value was $232, an increase of $204 in the second quarter of 2020, but remained 16% lower compared to Q3 of 2019. The year-over-year decline in AOV was primarily driven by a shift in net sales mix to at home product categories, such as beauty and loungewear with lower average price points and a decline in net sales of dresses, which carry higher average order values. These AOV headwinds were partially offset by a higher mix of full price sales, our highest full price sales for a third quarter in over 10 years, as well as a greater sales mix attributable to our higher price point luxury segment, FORWARD. Partially offsetting the lower number of orders and the lower Average Order Value was a decrease in merchandise returned year-over-year.

We attribute the lower return rate year-over-year to a combination of more deliberate purchasing behavior by consumers during the COVID-19 pandemic as well as a COVID-19 driven shift in mix to product categories with lower price points and lower return rates, such as beauty and away from occasion wear, such as dresses, a category with a higher than average return rate. That said, we did experience a sequential increase in the return rate from the second quarter, but it remains well below the prior year periods. International net sales increased 18% year-over-year, outperforming the 6% decline in net sales in the US. As Mike mentioned, we experienced strength in western regions and emerging markets, partially offset by weakness in Asia.

Moving to gross profit. Consolidated gross margin was 55.3%, the highest ever reported for a third quarter and an increase of approximately 160 basis points over the prior year. This performance was much better than we anticipated and reflects healthy increases in margin across both segments. Within the REVOLVE Segment, we delivered gross margin of 57.2%, up approximately 180 basis points year over year. The REVOLVE Segment margin benefited from meaningfully improved inventory dynamics exiting the second quarter of 2020 that contributed to a healthy inventory balance, leading to a year-over-year increase in the percentage of REVOLVE Segment net sales at full price, and a decrease in the depth of markdowns. These positive contributors to gross margin were partially offset by a year-over-year decrease in the mix of Owned Brands as a percentage of REVOLVE Segment net sales, consistent with the outlook we shared on recent investor conference calls.

Within the FORWARD Segment, we delivered gross margin of 42.9%, an increase of approximately 190 basis points year-over-year. The increase reflects a healthy inventory balance, shallower markdowns and a favorable mix of merchandise sold. We were encouraged to see an easing of promotional activity across the luxury space in Q3.

And now moving to the cost structure, where we delivered highly efficient results. For the second straight quarter, we achieved leverage on every major expense line item on the P&L. Starting with Fulfillment. Fulfillment costs were 2.8% of net sales, an improvement of about 60 basis points year-over-year. The team did an outstanding job driving efficiencies while maintaining our top priority of protecting the health and safety of our employees and delivering a best-in-class experience for our customers. The automation launched last year was further expanded during the second quarter and is delivering a compelling return. We also continued to benefit from cost efficiencies resulting from a lower return rate year-over-year.

Selling and distribution costs were 13.8% of net sales, an improvement of approximately 80 basis points year-over-year. Once again, we benefited from reduced shipping costs due to lower returns and to a lesser extent, efficiencies in payment processing and customer service costs. Marketing costs were 12.5% of net sales, a decrease of approximately 250 basis points year-over-year. Marketing efficiency primarily reflects reduced brand marketing investments since hosting in person REVOLVE events remained on pause. Our investment in brand marketing decreased by $3.2 million year-over-year and performance marketing investments decreased by the remaining $1.1 million in Q3.

It is important to note that our brand building investments will remain a key component in our long-term growth algorithm, so we do not expect the total marketing expense as a percentage of net sales to remain at the reduced levels we have reported for the past two quarters.

General and administrative costs were 11.7% of net sales in the third quarter, an improvement of approximately 60 basis points year-over-year. The reduced G&A cost reflects lower headcount and our COVID-19 cost containment efforts that were in place for a portion of the third quarter. In addition, as part of the Owned Brands reset that was accelerated due to COVID, we reduced costs in this area. As we start to rebuild and design into new product categories and get ahead of an anticipated return of demand, we will re-invest in this area over the coming quarters.

For the third quarter of 2020, we achieved record net income of $19 million or $0.27 per diluted share more than doubling the $0.13 in diluted EPS in the prior year. In addition to our strong operating results, our EPS comparison benefitted from a lower tax rate in 2020, primarily due to excess tax benefits realized as a result of stock option exercises. Even when excluding these discrete tax benefits, our net income and diluted EPS would have each increased more than 65% year-over-year. We also reported record Adjusted EBITDA of $24 million, an increase of 66% year-over-year, for a margin of 15.9%.

Moving to the cash flow statement, we had another outstanding quarter for cash flow generation. Free cash flow was $14 million, a year-over-year increase of 86%. For the nine months ended September 30, 2020, free cash flow was $74 million, more than doubling our free cash flow reported for all of 2019. The strong cash flow generation significantly strengthened our balance sheet and liquidity. Cash and equivalents as of September 30, 2020 were $159 million, an increase of $8 million during the third quarter, despite the repayment of $9 million on our revolving line of credit.

As we look ahead and think about capital allocation and the use of cash, our number one priority is fortifying our balance sheet to position us to invest in growth as we exit the COVID era, followed by strategic organic investments to drive long-term growth. Given our capital efficiency, we also have the opportunity to explore other investments, including opportunistic and disciplined M&A.

We are pleased with our inventory levels and the healthy inventory dynamics in the quarter. We ended Q3 with $74 million in inventory, a year-over-year decrease of 29%, but up $9 million from the second quarter as we started to reinvest to build a sufficient inventory level and appropriate inventory mix to support demand. By comparison, our net sales decreased year-over-year by only 2%, which illustrates our significant improvement in inventory turns.

Now, let me talk about the business trends since the third quarter ended on September 30th. Given the fluid and uncertain environment that we continue to operate in, we’ll again skip any traditional guidance. Instead, we will share some recent trends and assumptions to help in your modeling of the fourth quarter.

Starting from the top, as Mike mentioned, net sales in October were down by a high single-digit percentage year-over-year. In terms of product categories, we continue to see strength in new at home categories that has been offset by continuing headwinds in occasion wear categories, such as dresses and skirts. From a macro perspective, we see a great deal of uncertainty affecting our customer demographic. COVID-19 cases around the world are re-accelerating, leading to increased restrictions on social outings that have been a key driver for our brand. When combined with the high unemployment rates and lack of new US stimulus measures, we see continuing challenges in the current environment.

Shifting to gross margin. The Q3 gross margin performance was well ahead of our initial expectations, benefiting from a higher mix of full price sales and shallower markdowns. Moving to Q4, we expect gross margin to come in more in line with the prior year fourth quarter gross margin of 53% as a result of a lower mix of owned brand sales year-over-year, as well as what we expect to be a prolonged holiday promotional cadence. For our Selling and Distribution and Fulfillment cost line items, we expect the combination of Selling and Distribution and Fulfillment expenses to be flat to slightly higher as a percentage of net sales in the fourth quarter when compared to Q4 of 2019. There are a couple factors contributing to this assumption.

First, as you have all heard, the major shippers are imposing surcharges on packages during the fourth quarter that are likely to drive higher shipping costs in Q4. Second, Fulfillment and Selling and Distribution have each realized efficiencies from the lower return rate year-over-year. In Fulfillment, we incur lower labor costs due to less time spent handling the returned units that come into the warehouse. And in Selling and Distribution, where the majority of the costs are shipping related, fewer returns means reduced shipping, packaging and payment processor costs.

Since bottoming out in the second quarter of 2020, our return rate has been increasing with each passing month, so we are planning for a sequential increase in costs as a result. We do, however, expect our return rate in the fourth quarter of 2020 to remain lower on a year-over-year basis. These cost pressures will be partially offset by continued efficiencies realized as a result of the automation and process improvements discussed earlier.

Marketing, we are planning for marketing as a percentage of net sales in the fourth quarter to remain approximately flat year-over-year. After two straight quarters of significantly reduced marketing spend and with our strong balance sheet, we believe it’s time to start pushing our marketing investment again to continue to build the brand, drive traffic and increase customer activity.

General and Administrative, on a year-over-basis, we are planning for G&A expense to be lower in the fourth quarter as compared to the prior year. Compared to the third quarter of 2020, we expect G&A expense to increase in Q4 since the temporarily reduced salaries and wages have been fully restored to their pre-COVID levels for our active employees.

To recap, we believe we have executed well during what is a very challenging environment with a focus on safety for our employees, efficiency in our operations and building a strong balance sheet. With a healthy base of inventory and our cash balance, we are shifting back into investment mode with an increase in our marketing investments, an increase in our inventory levels and assortment and investments into our Owned Brand capabilities.

Now we’ll open it up for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] our first question is from Edward Yruma with KeyBanc Capital Markets.

Edward Yruma

A couple quick ones from me, I guess first as you think inventory you talk about mobility hopefully improving at some point in the short-to-medium-term. When will you start rebuilding inventory in activation of improved sales trends and then I guess second as follow-up on the market which I think you guys indicated leading into, are there particular categories you’re going to lean into just kind of – top of mind as we head into a stronger sales period, what’s the direction you’ll hope to take that into? Thank you.

Mike Karanikolas

Yes, definitely, Mike here. So with regard to inventory we’ve already begun building up our inventory position from the lows and we think that will have beneficial impacts on the sales trends of course at the pre-time [ph] it’s a very uncertain environment we think and until we get to more of a post-COVID world. And it’s just not throughout the overall inventories level right. It’s about those categories. So we’ve calculated that at the appropriate levels that we can balance our revenues goals into our profitability goals and I think you won’t really see us put on the accelerator until the timings are bit more clear, in terms of when the post-COVID world hits. But there’s definitely going to be some level of calculated risk taking in advance of that window to make sure that we’re poised to take advantage of that world which we think is going to be a fantastic world for us.

There’s couldn’t have been a year or more of pent up demand from consumers who haven’t been able to do things that they love, these special occasions that we’re known for. And so we want to make sure we’re ready in position with our inventory and marketing to take advantage of that situation as soon as it comes.

Operator

Our next question is from Ross Sandler with Barclays. Your line is open.

Ross Sandler

Just a question about active customer count, so actually declined quarter-on-quarter for the first time. I know that’s a TTM number. But can you just walk us through how of much that is from just the overall environment and things like stimulus checks that are out of your controls versus the reduction in marketing and maybe tougher time retaining customers. And it sounds like I’m glad to hear that you guys are going to lean back in starting now. But how are you thinking about balancing these record high EBITDA margins with just growing top of the funnel and getting back out there with more customer acquisition. That’s the first question. And then just any learnings from the live streaming efforts thus far how that in terms of adding to your ability to grow the funnel and attract new customers.

Jesse Timmermans

Hi Ross, this is Jesse. I’ll start out with couple of just quick details and then it over to Mike to talk a little bit more about the acquisition and the lean in. You’re right we did see active customers decline sequentially and you know that’s largely an impact of the COVID world. We do think there was a benefit from the stimulus check and the extra unemployment that was happening through July that started to hit us and now through the second wave of COVID cases and everything else that you hear out there. So there definitely is an impact there. And we anticipated that active customer number to come down sequentially from the plus 12-ish we’re at the end of the last quarter to plus five now. It’s a combination of both the new and the repeat and that’s what you know tell us it’s largely a COVID impact. 45% of that active customer base is repeater or an existing customer. But they continue a much larger share of the revenue so important that we lean on that existing customer.

Mike Karanikolas

And looking at the broader picture Ross. We’re in a world today in the second quarter and then the third quarter as well that does play to our strengths as a brand and as a retailer. We’re known for social occasions and living your best life. And [indiscernible] in a period where those things were all true. So it’s due to the environment we’re facing and uncertainly with the quarter-to-quarter dynamics. You have a term called month number as well as some of the pressures that we ignored [ph] in the third quarter, where we saw for example the digital advertising markets get much more competitive in the third quarter not just on a sequential basis but also on a year-over-year basis. Where there a lot of players stepping in a big way that they had historically. That from a year-over-year comp perspective that has an impact but we feel good about of the trajectory there and as we discussed we’re going to start leaning on the marketing as well. The inventory position as we get closer to a post-COVID world which it looks like – best information available should be sometime in Q2 or Q3 and we want to be first there, so that we can leverage our brands that really going to work in that world.

Operator

Your next question is from Oliver Chen with Cowen. Your line is open.

Oliver Chen

The September information is very helpful. On the down high single-digit, what were some of the levers underneath that with average order value and transaction count? I mean what are some of the optimistic cases for how that could improve going forward. We would also just love your take on – your commentary on Owned Brands. It’s such a dynamic environment currently. But what are you seeing that really helps inform the innovation that you have planned there and the impact that it will have later to your prepared remark on Owned Brands? Thank you.

Jesse Timmermans

Hi Oliver, this is Jesse. I’ll take the first one and then kick it over Michael. As we said on our prepared remarks, we did see September come down in that high single-digit range and that continued through October. The drivers there are really consistent with the remarks we made on both September and October and lower average order value continues driven by those same factors that are shift in mix, offset by continued strength in full price that was really strong in the quarter which drove that margin. Better margins on the markdown merchandise, all centered around that improved inventory hold. So its lot of the same as the commentary we made earlier just the overall macro pressure.

Sorry, one more comment I missed that last part of your question on the back half of Q4. We’re not commenting on that. We’re just commenting what happened through October and November to-date it’s really volatile with election and this is just such a short period of time, kind of staying away from comments there and also kind of prepared for just prolonged promotional cadence in this holiday period and back to the comments on margin we made for the quarter.

Oliver Chen

What’s your thoughts on Owned Brands? Thank you.

Michael Mente

Hi Oliver. With regards to owned brands I’m sure going through the call that pre-COVID period we were pulling back Owned Brand and kind of resetting and regrouping, continue to invest. And then with COVID, we really accelerated that because of the dollar commitment per style with the Owned Brand division compared to third-party where we have lot less flexibility. As of now, we’ll begin to ramp up quite aggressively. Q3 will probably be our trough in terms of styles to levered and call it a ball park, at least get 50% into Q4 and similar growth rate into Q1 and Q2 of next year. So that margin, that reinvestment period has already begun.

On top of that, I’m very excited because it’s not just getting those numbers up and also the diversity and the quality of the product is going to be much, much different and very, very exciting for us. Largely in times past we were very, very successful with China-based woven dresses and tops move such and that’s been where the Owned Brand division really thrived and we continue to make investments in other aspects of supply chain. Again COVID really accelerated this and now the sweaters and knits business for us is extremely important. Owned Brand division is doing very, very well with sweaters and knits and continued investments in other categories. In 2021, we’ll be seeing continued investments in denim, continued investments in activewear especially and also sustainable product as well. So we’ll be ramping up aggressively and the product that’ll be upcoming. We’re very, very excited and we think it’s going to be better than ever.

Oliver Chen

Thank you very much. Final question. So your call out on large scale in person events, has that been different from how you previously observed the impact there? And also, how do you plan on this dynamic environment to be ready and what are different risk factors? Are those like uncontrollable and controllable factors around the environment that we’re seeing? Thanks.

Michael Mente

In times past large scale in person events will go synonymous with deploying large amounts of marketing capital in very, very effective ways under the investment of table that we continue to expand. We started with smaller events and we were able to scale them, getting more impact and more efficiency something for sure, we missed. We have things that have been starting to ramp up. Right now where Camp REVOLVE which we had to do instead of doing a large deal event, which is four separate groups instead of having all groups together at once. But we’re starting to ramp up in person events.

We have a number of options on the menu for Q1 and Q2. We’ll have to be a little patient in terms of committing to anything, to see how the world plays out. We’re very optimistic. I’m sure the rest of the world is about the vaccine. And depending on how the environment is, the events will just get large and large in scale as things progress and ultimately when we fell that we’re in the safe world, where we could all get together again and we’ll be able to [indiscernible]. You’ll probably see a larger scale events and the best party in the world coming very, very soon in REVOLVE, around the world, in the early [ph] 2020s with a lot of people. Really just excited to wear their favorite clothes and hang out with friends and that’s the time that we’re looking forward and I’m sure our shareholders are really looking forward to that as well.

