Thanks Yaniv and good afternoon everyone.
Before discussing our results, I also want to take the opportunity to thank the first responders, healthcare workers and medical providers who are on the front-lines of the COVID-19 battle, and our thoughts are with those that have been impacted of course. I would first like to note that we have and other companies decided to provide monthly revenue information as a COVID-19 situation creates significant uncertainty for outsiders as to its impact on our business and providing such information will give better visibility. We plan on providing the monthly revenue results through Q2 and we'll reevaluate the need for monthly results in Q3.
Now moving to reviewing the operational performance details of our first quarter.
For the first quarter of 2020, net revenue increased 43.6% to $25.6 million from $17.8 million in the year ago period and was in line with our positive pre-announcement in early April.
The increase was primarily attributable to increased direct sales volume of $8.1 million or 47.7% growth of existing products as well as new products launched in the second half of 2019.
Our Q1 performance also benefited from the accelerated shift to online spending that began mid-March with the outbreak of COVID-19 even as overall consumer spending experience to pull back due to the pandemic.
Following a 62% year-over-year increase in March net revenue, the trend picked up pace as we moved into Q2 with April 2020 net revenue increasing approximately 75% versus April 2019. Gross margin for the first quarter increased 280 basis points from a year ago to 40.2% and was up 160 basis points on a sequential basis, excluding the write-off of expired inventory products that impacted the fourth quarter. The year-over-year improvement in gross margin was due to improved product unit economics in our sustained products, as well as lower price promotions and coupons on our launch products.
As mentioned on our last call, we're now reporting our net revenue by each phase of our owned and operated products.
As a reminder, they are launch, sustain, SaaS, liquidation and other. We defined the launch phase, with which on average, last approximately three months as the period of time where we are investing aggressively to – in marketing spend being pricing, coupons, brand rebates or advertising that have a negative contribution margin on the product in order to gain a foothold in the marketplace.
As defined, contribution margin is revenue minus all of our variable costs.
After the launch phase, products are expected to enter the sustain phase. We target that these products will have a positive contribution margin of 10% or more.
Our target contribution margin can be impacted by charges related to excess inventory, exceptional logistics charges related to Amazon and FedEx or UPS relationship, and all prime status to name a few.
Finally, for products that do not reach sustain or that we decide to exit, they moved to our liquidation phase.
The other categories include maybe SaaS and liquidation and other.
For our first quarter 2020, our sustain revenue was approximately $16.9 million versus first quarter 2019 sustain d revenue of $13.3 million.
For our Q1 2020, our launch revenue was approximately $6.2 million versus our Q1 launch revenue of $2.7 million, in Q4 launch revenue itself was $3 million on a trailing basis. In Q1 2020, we launched 16 products, which is less than the expected 20 products and primarily due to COVID-19 related delays.
The increase in launch revenue in the quarter was also due to late launches in Q4, which still were in their launch raise in Q1.
Our Q1 2020 SaaS revenue was approximately $0.4 million versus our Q4 SaaS revenue of $0.3 million and $0.5 million in Q1 2019.
Finally, Q1 2020, liquidation and other revenue was approximately $2.2 million versus our Q4 liquidation and other revenue of $2 million, and $1.2 million in the first quarter of 2019.
Our overall Q1 2020 contribution margin was negative 2.9% an improvement versus the prior year 4.5%, and the Q4 2019 of 6.6%.
And our sustain contribution margin was 6.4% versus the prior year’s negative 0.8% and the Q4 2019 of 5.8%. The year over year improvement was driven by significantly improved unit economics and margin expansion on our sustain revenue, which more than offset the margin drag from the increase in launch revenue. On a trailing quarter basis, the improvements was probably driven by the liquidation phase, as our Q4 results contained impacts a certain inventory write-offs.
I would note our sustain contribution margin was impacted as we incurred one-time costs related to the opening of our additional warehouses, were now at nine operational warehouses and over 50% of our sales are now delivering in one day to our customers at a lower fulfillment costs. Fixed costs for Q1 2020 were $5.7 million or 22% of net revenue, compared to $4.8 million or 27% of net revenue in the first quarter of 2019. The $0.9 million increase was driven by public company costs, such as auditories and D&O insurance.
