1-800-Flowers.com (FLWS) Q4 2020 Earnings Call Transcript

1-800-Flowers.com (FLWS -1.97%)
Q4 2020 Earnings Call
Aug 27, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to 1-800-Flowers, Inc. fiscal year 2020 fourth-quarter and full-year results conference call. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Joe Pititto, senior vice president, investor relations and corporate communication.

Please go ahead.

Joe Pititto -- Senior Vice President, Investor Relations and Corporate Communications

Thank you, Anita. Good morning, and thank you all for joining us today to discuss the 1-800-FLOWERS.COM, Inc.'s financial results for our fiscal 2020 fourth quarter and full year. For those of you who have not received a copy of our press release issued earlier this morning, the release can be accessed at the Investor Relations section of our corporate website at 1800flowersinc.com. Our call today will begin with brief formal remarks and then we'll open the call to your questions.

Presenting today will be Chris McCann, CEO; and Bill Shea, CFO. Before we begin, I need to remind everyone that some of the statements we will make today may be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. For a detailed description of these risks and uncertainties, please refer to our press release issued this morning, as well as our SEC filings, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

In addition, this morning, we will discuss certain supplementary financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying the company's press release issued this morning. The company expressly disclaims any intent or obligation to update any of the forward-looking statements made in today's call, any recording of today's call, the press release issued earlier today or any of its SEC filings, except as may be otherwise stated by the company. I'll now turn the call over to Chris McCann.

Chris McCann -- Chief Executive Officer

Good morning, everyone. Thank you all for joining us this morning. I'd like to begin by acknowledging all of our associates across the company for their dedication and hard work in helping our customers stay connected and express themselves despite the unprecedented challenges brought on by the COVID-19 pandemic. I am grateful and proud.

Our record revenue and profit growth, both the fourth quarter and the full year, is a testament to their efforts and demonstrates the effective execution of our strategy to engage with our customers and our drive for sustainable long-term growth. As we noted in our call at the end of April, through the first three quarters of the year before the impact of the pandemic, we achieved solid top and bottom line growth as well as strong growth in our customer files. This reflects our ability to leverage our business platform, including our all-star family of brands, our focus on innovation and technology and product development, our digital marketing experience and expertise and our dedication to providing a truly exemplary customer service. We entered Q4 with this momentum, which was further accelerated by the impact of the pandemic as customers increasingly turn to our dear trusted brands and innovative products to help them remain connected and express themselves during a very difficult period.

As a result, already strong customer demand levels rose dramatically across our floral and gourmet gift brands. In our Gourmet Foods and Gift Basket segment, revenue for the quarter increased more than 112% as products and product collections that had already been showing strong growth became the go-to purchases for our customers. Products like the Harry & David Gourmet line of prepared foods, from charcuterie boards to complete family meals. The Popcorn Factory's tend to its pop, featuring relevant means like a socially distant hug.

Cheryl's Cookies sentiments and collection, featuring sentiments for every moment, such as here for you, great job, you're awesome. And Shari's Berries, which continues to perform ahead of our expectations. These products along with the expanded offerings from 1-800-Baskets, Simply Chocolate, and Wolferman's Bakery helped our customers to solve for their need to connect and express themselves for both holidays and everyday occasions throughout the quarter. Our focus on operational excellence was on full display during the quarter as we expanded our production and fulfillment capacity to meet the rising customer demand levels while concurrently adapting our facilities to protect the health and safety of our associates, our vendors and the customers.

As a result, even while absorbing increased operating costs associated with the pandemic, we achieved a record segment contribution margin for the quarter. In our Consumer Floral business during the quarter, the 1-800-Flowers brand benefited from strong growth for the Easter and Mother's Day holiday periods, combined with increasing demand for occasions, such as birthday, anniversary, sympathy and get well. During the quarter, customers also responded well to our continued focus on product innovation, including the expansion of the 1-800-Flowers plant shop featuring a growing assortment of highly populous succulents and large house plants. Our new conversation roses with heartfelt sentiments literally printed right on the rose petals themselves.

And the launch of our new Jason Wu Wild Beauty line, featuring our exclusive floral creations of one of the hottest fashion trendsetters on the scene today. As a result, we achieved strong revenue growth of more than 46% during the quarter and further expanded the 1-800-Flowers brand's market leadership position. This growth, combined with enhanced operating leverage enabled us to more than double segment contribution margin compared with last year's fourth quarter. In our BloomNet business, during the quarter, we continued to focus on providing a broad range of programs and services to help our local florist members weather a very challenging environment.

For example, in addition to waiving membership fees for the month of April, we provided florists with information and assistance related to state and the federal support programs. And as we head into the key Mother's Day period, we worked closely with florists throughout the country to help them navigate the pandemic impacts so that they could safely expand their fulfillment capacity and achieve a much needed boost to their business. The strong performance of the 1-800-Flowers brand helped us deliver significant order volume to our florist during the Mother's Day period and throughout the quarter. As a result, BloomNet grew revenues nearly 11% during this very challenging period.