Operator

Our next question is from Mark Altschwager with Baird. Your line is open.

Mark Altschwager

First more of a short-term question. It’s given the plan to lean back into marketing. Is it your expectation that you can drive some reacceleration from the down high single digits over the remainder of the quarter, assuming the leverage you’re pulling from [indiscernible] perspective or otherwise that would give more optimism for the holiday season? And then just longer term looking into 2021 and the spring and festival season obviously very important period for you, where we sit today it seems like we can’t really plan on events being back to normal by then. Though I’m sure I’m wrong so since maybe just give us some insights with how you’re positioning yourself for the spring season. How much more aggressively do you want to lean into some of these stay at home categories? How responsive can you be to consumer shift back into the traditional fashion categories more roughly than expected, some insight there would be great? Thanks.

Mike Karanikolas

Definitely, so [indiscernible] increasing our marketing expenditures. At the same time historically the way we always play thing is we go with the current. And so we’re not going to fight a brick wall just to achieve a certain number and put dollars to work – effective. But we do understand that we do need to put dollars to work ahead of when we think the rebound will occur particularly on the brand marketing side. Where a lot of the impact of brand marketing is longer term in terms of the messaging, in terms of seeing awareness, so that’s really where we’re going to lean on, and starting to ramp up investments as is practical given the environment because there’s still a lot of constraints within the environment as far as us making those investments. To make sure that we’re well positioned as soon as the world turns. And then I think in terms of seeing our merchandize mix and timing of pre-COVID, post-COVID kind of transitionary period. It’s going to be balanced. We’re willing to take some bets and be wrong there just because we think it’s such a huge opportunity to be there first with a great selection as soon as people are able to get out and do the things that they love. And it’s just perfectly aligned with what our brand is all about. So we’re willing to take a little bit of risk there. But obviously I think if you look at track record. We don’t take foolish risk; you know the calculated managed risks.

Operator

Our next question is from Michael Binetti with Credit Suisse. Your line is open.

Michael Binetti

I wanted to ask you, a couple of things, I guess. The sustainability of margins it’s on third quarter obviously we heard Jesse’s commentary on some of the components for fourth quarter. But maybe just some thoughts on when you think the mixed brand starting the mix of Owned Brands with that higher year-over-year and when your inventory in total will be back in line with sales. And then, I guess do you feel like when you look at the active customer trends. Do you feel like that you lost a customer that was coming to you for markdowns, discounted products only or do you have data that the customer that mostly lapsed or was it temporary lapsed and they’ll be back as the markdown levels normalize and do you want them back as though?

Michael Mente

It’s Michael. I’ll take the first one and then kick it over Mike on the customer components. As we commented on, we’re starting to already invested in inventory, inventory is up $9 million sequentially. So we’re starting to make that improvement, our investment in inventory. We’re still down meaningfully year-over-year. So we don’t expect that line to cross until probably mid-year of next year. You have to of course consider the significant cuts we made this year. So there’s some comp dynamics as you look into 2021. But we’re taking as Mike mentioned on the previous question balanced risk as we look ahead into post-COVID world. And then on gross margin and Owned Brand, same thing. We’ve already started to make those investments. Those will kick in really until mid-2021 before we see that line start to cross, just given the timing in inventory dynamics there.

Mike Karanikolas

On the customer front, I think there’s a couple dynamics going on. Certainly there’s decreased levels of markdowns which are really pretty much historical lows and in the current quarter as far as if you look at how we normally perform in the third quarter. Certainly there are some customers that aren’t buying now but would buy, if we have markdowns as great as the performance in the quarter was and as great as our momentum is, and what we believe is our ability to manage inventory. We will have quarters in the future that have more markdowns aiming for that customer will come back then. But I think more importantly, we know that there’s a huge portion of customers out there that, that know us, that love us but haven’t forgotten about us, that are dying to shop. But just there are not right occasions to shop for in the ways that they normally shop.

I actually got an email just this morning from a customer. We were just talking about how much she loved REVOVLE and how much she was looking forward to shopping with us again as soon as COVID was over and her husband could run his business again. And I’m sure there’s many more stories like that out there. I had another customer that last earnings call, she saw me on TV and reached out and she talked about, she loves us, she shops all the time. She can only shop us for active. She’s pretty much only been shopping with us for activewear in the current period. But she can’t wait until things are back to normal and she can shop us for all the same things that she normally loves us for. So the customer is there. She loves us.

We’re really pleased with the results that we’ve had during this period given how opposite it is that what our brand is all about and we’re going to make sure we make the good investments into marketing and our inventory position and just be operationally nimble. So that when the post-COVID world hits and when that pent-up demand is unleashed and everyone goes back to doing the things they love. We’re going to be there to take advantage of it.

Operator

Our next question is from Kimberly Greenberger with Morgan Stanley. Your line is open.

Kimberly Greenberger

I wanted to ask a question about Q4 marketing this year. It makes sense obviously to start investing back into marketing. I’m wondering if you did that in the month of October and if so, did you see any knock-on benefits to revenue in the month of October from that. And then as we look out to next year, should we expect to see marketing normalize back at that kind of 15% level or are there any kind of savings that you think you’ll flow to the bottom line on that market line. Thanks so much.

Mike Karanikolas

Yes, so on a sequential basis we’ve been beginning to invest more and more in marketing with each month. I think we could have briefly discussed some of the revenue trends in October and how they were similar to what we saw in October. So I wouldn’t say we’ve seen the fruits of those investments yet. But there’s a lot we do in the marketing side because the brand marketing that’s really kind of lagging in its impact in terms of how our marketing works. And so not to mention that October is very unseal month we’ve got COVID environment and also the election noise going on. So I wouldn’t read too much into that.

And then in terms of looking into the future. We intend generally to invest just as much in marketing as we ever have. But we’re also not [indiscernible] about things. We play every environment different, any information comes out that to us, it’s better to adjust our strategy. We’ll certainly do that. But we’ve said since we went public and it continues to be the case that marketing’s are important to us for spreading, our brand message preceding awareness that we’re in the early innings in terms of the customers that we can capture with just over 2% penetration of our target market. And so it’s going to be a big part of our expenditures and strategy going forward.

Operator

Our next question is from Aaron Kessler with Raymond James. Your line is open.

Aaron Kessler

Couple questions. First on the promotional environment, any more color around that, is it mostly traditional retailers. And second, based on the content marketing. I think you talked about little bit that last quarter getting some good traction there with some of the video and any thoughts on Instagram Reels that is a platform for you guys as well. Thank you.

Mike Karanikolas

Michael, do you want to maybe take the content marketing side of things?

Michael Mente

Yes, the content part definitely. Considering quite interesting that’s really kind of – its super interesting as we’re [indiscernible] modeling brands we’re making moves, accelerated moves and the same goes to our in-person event and such. REVOLVE U [ph] is something we’re planning for – it’s been on in the brainstorming sessions for maybe over a year or so. We thought that this will be the perfect time to actually do something like that where in person and parties and such for the longer relevant and such.

So in the future we’ll definitely see a combination of these digital events that we’re doing combined with in person events and then potentially integrate them. So very excited about that. Reels has been interesting and I think we saw tremendous boost in that outset. I think potentially there was a push there where we were seeing a lot of eyeballs and we see things taper off a little bit. So we’ll see how things evolve. We’re very long-term minded and I think Instagram Stories is a good example of setting that and the outset wasn’t particularly impactful. But really steadily grew into something that was very, very important for us. So we’ll continue to invest in Reels and hopefully that will continue to gain traction in there and will be important part of component.

Mike Karanikolas

And then with regards to the promotional environment. We’ve certainly seen in easing of things particularly on the luxury side. But I think if you look at REVOLVE versus the broader market things have eased much more sharply and probably ease isn’t the right word for our own markdown positions. The consumer demand is shifted to be less marked down focused than it was. But at the same time, we’re in active discussion during the quarter was that we do have enough markdown merchandise to meet the markdown demand from our consumers and that’s a good problem to have. But it’s certainly had an impact on a revenue from the quarter.

Operator

Our next question is from Justin Post with Bank of America Merrill Lynch. Your line is open.

Justin Post

I’m just wondering you had some real efficiencies on the cost side for the last couple of quarters. Guidance and outlook kind of discusses some of those maybe dissipating or making more investments. But when you think out year or two, what are some of the lasting cost savings that might continue going forward? Thank you.

Jesse Timmermans

Yes, sure. So I think if you just work down through the P&L starting from the top. Fulfillment is an area where we do see lasting efficiencies, combination of two factors there really overtime and maybe I’m thinking in longer term. One and we refer to this to a lot because it’s meaningful. But the efficiency gain is a result of the automation investments that we’ve made over the last 18 months and then also capacity. We invested in the new warehouse last year, they did this 2x to 3x capacity that we’re at now. So we should see natural levers on that line item over time. As we mentioned there is a return rate component there so.

We do anticipate returns to pick up slightly sequentially hopefully lower than our peak times the last year in that 55% range. So we do hope some of that return dynamic does play out in a post-COVID world but not banking on that one. Selling and distribution will continue to be pressured there as shipping costs go up year-on-year pretty consistently. We’ll look to make improvements overtime within increasing AOV over the longer term that should give us some easing there. Marketing we talked about. We’ll continue to make investments and not banking on really any leverage on that line item over time. And then G&A, which is largely fixed with scale we’ll get leverage on that line item.

Operator

Your next question is from Bob Drbul with Guggenheim Partners. Your line is open.

Bob Drbul

Just a couple quick questions for you. I think the first one is, when you talk about September trends, October trends and in November. With the performance of international, can you maybe give us a little color on what you saw on the international markets? It’s my first question and the second question is, are you partnering with any of the top TikTokers as you think about how the world is changing these deals versus Instagram? That will be helpful. Thanks.

Mike Karanikolas

Yes, so with regards to the international markets, we saw strength in the third quarter, particularly in our western markets, so in Western Europe and Australia, Canada. We saw double-digit gains in those markets. So we feel very good about our progress and trajectory there. Certainly, in the near term with resurgence in COVID in Europe and exercise some near-term caution to headwinds in the current quarter, but I feel great about the trajectory there. And then offset by some weakness in Asia. Asia is an area where we’re starting to make, I think, some more meaningful investments and have some interesting partnerships that we’re working on, but not quite there yet. And so hopefully, as those things come to fruition, we’ll see some gains there. And then also, Hong Kong has been for a while, our most important Asian market and that region has been very troubled for a number of quarters now with the rest.

Michael Mente

When it comes to TikTok, I would probably phrase it, we haven’t worked with the top TikTokers, we have worked with the top fashion TikTokers, where we see the top TikTokers getting tens of millions of views and then create insane numbers. But the content really is a fashion focus and it really isn’t quite aligned with our brand. But the top fashion TikTokers are very, very much in line with our brand and we have worked with them and we plan to work with them much, much more. We see the content to be a little bit more in depth compared to Instagram. Where it’s really numerous kind of styling tips and outfits and a lot of richer content. To me, it’s a little bit more akin to YouTube than Instagram, which I think is right in between is very, very exciting. And we will continue to do a lot more.

The only disadvantage with TikTok being an earlier platform is that the access to data and kind of like our tools aren’t as developed as Instagram tools that we’ve had for nearly 10 years now. So whether it be our in-house things or the numbers that TikTok [indiscernible] see in house, or that’s third-party APIs have won’t be as robust as Instagram for a little bit. But the encouraging numbers that we have are very exciting and no doubt, we’ll see a lot more REVOLVE on TikTok.

Operator

Your next question is from Roxanne Meyer with MKM Partners. Your line is open.

Roxanne Meyer

My first question is on, wondering if you could provide a little bit of color about the performance. Obviously, you’ve got quite a number of sub categories. So curious if they’ve all been weaker or they’ve been pockets of strength in some of them. Also curios what percent of 4Q dresses as typically represent and perhaps how they’re positioned this year given your investment in other categories?

Michael Mente

When it comes to categorization and sub-categorization, it becomes like a very, very complex situation because the way we look at categories is multi-dimensional. Of course, overall, we see dresses down quite a bit compared to our other categories. But within dresses, there’s sub-categories and there’s end uses that are doing very, very well. So we kind of will sometimes share high level category data that kind of illustratively tell the story of how the business is performing. But as you go deep and deep, there’s strong pockets of success across the Board.

I think one thing, this is an interesting fun one to me that we saw that activewear dresses was extremely strong. It’s kind of like the cross pollination of activewear, which of course everyone loves. In this pandemic time period, we’re doing extremely well with a traditional REVOLVE category, so that’s something that seems very, very exciting to us, but yet small. But Jesse, do you want to talk about Q4 dynamics in terms of categorization and such, it’s definitely going out dresses and there’s certain categories. We have various degrees of going out dresses, that I’m sure we’ll suffer but there’s also other categories that are very holiday oriented that will boost, which we anticipate such as sweaters and knits and such.

Jesse Timmermans

Yes, sure. Just to give some more context, maybe even beyond Q4 on dress mix. Historically it’s been at or slightly greater than third of our business. Then in Q2, we saw that drop off mainly [ph] to closer to 20%. We did see some recover into Q3. So dresses did improve sequentially and I think you the most exciting part about that sequential improvement is that came from full price dress sales as we commented on the prepared remarks. We saw significant decrease in amount of markdown dress sales from Q2 to Q3. So exciting to see that dresses come back in a full price way. And then the Q4 skews, slightly higher on dresses that compared to other quarters of the years just given that occasion wear dynamic, but not meaningfully. So we’ll continue to see similar pressure on dresses as we have in the last quarter or two until we get into a real post-COVID world.

Operator

Our next question is from Matt Koranda with ROTH Capital. Your line is open.

Matt Koranda

Two from me. The first one is just overall orders per active customer look a little lower on a like-for-like basis year-over-year and sequentially. So it’s understandable that you’ve got certain existing customers that may pull back in this period. But any detail you can provide on sort of order frequency between older and newer cohorts and what you’re seeing in terms of differences between those would be helpful.

Jesse Timmermans

Sorry, go ahead, do you have more?

Matt Koranda

Sorry, the other one was on return rates and I guess they had it higher in short-term, it depends on mix. But is there anything you guys can do structurally to bring those levels down and take advantage of kind of the lower rates that you’ve enjoyed over the last quarter or two there in the pandemic?

Jesse Timmermans

Yes, I’ll take the first one there, and then Mike can comment on longer term return dynamics. We did see that order frequency come down, but keep in mind that sequentially, it did kick up very slightly from Q2 to Q3. So we’re encouraged about that. And we’re still running higher than our historical averages, if you look back pre-2019, late 2018. So it’s still a very active customer. And it came from both the new and the repeat side. Really, the customer dynamics to a large extent near the results on our financials where you see her purchasing at lower AOVs, shifting from dresses into beauty. You saw, as we discussed earlier, a large kind of markdown component in Q2 that shifted to a large full price component in Q3. Also a grade that we’re seeing the percentage of beauty products from new customers doubled this quarter compared to the prior year. You saw an offset there in dresses. But kind of largely the customer still behaves relatively consistently with how she has in the past and just some quarter-to-quarter dynamics with shift in merchandising mix and AOVs.

Mike Karanikolas

And then in terms of the longer term trajectory with return rates, it’s very difficult even for us to disaggregate the impact of COVID and some of the longer term things we’re working on, but we’re certainly hopeful that some of the things we’ve been working on will hopefully hold up post-COVID, not to the same level, certainly we’re seeing here on return rate, but that we’re hoping we’ll get some gains on the return rate dynamics, various factors, including some category mix shifts that should potentially stay post-COVID due to investments we’ve been making on our side in terms of our quality and presenting the product inaccurately and kind of other things we’ve been working on internally. As well as some other, I guess, more proprietary levers that pull that we’re hopeful will have an impact. It just so happens, a lot of those things came to fruition at the same time as COVID hit. So we’ll have to see post-COVID to what extent those initiatives hold up.

And then long, long-term, we’re very bullish on return rate improvements. We think there’s a lot that can be done in the online world to better communicate to customers what products are the products you’re going to love, not just on the site, but once she gets them in person and once she tries them on. And so that’s always an area that we’re investing in.

