August 9, 2021 – On today’s podcast, we welcome special guest Chieh Huang, CEO of Boxed, an e-commerce grocery shopping platform selling bulk consumables to households and businesses. Boxed recently announced a going-public transaction at a $640 million enterprise value.

On the podcast, Chieh discusses:

  • Why he left the partner track at a white-shoe law firm to pursue entrepreneurship
  • How Boxed evolved since its founding in a garage 8 years ago
  • How Boxed competes with Walmart, Amazon and Costco
  • Key insights into its going-public transaction with SPAC Seven Oaks Acquisition
  • Growth opportunities and how Boxed plans on getting to $1 billion of revenue
  • And more

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Transcript: 

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: So, I’d like to welcome Chieh Huang on the podcast today, I was going through your background and your LinkedIn profile the other day. And I noticed you started out your career as a lawyer, seemed like you’re well, on your way on the partner track. Ditched that, had a bit of a U-turn in terms of your career, deciding to pursue startups and entrepreneurship. Of course, here you are now as CEO of a company in the midst of going public. But prior to that, what was it like and what made you ditch that partner track and go on to try to do something completely different?

Chieh Huang: Yeah, you know, I have to say I really miss being in front of a monitor at 3:00 am in a lawyer firm on a Saturday morning. So no, I’m kidding. So, I genuinely felt like I learned a lot at the law firm, our legal team likes to say that I wasn’t a real attorney. I was a tourist because I was only at a law firm for about two or three years.

Julian Klymochko: Right.

Chieh Huang: And so, it may sound like I know what I’m talking about, but they say I’m not a real attorney. But you know, being there two to three years, you definitely learn a lot. And especially being there throughout 2008 and 2010, that was such a transformative time in my career because it was such a tumultuous time for the markets. And so, I can firmly say I’ve seen the ups and as well as the downs especially starting my career on September 15th, 2008 at the law firm, about nine hours after Lehman Brothers collapsed. So, I learned so much, and joking aside, you know, I really do sometimes miss those days because of all the ups and downs that we experienced.

Julian Klymochko: Yeah, and certainly it taught you how to burn the midnight oil, which is certainly something that is sometimes necessary in the world of entrepreneurship. Speaking of which you founded boxed.com in your parents’ garage, what was the initial business plan and how has it evolved over the past eight years since its founding?

Chieh Huang: Yeah, you know, on what you just said Julian, it is so true. Like anyone who’s been at a law firm or been on the sell side or been at an investment bank, the suite is that much sweeter because, you know, what the other side tastes like. And so, it makes it all kind of calibrated, I would think. And so, you know, no matter how late I’m working at Boxed these days, I’m just like, well, just not as bad as a law firm actually. And then also, you know, starting in your parent’s garage in central New Jersey, it can seem bad, but again, you know, compared to what, and I actually felt like I had a great time and I look back on those times quite fondly in the garage. So, we started off there. Now about seven and a half years ago with a very simple thought and a very simple premise that, you know, more and more folks were going to buy items on their mobile phones which seems like a no brainer, captain obvious statement today, but rewind seven, eight years ago, that just wasn’t the case.

Julian Klymochko: Right.

Chieh Huang: And then if we believe that that was going to be the case, what was the biggest category that we can go after it? And we thought that was grocery and consumer packaged goods. So, we started off with that simple premise in 2013 and now seven and a half, almost eight years later on the cusp of going public.

Julian Klymochko: So, you really simplified things, buying items on your phone, but there’s obviously a lot more that goes into it than that. It described Boxed has having proprietary end-to-end AI, artificial intelligence and robotics driven e-commerce platform to deliver a user-friendly shopping experience for bulk consumables. I watched some videos, did see what these robots are up to in the fulfillment centers. That being said, it’s a highly competitive environment out there in grocery and retail. What’s your secret sauce and why do your customers pick Boxed instead of Walmart, Costco, Amazon, and those behemoths in the market?

Chieh Huang: Yeah, you know, on what you just said before in terms of simplifying it. I tried to rewind the clock about seven, eight years. And when we sat in the garage, that was basically all that was in front of us. And then of course if I could rewind the clock and go back to the garage, seven, eight years, I’d be like, listen, there’s going to be a lot more where this came from, you know, yes, you’re going to get it right. But as you mentioned, there’s going to be a lot of challenges. A lot of technology risks, a lot of things that you’re really going to have to solve in the ensuing, you know, seven years. Luckily, we were able to see some of those challenges, maybe not on day one, but relatively early.