During the quarter, we also launched several new programs to help our florists, including on-demand personalized greeting cards that enabled florists to achieve additional revenue on orders from 1-800-Flowers. Floriology NOW, a digital learning platform to continue education and Bloom Networks, a collection of cost savings and profit enhancing programs. These programs, among others, are designed to help our florist members weather the current pandemic crisis and grow their businesses profitably going forward. While BloomNet segment contribution margin for the quarter was impacted by the actions we took during the period to help our florist, including the waving of memberships fees in April, we are confident that it will bounce back during the current fiscal first quarter.

Now before I hand the call over to Bill for some further details, I'd like to point out the strong performance and growth in our customer file. Through the first three quarters of this fiscal '20, we achieved solid growth from existing customers, along with more than 10% growth in new customers. This reflected the trust customers have in our great family of brands, the expanded product offering of truly original products designed specifically to help them express themselves and the evolution of our marketing messaging. Messaging crafted to be more relevant to engage directly with our customers in a 2-way dialogue and to focus on the experience of connection.

These factors positioned us well as we entered the fourth quarter enabling us to respond effectively to rising customer demand and interest. As a result, new customer growth accelerated dramatically during the quarter, and driving full-year new customer growth to more than 30%. Growth in our Passport loyalty program and in multi-brand customers, our best-performing cohort, was even stronger. These trends, along with strong demand for existing customers have continued into our current fiscal first quarter and bode well for the upcoming holiday season.

Lastly, we are very pleased to have completed our acquisition of PersonalizationMall.com earlier this month. You can say this took us a while to get this one done and having tried originally to acquire a PMall all the way back in 2016, and we are very pleased to have closed the acquisition well ahead of the key holiday season. With that business up and running and already growing nicely on a year-over-year basis. The addition of Personalization Mall to our all-star family of brands on our unique business platform significantly enhances ability to help our customers engage and stay connected with the important people in their lives.

Like our market-leading positions in Floral and Gourmet Foods, the broad assortment of products and personalization processes offered by PMall makes us a leader in the growing, growing market for personalized gifts. As we head into our fiscal '21, we are well positioned to meet unprecedented challenges of the current environment, with the combination of strong growth momentum in revenue and in our customer file, the proven leveragability of the unique operating platform that we've build, our diverse product line and the deepening relationships we have with our customers. We continue to be laser-focused on our vision to engage with the customers to inspire more human expression, connection and celebration. Sentiments that the current environment has taught us are now more important than ever.

And now, I'd like to turn the call over to Bill.

Bill Shea -- Chief Financial Officer

Thank you, Chris. We are very pleased with our strong results for the fourth quarter and full year and with the considerable momentum that we've carry into fiscal '21. Fiscal '20 was an exciting, challenging and openly, very successful year for our company. The past 12 months were bookend by the acquisitions of Shari's Berries in August a year ago and our acquisition of PMall earlier this month.

These acquisitions illustrate the strength of the unique business platform that we have built. One, Shari's Berries, a smaller tuck-in where we acquired no hard assets, infrastructure or personnel, and where we're able to leverage our existing operating infrastructure to reposition the brand and grow its top and bottom lines ahead of even our own expectations. The second, PMall, a great new extension of our product offering that adds a whole new set of capabilities to our platform and instantly makes us one of the leaders in the personalized products that our customers tell us they are looking forward to help them connect and express themselves. In both cases, we see significant opportunities to accelerate the growth of these businesses by leveraging our cross-brand marketing and merchandising, our digital marketing experience and expertise, our technology platform and our fulfillment network.

Now breaking down some of the key metrics for the fourth quarter and the year. Our revenue growth for the first nine months of the fiscal year was a solid 8.3%, and we were building momentum as we have approached our fourth quarter with double-digit growth in Q3. Then the pandemic hit, and our e-commerce revenues rose dramatically. Total consolidated revenues grew 61.1% to $418 million in the fourth quarter and grew 19.3% to $1.49 billion for the year.

This reflected solid growth across our three business segments for the quarter and the year. With Gourmet Food & Gift Baskets up 112.3% to $153.8 million in the quarter and 21.1% to $785.5 million for the year. Consumer Floral, up 46.5% to $234.1 million in the quarter and 19.2% to $593.2 million for the year. And BloomNet growing 10.7% in the quarter to $30.2 million and 8.6% to $111.8 million for the year.

Consolidated gross profit margin for the quarter was 40.5%, essentially flat, compared with 40.6% in the prior-year period. And for the year, consolidated gross profit margin was 41.8%, down slightly, compared to 42.1% in the prior year. As we've mentioned on previous calls, the lower margin for the year primarily relates to high seasonal labor and a more promotional environment back in our Q2 holiday quarter. Operating expenses as a percent of total revenues in the quarter, excluding the impacts of our nonqualified deferred 401(k) compensation plan, the costs associated with the closing of the Harry & David retail stores and our acquisition of PMall improved 960 basis points to 35.4%, compared with 45% in the prior year period.

For the year, operating expenses as a percent of total revenues, excluding the aforementioned costs, improved 270 basis points to 35.8%, compared with 38.5% in the prior year. This improvement reflects the strong growth for the quarter and the year, combined with enhanced operating leverage, including marketing efficiencies. A combination of these factors resulted in adjusted EBITDA for the quarter of $32.5 million, representing an increase of $35.2 million, compared with adjusted -- for an adjusted EBITDA loss of $2.7 million in the prior year period. Adjusted EBITDA for the year increased 57.8% to $129.5 million, compared with $82.1 million in the prior year.