Operator

We have time for one more question. Our last question is from Ralph Schackart with William Blair. Your line is open.

Ralph Schackart

Great. Thanks for squeezing me in. Two questions, if I could. Jesse, you talked about September declines in the high single-digit range. Can you maybe give us some perspective on the linearity of the declines in September and then this really change or the trajectory change in October, just see more deceleration, acceleration, was it fairly steady? And then just in terms of when a vaccine rolls out and the world starts to open again, what’s the lead time you need to plan your larger in person events? Thank you.

Jesse Timmermans

Yeah. On the September – October dynamic, it was pretty consistent across the two months. Of course, there’s day-to-day and week-to-week dynamics, but for September and October, largely similar with a lot of dynamics at play in those couple of months, the second wave COVID and a lot of just macro pressures and external pressure. And then on the large-scale events, the team can react very quickly. You saw that as we headed into COVID and their ability to quickly pull back on events, and restructure and recreate kind of and move into this live streaming and content. So we’re optimistic, and they can move really fast to get into events when the time is right.

Michael Mente

Yes, Michael here, just additional commentary is that there’s a number of events that are really on the shelf ready to go. It’s really about a matter of which one do we pull when and eyeing that through maybe the next couple of months and just early next year. We are there, ready to go and we very looking forward to it. And I think it will continue as the vaccine rolls out and maybe pre-vaccine, we’ll have some activities going. Post vaccine, we are locked and loaded with the capital and with the plans and the desire to go. So very excited.

Operator

And there are no further questions at this time. I’ll now turn the call back to management for closing remarks.

Mike Karanikolas

Well thank you everyone for joining us today. Thanks again to our team and on this Veterans Day a special thanks to those that have served our country. Thank you for your sacrifice.

Operator

This concludes today’s conference call and you may now disconnect.

The Green Organic Dutchman Holdings Ltd.’s (TGODF) CEO Sean Bovingdon on Q3 2020 Results – Earnings Call Transcript

… as Cargill and Maple Leaf Foods.
Since his appointment to … Gorilla Glue, Rockstar Tuna and Organic Fire, additional teas and … in retail sales in Europe due to pandemic-related … get self-sufficiency on agricultural and vegetables and fruits just now. There …

A European agreement helps clear the way to spend stimulus money.

WESSANEN BECOMES ECOTONE AND COMMITS TO FOOD FOR BIODIVERSITY

How Europe’s Wood Pellet Appetite Worsens Environmental Racism in the US South

An expanding wood pellet market in the Southeast has fallen short of climate and job goals—instead bringing air pollution, noise and reduced biodiversity in majority Black communities.

In 2013, when Enviva Biomass opened a new plant near Belinda Joyner’s community in Northampton County, North Carolina, she already knew what to expect. 

As the Northeast Organizer for Clean Water for North Carolina, she’d met with residents of a small, majority Black town called Ahoskie, 40 miles from her home. Enviva had built its first North Carolina plant there two years before. 

The corporation, which manufactures wood pellets as a purportedly renewable alternative to coal, did what most industries do in prospective communities—they promised jobs, economic development, and minimal impacts. What Ahoskie got was approximately 50 direct jobs, local tree loss, noise, heavy traffic, air pollution, and combustible dust from wood drying and processing that threatens their health and enjoyment of their homes. On top of those impacts, as many scientists and environmental groups now say, wood pellets are not the hoped-for transition fuel championed just 11 years ago. 

However, like Ahoskie, Joyner’s community wasn’t quick to organize against the plant. 

“I made an announcement in my church that this plant was coming and I kind of gave them a gist of what it would entail and at first, you know how people just don’t kinda pay you any attention?” she told EHN. “And then once [Enviva] start building it, then they were saying ‘oh this is coming,’ and I told them ‘this is what I tried to tell you all about.'” 

In June, I interviewed Joyner and other members of her community in Northampton County, which is located in the Northeast corner of the state, close to the Virginia state line. The area is rural, and peppered with industries—including Westrock Paper Mill, a warehouse and distribution center for Lowe’s Hardware, an industrial hog farm, and Enviva. Until it was canceled in late July, the Atlantic Coast Pipeline was slated to run through the county, connecting to a newly constructed compressor station. 

The county is also majority Black (57 percent), with 21 percent of residents living in poverty compared to 14 percent statewide, according to the most recent data from the U.S. Census. The county’s median household income is 38 percent lower than the state as a whole; it is classified by North Carolina as a “Tier 1” county, meaning that it is among the 40 most economically distressed of the state’s 100 counties.

Joyner’s home sits in a cozy loop of houses in a small Northampton County town. As I pull up to her house, she’s sitting on her porch with her sister and neighbors, chatting with masks on. The community is tight; they’ve shared a lot of their lives in this place. 

For seven years, they’ve also had to share the burdens and losses from Enviva.

“I call Northampton County the dumping ground,” Joyner said. “Being that we live right here off I-95, and it’s easy access, they just feel like more or less they can just come in here and give us anything, and we’re supposed to be happy after we get it.” 

Enviva is the world’s largest producer of industrial wood pellets and is part of a rapidly growing industry in the U.S. South, where companies find ample forests, lax business regulations, and ports along the Atlantic coast. Though there is some domestic demand for wood pellets for electric utilities—particularly in the Northeast—the majority of wood pellets manufactured in the region are exported to the European Union (EU) and the United Kingdom (UK), to fulfill global commitments to mitigate climate change by reducing reliance on fossil fuels. 

Other wood pellet companies have flocked to the region, including Drax, a major energy utility in the UK that now manufactures wood pellets in the U.S. South to burn them overseas in its power plants. Collectively, the region’s wood pellet industry exports more than 7.4 million tons of pellets per year. With facility expansions and several prospective plants on the horizon, that number is expected to climb in coming years.

From Northampton County to Alabama’s Black Belt, residents and activists say companies like Enviva exploit mostly communities of color with promises to build up busted local economies with a “green energy” industry. Instead, communities hosting wood pellet facilities are not only further burdened by pollution and other local dangers, they are also entangled in yet another climate damaging trend—the destruction of biodiverse hardwood forests and the rise of monoculture tree plantations to produce energy that appears to pose climate threats similar to coal.

The “transition” fuel 

The rise of the wood pellet industry in the U.S. South can be traced back to 2009, when wood pellets were touted as a “transition fuel” that could be used to advance the European Union’s (EU) climate goals—a 20 percent reduction in greenhouse gas emissions from 1990 levels, and a 20 percent increase in renewable energy by 2020. Wood pellets were considered to be renewable energy because replanted forests could recapture carbon lost in the clear cutting and burning process. They were also coveted because unlike solar, wind, or water energy, wood pellets can be burned in the same incinerators as coal with some retrofits, thus eliminating the expense of new infrastructure. The U.S. South was targeted for sourcing wood pellets because of its status as the world’s “wood basket”—it is the largest producer of wood products, according to Emily Zucchino, Director of Community Engagement for the Dogwood Alliance, an environmental nonprofit committed to protect[ing] Southern forests across 14 [U.S.] states. 

Enviva Biomass, headquartered in Bethesda, Maryland, has a large foothold in the region, with nine wood pellet manufacturing plants across six states—North Carolina, South Carolina, Georgia, Florida, Virginia and Mississippi—and two more facilities pending. A sign outside of the Ahoskie facility reads, “This is Enviva Country.” A spokesperson wrote that the company has a production capacity of 4.9 million metric tons of pellets per year. 

Several other wood pellet production companies also operate in the region—Pinnacle Renewable Energy Inc in Alabama, Highland Pellets in Arkansas,Mohegan Renewable Energy in Tennessee, and Drax, which manufactures wood pellets mostly near the Gulf Coast. 

But even if the EU has met its 2020 climate goals—the region claims to have already reduced emissions by 23.2 percent in 2018—the use of wood pellets raises important questions about the EU’s carbon accounting, [PDM1] and even more questions about public health and climate consequences for the U.S. South, which is already bearing the brunt of climate change effects. 

“As more and more science came out about the industry… it became clear that this is not the green and carbon neutral energy it was made out to be,” Zucchino told EHN.

According to a 2009 study on climate accounting published in Science Magazine, at the point of combustion, wood pellets put more carbon into the atmosphere than coal, despite generating less energy per unit than coal. Other studies, like one published in 2012 in GBC Bioenergy, directly challenge the idea that wood pellets are renewable energy because forests can be replanted. The “carbon debt” generated when forests are cut and their stored carbon is burned into the atmosphere can take decades, if not more than a century, to “repay” through forest regrowth. The Intergovernmental Panel on Climate Change (IPCC) says humans must reduce carbon emissions by 45 percent by 2030 to avoid the most catastrophic climate change impacts. 

What makes the wood pellet strategy even more complicated is that, due to loopholes in the EU climate policy, carbon emissions from burning wood pellets are often never counted. 

Kenneth Richter, a Germany-based environmental policy consultant for the Natural Resources Defense Council, said that the loophole is due to the disconnect in carbon accounting between the EU’s land use change policies and its energy policies. Carbon loss is measured only when trees are cut, and not when they’re burned for power. Another problem is that when pellets are imported, the EU counts no emissions at all. Though the theory is that the exporting nations would account for those emissions from clear cutting forests, the U.S. does not account for carbon loss from the wood pellet industry because it is no longer part of the Paris Agreement on climate change. 

“You have massive amounts of carbon going into the atmosphere but everyone pretends they’re not there,” Richter said. “Everyone else says it’s someone else’s responsibility.” 

The EU and UK also provide heavy subsidies to the industry because of the expense of importing wood pellets. Their reliance on the energy source to meet stringent emissions targets is now heavily political—and hard to correct—despite the growing scientific evidence against it. 

“Energy companies in many European countries have obligations to produce a certain percentage from renewable sources,” Richter said. “It’s easiest to burn wood with coal, much cheaper than solar panels. They’re pushing the governments—if you don’t allow us to do this [burn wood pellets] and don’t subsidize us we’re going to fail. Drax is a prime example. It produces a large percentage of the UK’s electricity. If [UK] took subsidies away from Drax, it would fail and cause difficulties in producing enough electricity in the short term.”

“It’s fine to have jobs, but give us some jobs that don’t kill us” 

Northampton County residents like Joyner are more immediately concerned about the acute impacts of wood pellet manufacturing, from local clear cutting of privately-owned forests to the 24/7 production process. 

“The noise… banging and during all hours of the night,” Silverleen Alston, who lives about a mile from Enviva’s plant in Northampton County, told EHN in our interview at Joyner’s home. “I used to call up there [to Enviva] and tell them, why don’t they stop, lower the noise or whatever, till I stopped. I don’t even do it no more.” 

In addition to the noise from grinding trees and truck traffic, Alston and others complain about a constant cloud of dust flowing from the plant onto their homes, cars, gardens, and into their lungs. 

“The stuff is in the air, coming [in] all directions. I keep my car in a carport, and you can see the stuff on the car. So you know it’s not just coming down from above,” Alston said. 

A 2018 report by the Environmental Integrity Project found that 21 wood pellet mills exporting to the EU emit thousands of tons of particulate matter (fine dust), carbon monoxide, nitrogen oxides (smog), and volatile organic compounds (VOCs) per year, each of which are associated with a range of illnesses, from respiratory and heart disease to cancer. These wood pellet mills also emit 3.1 million tons of greenhouse gases per year. The report also found that at least a third of wood pellet facilities violated their air permit limits in 2017. Fires and explosions have erupted in plants in five states largely from wood dust, which is combustible. In 2017, a wood pellet storage silo owned by German Pellets in Port Arthur, Texas, caught fire and burned unchecked for two months, sending many local residents to the hospital. Later that year, a worker at the silo died when pellets fell on the Bobcat machine he was operating. 

Many of Alston’s family members, who live together on a large plot of land they own, suffer from respiratory illnesses that have been exacerbated since Enviva’s arrival. Her father had chronic obstructive pulmonary disease (COPD) and died two years ago. Her aunt also has COPD, and her sister has to sleep on a breathing machine. Alston, her mother, and another sister all have breathing problems, though not as severe.

Other community members complain about not being able to spend as much time outdoors anymore. 

“We have a gentleman that lives in the area, he said that he has to wash his car every three days and power wash his house every three months, and that’s the stuff that comes from Enviva,” Joyner said. “There’s a young man that lives out there that says he doesn’t cook out anymore because he can see the residue falling from the sky.”

Richie Harding, a pastor of a local church in Northampton County, doesn’t live close enough to Enviva to experience the dust, but the private forest where Enviva sources its trees is near his house. When I interviewed him by phone, he told me that large swaths of the forest are now gone and listed the wildlife he’s observed in the area since the clear cutting. 

“There’s been a high increase in the amount of animals,” Harding said. “Bobcats, black bears… coyotes… sightings more frequent in the Gaston area.” 

In an email response Enviva’s director of communications and public affairs María Moreno wrote that Enviva follows all applicable environmental laws, including the U.S. Clean Air Act, and even exceeds regulation standards in controlling air pollution at its facilities. 

“We use state-of-the-art, industry-proven air emission controls to reduce emissions from our manufacturing process with at least 95 percent destruction efficiency,” Moreno wrote. “We are going above and beyond what is required by the law as an industry leader to show our commitment to environmental stewardship in the communities where we live and operate.” 

Despite installing additional pollution controls and obtaining an environmental justice (EJ) analysis approved by the North Carolina Department of Environmental Quality (NCDEQ) last year, Enviva’s claims do not reflect the daily experiences of residents living near the facility. In my interview with Alston, she told me that her husband still has to wash the dust from the plant off their car every other day. Further, a 2018 study of wood pellet mills in the U.S. South found that all wood pellet mills in North Carolina and South Carolina are located in low income communities of color typically overburdened by toxic industry. Across the region, the authors found that they are 50 percent more likely to be located in low income communities of color. 

As for the forest impacts, Moreno wrote that Enviva only takes “low grade wood,” which is a “by-product of a traditional timber harvest,” and that the higher demand for forest products like wood pellets leads to more forest growth. 

But Richter, the EU-based environmental policy consultant, says the term “low-grade wood” is business jargon for otherwise healthy trees that are not valuable for the industry, but are very valuable for the planet. He says the increased forest growth that Enviva claims comes from higher demand for wood products is not the same kind of naturally occurring forests that people recognize. 

“[O]ften these naturally grown forests are cut down and replaced with something that’s essentially a plantation,” Richter said. “Trees in rows, monoculture. One species, fairly fast growing, hardly any space between them. Sprayed with fertilizers [and] pesticides. It’s an agricultural crop. You lose the wildlife and biodiversity of what you previously had in a natural forest. Companies still call that a forest but it’s nowhere near what’s contained in an actual natural forest.”

According to a 2018 Dogwood Alliance report, since 1953, the U.S. South has lost more than 33 million acres of natural forest, and gained 40 million acres of pine plantations.

Black families like Alston’s and Joyner’s have owned land in Northampton County for generations, and experienced the closeness and safety of the communities, the freedom of living on the land. Joyner says the noise and pollution made some people in her community want to move away. She called one of her friends who moved an hour south to Zebulon, NC, “one of the fortunate ones.” 

But many others can’t afford to move—and some don’t want to. “[Enviva] had mentioned to us, you know, had we thought about moving?” Alston said. “I’m on family earned land, that my grandaddy was invested in. To me, I really can say they couldn’t pay me enough to move.”

Enviva got support from Northampton County Commissioners before opening the plant in 2013. They made the same promises that they made to Ahoskie—economic development and jobs. But according to Joyner, the public hearings for Enviva’s permit, organized by NCDEQ, were mostly publicized in newspapers and on posters tacked along the road. Not many knew they were happening, or understood what was at stake, so there was low attendance. 

“If you really wanted to know what [the poster] was, you basically had to get out of your car and go and look at it,” Joyner said. 