One of which is that there’s a gap in the markets for consumer-packaged goods to be sold online. But why is there that gap? Well, most folks will say because it’s really hard to make money selling Oreo cookies online. And so, part of the way that we made ourselves competitive and one of the reasons why we were forced to build our own technology was the only way that you were going to make money selling these items was if you pack multiple items in a single box. And so, you know, you can put a single pack of Oreo cookies and you can own a UPS or FedEx, and you will still not make money if that thing is traveling by itself across the country. And so, the average consumer per box buys about seven or eight items these days, a hundred dollars on average of dry items, the average business customer buys 15 items and just about $200 on average.

So, if you think about e-commerce today, you know, it’s really hard to remember the last time you ordered eight items in a single box or a single order off anything online. And so, the software that kind of enables that discovery mechanism, the end result in the fulfillment centers, how you amalgamate that order into a single box also, it needs to be written, even the physical fulfillment that you see behind me today. I wish everyone here could see behind me, but even the rails are wider. The totes are bigger just because eight items per box. So, it actually forced us to innovate and build our own technology.

Julian Klymochko: So, speaking of this technology, I’m sure it didn’t exist back in your parents’ garage. Nonetheless, you guys developed it over the past number of years. I was wondering if you could dig a bit more into some of the technology used in the fulfillment centers, you have these robots, how does AI play a role in this process and the products?

Chieh Huang: Yeah, so in the fulfillment centers, actually across the entire technology stack their front-end systems, like your website, your app, then you get to the inventory management systems, like how much should we buy? How much should we carry of a single item? The warehouse management systems, and even the physical robotics are built our ourselves. And so, when you get into the machine learning and the AI components, those are most useful in the big data sets that we have. So, think on average, yes, we’re not the biggest company just yet. But we have had millions of customers come through our rails. And if each customer is buying eight items on average, you start to multiply the data set that you have on those customers and that customer behavior pretty quickly.

And so, using machine learning we can start to tease out, okay, maybe Julian or Michael, or even me, I think I’m pretty unique, but the reality is, I bought Doritos, diapers and this and that and 50,000 other customers did exactly that last year for us. And you can begin to use machine learning to layer on what they might do next. And so that’s how we use AI and machine learning. The majority of AI and machine learning is really using it for that optimization.

Julian Klymochko: And we were talking before the podcast started about how great your background looks, being at the fulfillment center and everything going on there, look very clean, very efficient. Obviously, these things need to be optimized. And one thing that I noticed with respect to Boxed, some differentiation specifically on how you guys treat your employees. I’ve heard some horror stories on competitors having to do crazy stuff, and they’re just monitored and can’t leave the assembly line and they got to pee in a bottle and all this, you know, it’s seems like a bad working environment, but you guys are fairly big on ESG principles, setting yourself apart. I was wondering how does that play a role in the company and is there a risk that it can sacrifice profitability for investors?

Chieh Huang: Yeah, so a lot to unpack there and the answer is yes, absolutely, there is a risk. We do something that is rather, I guess, revolutionary today, but probably wasn’t revolutionary years ago. And that’s treat folks with dignity and respect no matter where they are on the wage scale for us. It’s funny that is considered an ESG, today, but, you know, a generation ago that just how you acted as a human being, you know, but we try to just basically treat our folks as if they were ourselves and we had those jobs. Partially because, you know, with me and my family, my family worked blue collar jobs. So, I know exactly what it feels like as a child of someone who has been in an hourly position and trying to make ends meet.

So, we do have great benefits for our employees. So, you mentioned it before, I’ll put some meat on the bone, like in terms of detail, we provide free health care for folks that are W2 full-time employees here in the fulfillment centers. We have a $500 emergency fund, so the majority of Americans, you know, would go bankrupt if you presented them with a $500 bill, all of a sudden, you know and we just want to make folks kind of feel comfortable that if they were presented with a bill with a sudden medical bill or auto bill, anything emergency wise, they have this $500 fund to draw down on. And the list kind of goes on. And absolutely you can imagine our shareholders and our board are like, man, you know, like, you should have been Oprah instead, what are you doing running a company?