Adjusted net income for the quarter and the year excludes the costs associated with the closing of our Harry & David stores and the acquisition of PMall. For the quarter, adjusted net income was $15.1 million or $0.23 per diluted share, compared with a net loss of $8.3 million or a loss of $0.13 per share in the prior year period. For the year, adjusted net income increased 86.9% to $65 million or $0.98 per diluted share, compared with $34.8 million or $0.52 per diluted share in the prior year period. On a segment basis, adjusted contribution margin for the quarter and the full year were as follows: Gourmet Foods & Gift Baskets, excluding the cost of closing the Harry & David stores, increased 322.5% to $15.3 million for the quarter, compared with a loss of $6.9 million in the prior year period.

For the year, adjusted contribution margin in the segment rose 40.7% to $115.8 million, compared with $82.3 million in this prior year. The significant increases were driven by strong e-commerce demand and enhanced operating leverage, which more than offset the additional operating costs and inefficiencies associated with the pandemic. In our Consumer Floral segment, contribution margin increased 129.3% to $40 million for the quarter, compared with $17 million in the prior year period. For the year, contribution margin increased 48.6% to $73.8 million, compared with $49.7 million in the prior year.

These increases reflect strong revenue growth and enhanced operating leverage, including marketing efficiencies. BloomNet's contribution margin for the quarter was $7.6 million, compared with about $9.3 million in the prior year period, reflecting the impact of the pandemic and management's decision to waive fees and offer reduced pricing to florist to help them during these challenging times. For the year, BloomNet's contribution margin was $35.1 million, up slightly, compared with $34.7 million in the prior year. In terms of corporate expense.

For the fiscal fourth quarter, corporate expense, including stock-based compensation, but excluding the onetime costs associated with the acquisition of PMall, was $33.3 million, compared with $24.3 million in the prior year period. For the year, corporate expense, including stock-based compensation, but also excluding the onetime costs associated with the acquisition of PMall, was $104 million, compared with $91.6 million in the prior year period. The increase in corporate expense for the quarter and the year was primarily related to increased incentive compensation and additional expenses related to the pandemic. Regarding free cash flow, we generated free cash flow for the year of $104.7 million, compared with $45.5 million in the prior year.

The significant increase in free cash flow reflects the strong operating results as well as favorable working capital. Turning to our balance sheet. At the end of our fiscal year, our cash and investments position was $240.5 million. Inventory of approximately $97.8 million was in line with our expectations.

Our term debt balance, net of deferred financing costs, was $92.6 million, and we had 0 borrowings outstanding under the working capital line within our revolving credit facility. As a result, total net cash at the end of the year was $148 million. As we announced earlier this week, we have amended our credit agreement with our syndicated banks led by JPMorgan Chase. The amended agreement added an incremental $150 million of borrowing capacity to our existing credit facility to a combination of an incremental term loan of $100 million and the increase of $50 million in our revolving credit facility.

Regarding guidance for fiscal '21. Due to the significant uncertainty in the overall economy relating to the ongoing pandemic, we are not providing guidance for the full fiscal 2021 year at this time. However, regarding the current fiscal first quarter, based on the strong growth momentum we have carried into the first two months of fiscal '21 combined with the anticipated contributions of the recent acquisition of PMall, we expect to achieve total consolidated revenue growth for the first quarter in a range of 40% to 45%, with 30% to 35% organic growth, compared with the prior year period. This reflects expected e-commerce growth of than 70%, somewhat offset by lower wholesale orders and reduced retail revenues, reflecting our decision to close the Harry & David retail stores in fiscal 2020.

In addition, we expect the anticipated strong revenue growth combined with continued operating leverage and the contributions of PMall will enable us to drive adjusted EBITDA for the quarter to breakeven or slightly positive, compared with a loss of $11.3 million in last year's first quarter. Regarding our fiscal second quarter. And while there remains considerable uncertainty in the overall economy, we expect the strong e-commerce demand momentum we are experiencing will continue for the key holiday season in our second fiscal quarter. In addition, we anticipate solid contributions to revenues and profits from the PMall business in our second quarter.

We expect these factors, combined with the continued strong growth in our customer files will offset certain headwinds, including higher operating costs due to this pandemic, lower wholesale orders for mass market retailers, capacity constraints at third-party shipping vendors, the potential distraction of the pending national election and, of course, the uncertainties in the economy. I will now turn the call back to Chris.

Chris McCann -- Chief Executive Officer

Thank you, Bill. So to sum up, the momentum that we saw across the first three quarters of the year accelerated in the fourth quarter. The record results for the quarter and the fiscal year are evidence of our continued our strong execution across our business segments despite the challenges brought on by the pandemic. I'd like to, again, thank all of our associates for their agility, tenacity and commitment to finding solutions to enable our customers to express and connect with the important people in their lives.

As we move ahead into fiscal '21, the strong momentum built throughout the past year has continued through the first two months of our Q1 and it bodes well for this key holiday season in Q2. We continue to leverage the power of our unique operating platform, the strength of our brands, the expanded product offering, the innovative application of technology, and the marketing and product strategies that are designed to engage with our customers to drive customer lifetime value, such as our connection communities and experiential design and entertaining events. Our strong execution and continuing momentum, combined with our strong balance sheet and significant cash flows, give us continued confidence in our ability to manage our business in this unprecedented and rapidly changing environment. Thank you, and we look forward to sharing our Q1 results with you in October.