After the plant was built, and residents began experiencing the pollution and noise, they joined forces with Dogwood Alliance, which has been monitoring the growth of the wood pellet industry across the U.S. South, to advocate for improved environmental conditions at the plant. But after several meetings with the county commission, Enviva plant administrators and the company’s former public relations director, there were no improvements to the plant; the company has donated resources to local schools and meals to local residents. 

Last year, NCDEQ granted Enviva a permit to expand its Northampton plant , increasing its production capacity from 550,000 metric tons per year to 781,255 metric tons annually. 

“We had a public hearing on the 20th of August last year,” Joyner said. “We had 40 or so people there opposed to the expansion and of course the only people who were for the expansion were people who worked for Enviva.” 

Even if Enviva exceeds the requirements of its own air permit in its expanded facility, as Moreno wrote in our interview, there are still concerns about further deterioration of environmental quality in the community, and what it means for residents’ health. 

“When I looked at the officer that was choking George Floyd, and he said I can’t breathe, this is the same thing that the industries are doing to our communities,” Joyner said. “It’s fine to have jobs, but give us some jobs that don’t kill us.”

Expansion into other communities of color  

As the wood pellet industry continues to grow across the South, Enviva has targeted Alabama and Mississippi for future expansion. The company is building facilities producing significantly larger quantities of wood pellets for export through a deep water marine port and storage silo currently under construction in Pasagoula, Mississippi. In each state, the company’s pitch remains the same: jobs and economic development. 

“They go into these low wealth communities, promise opportunity, and a lot of residents bite on it,” said Rev. Michael Malcom, executive director of Alabama Interfaith Power and Light. “If we could get ahead of this, we could go in and tell them about the dangers of the wood pellet industry. But unfortunately, the way the system works in Alabama, ADEM keeps things under wraps until it’s time for the public hearing.” 

Alabama has the third most timberland acreage in the contiguous 48 states, much of it in the form of pine plantations owned by private absentee landownersdisconnected from local residents. Enviva’s first Alabama facility will be located in a small Black town called Epes, and is projected to open in 2021, with a production capacity of over one million metric tons of wood pellets per year. The Alabama Department of Environmental Management (ADEM) approved the permit last December, with additional support from Alabama governor Kay Ivey. 

Malcom said it is likely that Enviva spends as much as a full year making the case for a new manufacturing plant in a community, promising good jobs and low environmental impacts. 

“When they announce [the facility], it’s already too late. [Enviva has] already gone in [to the community] and greased the wheel,” Malcom told EHN. 

Through mutual connections to the Dogwood Alliance, Malcom teamed up with Mississippi-based Katherine Egland, Chair of the NAACP Environmental and Climate Justice Committee and Co-founder of the Education, Economics, Environmental, Climate and Health Organization to develop interventions for preventing the growth of the wood pellet industry in the Southeast. Their first chance was in Lucedale, Mississippi, a predominantly White rural community, where Enviva is now constructing a facility permitted last July. Malcom said Enviva had already convinced many people that the mill would be a good thing for the community, bringing much needed jobs.

“[At the public hearing] they were basically shooting our talking points back to us and saying, ‘so what?'” Malcom said. “One guy literally said, ‘They [Enviva opponents] tell us we can get cancer. What’s wrong with that? Got to have something.” 

After the hearing in Lucedale, Enviva released a statement saying that it was “proud to have the opportunity to create 90 direct jobs in Lucedale, 30 direct jobs in Pascagoula, and hundreds of additional indirect and construction jobs.” It also made a disclaimer that any ‘forward looking statements’ about its operations were estimated projections, and could not be assured.

Regardless of the jobs projections, Zucchino said that the longer term impacts of the industry undermine other forms of economic growth. 

“Industrial logging-dependent communities are some of the most poverty stricken places in the South,” Zucchino said. “If industrial logging were the solution to these places, they’d be some of the wealthiest on earth. It’s just not true.”

Back in North Carolina, a predominantly Indigenous and Black community in Robeson County, were largely unswayed by the economic promise of the wood pellet industry. Already burdened with hog factory farms, coal ash waste sites, a landfill, a poultry litter burning plant, and increasing flood risk due to climate change, Robeson County residents mounted a long opposition campaign against a new wood pellet facility owned by London-based Active Energy Group (AEG), including over 1000 public comments, substantial media coverage, and a public hearing in which an overwhelming majority of speakers opposed the plant. Nevertheless, NCDEQ approved an air permit for AEG in June. Construction is already in progress. 

Unlike the white wood pellets manufactured by companies like Enviva, which require energy utilities to retrofit their coal incinerators, AEG’s facility will manufacture wood pellets called CoalSwitch, designed to be a direct substitute for coal, with no retrofits required. 

“There’s a lot of moving pieces with this facility, and kind of a lot of confusion,” Zucchino said. “Not a lot of clarity [about whether] they have contracts for export, how big are they going to be. [AEG] is pioneering this [black wood pellet technology]; they’ve tried it in Utah without success… it hasn’t been done successfully anywhere as far as I know.” 

Zaynab Nasif, public information officer for the Division of Air Quality at NCDEQ wrote via email that the agency provided additional avenues for community participation for the AEG site, and responded to concerns raised during that process by adding more stringent testing requirements for hazardous pollutants to the facility’s air permit. 

But many residents of Robeson County, which is about 180 miles from Northampton County, are already suffering from high rates of respiratory illness, including COVID-19. Additionally, clear cutting more of the county’s forests for wood pellet production will likely exacerbate the region’s climate vulnerability. 

“Enough is enough,” said Joyner, who travels frequently to Robeson County. “I’ve seen the damage that has been done there. It’s a shame to want to wreak havoc on a community in that way.”

“We would not do this to our land”

In recent years, some new communities impacted by the wood pellet industry have begun organizing against it. Residents of the Netherlands, who pay significant tariffs for the shipment of wood pellets from the U.S., traveled to North Carolina and other parts of the South to understand the environmental impacts of the industry, and to fight for better climate policies in the EU. 

“We have had people come here wondering, ‘why are you doing this to your land? We would not do this to our land,'” said Harding, who lives in Northampton County. “They see that America was destroying land just for a dollar, and that was really troublesome to them. They don’t understand pretty much like we don’t understand.” 

Since Egland started organizing with Malcom in Mississippi and Alabama a couple of years ago, she’s been struck by historic parallels of the wood pellet industry with other extractive legacies in the South and has been working locally and globally to motivate others to intervene. 

“I am reminded with the wood pellet trade, if you look at the map of the wood pellet trade states and the former cotton trade states, they are the same,” she said. “The UK ignored the human rights abuses of the cotton trade, with slavery, now they are imperiling the descendants of that same population with the wood pellets. [The U.S. South] also happens to be the most climate vulnerable region in the nation.”

There are some signs of progress, including European policies limiting wood pellet imports and decreased expansion of the industry in the U.S. South. Recently, North Carolina governor Roy Cooper and NCDEQ committed to excluding wood pelletsfrom the state’s energy mix in its Clean Energy Plan. 

Richter says an opening for change is on the horizon in the EU, as the government must revisit its existing climate legislation to prepare for new greenhouse gas reduction targets—a 55 percent reduction in carbon emissions by 2030 compared to 1990 levels. One piece of that legislation is the Renewable Energy Directive (RED), which he says is driving the demand for wood pellets as renewable energy. Kicking wood pellets out of the “renewables club” would kill existing subsidies for the industry, which he hopes can be diverted to pay for solar, wind, and water energy sources. 

“[T]here’s also the European Green Deal, the European road map for making economies sustainable. The person responsible for that is Franz Timmermans, the Vice President of the EU. He’s said that bioenergy needs to be reviewed. And we hope that he can become a bit of a champion for our demands.” 

Zucchino also sees some momentum building against the wood pellet industry, from coalitions forming regionally, within states, and internationally. 

“One of the things I’m proudest of in my time at Dogwood [Alliance] is the amount of movement building that we’ve accomplished around this issue,” she said. “We are seeing encouraging advances in the understanding of and policy around the wood pellet industry. But we need to see more and we need to see it happen quickly.”

This story was published in partnership with Scalawag and Southerly for their Powerlines series, which looks at climate change, justice, and infrastructure in the American South. The series is supported by the Temple Hoyne Buell Center for the Study of American Architecture at Columbia University, and is part of their POWER project.

Reposted with permission from Environmental Health News. 

Antimicrobial Coatings Market Size, Share reveals significant growth through 2026

The MarketWatch News Department was not involved in the creation of this content.

   Nov 09, 2020 (Market Insight Reports) --

Selbyville, Delaware Market Study Report newly added Antimicrobial Coatings Market Report provides an analytical assessment of the prime challenges faced by this Market currently and in the coming years, which helps Market participants in understanding the problems they may face while operating in this Market over a longer period of time.

Global Antimicrobial Coatings market is projected to expand with a CAGR of 12.4% during 2019-2026, subsequently accounting USD 7.48 billion by the end of the forecast timeframe.

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S4 Capital boosted by tech clients as organic growth surges 23%

S4 Capital’s share price hit a record high this morning after Sir Martin Sorrell’s “new age/new data” business reported a 23% growth in organic revenue for the third quarter of 2020. 

The company’s valuation rose to almost £2.4bn after S4’s share price opened at £4.60 this morning, up 4.5%, following the announcement of its latest earnings. 

Its organic revenue (reported as gross profit) was £75.3m for July to September, while year-to-date billings are up 12% year on year to £424m. Gross profit was up 18% in July, 24% in August and 25% in September.

It also announced several client wins over the quarter, including two “whoppers”: S4’s programmatic media agency Mightyhive has won T-Mobile’s in-house digital media account and MediaMonks has won BMW and Mini’s pan-European account. It also signed deals in Q3 with Shopify and Beyond Meat.

The company is benefitting from a client base that is heavily weighted towards technology companies, with 55% of its overall revenue coming from the sector, compared with 8% for FMCG companies and 8% for agencies.

Tech companies’ growth has been boosted even further this year as consumers and business accelerate digital transformation due to people working, shopping and being entertained more from home.

S4 expanded its revenue last quarter with Facebook, Google, Netflix, and Procter & Gamble, it reported today. Peter Kim, Mightyhive’s chief executive, cited S4’s partner relationships with the likes of Facebook and Google as being a determining factor behind recent business successes. 

Its organic growth does not include the three mergers it carried out over the quarter: Orca Pacific, the full-service Amazon account management agency; BrightBlue, the data measurement company; and Dare Win, the Paris-based digital agency that gives Sorrell’s business a presence in France.

The business employed 2,870 people (as of the end of September), which is up 26% compared with the same time last year on a like-for-like basis, and S4 told investors today it would “continue to hire aggressively around strong gross profit growth and significant new business wins”.

Sorrell, S4’s executive chairman, admitted that the company had more to do when it comes to hiring more black people in the organisation. S4 is made up of 40% of people of colour and has a gender balance in the US and the UK. 

Of S4’s overall business performance, he said: “Our consistent, very strong organic gross profit growth of almost 16% so far this year, and almost 23% in the third quarter, indicates that we are well positioned in the digital sweetspot of an otherwise stagnant advertising and marketing industry and that clients are responding very well to our new age/new era, purely digital, ‘holy trinity’ model of first-party data fuelling digital content, data and digital media.”

He added: “Covid-19 has acted as an accelerator for search, social and ecommerce. Our very significant client wins in 2020, which include the BMW/Mini ‘Engine’ in Europe, signal that we are achieving client conversion at scale, after achieving brand awareness in 2018 and brand trial in 2019.

“Our mantra of ‘faster, better, cheaper’ or ‘speed, quality, value’ and our unitary, one P&L structure, are clearly resonating with clients and differentiating our offer.”

Organic Waste Converters Market 2020 Share by Type, Industry Size, Growth Factor, Top Leading Companies with Sales, Analysis by Regions till 2026

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   Nov 09, 2020 (The Expresswire) --

Global “Organic Waste Converters Market” research report includes sales growth rate comparison by type and applications, market size estimates, revenue, market facts and figures by country. Also, the Organic Waste Converters market provides company profiles, sales market share by manufacturers, competitive situation, trends, concentration rate, expansion plans, manufacturers mergers and acquisitions.

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100 ideas to change the world with 22 entries from Asia

A diabetes monitoring earring; an Underground air pollution solution; an alternative to Styrofoam made of food waste; a Sudden Infant Death Syndrome prevention device; a skin patch that monitors nutrition data and superworms that convert plastic into organic matter.

Today sees the unveiling of 100 ideas from over 40 countries that could change the way we live

• Global Grad Show, the world’s most diverse gathering of graduate ideas for social impact, unveils 5 trends that are the top-of-mind challenges according to graduates from 60 countries
• A multi-media, interactive exhibition will showcase 100 projects that provide solutions to social and environmental challenges
• 22 Asian universities were selected from 1,600 submissions from 270 universities, from the most established institutions in Western Europe, USA and Israel to universities in China, Philippines, India, Singapore, Thailand

South Korea, Hong Kong and Japan
• Selected students will be invited to a new cohort of the entrepreneurship programme that accelerates the development of impact innovations

22 Asian entrants are among the 100 chosen submissions to be showcased in Global Grad Show, a virtual and interactive year-long exhibition, launched today. The ideas are the outcome of rigorous academic research conducted by graduates and their professors, reflecting areas of deepest environmental, social or economic concern, such as the world’s aging population, the number of people living with chronic illness, the radical approaches dealing with waste and the increasing number of communities vulnerable to emergencies.

India
• An over jacket made up of bamboo fabric to protect waste collectors from disease whilst working, Bangalore University, India
• A flood emergency design that creates safe movement for people getting from one place to another during flood like situations, Pearl Academy
• A modular air purification system which is versatile and flexible enough to be deployed in multiple scenarios, IDC School of Design, IIT Bombay
• A thin, non-intrusive dissolvable bandaid-like sticker that displays directions to guide you to your intended location, Indian School of Design & Innovation
• A unique material that reduces mining for natural resources by 60% through recycling of post-industrial fired ceramic waste, National Institute of Design

Philippines
• A smart solar street lighting system that provides internet connectivity, access to clean energy and better lighting, De La Salle University, Philippines
• A device that allows users to track their electricity consumption and bill in real-time, Anteneo de Manila University, Philippines

Singapore
• Using Durian fruit as an alternative to Styrofoam, National University of Singapore
• A product that monitors the reproductive health stages for women, National University of Singapore
• A vending machine that encourages citizens to give a second life to used plastic bags, Singapore University of Technology and Design (SUTD)

Thailand
• A dog waste scooper made from fruit waste, Chiang Mai University, Thailand

South Korea
• A pillow that prevents users from going on their phones before bed to get a better sleep, Samsung Art and Design Institute (SADI), South Korea

China
• A renewable material folding hat that provides safety for children commuting between home and school in backward mountainous areas, Zhejiang University
• A piece of technology that detects real time data in the environment and live performance is also carried out, Central Academy of Fine Arts
• A sustainable looping product and system that provides a solution to air pollution caused by wheat straw incineration, Hunan University, China
• A device that can recycle paper receipts and other wastes (coffee grounds, tea grounds etc.) onsite into useful paper cup sleeves, East China Normal University
• An inhalation drug treatment that is designed to help patients achieve higher inhalation efficiency, Tongji University
• A children’s family programming learning toolkit that contains scientific and technological inventions, Hunan University

Hong Kong
• A future bus seat and interior design solution for the aging population in the future, The Hong Kong Polytechnic University School of Design

Indonesia
• A low-cost portable water container that allows easy navigation, Pearl Academy
• A project that utilizes the Papua Noken material for alternative products, Pelita Harapan University

Japan
• Branding that is used to communicate relevant instructions to consumers that will contribute to solve a humanitarian issue, Keio University Graduate School of Media Design

The programme, now in its sixth year, and held in partnership with Dubai Culture and A.R.M Holding, saw entries rise by 30% and features ideas from leading institutions such as Imperial College and Harvard, alongside first-time representation from countries such as Indonesia, El Salvador and Oman.

The projects will be brought to life in an inaugural interactive digital exhibition on globalgradshow.com, giving a voice to the next generation of innovators and connecting the public and potential investors all over the world with ideas that have the potential to change lives. The virtual exhibition will showcase the graduates behind each one of ideas and will also see prototypes, films and original research material visually curated for online visitors to engage and interact with.