Our headcount at the end of Q1 2020 was 146 versus, 142 at the end of Q1 2019.
The improvement in fixed cost as a percentage of net revenue from 27% to 22% highlights our ability to launch new products and grow revenue, while keeping fixed costs essentially flat.
We expect significant fixed cost reductions in the second half, both of our public company costs as well as of our operational costs as we continue to benefit from the automation provided by our platform.
Adjusted EBITDA for the first quarter of 2020 decreased to a loss of $6.4 million from a loss of $5.6 million in the first quarter of 2019, driven by public company costs and as well as additional launch of new products. On a sequential basis, adjusted EBITDA improved from the loss of $7.6 million in the fourth quarter of 2019.
Our path to profitability is a function of more revenue reaching the sustain phase, margin expansion of or sustain products and continuing to optimize our fixed cost structure as we continue to automate through any and lead to continued improvement in adjusted EBITDA.
Turning to the balance sheet.
As of March, 2020 we had $14.1 million of cash, compared to with $30.4 million at the end of December 31st, 2019. Cash used in operating activities for the first quarter was $17.2 million, compared to cash used in operating activities of $12.1 million in the fourth quarter of 2019, which was impacted by increased cash operating loss and increased cash usage in working capital, as we increased our inventory on hand, as a result of traditional seasonality due to Chinese New Year, as well as the tariff risk in Q4 2019 and the COVID-2019 impact on the supply chain as well. Based on historical trends, we expect that to generate cash from working capital in Q2 and Q3.
Overall cash burn was $16.3 million, compared to $5.3 million in the fourth quarter of 2019, due to the significant increase in working capital spending.
Our total debt as of March 31st, 2020 was $39.9 million, consisting of borrowing under our revolving credit facility and our $15 million term loan, as compared to total debt of $37.9 million, as of December 31st, 2019, increases a direct reflection of our planned increased inventory.
As it relates to coronavirus, as discussed on our Q4 call, the outbreak of COVID-19 in January had an unfavorable impact on some of our key manufacturing partners in China.
In addition to negatively impacting work operations for our team in Shenzhen, who are responsible for product sourcing and development among other things.
Our key manufacturing partners in China reopened on February 10, and quickly reached over 90% capacity early in March 2020. In March 2020, the COVID-19 outbreak became increasingly widespread in the U.S., and given its impact across the U.S., including the temporary closures of many businesses, shelter-in-place and other governmental regulations and despite a significant overall decrease in consumer spending, we have seen an increase in demand for our products across multiple categories of consumers are spending a much larger share of their spending online.
I would note that the longer-term impact on our revenues, profitability and financial position is uncertain at this time though the current trend seems to indicate that the shift to online spending far outweighs the overall contraction in consumer spending, and likely is a step function increase in the adoption of online shopping.
In terms of our outlook for 2020, we expect to launch approximately 10 new products during the second quarter or approximately 20 in the second half. We're slowing down our rate to launch into the data volatility we see in consumer behavior, which provides a more complex environment for our launch process, as well as our focus on reaching profitability in Q3 and Q4.
For 2020, we currently expect net revenue to be in the range of $165 million to $175 million, an increase from our previously stated guidance of $160 million to $170 million. This improved outlook is driven primarily by continued growth of our existing product portfolio and the positive contribution from new products launched in 2020.
We have incorporated the potential impacts of the COVID-19 in terms of inventory constraints for existing products, plan and delays in new product launches, consumer spending, contraction and overall shift to online commerce into our guidance.
We expect the adjusted EBITDA with respect to adjusted EBITDA, we continue to expect positive adjusted EBITDA in the third quarter of 2020 and now we expect to achieve positive adjusted EBITDA in the fourth quarter of 2020 as well, driven by further improvement in our fixed cost leverage ratio and higher revenue growth due in part to the accelerated adoption of online spending.
With that, I'll turn it back to operator for questions. Thank you.