Now I'd like to open up the call and ask Anita to open up the call to take your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] The first question today comes from Dan Kurnos with The Benchmark Company. Please go ahead.

Dan Kurnos -- The Benchmark Company -- Analyst

Yes. Good morning. Thanks. Chris, your commentary around the holiday season sounds incrementally more optimistic.

I know you guys always start off conservative. But just to be clear, it sounds like even with the retail closures and the wholesale headwind, you're expecting, I just wanted to make sure we got this right, organic growth? So ex-PMall and the holiday period. And if that is the case, can you just talk about what you're seeing that gives you confidence in kind of making that statement?

Chris McCann -- Chief Executive Officer

Sure. Thank you, Dan. Yes, I think in -- your interpretation of my comments are accurate. What we're seeing is the continued momentum in our business and really the continued momentum that we're seeing on the e-commerce side of the business.

And really supported and sustained by the strength that we continue to build and see from our customer files. What we're seeing in new customer growth, what we're seeing in the behavior of the new customers even since the pandemic. So, new customers, we acquired really since the March time period, their behavior metrics are looking better than average. And so all of those things, coupled with the product categories we have, the operating capabilities, the job that the team has done to adapt our facilities into this COVID operating environment that we're in, really gives us confidence that we'll be able to handle the demand moving forward into the quarter.

Dan Kurnos -- The Benchmark Company -- Analyst

Can you go a little bit more into some of those KPIs around the new customers, if you wouldn't mind? I mean, at least what you're willing to share, how many of those new customers are coming to multi-brand or at least is it greater than sort of what you've seen historically? Are you seeing significant repeat usage in the September quarter or anticipation of such relative to prior? Just anything around color there would be super helpful.

Chris McCann -- Chief Executive Officer

Yes. So while we don't break out specific metrics around those, what I can say is that we're continuing to see, A, first and foremost, as I highlighted in the remarks, both good performance from existing customers as well as accelerated new customer growth. Then what we're seeing happening with that is we're seeing several different things. We're seeing an increase in multi-brand customers as a percentage of our total customer base, we're seeing a higher conversion of new customers into our Passport program, we're seeing the existing Passport program become a higher percentage of our daily and monthly customer activity and revenue streams.

So we're seeing an increase overall throughout the year. But even as I pointed out from a short-term perspective, even if I just look back to the March time period, an increase in weeks. And again, it's going to be slight because of the short time period, but trending increase in frequency and retention rates. So all of the behavior metrics we track are showing positive right now, which gives us the confidence that besides the demand that we're seeing out there on new customer growth, the sustainability of our customer base bodes well for not only the upcoming holiday seasons but beyond that as we go forward.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it. That's really helpful. And then just last one for me, and I'll let others jump in here. Obviously, with elevated levels of demand, this is -- I'm sure you weren't anticipating a 60% growth quarter in the June quarter.

But as this kind of continues, we know that you had some expanded distribution plans on tap and obviously, COVID probably put those on hold. Are you able to get anything done prior to holiday period to improve some -- I guess, some efficiencies or is it going to be kind of just -- you have sufficient network capacity now to handle the demand, and then once you get through the holiday period, look to go after, whether it's national coverage or improved reaching from hubs?

Chris McCann -- Chief Executive Officer

Yes. So I think as we look at our distribution network, and you're right, the plans we have to continue to expand that and enhance the operating leverage of those facilities does continue. And there are things that we have made progress since last year that will help us for this year. There are some things that we actually had to put on hold.

And then keep in mind that we're also dealing with the increased operating costs of operating in a socially distant manner. But with that said, I think, Bill, we're in a pretty good position as we go into this holiday.

Bill Shea -- Chief Financial Officer

Yes, certainly --

Dan Kurnos -- The Benchmark Company -- Analyst

OK. Great. Yes, go ahead, Bill.

Bill Shea -- Chief Financial Officer

Yes, Dan. Certainly, our trend lines on e-commerce, very strong in the fourth quarter. We've seen them roll over into the first quarter of this year on it. These are obviously during times when we're comping against overall demand that's much lower.

We're able to, even with the challenges of social distancing and some of the inefficiencies we have in -- that's a result of that, we're still able to produce the product, get the product out the door. Lots of stories out there about challenges for capacity with third -- with the third party carriers with the UPSs, FedExs, and USPS of the world. So we have all these as potential headwinds. But we think our e-commerce demand is going to be strong.

We're working very hard on producing product early to make sure that we have our product to fulfill that demand but there are challenges and headwinds as we head into Q2.

Chris McCann -- Chief Executive Officer

Yes. And as reflective of those challenges and headwinds, as Bill pointed out, is because of one of the benefits that we're getting and the benefits that we're seeing as well as others is the tectonic shift from offline to online. So that huge growth in e-commerce is benefiting us. Yes, putting some challenges on the distribution channel but those -- that's -- those are the things we have to manage through.

Dan Kurnos -- The Benchmark Company -- Analyst

Do you -- can I just have a quick follow-up? Do you have any alternatives for last-mile that are cost efficient, if you needed to use them?