Can I work there? You know, and I think I was rather vindicated two times recently, one was in the depths of COVID. When, you know, last March, no one knew if you’re going to turn into a zombie, if you got this thing, no one knew what it was. It was really hard to say, hey, this is getting real bad. The whole city is locked down. The state is locked down as of today, but on Monday, I sure hope you’re coming to work, you know? And so, people were having a really difficult time with labor shortages or people willing to come into work. We did not have a single day where it became a problem, where people didn’t show up for work. It was just normal workdays for us. Of course, I told them that, hey, like we treated you guys well when quote, unquote kind of the balance of power or when we didn’t kind of have this potential labor shortage in front of us. And so hopefully you’ll trust us that we’re always going to do the right thing and including doing whatever we can to keep you safe. And Monday morning people came into work, didn’t have any problems. And I think at that moment for our board, at least, you know, I was rather vindicated that, you know, all the credibility went to piggybank and then we broke it and cash in that piggy bank, people showed up. The second, is that on average in our fulfillment centers the typical hourly employee, the average hourly employee, not management, hourly is tenured between two to three years is the average tenure of the average hourly employee. So, because there’s robotics because it’s not a totally unskilled job. Having people in that position longer allows us to be even more efficient. So, we kind of showed that through the numbers. So that’s been also a good kind of proof point that it’s good for them and good for our bottom line.

Michael Kesslering: You’re certainly taking a long-term approach to both your environmental principles, ESG principles, but as well as just overall employee relations. That’s really great to hear. One thing I was really curious about was how you go about your acquiring customers, is specifically within small towns? As I noticed in the investor presentation that small towns effectively make up 42% of your customer base. So, I was wondering what’s working for driving that growth in customers, is word of mouth with advertising? How is that working?

Chieh Huang: Yeah, so a lot of our advertising in the past or our user acquisition has been organic from word of mouth. And so that’s a good thing and also a bad thing as well. So, meaning that word of mouth is great, but you actually have to stoke that a little bit and actually kind of push it from behind with some paid advertising as well.

What you actually probably found in that same deck is that, we had relatively inconsistent access to marketing dollars over the years. So, we would have times where we actually spend on marketing and times where we turned it down and turn it back up. And so, with this transaction, one of the biggest things that we’re looking forward to is to have the capital to be able to spend hopefully in an efficient way, but in a consistent way throughout time. So, we don’t have to turn it down every year or turn it down every season. And so that’s what we’re really looking forward to. Traditionally, because we’ve had a limited budget, to answer your question directly Michael, it’s more bottom of the funnel. So, you’re looking at paid social like Facebook, the social networks, you’re looking at SEM like Google you know, the other search engines as well. So traditionally that’s where we played and hopefully, we can begin to move higher in the funnel and go into big brand building campaigns like commercials or out of home in smaller towns. So that’s something that we’re going to be laser focused on.

Michael Kesslering: One other thing that caught my eye is similar to kind of traditional grocers and retailers, you’re having a lot of success with your own private label brand. I believe it’s called Prince & Spring. And so, can you talk a little bit about that and what your target is on the private label side and how that’s going to help you hopefully expand margins into the future?

Chieh Huang: Yeah, so the Genesis of Prince & Spring was that it actually used to be called Prince & Green. So, we were on corner of Prince & Green in New York city a while back. And so, we filed the application and, you know, we called our kind of law firm and said, hey, didn’t file it yet. And they’re like, yeah, we’re not going to file it for you. We’ll save you the money. It’s going to get rejected. And we’re like what, attorneys generally love, like getting, you know, or charging a thousand dollars an hour for you to do these things. And so, they’re like, okay, let me walk you through this. There’s already a PNG that sells very similar items. And I was like, oh my gosh, thank you. Let’s try the other cross street. And so, Prince & Spring, it never really crosses each other in New York. They run parallel. So, anyone out there that’s a New Yorker or knows New York well, yes, I’ll admit, it’s not an intersection. They never crossed. But, you know, first it started off out of necessity. You could imagine few folks in a garage calling the biggest CPG companies on earth and saying, hey, we’re in a garage.

