Item 1. Business
ITEM 1. BUSINESS
OVERVIEW
Envela’s mission is to empower buyers and sellers to extend the useful lives of manufactured goods by reselling previously owned, new or used goods, or recycling goods’ materials, elements or components for sale and reuse. This process is called “re-commerce”.
A circular economy is a sustainable economic system that aims to increase the lifespan of manufactured goods and thereby reduce waste and pollution for a cleaner environment. Re-commerce is an integral part of circular economies, and it’s a business model that’s sustainable to its core. Envela helps expand circular consumption through product reuse, refurbishment, repair, and related strategies to extend the useful lives of manufactured goods and reduce their negative impact on our planet.
Envela focuses its re-commerce business on two areas: direct-to-consumer and commercial services. Our direct-to-consumer portfolio operates multiple brick-and-mortar and online marketplaces. Our commercial-services portfolio offers custom re-commerce solutions to meet the needs of diverse clients, including Fortune 500 companies.
HOW WE ORGANIZE OUR BUSINESS
Envela is a diverse re-commerce company that manages its business through two operating segments. Its commercial-services segment is led by subsidiary ECHG, LLC (“ECHG”), and its direct-to-consumer segment is led by subsidiary DGSE, LLC (“DGSE”). Envela reports its revenue and operating expenses based on these two operating segments. We also include segment information in the notes to our financial statements.
COMMERCIAL SERVICES
Re-commerce through Intelligent Reuse & Responsible Recycling
Envela’s commercial services portfolio, led by ECHG and its subsidiaries, provides asset- disposition solutions to government agencies, middle-market firms, major corporations, and other organizations. Through a deep understanding of our clients’ business goals, we’re able to exceed their evolving needs and maintain a differentiated position in this marketplace.
When clients upgrade their IT equipment, ECHG purchases the replaced assets. They can then be resold as whole goods, harvested for components to re-use, or recycled if not reusable. By extending the usable lives of their replaced technology assets through re-commerce, our clients realize maximum value for these products, help protect the environment, and reduce the amount of raw materials required to make new products.
We create custom programs for retailers, original equipment manufacturers (“OEMs”) and other institutions to offer their consumer clients an easy, environmentally friendly way to trade in their electronic devices, including laptops and mobile telephones. And we also repair and refurbish such electronic devices for resale and reuse before ultimately being recycled to make something new. Simply put, we offer comprehensive lifecycle solutions for a host of electronic devices through custom ITAD programs that address our clients’ specific needs—down to the transportation and product tracking.
We combine our unique consumer insight and extensive re-commerce capabilities to anticipate and exceed the needs of our commercial clients and the consumers they serve. Moreover, we help companies navigate the maze of regulations associated with technology disposition, including through our secure logistics and data-sanitization processes. For end-of life items, we remove reusable components for resale. We separate and shred the remaining materials to reduce them into their commodity components (e.g., plastic, metal, glass) for resale and remanufacture into new products.
We experience some seasonal fluctuations that can impact demand with our commercial clients. Our business is subject to fluctuations as device trade-in and upgrade volumes can be based on the release of new devices and promotional programs, as well as customer preferences. Our business is also subject to volatility in margins based on the actual and anticipated timing of the release of new devices and promotional programs, as well as to changes in customer preferences. Most purchases are through non-exclusive, cancelable agreements.
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Envela’s commercial-services segment markets its products directly to prospective clients through several wholly owned subsidiary brands including ITAD USA; Echo Environmental; Teladvance; and Avail Recovery Solutions. Sales and operating results for these brands are reported within their respective ECHG operating segments. ECHG operates from two leased warehouses in the Dallas/Fort Worth Metroplex (“DFW”), and one leased warehouse in Chandler, Arizona.
DIRECT-TO-CONSUMER
Authenticated Re-commerce
Envela’s direct-to-consumer portfolio, spearheaded by DGSE, primarily buys to resell or recycle luxury hard assets like jewelry, diamonds, gemstones, fine watches, rare coins and related collectibles, precious-metal bullion products, gold, silver and other precious metals. For over 50 years, DGSE has been a destination location for seeking value and liquidity in luxury goods.