Chris McCann -- Chief Executive Officer

Yes. We have a very flexible model in place. So, yes.

Dan Kurnos -- The Benchmark Company -- Analyst

OK. Perfect. Thanks very much for all the color, guys. Appreciate it.

Chris McCann -- Chief Executive Officer

Thank you.

Operator

The next question comes from Michael Kupinski with Noble Capital Markets. Please go ahead.

Michael Kupinski -- Noble Capital Markets -- Analyst

First of all, congratulations on your extraordinary quarter. Just a couple of quick questions here. Just following up on Dan's question, with the substantial growth, were there any issues that arose from that type of revenue growth? Any issues you feel need to be addressed to support the prospect of elevated revenues or future growth or maybe that have limited the extraordinary performance that you had in the quarter?

Chris McCann -- Chief Executive Officer

So I think, Michael, the extraordinary growth, yes, posed some challenges, and that's one of the things that I'm extremely proud of is how the team responded to that. Now how the team responded from a number of different fronts. Our preparedness and response team that we put in place led by our General Counsel were made up of operations people from across the company managing, first and foremost, the health and safety of all of our associates, our vendors and our customers. But then saying, OK, now how do we operate in this environment.

So there were challenges, but the response that they had to get us up to speed, to get us to the point where we're performing right now, I'm just -- and I just think it's been tremendous. So challenges has been thrown at us. We've responded well to those challenges, and we think we're well positioned going forward.

Michael Kupinski -- Noble Capital Markets -- Analyst

So in other words, you don't feel like you left any revenues on the table. It sounds like you rose to the occasion, so to speak?

Chris McCann -- Chief Executive Officer

Correct.

Michael Kupinski -- Noble Capital Markets -- Analyst

OK. And then in terms of just the integration process for PersonalizationMall, can you kind of give us your thoughts about -- I know that you have identified opportunities and have given the size of the facilities there, but I was wondering in terms of cost synergies with some of the other brands, when do you start implementing some of those opportunities?

Chris McCann -- Chief Executive Officer

First and foremost, we're thrilled to have completed this acquisition. And it really is, as Bill pointed out earlier if you look at the two acquisitions we've done in the past 12 months, very different. Shari's Berries was kind of a tuck-in, just taken and put it on completely on top of our platform. Personalization Mall is really a category extension for us and putting us into another leadership position.

Now we're leaders in Floral, we're leaders in Gourmet Foods, and now we're a leader in personalization products, which is a nicely growing market. And the team that comes with Personalization Mall is just a fantastic team. As I mentioned, we looked at this business back a couple of times, but certainly back in 2016 and always came away very impressed with the management team there. And I think they're doing a fantastic job.

Clearly, this is more about focus for us on growth synergies and really product category extensions. And really, that's where our focus is right now, getting the business on to our platform, making sure that for this holiday season, we are able to expose our existing customer base to the PMall product line, the PMall customer base to the rest of the brands, making sure that we're implementing the Passport program across all of our brands, cross-promotion and cross-marketing capabilities. That's where our focus is right now for the short term. And of course, from a long-term perspective, we'll always be looking at how do we continue to get opex synergies out of our combined efforts.

Michael Kupinski -- Noble Capital Markets -- Analyst

Thanks for that color. And I was just wondering in terms of Personalization Mall, I know that you kind of gave us some thoughts about how it's performing in the quarter, just backing out the pro forma guidance, I guess, if you want to look it that way. Can you just tell us about the revenue growth you indicated year over year in the fiscal first quarter? If you can just tell us what that might be? And then you indicated that it would be profitable. Can you give us more margins in the quarter? And then I think when you purchased it, you kind of gave us some thoughts about what Personalization Mall had done in terms of revenues and cash flow contribution.

Do you anticipate that the business is in such a position that it will grow from those metrics that you provided earlier?

Bill Shea -- Chief Financial Officer

Michael, this is Bill. As Chris mentioned, we're very pleased with closing these -- the transaction. We saw PMall since it is reopened up, their year-over-year revenue growth has been nice and we're pleased with this since we've closed on August 3rd. We've seen some nice year-over-year gains from the top line.

I remember seasonality of this business is pretty consistent with the seasonality of our enterprise business with a little less than 50% of the revenues being in the second quarter. And then their second-biggest quarter is the June quarter. They are contribution margin positive in all four quarters of the year. So that's a great add, we think, in some deseasonalizing of our business to some degree.

As we outlined early on this, this business did historically in excess of $150 million and about $25 million in contribution, certainly from what we've seen so far, and we expect to achieve and hopefully exceed those numbers.

Michael Kupinski -- Noble Capital Markets -- Analyst

And, Bill, can you just give us the thoughts on what the balance sheet looks like currently following the acquisition?

Chris McCann -- Chief Executive Officer

What the balance sheet looks like following the acquisition.

Bill Shea -- Chief Financial Officer

OK. Yes. The volume -- so obviously, we spent $245 million of cash on the acquisition of PMall, both -- as we announced earlier this week, we just closed on a new credit facility. So we added $150 million of borrowing capacity.