You want to sell directly to us? They’re like, how did you get this number? Never call us back. And so, we began to fill white space with self-branded items with Prince & Spring. Over time we grew that more and more. So now it’s about 14% of our business, where over half of our repeat shoppers buy at least one Prince & Spring private brand item, we get to control the brand, the distribution and the margin of that. And so, we really liked that, but at the same time, national brands are still what draws people through the doors. And so, we still need to sell a lot of the national brand as well.

Julian Klymochko: So, some big news that I definitely want to get into the weeds on is the recently announced merger and going public transaction with SPAC Seven Oaks Acquisition. This deal values your company at $900 million. I was wondering, first how did the deal come about? Were you seeking to go public? Did you have an inbound? What was some of the background?

Chieh Huang: Yeah, so definitely seeking to go public. So, you know, just thinking about what the right avenue for us would be, with a SPAC, you know, we found most attractive was two main things. And the reason why we went down this road, one was the amount of capital we can raise. So, a traditional S-1, if we went public that way on a market cap, that’s, you know, to be $900 million or a billion, you know, you’re really going to be able to raise about a hundred million dollars in that offering. But for us, depending on redemptions, you know, we potentially could have $300 million on the balance sheet at the end of this transaction. The second is that, we get to tell the story better by projecting out forward.

And here’s what I mean by this. It’s not that we don’t make any money today or that we have zero revenue today and just wait, the 2026, our first dollar of revenue is going to come in. We were able to tell the story of what happens when B2B recovers. So, 2020 was a year for a B2C business. So, me, you guys, your family’s, world’s shortage of toilet paper. I couldn’t complain about 2020 when it came to sales for our typical consumers, but our B2B business saw huge headwinds. And so, the airlines that we service, the big fortune hundred companies, the small to medium size offices providing coffee for their employees, that business was very challenged last year, and it was traditionally a quarter of our business. So, with the S-4, we’re able to properly tell the story of what happens when the world recovers. And so those were the main reasons why we went via SPAC.

Michael Kesslering: And then once you decided to go with a SPAC, what stood out with Seven Oaks outside of, you had mentioned the cash and trust. That’s obviously being a larger SPAC that helps in terms of having those funds on a go forward basis, but what drew you to them? And did their commitment to dedicating a portion of their founder shares to an ESG foundation was that somewhat of a tipping point?

Chieh Huang: Yeah, absolutely. When I think back on that process, Michael, I think it was like, it was two main things that at least for me, drew me to Seven Oaks. So, one was the team. And so that tag team over there, I mean, they’ve got a great management team between the CEO who is Gary Matthew, has been an operator in the physical retail space, has run public companies in the past as well. Tag team with Drew Pearson who understood tech or understands technology, having been the portfolio committee chair for General Atlantic, one of the most prolific growth investors in America for technology, he was he was at Gen GA for almost a quarter century. And so, the marriage of the two allowed them to really understand our story because yes, we sell Oreo cookies, but remember we also sell software as well now. And so, you would find folks that really understand the Oreo cookies, but I have no idea what to do with software or people who sold software for a living that, you know, when they looked at Oreo cookies, they’re like, what are you guys doing with this? And so that was one of the dispositive kinds of factor. The other one was their ESG component as you just mentioned, we really believe that we’re going to be one of the few publicly listed companies that ESG focused funds can own if they want exposure to e-commerce. There’s just not a lot of names out there that have ESG as well as e-commerce. And we think that will hopefully be quite a boost to us in the long run. But we do see ourselves as having an ESG mission, as Julian mentioned before, because of not only what we do, but how we do it.

Julian Klymochko: And digging into some of the details on the transaction and going to the investor presentation you provided, you do have aggressive growth plans. I noticed that you do plan on getting approximately 1 billion in revenue over the next five years. What are the key drivers of that growth, and where’s the focus?

Chieh Huang: Yep, so if you zoom out, I think the good thing that we’re able to show in our presentation that we filed is that we expect, and we want this capital raise to be able to help us to grow at the same pace that we were growing at. And so, when you look at the top line sales, overall, if you zoom out a few years, we’re growing at a 30% kegger or so, if you compound that out after B2B recovers, over the forecast period, you get to just about a billion dollars. And so, it’s not like, hey, hockey sticks, it’s roughly the same CAGR.

Julian Klymochko: Right.