Our direct-to-consumer business provides a marketplace that delivers what we believe to be unparalleled value and liquidity for those seeking to buy, sell or trade merchandise in every major jewelry, fine watch, diamond, gemstone, finding, precious metal, and premium brand product category. Our experienced staff of experts, including GIA-graduate gemologists, horologists, numismatists, and jewelers and brand authenticators, recondition and rebuild items for resale through our retail locations, e-commerce, or wholesale distributors. When reconditioning is not feasible because crafted precious metals are at the end of their useful lives, we sell them wholesale channels or recycle them by selling them to third-party refiners who recover reusable precious metals for subsequent sale or recrafting into new jewelry or bullion products. We offer on-site repair services for jewelry and watches, as well as custom jewelry services.
We buy and sell all forms of gold, silver, platinum, and palladium products. These include United States and other government-issued coins, private-mint medallions, and most numismatic items such as rare coins, currency, medals, tokens, and other monetary collectibles. We maintain numerous vendor relationships with major industry wholesalers, mints, and institutions. We purchase bullion products from a variety of vendors and sell them based on current precious metal market pricing. Bullion inventory is subject to market-value changes created by underlying commodity markets. Many factors beyond our control may affect margins, customer demand and transactional volume. These factors include, but are not limited to, U.S. Federal Reserve policies, inflation rates, global economic uncertainty, and government and private-mint supply.
Our long history of experience in resale has given us the unique ability to have deep knowledge of the resale market. Using the same processes of authentication, pricing, and marketing as our primary channels, we provide services through consignment of premium brand products. Premium brand products from individuals, wholesalers and retailers are evaluated for authenticity meeting minimum resale cutlines receive product description, priced, pictured, and packaged for omnichannel distribution and fulfillment services.
Historically, we have observed trends in supply-and-demand seasonality. Our supply tends to increase in the third and fourth quarters, and our demand tends to increase in the fourth quarter. As a result, we typically incur higher operating expenses in the last four months of the year as we increase advertising spend.
DGSE operates six retail locations throughout DFW, and one in Mt. Pleasant, South Carolina. We opened our newest location in Frisco, Texas, during the first quarter of Fiscal 2022. We own three retail locations in the DFW area and lease the others. Our direct-to-consumer brands include Dallas Gold & Silver Exchange, Charleston Gold & Diamond, and Bullion Express. Sales and operating results for these brands are reported within their respective DGSE operating segments.
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CORPORATE INFORMATION
HISTORY
The Company incorporated in the State of Nevada on September 16, 1965, as Canyon State Mining Corporation of Nevada. During the next 50 years, the Company changed its name to Canyon State Corporation (October 13, 1981), The American Pacific Mint, Inc. (July 15, 1986), Dallas Gold & Silver Exchange, Inc. (June 22, 1992), and DGSE Companies, Inc. (June 26, 2001).
In 2016, after recently celebrating its 50th anniversary, it was named by S&P Global Market Intelligence as the second most likely company to go bankrupt, behind Sears Holdings. Aiming to turn the Company around, the board of directors (its “Board”) brought in new management. On December 12, 2016, John Loftus was named CEO, and transformation of the business began. For many employees, that day marked the “true founding” of the Company. Under this new leadership, the Company has posted six straight years of unprecedented profitability.
By pursuing diversified re-commerce opportunities with potential long-term rewards, we continued to evolve as a company. On December 12, 2019, we changed our name to Envela Corporation to better reflect our current business operations and diversified re-commerce portfolio.
CONTACT & OTHER
Our principal executive offices are located at 1901 Gateway Drive, Irving, Texas 75038, and our telephone number is (972) 587-4049. You may access our annual reports on Form 10-K, quarterly reports on Form 10- Q, current reports on Form 8-K, and other reports (and amendments and exhibits thereto) filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the Securities and Exchange Commission (“SEC”), as well as proxy statements filed by us, free of charge on our website at www.envela.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Additionally, our website contains complete copies of our policies (Business Code of Conduct & Ethics), committee charters (Audit; Compliance, Governance and Nominating; and Compensation), and information about how to communicate with our Board.