$100 hundred million of that is term. So as a net of those two, we're down -- we're using theory, $150 million of our cash toward the acquisition, but we have borrowing capabilities as we go through this quarter where we use -- or the second quarter where we actually use working capital. We anticipate that our max borrowings on working capital in the second quarter for inventory build, it will be about $100 million. That leaves us an extra $150 million of just excess borrowing capacity at that point in time.

By the end of the second quarter, our cash is going to be very strong and will be -- have no borrowings under our revolver.

Chris McCann -- Chief Executive Officer

And I think Bill and his team have done a great job really leading the effort to put that credit facility in place. When you look at what we've done there, the balance sheet that we have today puts us in extraordinarily strong position to make sure that we're looking to say, how do we invest in our business growth in the future, whether it's further capital investment that we just might need on some of the operating efficiencies, and you'll see us do that from time to time, invest in some of our capabilities to enhance the operating leverage going forward or from an M&A point of view, as you've seen, we continue to be very judicious and very diligent in our approach in looking for -- very strategic in looking for businesses that we believe can either leverage the operating platform we built or add to the operating platform we built or take a good combination of both. And I think, again, we're in a very strong position. We have dry powder on our balance sheet, and we'll continue on the direction that we have been.

Bill Shea -- Chief Financial Officer

Yes. And Michael, not to be lost in this is, we did generate $104 million of free cash flow during this past year. So we've significantly accelerated the amount of free cash flow that we generate. So the balance sheet will just continue to get stronger and stronger.

Michael Kupinski -- Noble Capital Markets -- Analyst

Great. Thanks and congratulations.

Chris McCann -- Chief Executive Officer

Thanks.

Operator

The next question comes from Linda Bolton-Weiser with D.A. Davidson. Please go ahead.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Hi. How are you?

Chris McCann -- Chief Executive Officer

Great, Linda. Thanks.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

So in the first fiscal quarter, I mean, thanks for providing the guidance, but on your sales line, you're going to be consensus by more than $40 million, and yet the upside to EBITDA is just about $10 million. So can you give a little more color around that? Is that just still the higher operating costs and shipping costs and that whole thing or what exactly would account for the fact that your upside in EBITDA is not even greater?

Bill Shea -- Chief Financial Officer

Well, Linda, I think we're actually very happy with the guidance that we gave and we expected everyone to be pretty pleased with the -- both the top and bottom line guidance that we provided. But we are operating in a pandemic, and we do have increased costs as a result of that. But I think we're driving a very nice bottom line improvement off the growth that were -- we achieved.

Chris McCann -- Chief Executive Officer

I think you really need to look to last quarter and the last year's improvement in opex ratio, which was phenomenal. And that's what you expect to continue to see from us, driving that opex ratio, driving that increased margin capability. And that's all we're demonstrating, that's what we expect going forward.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Great. And then you had mentioned higher corporate expense, one of those things was pandemic-related higher corporate expense. What specifically would be pandemic-related in that line item?

Bill Shea -- Chief Financial Officer

Yes. So first and foremost, as we approach our jobs every day, we've got to keep in mind the health and safety of our -- all of our employees. So of course, the enterprise. We have nurses at all our facilities to take temperatures.

We have all testing that's being done at our facilities, cleansing of our facilities at a very rapid pace, equipment for all our facilities to keep our employees safe. These are all the types of expenses that we're talking about.

Chris McCann -- Chief Executive Officer

Running extra shifts that we had to because of social distant labor and manufacturing facilities, etc. But first -- as Bill said, first and foremost, health and safety.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

And then finally, on -- you mentioned the election, maybe taking attention away from consumers temporarily. With all the eyeballs that are on TV during elections, have you considered perhaps looking at TV advertising in addition to your other digital and radio efforts?

Chris McCann -- Chief Executive Officer

So, Linda, I think first of all on, the general election, especially the national election, always is a little bit of a drag on retail sales in general. Now as we look at this year, while it's a potential headwind because it's so much in our face every day, it might not be that much different than a regular year. We just don't know that yet. As we look at advertising, clearly, running up to election, advertising rates will move up as well.

So we'll always look to take our advertising and making sure that we're optimizing where we're getting the best performance. We have been experimenting on the flowers brand, as you know, in the past year or two, usually utilizing television a little bit more. We've been experimenting on the television with Harry & David and with video, but we will put the dollars where we're seeing the better returns.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. Thanks. That's it for me. Congratulations.

Chris McCann -- Chief Executive Officer

Thank you very much.

Bill Shea -- Chief Financial Officer

Thanks, Linda.

Operator

The next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Yes. Good morning. Thank you for taking the questions and providing all the details. So I just wanted to circle back as far as the COVID-19-related costs, Bill, I mean, if you could -- is it possible for you to kind of isolate that? What was that for the quarter? And kind of what's embedded in the guidance in terms of those costs for the first fiscal quarter?

Bill Shea -- Chief Financial Officer

Yes. Anthony, we don't break out specific costs, but they were not insignificant in the fourth quarter, and we were anticipating that throughout fiscal '21 that they're going to continue at that level.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. OK. And in terms of PMall, it's just -- just wanted to get a sense as to kind of how you're thinking about that as far as the plans to eventually integrate that into the multi-branded website. And I know you talked about driving growth and revenue synergies from that.

And can you give us a sense as to like the timing of when you expect to be able to fully integrate that?