The chosen projects have been organised around five key emerging trends that were identified from the 1,600 applications from 270 universities in 60 countries. Those trends are:
– Living with Illness & Disability
– Coping in a Complex World
– Saving and protecting vulnerable lives
– Cleaning a Waste Filled Planet
-Sustaining the Urban Experience

Tadeu Baldani Caravieri, Director, Global Grad Show comments: “Over the last six months we’ve been reminded just how vital good health, balanced natural ecosystems and well-equipped public services are to a happy, productive and future-ready society. Equally, we’ve paid more attention than ever to the power of new technologies in optimising resources, shortening distances and minimising collateral damage.”

“Thankfully, a significant number of the innovations that tackle head-first big social and environmental challenges of our time are under way. Often unbeknownst to the general public, researchers inside universities are developing a myriad of solutions for complex issues of today and tomorrow. From medical engineering to architecture and data science, young graduates are at the forefront of complex problem-solving, working on technologies for the greater good.”

“As evidenced by the +1,600 entries we reviewed for Global Grad Show 2020, many of these are looking for more efficient, equitable and humane healthcare systems, for patients and medical staff. This is more crucial now than ever before.”

“By offering these graduates a development programme, we hope to accelerate the creation of solutions to communities around the world. We do that by bringing together know-how and key private and public stakeholders, together creating collaboration and funding opportunities to our community.”

Global entries include:
• A fluorescent hat for commuting children walking in the dark, Zhejiang University, China
• An autonomous weeding robot for small-scale urban farmers, Lund University School of Industrial Design, Sweden
• Using Durian fruit as an alternative to Styrofoam, National University of Singapore
• A temperature regulating curtain, University of Arts, Berlin
• A device which replaces clinical sounds with colour during chemotherapy treatment, RMIT, Australia
• A CO2 eliminator using green bacterial technology, Unaula University, Colombia
• A fire fighting light aircraft with a targeted foam firing bionic arm, Universidad Privada del Norte, Peru
• An airbag belt to cushion the elderly from falls, University of Limerick, Ireland
• Low cost shoes made from recycled bottle plastics for school-girls walking lengthy distances, Mackerere University, Uganda

A year-round activation, Global Grad Show entrepreneurship programme supports innovators to materialize their real-world impact. Through training, mentorship, connections with the industry and funding opportunities, it accelerates the process of bringing graduate projects to life. The focus is to develop business skills and offer structured startup-building route to participants. Last year, A.R.M. Holding pledged over £2 million (AED 10 million) for a 10-year fund to help talents from Global Grad Show entrepreneurship programme to advance towards market launch, having already supported eight projects.

Global Grad Show’s Covid-19 initiative, one of the first international open calls to innovators addressing Covid-19 challenges, has four projects currently undergoing entrepreneurship training, with one advancing to pilot stage:

• Foresight: an AI system which processes clinical information of patients in intensive care units, capable of predicting and alerting patient heath deterioration, up to 48hrs earlier than current diagnosis alternatives. The system was designed to be easily integrated into hospitals, using data already commonly collected by intensive care units, being capable of streamlining patient care around the world. The founder is Sam Tukra, currently undertaking a PhD at Imperial College London in AI and Advanced Machine Vision.
ENDS

Further Information – Global Grad Show
Global Grad Show, an initiative by the Art Dubai Group, is a year-round programme for graduates and universities working on Social Impact Innovation projects in the fields of design, science, technology and engineering. It aims to promote graduates on an international stage providing them with development opportunities through its Entrepreneurship Programme which helps innovators to accelerate projects towards market implementation.

Besides being a platform for promotion and discovery, over the last five years 700 innovative projects, selected from over 5,000 applications, have taken part in the programme, the only one of its kind, helping to drive the development of innovations created by graduates from over 20 countries, through the Progress Prize, which awards and celebrates the next generation of innovators.
In 2019, A.R.M. Holding pledged an AED 10 million (£2.1 million) 10-year fund to help talents from Global Grad Show to develop their business models and go to market, having already supported 8 projects so far.

This year Global Grad Show participants will be invited to apply to the new cohort of the Entrepreneurship Programme, which to date has supported 30 projects, in fields ranging from medical to waste management and from mental health to migrating communities.

All participating students will go through month-long entrepreneurial training including business advice sessions and mentorship support before being shortlisted to present. All shortlisted students then participate in two months of tailored acceleration hot housing with venture capital experts ahead of displaying their demos to A.R.M, in the hope of receiving funding.

Two projects from Global Grad Show 2019 Entrepreneurship Programme are the first recipients of seed capital from the A.R.M. Holding Fund – SpectrumLab, a reflective paint that changes its colour based on temperature developed by graduates from the Politecnico di Torino and Collège des Ingénieurs and Safe Cooking, a portable stove for communities without access to clean and safe cooking methods, developed by a graduate from the University of Karachi.

Global Grad Show also engages its community through knowledge exchange opportunities, where academics and industry professionals share their experiences and insights about innovation and solutions for a better future. Recently named as one of the key initiatives under the Dubai Culture & Arts Authority’s plan to realize its vision of evolving Dubai into a global hub for culture and innovation, Global Grad Show has built a community of over 260 universities across the world that includes the world’s leading institutions alongside those from developing countries.

This year’s initiative will also be added to with the launch of a MENA show specifically to support regional talent. The programme, which received more than 200 submissions from 35 universities based on the Middle East and North Africa will inaugurate a physical exhibition focusing on talent from the region, as part of Dubai Design Week.
Visit　www.globalgradshow.com for further information.

#

Sharmee Mavadia
Managing Director | Sharp PR
sharmee@sharppr.co.uk

Keen Insight for Industry Trend: Benzaldehyde Market Value Analysis by 2027

The objective of the study is to define market sizes of different segments and countries in previous years and to forecast the values to the next Five years. The report is designed to incorporate both qualify qualitative and quantitative aspects of the industry with respect to each of the regions and countries involved in the study. Furthermore, the report also caters the detailed information about the crucial aspects such as drivers and restraining factors which will define the future growth of the Benzaldehyde market.
Benzaldehyde (C6H5CHO) is an organic compound consisting of a benzene ring with a formyl substituent. It is colorless liquid has a characteristic almond-like odor.
Get Sample Copy of Benzaldehyde Market Report at:
https://www.globalmarketmonitor.com/request.php?type=1&rid=597818
Major Manufacture:
Emerald Performance Materials
Shimmer Chemicals
Jiangsu Jiamai Chemical
Wuhan Dico Chemical
Lanxess
Lianyungang Taile Chemical
Kadillac Chemicals
Jiangsu Jiujiu Jiu Technology
Market Segments by Application:
Spices
Pharmaceuticals
Agricultural
Dye
Other
Type Outline:
FCC Grade
Technical Grade
Table of Content
1 Report Overview
1.1 Product Definition and Scope
1.2 PEST (Political, Economic, Social and Technological) Analysis of Benzaldehyde Market
…
2 Market Trends and Competitive Landscape
3 Segmentation of Benzaldehyde Market by Types
4 Segmentation of Benzaldehyde Market by End-Users
5 Market Analysis by Major Regions
6 Product Commodity of Benzaldehyde Market in Major Countries
7 North America Benzaldehyde Landscape Analysis
8 Europe Benzaldehyde Landscape Analysis
9 Asia Pacific Benzaldehyde Landscape Analysis
10 Latin America, Middle East & Africa Benzaldehyde Landscape Analysis
11 Major Players Profile
…
Ask for a Report Sample at:
https://www.globalmarketmonitor.com/request.php?type=3&rid=597818
The regional analysis covers:
North America (U.S. and Canada) Latin America (Mexico, Brazil, Peru, Chile, and others) Western Europe (Germany, U.K., France, Spain, Italy, Nordic countries, Belgium, Netherlands, and Luxembourg) Eastern Europe (Poland and Russia) Asia Pacific (China, India, Japan, ASEAN, Australia, and New Zealand) Middle East and Africa (GCC, Southern Africa, and North Africa)
​Target Audience:
Benzaldehyde manufacturers
Distributors and resellers of Benzaldehyde
Benzaldehyde industry associations
Product managers, Benzaldehyde industry administrator, C-level executives of the industries
Market research and consulting firms
Small and Medium-sized Enterprises (SMEs)
Benzaldehyde potential investors
Benzaldehyde key stakeholders
Benzaldehyde end-user sectors
Research and Development (R&D) companies
Key Questions Answered by This Report:
What is the size and CAGR of the Benzaldehyde Market?
What are the key driving factors of the most profitable regional market?
Which are the leading companies in the global market?
How will the Benzaldehyde Market advance in the coming years?
What are the main strategies adopted in the global market?
Which region may hit the highest market share in the coming era?
What trends, challenges, and barriers will impact the development and sizing of the Benzaldehyde Market?
About Global Market Monitor
Global Market Monitor is a professional modern consulting company, engaged in three major business categories such as market research services, business advisory, technology consulting.
We always maintain the win-win spirit, reliable quality and the vision of keeping pace with The Times, to help enterprises achieve revenue growth, cost reduction, and efficiency improvement, and significantly avoid operational risks, to achieve lean growth. Global Market Monitor has provided professional market research, investment consulting, and competitive intelligence services to thousands of organizations, including start-ups, government agencies, banks, research institutes, industry associations, consulting firms, and investment firms.
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This Press Release has been written with the intention of providing accurate market information which will enable our readers to make informed strategic investment decisions. If you notice any problem with this content, please feel free to reach us on mediarelations@xherald.com.

UHT Milk Market Report 2020: Size, Share, Industry Growth, Demand, COVID-19 Impact Analysis, And Future Scope – IMARC Group

The MarketWatch News Department was not involved in the creation of this content.

   Nov 07, 2020 (SUPER MARKET RESEARCH via COMTEX) --

Report Overview: The global UHT milk market has reached a volume of 114.2 Billion Litres in 2019. Looking forward, the market is expected to continue its moderate growth during the next five years., according to a new report by IMARC Group.

UHT refers to Ultra High Temperature pasteurisation which is used to treat fluid milk so as to remove the germs and bacteria present in it while preserving the essential nutrients and vitamins. UHT milk is then packed in aseptic containers which help to prevent the further growth of any harmful microorganisms. These UHT milk packs have a high shelf life and can last for several months at room temperature.

  </div>
<p class="pr-disclaimer">
  <em>The MarketWatch News Department was not involved in the creation of this content.</em>

Allianz SE (ALIZF) Management on Q3 2020 Results – Earnings Call Transcript

… , you can see that the organic generation of capital was strong … in Italy, 87 in Central Eastern Europe, you can go down the … . I don’t drink tea. On the net inflows, in … said a nice cup of tea. Thank you.
Oliver Schmidt
Thanks …

Dun & Bradstreet (DNB) Q3 2020 Earnings Call Transcript

Dun & Bradstreet (NYSE:DNB)
Q3 2020 Earnings Call
Nov 05, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to Dun & Bradstreet’s third-quarter 2020 conference call. [Operator instructions] With that, I would now like to turn the call over to Deb McCann, treasurer and senior vice president of investor relations.

You may proceed.

Deb McCann — Treasurer and Senior Vice President of Investor Relations

Thank you. Good morning, everyone and thank you for joining us for Dun & Bradstreet’s financial results conference call for the third quarter ending September 30, 2020. On the call today, we have Dun & Bradstreet’s CEO, Anthony Jabbour; and CFO, Bryan Hipsher. Before we begin, allow me to provide a disclaimer regarding forward-looking statements.

This call including the Q&A portion of the call, may include forward-looking statements related to the expected future results for our company and are, therefore, forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today’s remarks will also include references to non-GAAP financial measures.

Additional information including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation. This conference call will be available for replay via webcast through Dun & Bradstreet’s investor relations website at investor.dnb.com. Anthony will begin with highlights from the third quarter including the progress we are making with our growth strategies and transformation. Bryan will then take you through a review of the financials before we proceed to Q&A.

With that, I’ll now turn the call over to Anthony.

Anthony Jabbour — Chief Executive Officer

Thank you, Deb. Good morning, everyone and thank you for joining us for our third-quarter earnings call. This was another solid quarter that finished in line with our expectations, putting us on track to meet the full year 2020 outlook provided on the second-quarter call. Our company’s financial results demonstrate that despite experiencing impacts of COVID-19 and other near-term headwinds, the core fundamentals of our business are strong.

Our continued focus on efficiency is reflected in our improved EBITDA margins and annualized run rate cost savings to date of $225 million which is up $5 million from the second quarter. We continue to progress toward our revised target of $250 million, and we’ll continue to update you on future calls. Overall, our team continues to make great strides in executing on our strategy, and we are building significant momentum. During today’s call, I’ll update you on some notable progress against both our growth strategy and ongoing transformation and then turn the call over to Bryan for a financial review.

After that, we will take your questions. So let’s start with some of the announcements and successes that occurred during the third quarter. First is the announcement we made last month that we entered into a definitive agreement to acquire Bisnode, a longtime Dun & Bradstreet Worldwide Network member. The acquisition represents a key investment in support of our international growth strategy.

During our October 8 call, we described how Bisnode had several strategic and financial benefits including a significantly expanded footprint across the DACH region which is Germany, Australia and Switzerland, Scandinavia and Central Europe, allowing us to better serve our clients operating in the region and globally. We are busy with the integration planning in anticipation of the transaction close which is still expected in January 2021 and plan to share incremental financial and strategic details on Bisnode during the next quarter’s earnings call. Now, turning to our sales and operations execution in the third quarter. Our year-to-date retention rate remained strong at 96%, and 32% of our business was sold in multi-year deals.

One deal that exemplifies both of those metrics is the expansion of our strategic relationship with Microsoft to a multiyear contract for enterprise data management with use cases spanning both finance and risk and sales and marketing. This is an important example of our ability to not just retain but expand the scope and duration of strategic relationships which is a key element of our growth strategy. Other third-quarter renewals include a multiyear enterprise license deal with HSBC supporting their data and analytics strategy, a Global 500 office supply retailer who turned to Dun & Bradstreet to help them manage fraud risk and an expanded multiyear relationship with a multibillion-dollar private shipping supplies company. We also renewed business with insurance solutions provider, T&A, and financial technology solutions provider, WEX, who both use our finance and risk solutions.

Plus, we expanded our relationship with Greensill, a British market-leading provider of working capital finance. These renewals are examples of where we are able to build off of an existing set of use cases within the enterprise and cross-sell and upsell solutions to broaden our penetration into different parts of their global organizations. Turning to new business. Among others, we recently signed a Fortune 500 manufacturer of coatings and paint who turned to our United Kingdom and United States teams for a cross-border solution that provides an end-to-end view of their customers’ and suppliers’ master data using our latest API, Direct+, offering.

Now we also won back an industry-leading Fortune 1000 global specialty chemicals and performance materials company who turned back to Dun & Bradstreet from a lower-cost alternative to consolidate its credit processes. As you can see, client engagement is strong, and we continue to see high demand across our existing portfolio of solutions, giving us confidence that we have listened to our clients and that our ongoing transformation of technology, data coverage and analytics is delivering what they need. In addition to our existing portfolio of solutions, we recently announced a new sales and marketing solution, D&B Connect, a highly configurable plug-and-play, self-service data management platform. D&B Connect helps our clients assess, clean and enrich their customer data against category-leading data in the Dun & Bradstreet data cloud.

With D&B Connect, time spent on data management is reduced from days to hours so that our clients can focus on what’s most important, growing new business. This is particularly important for small and medium-sized businesses who do not have the resources of a large enterprise and who need to quickly make sense of the data they have and gain additional insights to safeguard and grow their business. Next, I’ll update you on our technology transformation, starting with our progress on Project Ascent. As we described in the second-quarter call, Project Ascent will modernize our data supply chain, allowing us to rapidly expand our traditional and nontraditional data sets, simplify connectivity to the end user solutions and enhance our overall throughput.