Many of our subsidiaries and brands maintain their own websites for commercial purposes, including primarily the following: DGSE.com, echoenvironmental.com, ITADUSA.com, teladvance.com and AvailRecovery.com.
Information contained on, or that can be accessed through, our website or any website of our subsidiaries or brands is not incorporated by reference into this or any other report we file with, or furnish to, the SEC, and you should not consider information on any such website to be part of this or any other report we file with, or furnish to, the SEC. Such periodic reports, proxy statements and other information are also available on the SEC’s website at http://www.sec.gov.
Envela and other trade names, trademarks and service marks of the Company or its subsidiaries are the property of Envela. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this document are without the “®” and “™” symbols, but such references are not intended to indicate that we waive or will not assert our rights in them.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Our stakeholders are essential to our business—shareholders, employees, and the communities in which we do business. We aspire to operate our business with positive social and environmental impact.
Our Board, including the Corporate Governance and Nominating Committee, the Audit Committee, and the Compensation Committee, provide oversight on business initiatives and programs that relate to social responsibility, emerging opportunities and the Company’s exposure to risk. The Board and management seek to attract and retain the most qualified inclusive workforce to propel the Company into the next generation.
Our Sustainability Program
We are committed to extending the useful lives of goods by promoting their recirculation and re-use, rather than creating waste. In this way, sustainability is at the core of our business, and we hope to create a more sustainable future.
Human Capital Resources
Our employees are guided by our mission to extend the lifespans of durable goods. We are part of a diverse global community, and we aim to reflect that diversity within our team. We believe diversity and inclusion foster a collaborative culture, which fuels our ability to innovate as we work to create a more sustainable future.
As of December 31, 2022, we had 257 full-time equivalent employees. Additionally, we rely on independent contractors and temporary personnel to supplement our workforce, primarily in our electronic-disposition centers. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to be positive. Our management policy is to keep employees informed of material decisions that affect them, encourage employee suggestions, and implement them whenever practicable.
Diversity and Inclusion
We are proud to have a diverse team. We celebrate diversity and are committed to providing equal-employment opportunities regardless of race, color, ancestry, religion, sex, national origin, sexual orientation, age, citizenship, marital status, disability, or gender identity or expression.
Competitive Environment
The Company encounters competition in connection with all aspects of its operations. These competitive conditions may adversely affect the Company’s revenue and profitability and its ability to expand and execute its business strategy. In addition, the Company competes with other companies and retailers to attract and retain employees with competitive compensation programs. Many of the competitors have significantly greater size, financial resources, and human capital than the Company.
GOVERNMENT REGULATIONS, ENVIRONMENTAL MATTERS AND IMPACT OF CLIMATE CHANGE
Envela buys and resells precious metals, which are generally subject to regulation including conflict mineral tracing. However, in conjunction with legal counsel, we have determined that we do not have sufficient control over manufacturing of any of our products to be included in the group of companies required to provide conflict-minerals disclosure and reporting. If our sourcing processes should change, or if there is a determination that our current practices should be covered by the conflict-minerals reporting and disclosure guidelines, we would need to implement significant additional measures to comply with these rules. In addition, Envela partners with refiners for a portion of its sales. These refiners are subject to increasingly stringent governmental regulation in their refining operations, and a change or increase in such regulations in the United States or abroad may have an adverse impact on our business.
Envela recognizes that climate change is a major risk to society and therefore continues to take steps to reduce its climatic impact. Nevertheless, management believes that climate change has only a limited influence on Envela’s performance and is of limited significance directly to the business. However, as a significant portion of Envela’s business relies on the availability of disposable income for its customers, a change in fuel prices could have a material impact on Envela’s business. See “Item 1A. Risk Factors—Adverse economic conditions in the U.S. or in other key markets, and the resulting declines in consumer confidence and spending, could have a material adverse effect on the Company’s operating results” for more information.
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Item 1A
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.