Chris McCann -- Chief Executive Officer

Sure. So first and foremost, Anthony, thank you for that question. As we look at this internally, we call this project Ascent, as we bring these businesses together. And as you know, we have a rule in our integration playbook that we're managing and that we're following that we've really been building ever since the acquisition with the Harry & David and fine-tuning our playbook.

Number one rule in our playbook is don't mess up the existing business, especially as we're poised right now on the precipice of the holiday season. So that's the number one thing that we're challenging ourselves and a challenge to team with this -- so, let's help them run their existing business so before anything else. With that said, we will see -- and you will see us promote the Personalization Mall brand and product line on our multi-brand platform prior to holiday season. You will see us expose all of our customers into our Passport program.

You will see us utilizing their products across merchandising, cross-marketing capabilities through our existing customer base. So there are certain things that we will get done certainly for this holiday season because it's all important, and we have some time to do so, but we will do so in a very judicious manner.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. OK. Thanks for that. And then so obviously, you've had a tremendous growth in customer file and a lot of people signing up for the Passport program.

So given the accelerated shift to e-commerce, I'm just wondering if you guys are thinking of perhaps changing your pricing for the Passport program? Is there an opportunity to increase that price perhaps or do you -- is it just something that you would not consider at that point?

Chris McCann -- Chief Executive Officer

Yes. We're not considering it at this point. It is something that we look at from time to time. And if there are things that we start to add into the program that are other value-add items that we might then consider it.

But in the short term, we're very happy with where we are and the growth that it's producing and the customer behavior metrics that it's producing. And all of that, I think, really fits into making sure that we continue to position our -- the strength of our customer file, position the company that we are, which is a company that inspires human connection and expression and celebration. And as we look at that as a company with the Passport program, with the customer file, with the company positioning, we are so well positioned right now. And what we see is the key trends coming out of this pandemic, the shift from offline to online.

And as an e-commerce, mobile commerce company, we are well positioned for that. The consumer sentiment that we've all learned as we had to go into isolation of the need to be socially connected to each other, to maintain relationships, to just express ourselves. And even in this -- all of this gloom, there are moments of everyday celebrations are -- certainly I became a grandfather during this pandemic. So that was a moment to bright light and celebration for us.

And many of us have those moments. So we're well positioned for that. And the third key trend that we see coming out of this is the -- is also nesting. People celebrating and expressing themselves more and more around their home.

And our product categories, we're good for that nesting trend already of the food product lines, decorating with Floral in your home, and now with the addition of Personalization Mall, because it's a whole another product category, people celebrating and nesting at home. So those three things -- those are the three key trends, and I think we're very well positioned for those.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. And congratulations, Chris, on becoming a grandfather. So last question for me. So as far as your appetite for additional acquisitions, I'm just wondering if you guys have target leverage ratio, perhaps that you want to be at? So it sounds like, obviously, you have added additional financial flexibility with the new credit agreement.

Just wondering how we should think about your appetite for additional acquisitions and any leverage ratio that you want to get to with that?

Bill Shea -- Chief Financial Officer

Yes, Anthony, as a result of the closing of the credit facility, we now have a little under $200 million worth of term debt. We got the $92 million we had on our balance sheet as of year-end, plus a new $100 million, right? We're still -- our leverage ratio right now is way under two on that. So we have, obviously, flexibility to go up north of that. I think we've said in the past, that we'd be comfortable with a three times leverage.

Obviously, depending upon the opportunity, that could always change. But we have plenty of room from where we are to absorb additional M&A.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. All right. Thank you, and best of luck.

Chris McCann -- Chief Executive Officer

Thank you, Anthony.

Operator

The next question comes from Doug Lane with Blair Research. Please go ahead.

Doug Lane -- Blair Research -- Analyst

Yes. Hi. Good morning, everybody. I just want to go back to the PMall acquisition, if you don't mind, because I know that during the initial stages of the pandemic, it was pretty much shut down.

So is it totally back up and running now or where does that stand as far as getting back to full operation?

Chris McCann -- Chief Executive Officer

Yes, the business is fully back up and running now for month or two since June.

Bill Shea -- Chief Financial Officer

Since June.

Chris McCann -- Chief Executive Officer

Probably it was completely caught up by 4th of July weekend, I would say, right? It was fully operational, ready for the holiday season. And as we mentioned earlier, what we're seeing so far was nice year-over-year increases that we're very excited about.

Doug Lane -- Blair Research -- Analyst

Great. Thank you. And then in the last six months, labor environment softened dramatically here. Does that impact your outlook for the cost situation going into the December quarter?

Bill Shea -- Chief Financial Officer

Yes. I think six months ago, we were -- or at the start of this, when we started to see unemployment climb, we were thinking that the headwinds that we faced for seasonal labor in the past would be less this year, that there'd be more ample workforce to pull from versus historically, last year, 3.5% on unemployment. I think what we're seeing is fiscal challenges with hiring seasonal employees with the unemployment benefits that are out there. There's a part of that kind of seasonal workforce that would quite frankly is incented to stay home.

So there's still a challenge. And with the tremendous demand in e-commerce or growth in demand of e-commerce, not only for ourselves but for other e-commerce companies, the skill set of manufacturing and distribution personnel, there's a lot of competition for that.