In the quarter, we began investing in global shipping manifest data which is a new nontraditional data set that is complex to curate and in high demand for use in supply chain fraud and risk analytics. We’re already using the data to fulfill a finance and risk use case for our customer engagement and are pleased with the initial performance. In the fourth quarter and beyond, we plan to enhance the operational user interface, reporting capabilities and most importantly, add new nontraditional data sets and convert our existing data sets over to the new supply chain process. Our ongoing enhancements to our API technology allow us to expand our latest D&B Direct+ offerings globally including the United Kingdom and Ireland, China and to our Worldwide Network which has been met with strong market reception.

Consolidating and progressing our API solutions enable simplification, scalability and the ability to deliver integrated data solutions with speed at lower cost. As we connect deeper and deeper within the core workflows of clients through our technology enhancements, it is clear to us that organizations are seeking more effective ways to grow revenue, improve their margins and mitigate their risk. Our transformation also includes the expansion and enhancement of our data which has led to significant growth of our data cloud which today includes over 400 million public and private businesses worldwide. This is 85 million or 27% more coverage of our businesses than we had when we took the company private in February of 2019.

We frequently hear from customers who want more and better data coverage, especially in international markets including Asia and Europe. In February of 2019, we have increased our coverage of businesses in the Asia Pacific region by 57%, fueled by our proprietary AI engine that addresses local language translation. We also remain focused on the expanding coverage of small and emerging businesses in the United States, United Kingdom and Ireland, increasing the pace of small business data accumulation, growing from 56,000 per month in the first half of the year to 174,000 per month in the third quarter. We are listening to our clients and delivering which is translating into sales and ultimately, revenue and profit.

Another key element of our transformation is the strengthening of our analytics and insights. Last quarter, we told you about D&B analytics studio, our cloud-based analytics platform which allows clients to combine their data with third-party data and the scale, diversity and accuracy of our constantly expanding data cloud to achieve broader insights that could not be achieved on their own. It puts the power of analytics directly in the hands of the user and gives them a glimpse of the power of our data and could translate to future cross-selling into different solutions. For example, one of the largest global management consulting firms piloted our analytics studio using Dun & Bradstreet data and insights, combined with their data and insights to build derivative B2B analytics for improved customer engagement.

Being able to rapidly ingest third-party internal and customer data is a key advantage for consulting engagements, and we believe that the analytics studio gives our clients differentiated capabilities. The studio is gaining fast momentum, and we have 13 proof of concepts under way with clients. We signed five deals in the quarter including a global financial software company who is studying its total addressable market as well as to analyze its customers’ product purchasing behaviors. And with a government client who turned to D&B analytics studio to research and understand the impact of federal funding on small and medium businesses.

With continued strong interest from clients and a growing pipeline, we will continue to evolve the studio with alternative data sources, services and commercial-use solution sets to meet more use cases. Overall, we are pleased with the extraordinary effort of our team and are excited about the continued progress we are making in our transformation. We look forward to closing out the year strong. With that, I’ll now turn the call over to Bryan to discuss our financial results for the quarter.

Bryan Hipsher — Chief Financial Officer

Thank you, Anthony. And good morning, everyone. Today, I will discuss our third-quarter 2020 results and our full year guidance. Turning to Slide 1.

On a GAAP basis, third-quarter revenues were $442 million, an increase of 8% compared to the prior-year quarter. This includes the net impact of the lower purchase accounting deferred revenue adjustment of $38 million. We had a net loss of $17 million for the third quarter or a diluted loss per share of $0.04 compared to a net loss of $89 million for the prior-year quarter primarily driven by the lower purchase accounting deferred revenue adjustment, lower transition-related costs, preferred dividends included in the prior-year period and lower interest expense partially offset by the call premium related to the partial redemption of the senior secured notes. Turning to Slide 2.

I’ll now discuss our adjusted results for the third quarter. Third-quarter adjusted revenues for the total company were $442 million, an increase of 8%. The increase was driven by the net impact of the lower purchase accounting deferred revenue adjustment of $38 million. This increase was partially offset by known headwinds as previously communicated.

These headwinds include lower usage revenues driven by the impact of COVID-19 of approximately $6 million, lower royalty revenues from the wind down of the Data.com partnership of approximately $6 million, a decision we made in the second half of 2019 to make structural changes within the legacy credibility business of $3 million and the shift of a government contract from Q3 to Q4 of $4 million. The total impact of these known headwinds was approximately $19 million. Excluding these unique items, revenues grew approximately 3% primarily from growth in our subscription-based revenues in our finance and risk solutions. Adjusted EBITDA for the total company was $197 million, an increase of 27% primarily driven by the lower purchase accounting deferred revenue adjustments reflected in the corporate segment along with lower overall operating costs driven primarily by lower net personnel expenses due to ongoing cost management initiatives.

Adjusted EBITDA margin was 44.6%. We had an adjusted net income of $101 million or adjusted diluted earnings per share of $0.24. Turning now to Slide 3. I will now discuss the results for our two segments, North America and international.

In North America, revenues for the third quarter decreased 3% to $363.3 million. finance and risk revenues decreased $1.8 million or 1% to $206.6 million. The decrease was primarily driven by lower usage volumes, the structural change in credibility and the shift of the government contract from Q3 to Q4 partially offset by an $8 million increase in our subscription-based revenues in our risk and government solutions. Sales and marketing revenues decreased $9.6 million or 6% to $156.7 million.

The decrease was primarily due to lower royalty revenue of approximately $6 million from the Data.com legacy partnership along with lower usage revenues. Adjusted EBITDA for North America decreased $5.4 million or 3% primarily due to lower revenues partially offset by lower operating costs primarily from ongoing cost management efforts. Adjusted EBITDA margin for North America was 50.7%. Turning to Slide 4.

In our international segment, third-quarter revenues increased 10% and or 7% on a constant-currency basis to $79.8 million. finance and risk revenues increased $8 million to $66.3 million. Excluding the positive impact of foreign exchange of approximately $1 million, the $7 million increase was driven primarily by Worldwide Network alliances from higher cross-border data sales of approximately $5 million and higher revenue from our U.K. market of approximately $2 million partially offset by lower usage volume in our Asian market of $0.6 million.

Sales and marketing revenues decreased $1.1 million to $13.5 million. Excluding the positive impact of foreign exchange of $0.4 million, decreased revenue was primarily attributable to lower revenue from our U.K. market of approximately $2 million, lower usage volume in our Asian market of $0.5 million partially offset by increased revenue from Worldwide Network alliances of $0.6 million primarily a result of increased product loyalty. International adjusted EBITDA of $28.2 million increased $2.7 million or 10.6% primarily due to higher revenues, with adjusted EBITDA margin of 35.4%.

Adjusted EBITDA for the corporate segment increased $44.7 million primarily due to the net impact of lower purchase accounting deferred revenue adjustments of $38 million. Turning to Slide 5. I’ll now walk through our capital structure. At the end of September 30, 2020, we had cash and cash equivalents of $311.3 million which when combined with the full capacity of our recently upsized $850 million revolving line of credit through 2025 represents total liquidity of approximately $1.2 billion.

On July 6, 2020, we completed the initial public offering and concurrent private placement which raised net proceeds of $2.2 billion after deducting underwriting discounts and IPO-related expenses. We used the majority of these proceeds to redeem the full amount of preferred stock and 40% or $300 million of our senior unsecured notes. Shortly after the IPO, we paid down our revolving line of credit balance, and on September 26, we partially redeemed 40% or $280 million of our senior secured notes. As of September 30, total debt principal was $3,387 million, and our leverage ratio was 4.7 times on a gross basis and 4.2 times on a net basis.

This compared to 5.6 times gross and 5.5 times net at the end of the second quarter. As a result of our decreased leverage, during the third quarter, our credit rating was upgraded to B+ from B- by S&P Global with a positive outlook, to a B2 from a B3 by Moody’s and to a B+ and subsequently to a BB- from a B by Fitch. We are happy with the progress we are making to deleverage our balance sheet and improve our credit ratings, allowing us more financial flexibility to further support our growth initiatives. Regarding our recent announcement to acquire Bisnode for approximately SEK 7.2 billion or $818 million, upon close, 75% of the consideration for the equity value will be paid in cash and the remaining 25% will be paid in newly issued shares of common stock of the company in a private placement.

The cash portion will be funded through cash on hand and debt financing. Once funded, we anticipate that we will maintain net leverage in the range of low to mid four times Turning now to Slide 6. I’ll now walk through our outlook for full year 2020. Full year guidance is unchanged since our last call.

Revenue on a constant-currency basis is expected to be in the range of $1,729 million to $1,759 million. Adjusted EBITDA is expected to be in the range of $704 million to $724 million. Revenue and adjusted EBITDA include a negative $21 million impact from deferred revenue purchase accounting in both the low end and high end of the range. Adjusted EPS is expected to be in the range of $0.89 to $0.93.

Adjusted EPS includes a negative $0.04 impact from deferred revenue purchase accounting in both the low end and high end of the range. Additional modeling details underlying our outlook are as follows. These estimates include an additional $2 million of public company costs per quarter, with the largest component being corporate insurance. We expect interest expense of approximately $255 million, reduced from $265 million primarily due to partial paydown of the secured notes, and depreciation and amortization expense of approximately $60 million excluding incremental depreciation and amortization expense resulting from purchase accounting, adjusted effective tax rate of approximately 24%, weighted average shares outstanding of 367 million and finally, capex of approximately $120 million.

Overall, we are pleased with the progress we are making in our transformation and the core performance of the business. With that, we’re now happy to open the call for questions. Operator, will you please open up the line for Q&A.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Gary Bisbee from Bank of America.

Gary Bisbee — Bank of America Merrill Lynch — Analyst

Hey, guys. Good morning.

Anthony Jabbour — Chief Executive Officer

Good morning, Gary.

Gary Bisbee — Bank of America Merrill Lynch — Analyst

I guess the first question, when you add new alternative data, and you mentioned a few things on the call and I know that’s a focus, how does that play out in your business model? Do you get immediate price or volume lift from adding new data sets or is this more a long-term play to drive innovation and attract new customers?

Anthony Jabbour — Chief Executive Officer

Sure, Gary. It’s a great question. And a bit of all of that, obviously. Number one, the future is moving to looking at new alternative data sources, and so that is future-proofing our business and showing to our clients how innovative and forward-thinking we are.

But it also has short-term implications for us as well in terms of clients buying that data from us and leveraging maybe analytics studio as well as combine their data with our data in addition to this alternate data and collaborate with it to look for new insights and new signals. So it gives us benefit short term on the buying side and also future-proofs our business and client relationships.

Gary Bisbee — Bank of America Merrill Lynch — Analyst

OK. So if you add a data set and a customer wants to use it I guess maybe it depends on the product, but they actually have to pay more for that or is it hard to generalize?

Anthony Jabbour — Chief Executive Officer

Yes. No, they traditionally would pay more for that.

Gary Bisbee — Bank of America Merrill Lynch — Analyst

OK. All right. That’s helpful. And then maybe one on just the numbers.

As I look at the revenue growth over the last few quarters, I know there’s moving parts with COVID and all the other things you called out, but it seems like there’s a lot of volatility in growth rates, both across your businesses and quarter to quarter within the business. Given the highly recurring nature of the revenue I guess it’s puzzling a little bit as to why. I certainly know timing of deliverables plays into it, but is there any way you can help us understand if, for example, you’d expect more consistent growth rates once you work through some of these issues or is this just how the business works and really quarter to quarter, when customers take the data, it can have a pretty big impact on the revenue growth rate. Thank you.

Bryan Hipsher — Chief Financial Officer

Yeah. Sure, Gary. So if we kind of start with the $442 million, right? And as you said, you added back the $1.4 million for the foreign exchange. And then the — in essence, we’re down to only $1 million a quarter from the deferred revenue impact.

And so when — you’re thinking about that from the $444.5 million, right? What you saw is that it’s generally relatively consistent in Q2 and in Q3. We still have a little bit of — and as we transform into the multiyear contracts, as Anthony had mentioned, and kind of smooth out, as you said, some of that movement between quarters, we still have a fourth quarter that is a step-up from that perspective. And what happens a lot of times, and we talked about this prior to, is that we’ll have committed amounts in some of these legacy contracts of the amount of usage that the customer is leveraging throughout the year. And there is some revenue recognition that ends up with a forfeiture amount at the end of the contract for any unused polls or unused data sets from that perspective.

And so that is the one thing that can cause a little bit of variance between quarters. We’ve gotten away from a lot of kind of onetime data delivery deals and things like that. So it’s a continued evolution. It’s definitely a lot more consistent.

As you heard, we increased the subscription-based revenues by $8 million again on a quarter-over-quarter basis. So we’ll continue to drive from that perspective. But I think this year specifically, just because of some of the impacts of COVID, there was some movement of usage volumes from quarter to quarter, but that ends up catching up by the end of the year.

Gary Bisbee — Bank of America Merrill Lynch — Analyst

OK, thank you.

Operator

Your next question comes from the line of Hamzah Mazari from Jefferies.

Ryan Gunning — Jefferies — Analyst

Hey guys. This is actually Ryan Gunning on for Hamzah. Just wondering if you could talk about your Worldwide Network similar to Bisnode and how those deals are structured in terms of royalties. And then are there larger assets there that you could buy back similar to what you did on that deal?

Anthony Jabbour — Chief Executive Officer

Sure, Ryan. Yeah, we’ve got — we’re very proud of the Worldwide Network arrangement that we have to really get the global capabilities. From a contractual perspective, we’ve got royalties in place where as they use some of our products, there’s a royalty fee that we would get. We also have data sharing that goes back and forth where we receive data from them, they receive data from us and obviously, both sides compensate.

So I think it’s fairly traditional as you’d expect in that regard. In terms of other potential acquisitions in the space similar to Bisnode, we do think that that’s a possibility. And as we talked consistently about our growth strategy, one of the growth tenets was international markets, and we’re excited with what we think we can do there. We’ve got — in addition to the whole universe of acquisition potential that we have and some of the Worldwide Network partners, these are companies we’ve worked with for a very long time, understand them well, using our products.

The relative risk is very low on doing anything there. So if there’s an opportunity there, we’re certainly going to look at it.

Ryan Gunning — Jefferies — Analyst

Great. Thanks. And then for my follow-up, could you comment on, after the remaining cost takeouts taken out, just how to think about margin expansion annually in like a normal year, how it should look like with either a low or a mid- single-digit organic revenue growth?

Bryan Hipsher — Chief Financial Officer

Yeah, sure. So if you look at it, we run at about a 60% to 70% all-in contribution margin. Certainly on an individual deal, right, it could be much higher than that. But when we think about netting against investments, etc., from that perspective, you’re looking at 50 to 100 bps of margin expansion in a normalized year.

Now that being said of course we’re always thinking about continuous improvement from that perspective. But Ryan, that’s pretty much the standard.

Ryan Gunning — Jefferies — Analyst

Great. Thanks guys.

Anthony Jabbour — Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Manav Patnaik from Barclays.

Manav Patnaik — Barclays — Analyst

Good morning, guys. You mentioned 4Q is particularly strong quarter for you guys, and I was just wondering the visibility levels you have in the face of — like we have obviously rising cases, uncertainties. I’m just wondering if there can be risk that clients pull back on some of those commitments.

Anthony Jabbour — Chief Executive Officer

Manav, you broke up just at the beginning. Were you asking on COVID? With the rising COVID cases, how that impacts?

Manav Patnaik — Barclays — Analyst

Yeah and specifically to the fourth quarter, since it’s so important to you guys. If there’s any risk of pulling back last minute.

Anthony Jabbour — Chief Executive Officer

Well, I’ll start, then I’ll pass on to Bryan. I’d say with COVID, there certainly is uncertainty introduced to all companies out there. And we’ve shown our impact from it on the revenue side has been relatively small for the size of the company that we are. But still, I mean, we’re — we hold ourselves accountable to the last dollar.

And so we’re very focused on what we commit to The Street and how we execute upon it. And what I’d say is we’ve seen great engagement with our clients. We’ve seen strong interest in the new innovations that we’re coming out with, the focus that we have. All of that, it feels very positive.