Chieh Huang: On the gross margin side as well. So back in 2017 or 2016, we were like negative 13% gross margin. 2020, we were positive 14%. And so, we think across the company, software included, we’ll get the 30% at the end of the forecast period. So having the capital to enable that continued growth and not a hockey stick growth is kind of how we’re thinking about this whole thing. But overall, there’s a few big opportunities. If I could boil it down for everyone listening here. Continued tailwinds and B2C, just because of how the world has changed, post COVID. Recovery of B2B, B2B was already growing at a 50 plus percent CAGR in the last four or five years for us, so recovery in B2B. And then plus you have this software business that launched this year, which we expect to generate $12 million in year one out of.

Julian Klymochko: So, in terms of this capital raise. The SPAC merger, there’s cash and trust. There’s a pipe financing. One thing that I did notice is Palantir is participating in the pipe for $20 million. Can you talk a bit about how that relationship works?

Chieh Huang: Yeah, I’m really excited about that. So, we think we have great big data tools, you know, talking in Palantir, seeing what they have. They have really great data tools not to say ours aren’t great. But you know, they definitely have a lot of experience in this space. And so, beginning work on projects that not only help us, but help our software clients. So, for us, you can imagine eight items per order as I mentioned before, as we expand fulfillment centers. As we get more and more kind of operational data in the books, really kind of working with them on how we can use that data. So not just engineers and data scientists, but everyone here in the company can click a few buttons and understand exactly based on the data, what the recommended action item is, whether it’s weather, travel delays, input cost increases. So, all of that I think will be very important for us as a company. As we layer that into our software platform and the expertise, we will also be able to introduce our software clients to Palantir and also have some of DNA baked into our software platform as well. So again, not only benefits us, but also benefits our software clients.

Julian Klymochko: You’ve come a long way over the past eight or so years from your parents’ garage. Now, looking at you now, this fancy fulfillment center in the background, which I’m sure is significant upgrade to your parents’ garage, no disrespect to your parents’ garage. So, all that has happened in a span of eight years, where do you think Boxed will be eight years in the future?

Chieh Huang: I think we will be further along our mission to spreading wholesale through our technology throughout the world. I think we’ll have more fulfillment centers; we’ll have more brand awareness and that business will continue to hum here in the U.S. but actually we’ll be able to use our software to expand internationally as we already have this year into Southeast Asia and eventually throughout Asia and throughout international markets using our software. And so, I really think we’ll be on this similar mission, just higher profile, bigger company, and bigger clients. As boring as that sounds, you know, we stayed the course for almost eight years now. I expect us to stay the course over the next eight years as well. So, but I’m excited. Hopefully you can tell, like, you know, we’re raising a lot of money with this SPAC transaction. If this is very successful, again, depending on redemptions, we’re going to have the same amount of money raised in this one transaction as we raised over the last eight years. And so, you can only imagine the acceleration we can do on both our e-commerce business and the software business.

Julian Klymochko: Yeah, certainly it’s exciting. And when the time comes and you’re as big as Amazon. One last fun question. Are you going to copy Jeff Bezos and go into space? Are you plan in something crazy?

Chieh Huang: I don’t know, maybe I’ll do the opposite and I’ll explore the deep sea instead, you know, they’re going up, I’m going to go down, you know, I think my passion is really selfishly running Boxed and kind of doing all these things and seeing the progression of some of our employees who are showing up with not a lot in life and a lot of things that have gone well life. And then years later, I see folks, you know, better station in life, that move to a better neighborhood, you know, I just saw someone with a brand-new car the other day. I’m just like, man, I remember when that person was down on his luck and I get a lot of satisfaction out of that. And so, to be able to help people here and potentially more people who are grounded with us here on earth. I think probably is where my passion lies rather than going to the to the moon. I hope the stock goes to the moon, but you know, for me, I’ll probably stay here grounded.

Julian Klymochko: Yeah, of course, investors the same, but it’s truly a great mission and we love what you built at Boxed. So, keep on fighting the good fight. We wish you best of luck with your going public transaction. If investors are interested, Seven Oaks currently trades under the symbol SVOK. Once this deal wraps up and closes, your symbol will be BOXD, and that’s for investors interested in the stock. Chieh Huang, thank you for coming on the show today, sharing your insights, clearly your passion for the business, all that you’ve accomplished, and we wish you the best of luck in the future.

Chieh Huang: Thanks Julian, thanks Michael.

Julian Klymochko: All right. Cheers. Bye everybody.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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