Doug Lane -- Blair Research -- Analyst

OK. Fair enough. And then with the whole stay-at-home kind of mindset, can you give us some color or do you have any statistics on how much of your business has shifted from gifting per se to self-consumption?

Chris McCann -- Chief Executive Officer

Sure, Doug. What we've seen a lift in self-consumption or self-gifting business, it's been a nice lift commensurate with the lift that we've seen overall, but it's still is a relatively smaller percentage of our business. Really, the core of our business is people expressing and connecting with others. So sending to other locations.

And that's really the core and where we've seen the majority of our growth.

Doug Lane -- Blair Research -- Analyst

OK. Thanks, everybody.

Chris McCann -- Chief Executive Officer

Thank you, Doug.

Operator

[Operator instructions] The next question comes from Alex Fuhrman with Craig-Hallum. Please go ahead.

Alex Fuhrman -- Craig-Hallum Capital Group LLC -- Analyst

Great. Thanks very much for taking my question. I wanted to ask about the flow-through of revenue to EBITDA, looks like it was really strong here in the fourth quarter. And just looking at the guidance for the September quarter looks like, once again, you're looking for a really nice flow-through of incremental revenue to EBITDA.

Can you talk a little bit about -- and obviously, it's hard to predict exactly what demand is going to look like for the holiday season, but can you just kind of frame up for us what we should kind of think about in terms of incremental cost and margins as you go into the holiday season. I think, Bill, you mentioned that some of the COVID costs, which were pretty meaningful in the fourth quarter, are going to be continuing at about that level. Is that an opportunity for perhaps some leverage off of those costs in our December quarter or as you start to be manufacturing more and running into your own internal constraints, could those costs become more significant as it relates to the flow-through down to the bottom line?

Bill Shea -- Chief Financial Officer

Yes, a lot there. The challenge we have, there are headwinds, right? We're seeing rising third-party shipping costs. We're certainly seeing rising labor cost. So we have to absorb that.

And as we plan, we will take that. What you did see in the fourth quarter and what you're seeing in the first quarter is a significant leverage that we have in the operating model, right? So 900 -- over 900 basis points improvement in our opex ratio in the fourth quarter, driven by that top-line growth and the absorption of a lot of the fixed costs that we have. We did see some marketing issues -- efficiencies in the fourth quarter. So, we do think that's going to probably change as we -- and as Chris mentioned before, and the topic came up with the national elections and as we head toward Q2, costs are going to go, not only TV advertising, but we assume on the digital marketing side, the cost will increase as well.

So there'll be, in theory, less flow through as a result of that, but strong top-line growth will generate nice leverage within our model. We've really continued to look for ways to continue to drive more leverage in the model.

Alex Fuhrman -- Craig-Hallum Capital Group LLC -- Analyst

OK. That's really helpful. Thanks, and hope you're all well.

Chris McCann -- Chief Executive Officer

Great. Thank you, Alex.

Operator

The next question comes from Tim Vierengel with Northcoast Research. Please go ahead.

Tim Vierengel -- Northcoast Research -- Analyst

Good morning. Thank you. Just one quick question. If I remember correctly, the U.S. Postal Service is a pretty important partner for you guys.

You've spend a lot of media about some changes there and maybe some slowdown in delivery. Can you talk about how -- if you guys have seen any impact on your business for maybe changes with the USPS and how those changes, if they're permanent, might affect you guys going forward? Thank you.

Chris McCann -- Chief Executive Officer

So we really haven't seen much changes in our delivery capacity or our delivery capabilities as of now. And USPS is not as big a component as you might think. Bill, why don't you give a little color?

Bill Shea -- Chief Financial Officer

Yes. We have no direct relationship with USPS but FedEx does. FedEx and UPS use the USPS in some cases, in some of their product offerings, delivery offerings for the last mile. So certainly, some of the surcharges that the USPS is going through will be passed through to FedEx will be passed through to us.

There will be higher shipping costs as a result of that. We're working very closely with our carrier partners to make sure we have sufficient capacity for the strong demand that we continue to see.

Tim Vierengel -- Northcoast Research -- Analyst

Thank you.

Chris McCann -- Chief Executive Officer

All right. Thanks, Tim.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Chris McCann for any closing remarks.

Chris McCann -- Chief Executive Officer

So thank you, everyone. As you can see, we're very fortunate as a company that we are positioned so well in front of the trends that are coming out of this pandemic. As a company really that is all about focusing on inspiring human connection, expression, and celebration, as I mentioned, sentiments that we've all learned are more important now than ever. And I encourage you to make sure you're staying connected with the important people and the love ones in your life, whether it benefits you, I can guarantee you it benefits them.

Thank you, and we look forward to talking to you in October at our next earnings call.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Joe Pititto -- Senior Vice President, Investor Relations and Corporate Communications

Chris McCann -- Chief Executive Officer

Bill Shea -- Chief Financial Officer

Dan Kurnos -- The Benchmark Company -- Analyst

Michael Kupinski -- Noble Capital Markets -- Analyst

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Doug Lane -- Blair Research -- Analyst

Alex Fuhrman -- Craig-Hallum Capital Group LLC -- Analyst

Tim Vierengel -- Northcoast Research -- Analyst

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