And we do see from clients, a little more guarded on their budgets on certain parts of the industry and certain parts where they are spending as it ties to COVID, kind of feel their way through it. So that’s some color that I could share with you on that. Bryan, I don’t know if there’s anything else you’d add to that.

Bryan Hipsher — Chief Financial Officer

Yeah. Manav, I think as you saw too, we reiterated from that perspective. So we’re quite confident in where we’re coming in, in Q4. As Gary mentioned earlier, this year, we did have a little bit of movement, right, from the usage timing.

But again, based upon the subscription nature of our contracts, that revenue ultimately flows through right by the end of the year regardless of that perspective. So the other pieces, as I mentioned, clearly, is that while it was a headwind in Q3, that government contract will fold in, in Q4. So that’s $4 million from that perspective. But overall, I think COVID impact, generally, we talked about it being up $6 million this quarter.

And we expect something similar in the fourth quarter. But that’s all built into the guidance Manav.

Manav Patnaik — Barclays — Analyst

Got it. And then the low 4s leverage level, I know you’re comfortable with that. But I was just hoping you could talk to us — like let’s just say another Bisnode-sized deal comes along, like how much are you willing to extend yourself. And just how you would essentially fund that?

Anthony Jabbour — Chief Executive Officer

Well, I’d say the deal specific, Manav, based on the — if there’s an average deal, an average opportunity, we wouldn’t — if we’re very excited about what it can do in terms of creating value for our shareholders, then we would look to go after it. But I’d really say it’s on a deal-by-deal basis. Being very — we’re very thoughtful on our leverage, and at the same time, we want to make sure there’s some really great opportunities for creating long-term shareholder value that we’d go after it aggressively.

Manav Patnaik — Barclays — Analyst

All right. Thank you guys.

Anthony Jabbour — Chief Executive Officer

Thank you, Manav.

Bryan Hipsher — Chief Financial Officer

Thank you.

Operator

[Operator instructions] Your next question comes from the line of Seth Weber from RBC Capital Markets.

Seth Weber — RBC Capital Markets — Analyst

Hey, guys. Good morning. I hope you’re doing well. I wanted to ask about the international business specifically.

I mean the margin was significantly better than what we were looking for. Do you feel like — and it’s up considerably from the second quarter. So do you feel like that this sort of mid- to — mid-30% range is sort of the right level to be thinking about it going forward? And then I guess there were some call-outs in the press release about softness in Asia, COVID related and stuff like that. Have you seen any improvement there or is that continuing to be a headwind? Thanks.

Bryan Hipsher — Chief Financial Officer

Yeah, sure. So 2.1 — we had called out in our last call that we were lapping some of those Worldwide Network onetime revenues which were clearly high margins from that perspective. So this is a relatively clean quarter for international. And you saw again as the revenues increase from that perspective, there was that contribution margin and flow-through which ultimately drove the margin expansion.

And so that business in and of itself is lower, right, than the overall company, but the good thing is we don’t have a lot of mix issues from that perspective and the contribution margins are overall accretive. When we talk about the headwinds from Asia again those have subsided I would say compared to where they were, especially in the first and second quarter. And so of the $6 million, you’re talking about maybe $1 million, right, in those — in that segment, so very limited overall.

Seth Weber — RBC Capital Markets — Analyst

OK, that’s helpful. Thanks. And then just as a follow-up, you continued to add more multiyear contracts. Can you just talk to the type of price escalators that you’re putting in those contracts and how we should think about pricing going forward relative toward spend? Thanks.

Bryan Hipsher — Chief Financial Officer

Yeah, absolutely. So on the multiyear contracts, the way we really think about it is twofold, right? We think about — the first page that goes in there is, in essence, the cost of living adjustments. And so think about that as kind of a low single digit, call it three-ish percent from that perspective. When we look about the broader portfolio and as renewals come up, we’re certainly doing further elasticity studies, further studies from a market comparability perspective and really applying what I would describe as a strategic price increase where it’s necessary, so in essence, a customer that may be out of line from that perspective.

And so that’s what ultimately is driving the overall price increase. We’re — again, we had talked about it being quite limited before, starting to grow up to something to be more like two to two and a half percent over the next year or two.

Seth Weber — RBC Capital Markets — Analyst

Thank you very much guys.

Anthony Jabbour — Chief Executive Officer

Yeah. So just with our standard — our new standard contract language, even if we don’t have multiyear, if it’s an annual contract, the auto renewal provision in that will have for an increase as well. So we’re being thoughtful in all areas in addition to what Bryan has just mentioned.

Seth Weber — RBC Capital Markets — Analyst

Terrific. I appreciate guys. Thank you very much.

Anthony Jabbour — Chief Executive Officer

Thank you Seth.

Bryan Hipsher — Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Kevin McVeigh from Credit Suisse.

Kevin McVeigh — Credit Suisse — Analyst

Great. Thanks. Hey, you talked about what I thought was really a sizable step-up in clients. I think the number is like 400 million more worldwide, up from 85 million.

Any thoughts on just the aggregation process? Because it seems like you’re doing that in a more efficient manner given where kind of the cost leverage is coming in. Just any thoughts on that?

Anthony Jabbour — Chief Executive Officer

Yeah. No, we’re really excited about it. It was one of the areas that we knew we needed to really improve for us to fulfill our ambitions. And so it started with what we had talked about with you before in terms of executive changes and approaches and technology.

And as you constantly see with the work that we’re doing around improving just our technology stacks, enabling us to do more and go faster, Project Ascent as an example, all that is really put in place to enable us to be able to do more at a cheaper price. And specifically, as we think about alternative data sources, there’s a tremendous amount of data there that you need to churn through to get nuggets or signals of information. And so the efficiency of the technology initiatives that we’re under are really important to us because, ultimately, they’ll keep costs down and they will for really driving value out of these alternative data sources than they will for the other more traditional data approaches that we’ve been taking in terms of business coverage, etc.

Kevin McVeigh — Credit Suisse — Analyst

That’s helpful. And then just some of the client wins like HSBC, Microsoft definitely seem like — or HSBC may have been a renewal, but just is that just maybe some of the data coming in a little bit cleaner and just more evidence of where you are operationally I guess from a historical perspective?

Anthony Jabbour — Chief Executive Officer

Well, I think it’s a couple of things. Again, when we talk about transformation, we’ve always been very specific about talking, in a well-rounded sense, of all the things we’re doing transforming the company. So we certainly transformed the data and analytics and the technology. We’ve also transformed our go to market.

So I think we’re really engaging with our clients well. And so as we’re in these renewal discussions, really showing them some of the new innovations that we’re coming out with, listening more, bringing executives in as part of the deals and the renewals. So those two, for example, I was involved in myself with Microsoft and HSBC. Steve Daffron, our president, is involved in a number of them.

So we’re really bringing — our go-to-market approach is really, I’d say, key differentiator from what we used to be doing in addition to all the improvements that we’ve been making in the business. And I think that is manifesting itself in these types of renewals and expansion of existing deals.

Kevin McVeigh — Credit Suisse — Analyst

Awesome. Thank you.

Anthony Jabbour — Chief Executive Officer

Thank you.

Operator

Your next question is from the line of Brett Huff from Stephens Inc.

Brett Huff — Stephens Inc. — Analyst

Good morning guys.

Anthony Jabbour — Chief Executive Officer

Good morning, Brett. How are you?

Bryan Hipsher — Chief Financial Officer

Good morning.

Brett Huff — Stephens Inc. — Analyst

Good. How are you? Thanks for the data on the call as usual. First question is the conversations you’re having with your clients, the sales seem to be coming in pretty well. I know some of the usage is down just because of the virus and things like that.

But can you characterize the conversations you’re having with the clients? What is the — what are the drivers of their buying even in the face of a difficult business environment? What’s kind of getting them over the hump?

Anthony Jabbour — Chief Executive Officer

Well, I’d say the key thing, Brett, is every business is trying to improve, right? I mean they’re trying to leverage data in some way, their operations in some way to improve, right? And I think everyone realizes where things are at, especially while the pandemic is on, but they’re looking for ways and creative ideas and partners who will come to them with suggestions on how they can improve their business but also with the solutions that they can install for clients and be held accountable to the results. And that’s the approach that we’re taking. We’re collaborating a lot with our clients. We’re creating new capabilities for them.

There’s countless ones I could walk you through here, but really, what I’d say from a client perspective, at times like this, everyone is looking for leadership. And what I’m proud of our team is we’re stepping into that void with confidence, with — consulting on what we’re seeing working in the market and with solutions that are helping drive those results. So very warm receptions, having lots of meetings, good meetings like even in this new paradigm that we’re in. Lots of online selling, remote selling is going on.

And so I am excited about that. And at the same time, like I said, I do see some clients concerned obviously from a budget perspective, if their type of business has been impacted dramatically.

Brett Huff — Stephens Inc. — Analyst

That’s great. And then follow-up, sort of a more detailed question on that front. We know that you guys have a lot of great, high value-add products where you have pricing power and things like that. But there’s a couple where it seems like it’s going to be more of a dog fight, specifically in the SMB area and then in some of the sales and marketing.

Any thoughts specifically on the competitive environment, how you’re stacking up against the SMB competitors, especially here in the U.S.? And then also, lots of data on corporate — people within corporations, newly public companies and things like that. How’s that sort of street fight going?

Anthony Jabbour — Chief Executive Officer

Well, you know, as in the past, we are street fighters. And we’re bringing our best to the fight. We’ve made lots of improvements, I’d say, specifically in both those areas, SMS as well as SMB, in terms of bringing additional data. And fortunately for us, it’s not — we don’t have a tremendous market share of the SMB space.

So we look at that as having more opportunity versus risk for us from a competitive perspective. I’d say from an SMS perspective, there’s a number of things that we’re doing. One is we’ve made a shift to account-based marketing, where instead of just being transactional, bringing in more of our solutions to our clients in an integrated manner to show them how it all works with the data that could help them achieve what they want. We’re improving our contact data significantly.

We recently launched D&B Email IQ which allows clients to get some free data from us — a number of free data contacts per month again to get models that we’re still using if they give us some data. And so again, there’s a lot of work, great work I’d say, that we’re doing in that regard. And so we feel really good about how we’re positioned on a long-term basis here in both those segments.

Brett Huff — Stephens Inc. — Analyst

That’s great. Appreciate the color.

Anthony Jabbour — Chief Executive Officer

Thanks, Brett.

Operator

Your next question comes from the line of Andrew Jeffrey with Truist Securities.

Unknown speaker

Hi. Good morning everybody. This is Tom Blakey on for Andrew. Maybe on the heels of that last question, our question was also around SMB and the large opportunity there.

You guys have solid retention and expansion in large customers. Just wanted to double click a little bit on the SMB opportunity. Any metrics you could share with us to highlight near-term traction there? Maybe expand a little more on that in terms of your go-to-market strategy you were just speaking of. And what would be the overall kind of like margins of this business as it reaches scale relative to the overall corporate average? That’d be helpful.

Thank you.

Anthony Jabbour — Chief Executive Officer

Sure. I’ll start, and I’ll pass it on to Bryan to answer the second part. I think from an SMB perspective, we’ve talked about how we’ve built capabilities for that segment. We’ve reorganized our go to market for that segment.

The other area that we’ve been focused on is from a digital perspective, and we’re very excited with the trends. They’re early but what we’re seeing in terms of clients coming to us and buying from us directly through our digital channels. So one of the benefits that we have from an SMB perspective is we have over 1,000 of them coming to us every day for one of our products or solutions, right, for CreditSignal, right, for DUNS number. They weren’t vetted as a supplier from one of our clients, and we’re going to help them be an improved supplier.

For whatever reason — there’s many reasons they’re coming to us. We have the great benefit of not trying to attract traffic to our website but to redirect the traffic that’s already coming and directing into our solutions. And so that is an area where we’ll continue to build on from a digital perspective. And obviously, it’s great for SMB clients, many who are self-navigators, and it’s a great business for us as well.

Bryan, I don’t know if you want to add to the second part of that.

Bryan Hipsher — Chief Financial Officer

Yeah. When you look at overall, I mean, clearly, we’re driven by our, what we call, either strategic or mega accounts and then our national accounts. So when we look at the SMB space, it’s a place that we are, as Anthony said, making strong inroads in, especially through digital means. That business in and of itself now is call it roughly 15% the overall revenue of the company, that’s kind of in that SMB space, right, depending on how you define it.

But — so yes, I think we’re pretty excited about taking our current solutions, right, and as Anthony said, extending them down, doing product and packaging from that perspective. Because — as we talk about the Microsofts of the world, right, they have certain levels of sophistication and use cases that they need and, therefore, have a larger budget and larger appetite to pay from that perspective. For us, it’s been quite mindful in being targeted to have differentiation but also to make sure that we’re not selling a Ferrari, right, when we need to be a selling more of a Toyota. And so that’s been something that with the technology team’s evolution and the product team’s evolution, we’ve been able to package and price more appropriately to address the lower end of the market.

Anthony Jabbour — Chief Executive Officer

And you see that Tom with some of the new products like our D&B Connect product, as an example, where before it would take IT teams from our large clients to work and combine data, etc. Whereas now, it’s really simple to use. I could use it myself, great user interface, highly configurable. So we’re being thoughtful about going more down market as we build this capability.

And that’s something where an internal IT team is not needed to benefit from the data through D&B Connect.

Unknown speaker

All right. And then maybe as a follow-up more toward the mega and more strategic clients, just directly on analytics studio. I know it’s early days, but it’s an exciting product. And I was just curious about how this will be priced, kind of longer-term contracts, all you can eat to kind of incent usage or will this be more of a capacity-based opportunity pricing?

Bryan Hipsher — Chief Financial Officer

Yeah. So we start with a basic license from that perspective. And then they can build up by the amount of — they’re bringing in their data, right, they’re bringing in our data and they’re bringing in, in some circumstances, even other kind of third-party data from that perspective. So in essence, what we end up doing is kind of building like a tiered pricing model where they’re paying a base rate that, in essence, is covering kind of the infrastructure and then they’ll scale up, right, as they leverage the analytics.

And so in a sandbox kind of methodology, you allow them to be quite creative and drive new and thoughtful analytics. But once they want to operationalize them, right, that’s when they’re engaging and again, upsells of incremental alternative data sets, incremental analytics or larger kind of broader use case, right, that drives increased price from that perspective. And so that’s really the model that is kind of creating that fixed layer. But as they want to scale up and use more and more and more, they pay increased economics from that perspective.

Unknown speaker

Very helpful. Thank you again.

Anthony Jabbour — Chief Executive Officer

Thank you Tom.

Operator

[Operator instructions] Your next question comes from the line of George Tong from Goldman Sachs.

George Tong — Goldman Sachs — Analyst

Hi. Thanks. Good morning. On the sales and marketing front, you indicated that 32% of business that’s now sold in multi-year deals.

Can you talk about how pricing and economics change for multi-year deals versus annual deals and what your targeted mix is for multi-year deals?

Bryan Hipsher — Chief Financial Officer

Sure.

Anthony Jabbour — Chief Executive Officer

Yeah. I’ll start, Bryan, again. So the beauty with multi-year deals is obviously we have annual price escalators in there when you have a multiyear deal. And so that helps drive revenue growth.

And where that may be an obvious benefit of it, there’s some other benefits that may not be as obvious. And one of the key ones that I found throughout all my years in the industry is when you’re close to a renewal, you’re focusing on the renewal, you’re not focusing on expanding business relationships. So you’re posturing — that’s what happens typically. And when you got an annual contract, you’re constantly going through that churn.

So one of the big benefits that I see is, as we have these multiyear contracts, we’re now married for a number of years, let’s focus on all the ways we can help. You’re not thinking about a renewal. You’re just thinking about new solutions, new ways. And the new sales that we’ll add to an existing contract will be significantly higher when we have a multiyear agreement in place versus an agreement that’s about to expire in a year.

Bryan, I don’t know if you want to add anything more to that.

Bryan Hipsher — Chief Financial Officer

Yes. The one thing, George, I would add to that is, if you’re going to ultimately enter into a one year contract from that perspective, when we look at our base rate increases, that’s going to be a little bit higher than what a coop — a basic price escalator will be from a multiyear contract. And so as we think about kind of the balancing of those perspectives, as you extend out, a three year deal or a four year deal, right, we can do a little bit less of a price escalator from that perspective. But if you’re going to do a shorter deal, right, a one year deal, two year deal, then it’s going to be a bit above the average from what we’ve discussed.

George Tong — Goldman Sachs — Analyst

Got it. That’s helpful. You talked about the increased pace of cross-selling and upselling in the quarter. Can you provide some ballpark metrics that track this progress such as percentage of customers that are buying multiple products or average number of products sold per customer and how that’s expected to trend over time?

Bryan Hipsher — Chief Financial Officer

Yeah, George. So we’ve continued to kind of dig into the separation from that perspective. I think a great example that Anthony walked through earlier was Microsoft, right? That was a business, as they renewed into this, that was leveraging, in essence, pretty heavily on the sales and marketing side. And as we talk to them about the power of the DUNS and the connectivity, they ultimately were able to leverage that broader data set and extend use cases more into the risk base, for instance, splitting into the finance and risk side.

And so again, what we tend to see, George, is at the top end of the customer base, they’re using eight, now closer to nine solutions per. It’s really the metrics in the midsized companies and the smaller where they’re using kind of, on average, like 1.7, right, to 2 from that perspective. And then in the SMB,that’s where it’s really down in the ones. But maybe, Anthony too, the digital aspect of that and how we expect the smaller businesses to now be able to come to us, have that experience and be exposed to both sides of the business is interesting.

George Tong — Goldman Sachs — Analyst

Got it. That’s helpful. Thank you.

Operator

Your next question comes from the line of Ashish Sabadra from Deutsche Bank.

Ashish Sabadra — Deutsche Bank — Analyst

Thanks for taking my question. I just wanted to drill down further in the strength that we saw in the international finance and risk business. I was wondering if you could talk about what’s driving that elevated Worldwide Network sales. Are there any regions or particular companies, in particular which are driving it? And then on the U.K.

sales as well, what’s driving the strength in the U.K. business? Thanks.

Bryan Hipsher — Chief Financial Officer

Yeah, sure. So on the Worldwide Network Ashish, as Neeraj has come in and looked at some of these legacy agreements, we’ve certainly been updating them to make sure that we’re positioning ourselves in the right place. And so in the finance and risk space, for instance, we do a lot of facilitation in coordination, right, between the Worldwide Network partners. And so as we saw demand for our data and demand for our solutions being sold through Europe on the finance and risk side, that’s where we saw the step-up from that perspective.

The UKI was a great example. You heard about Greensill and HSBC. Both are customers that I think Anthony can expand upon, but again, saw the relationships, all the opportunity to take a much broader view of finance and risk and sales and marketing from that perspective. So definitely, we’re seeing some strong momentum in those regions.

And certainly, it’s a positive into Bisnode, right? And maybe, Anthony, if you can talk about Bisnode and how we’ve seen the — their ability to sell our Dun & Bradstreet products and the successes I think that they’ve reported, it would be great.

Anthony Jabbour — Chief Executive Officer

Yeah. It was one of the things we’re excited with Bisnode, like I said, by being in partnership with some of these companies and seeing the actual volumes that they’re driving and getting an inside look at their business. With Bisnode, especially in the DACH region, Germany, Austria and Switzerland, where they had a lot of Dun & Bradstreet product there, they were growing faster than they were throughout the rest of the business significantly. So we look at these signals and examples and overlay our solutions on top to see what do we believe the outcome would be through acquiring them and bringing more of our products into those markets and taking those products into other markets now that we own them all directly, and we’re excited about what that could look like.

Ashish Sabadra — Deutsche Bank — Analyst

That’s great. Very helpful color. And maybe just a follow-up to this, just around the diffusion of IP in international market and also launch of new localized products. Can you just provide any update on that front? Thanks.

Anthony Jabbour — Chief Executive Officer

So Ashish, the first part, you said the IPs and the international markets?

Ashish Sabadra — Deutsche Bank — Analyst

Yes. What I was — if you could talk about how you are rolling out the products which are currently in the U.S. market, like the analytics rollout in the U.K. and Ireland and the plans to roll that out in the international market.

Thanks.

Anthony Jabbour — Chief Executive Officer

Yeah. No, it’s a — again, as we look at transforming the business, that’s an area we looked at and said, well, we’ve got these great products. It’s just about getting more shelf space for them. And in the international marketplaces, we weren’t doing enough of that historically.

And so we really put our foot to the pedal on that and have localized a lot of solutions, localized a lot of the SMS solutions in our Asia Pacific region, our API solutions in the UKI, China, India. So it really is a priority for us because again as we look at what’s low-hanging fruit, what’s a birthright for us, right, some of these things are — they’re out there just waiting to be made available. And historically, we hadn’t done that. So it really is a great priority for us.

It’s where we’re directing some of our capital to make sure we’re doing these, and they’re relatively quick and easy. We’ve got a great technology team in place helping enable it and great local business expertise, knowing which ones will be the highest probability winners out there. So we feel really good about that, and we’ll continue on that path.

Ashish Sabadra — Deutsche Bank — Analyst

That’s very helpful color, and good momentum in the international front. Thanks.

Anthony Jabbour — Chief Executive Officer

Thanks, Ashish.

Bryan Hipsher — Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Judah Sokel from JP Morgan.

Judah Sokel — J.P. Morgan — Analyst

Hi. Good morning.

Bryan Hipsher — Chief Financial Officer

Good morning.

Anthony Jabbour — Chief Executive Officer

Hi, Judah. Good morning.

Judah Sokel — J.P. Morgan — Analyst

A quick question. I don’t know if I missed it, but did you quantify the amount of M&A contribution in the quarter?

Bryan Hipsher — Chief Financial Officer

Yeah. Judah, the organic and inorganic were the same this quarter. We lapped Lattice in the second quarter of last year. And so we had talked the other — Orb and coAction were de minimis from that perspective.

So Lattice was lapped, so the numbers were the same.

Judah Sokel — J.P. Morgan — Analyst

Got it. And then my other question is just in terms of sales and marketing. I know you guys have done a great job in terms of smoothing out the seasonality, really getting it across the four quarters rather than being a large fourth quarter outsized impact from Optimizer. But I know you can still get a boost from a strong Optimizer in some years.

So after a weaker third quarter for sales and marketing, how do you think Optimizer will do in the fourth quarter given that that’s a quarter that customers often commit to Optimizer more? Thanks.

Bryan Hipsher — Chief Financial Officer

Yeah, Judah. So from that perspective, I would say less Optimizer this year, more about the timing of some of the usage that’s just flowing through, right? And so from that perspective, that’s where part of the sales and marketing backup has been throughout the year. That being said, we do continue to look for sales, right, in the fourth quarter from that perspective. And so the master data has certainly been a continued growth area, along with what we call Audience Solutions which is our digital offering from that perspective.

And so that’s a business that’s continued to have strong double-digit growth on a year-over-year basis and will continue to expand from that perspective. But unlike kind of the old days, Judah, from that perspective, we still see a lot of demand for Optimizer. We’re still going to see continued demand for what’s now D&B Connect, kind of the next step, right, from a data management solution perspective. But really, some of that timing that will fall through into the fourth quarter will just be more of a release of some of those pent-up usage values that have built through the year.

Judah Sokel — J.P. Morgan — Analyst

OK, thank you.

Operator

Your final question comes from the line of Jake Williams with Wells Fargo.

Jake Williams — Wells Fargo Securities — Analyst

Good morning, everyone.

Bryan Hipsher — Chief Financial Officer

Good morning, Jake.

Anthony Jabbour — Chief Executive Officer

Hey, Jake. Good morning.

Jake Williams — Wells Fargo Securities — Analyst

Can you expand on what characteristics or qualities that might lead you to acquire a global network partner versus continuing just to maintain that partnership?

Anthony Jabbour — Chief Executive Officer

Sure. I think one, do we believe it’s a well-run organization? Do we believe the amount of effort we would need to put into it or capital put into would be relatively small relative to the output that it would help us deliver in terms of new markets, new solutions, new revenue and ultimately, new value for our shareholders? But that would, I’d say, generally be one of the areas that we would look at. Are they open to selling? I mean that’s obviously a critical part of this as well. And you saw with Bisnode, where they were very open, they’re excited.

They took 25% in equity to help ensure the outcomes from it. So a number of factors I think that kind of roll into it, but those will be the highest ones I’d say.

Jake Williams — Wells Fargo Securities — Analyst

Got it. Thank you very much.

Anthony Jabbour — Chief Executive Officer

Thank you, Jake.

Operator

And we have reached the allotted time for questions and answers. I will now turn the call to Mr. Anthony Jabbour for any closing remarks.

Anthony Jabbour — Chief Executive Officer

Thank you. In summary, we’re pleased with our progress to transform Dun & Bradstreet. We have a great company, and we’ll continue to focus on maximizing shareholder value. As always, I’d like to thank my Dun & Bradstreet colleagues for their exceptional efforts and our clients for the strong relationships.

Thank you for your interest in Dun & Bradstreet and for joining us on the call today. Take care.

Duration: 64 minutes

Call participants:

Deb McCann — Treasurer and Senior Vice President of Investor Relations

Anthony Jabbour — Chief Executive Officer

Bryan Hipsher — Chief Financial Officer

Gary Bisbee — Bank of America Merrill Lynch — Analyst

Ryan Gunning — Jefferies — Analyst

Manav Patnaik — Barclays — Analyst

Seth Weber — RBC Capital Markets — Analyst

Kevin McVeigh — Credit Suisse — Analyst

Brett Huff — Stephens Inc. — Analyst

Unknown speaker

George Tong — Goldman Sachs — Analyst

Ashish Sabadra — Deutsche Bank — Analyst

Judah Sokel — J.P. Morgan — Analyst

Jake Williams — Wells Fargo Securities — Analyst

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Ball (BLL) Q3 2020 Results – Earnings Call Transcript

… investment plans to address sustainable organic growth in our businesses, … across Eastern Europe provided needed capacity, and we foresee European beverage … -over-year that the beer market was really deemed … you actually have real fruit flavors in some of …

Keeping an eye on the grain market – November 4 update

Farmers ‘can’t rely on UK workers alone’, government warned

PUBLISHED: 14:04 05 November 2020 | UPDATED: 14:43 05 November 2020

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        <a class="email" href="mailto:sarah.chambers@archant.co.uk" rel="nofollow">            <!-- Author Start -->Sarah Chambers<!-- Author End -->
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                                        <p class="article-image-caption">UK workers still only made up 11% of the seasonal farm workforce this year, even after a widely-publicised government-led recruitment drive  Picture: JAMES FOSKETT</p>
                                                            <p class="article-image-copyright">James Foskett Farms</p>
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                        <!--PSTYLE=SF Web Summary--><h2>A Suffolk vegetable grower warned his organic business “would finish overnight” if he had to rely on UK labour as the industry seeks clarity on how to source workers post-Brexit.</h2>



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<div id="1.6917110" class="object-465"> <em>James Foskett wouldn't be able to continue with his organic operation without his overseas seasonal workforce  Picture: JAMES FOSKETT</em></div>The National Farmers’ Union (NFU) is calling on the government to explain how fruit, vegetable and flower growers in the UK will be able to recruit seasonal pickers next year.

Its industry-wide survey showed that despite the widely publicised Pick for Britain campaign, UK residents still made up only 11% of the workforce this year.

MORE – Grower hopes eastern Europeans laid off from other sectors may help to plug UK-wide hole in seasonal farm workforce
James Foskett — owner of Foskett Farms, near Woodbridge, which grows a range of crops including onions, potatoes, carrots and a range of organic produce — said this year the farm had welcomed between 5% and 10% casual seasonal workers from the UK at any one time.

“Some are quite good workers for going on graders or harvesters on hourly rates but no good for weeding or picking vegetables on piece rates because they can’t do enough in an hour to earn the minimum wage and so we have to make the wages up,” he said.

“If we had to rely on UK workers our organic business would finish overnight. We just desperately hope we are given an allocation of seasonal workers from Eastern Europe either from the European Union (EU) or not.”

The NFU’s Horticulture Seasonal Worker Survey 2020 was completed by 244 horticultural growers recruiting more than 30,000 people — which equates to just under 50% of the workforce.

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NFU vice president Tom Bradshaw — who farms at Fordham, near Colchester — said workers from outside the Uk were “absolutely vital” to the horticultural sector especially as the industry had ambitions to grow more fruit and vegetables.

“We are at a critical time in recruitment for many growers. As freedom of movement ends on December 31, those growers of iconic British daffodils, asparagus, and soft fruits still don’t know where they will recruit experienced workers from.

“The Pick for Britain campaign was a great initiative, and many have suggested we could continue to recruit a domestic workforce for the coming 2021 season and beyond. While there was a fantastic response from Brits to the call for domestic workers this year in extraordinary circumstances, we see from the survey results that they only made up 11% of the workforce. Seasonal work on farm simply isn’t a viable solution for many.

“What we’re asking of them is huge. In reality it means people needing to work in very rural areas, away from their homes and families, where they will only have guaranteed work for between three and six months.”

The survey showed first-time UK resident workers stayed for nine and a half weeks on average, compared to just over 14 weeks for first-time non-UK workers and 18 weeks for returnee non-UK workers.

“Understandably, these workers continued to look for work closer to home, meaning many left farms part way through their contract and leaving growers having to re-recruit, which impacted on overall productivity levels and increased production costs.”

The situation was “easily solved” with the implementation of a seasonal worker scheme, building upon the pilot scheme that has already operated successfully for the past two seasons.

“If this is not in place by the beginning of the year, we would be the only developed country in the world without such a scheme. It would seem remarkable for the government to take such a gamble when it will hit UK businesses at a time when economic recovery is paramount. I call on government to act now, support our ambitions to lead a horticultural revolution in this country, growing the food that is so critical as part of a healthy diet, and ensure growers have an experienced workforce recruited in time to see this ambition become a reality.”

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Nestle uses insect protein in Purina pet food

LONDON/ZURICH (Reuters) – Nestle’s Purina brand is launching a line of pet food using insects, as the world’s biggest food group tests more environmentally sustainable protein sources.

The move addresses a trend of people seeking more eco-friendly or allergen-free diets for their pets, and puts Nestle into potential competition with smaller brands like Yora and Green Petfood’s InsectDog.

“We see increasing demand for diversified sources of proteins for pet food products,” Bernard Meunier, head of Purina in Europe, told Reuters in an interview on Thursday.

He said limited planetary resources and decreasing meat consumption in Europe were incentives to explore new proteins.

The Purina Beyond Nature’s Protein line, which launches in Switzerland this month, will be available in two variations – one using chicken, fava beans and protein from black soldier fly larvae, and one using chicken, pig’s liver and millet.

Both will be available for dogs and cats at Swiss retailer Coop, which also sells insect-based snacks and burgers for human consumption. Rollouts in more markets are planned starting next year, Meunier said.

He said the COVID-19 pandemic had strengthened the bond between people and their pets, pushing up demand for high-quality pet food and leading to market share gains for Purina.

Nestle’s petcare unit had sales of 13.6 billion Swiss francs ($14.96 billion) last year. It was the group’s fastest-growing category with 10.6% organic growth in the first nine months of 2020.

In April, Nestle bought UK-based natural pet food brand Lily’s Kitchen. Meunier said Purina’s European portfolio was now complete and the focus would be on organic growth.

In a blog post last year, the British Veterinary Association endorsed insect-based pet food, recommending it to owners who wanted a ‘livestock-free’ diet for their pets.

One leading supplier of insect protein in Europe is Dutch company Protix, founded in 2009, which sells ingredients made from the black soldier fly, mealworms, crickets and locusts.

($1 = 0.9089 Swiss francs)