Q3 2021 ContextLogic Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to do wish third cartridge 2022 and earnings conference call. At this time, all participants are in a listen Illinois.

After the speaker's presentation there'll be a question and answer session and.

And to ask a question drink decision you will need to press star one on your telephone keypad.

And that's a reminder to ask a question you need to print Darwin I could tell.

And that was my I kind of conference over to Jesse <unk>, Vice President business operations. Please go ahead.

Thank you good afternoon and welcome everyone.

Joining me today to discuss the results are jacqueline racist or executive chair or interim coast.

Bread, Jack and Jennifer Oliver.

<unk> R. C T O three and Jane are CPO and wishes, new CFO Vivienne <unk> will join us for the Q&A session.

During the call we will make forward looking statements about our future plans financial perfect.

These statements are subject to risks uncertainties.

And assumptions.

If the rip materialize or assumptions proven correct actual results could differ materially from the results implied by these forward looking statements. We encourage you to consider the risk factors described in our SEC filings for additional information.

The date of this call is November 10th 2021 and forward looking statements made today are based on assumptions as of this date, we undertake no obligation to and do not intend to update these statements as a result of new information or events.

This call is being broadcast on the Internet and is accessible on our Investor Relations website, a recording of the call will be available later today.

Bring the call, we will discuss gap and non-GAAP measures, including adjusted EBITDA free cash flow and statement of operations data. We encourage you to read our earnings news release, which can be found in our Investor Relations website and on form 8-K, which we have filed with the SEC as it contains important information about our gas and non-GAAP results, including reconciliations of historical non-GAAP financial.

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We will now open with brief remarks, and then we will take your questions and with that I'll turn the call over to Jackie.

Awesome. Thanks, so much Jesse and welcome to everyone before we get into our third quarter over B L. I'd like to start with an important announcement that we've shared by a press release shortly before this call and.

As you may have seen Peter shall checchi wishes founder and T. L is stepping down from his role as Chief Executive Officer.

Peter made a personal decision that now is the right time to step away from the business and is fully committed to ensuring estimate transition.

Peter will remain C. L until the board of directors appoint a new C L or no later than February 1st 2022.

Or will remain on the company's board of directors as well I'll.

On behalf of the board and the entire team at <unk> I went out to suppress my sincerest gratitude to Peter first contributions to the company.

Since founding wish in 2010, he's help scale the organization into a global publicly traded marketplace focused on providing millions a valued conscious shoppers with an entertaining and fun experience.

Peter also help to assemble a strong leadership team of highly qualified senior executives, which is well prepared to execute on the turnaround strategy outlined in our second quarter call and oversee the company's daily operations, while the board searches for a new C L.

With the foundation, Peter help to develop wishes well positioned to continue to evolve and grow.

Now triangulation third quarter results during our third quarter, we made progress on our turnaround strategy, while exceeding the Q3 financial outlets provided on our left Punnings call.

We achieved adjusted EBITDA above the high end of our guidance in part due to a more efficient digital advertising spent.

Beginning in mid July we began to significantly cut back our digital AD spend while we focused on improving does your attention and key core marketplace fundamentals.

As expected our third quarter revenue experienced a decline that was in line with the lower digital ad spend.

Maintain a disciplined approach to catch an expense management that corresponds to our financial improvement as we execute on our turnaround strategy.

Two key pillars of our strategy to return to growth are as follows.

Increased use your confidence in our marketplace and provide a more differentiated and engaging use your experience.

We remain confident in our ability to return to growth during the second half of 2022, while also positioning wish to create significant shareholder value over time I'd like to share more details about the progress we've made in Q3.

First we took a few major steps this quarter to improve user confidence in our platform, we announced a new program for merchants called which standard which is designed to reward merchants that consistently provides an exception I'll use your experience.

While we evaluate merchants across performance metrics, such as product quality shipping a fulfillment and user with you and ratings will.

We will provide the highest performing merchants with priority placement across are buying experiences as well as with commission discounts.

Their results are encouraging as we've seen improve transaction MTS reduce defects right and improved for attention as we ramp up the sheriff voice for higher quality merchants.

We've also increased our efforts to proactively prevent detect and remove misleading fraudulent or poorly reviewed and low quality product listings from the platform we.

We intend to continue these efforts as we offer buyer protection for all qualified <unk> excuse me purchases on that platform.

Secondly, we're making progress and reinventing our shopping experience to make it more encouraging into entertaining and easier for users to purchase products. They love our experiment with incorporating live in video shopping into our user experience is an important component of our modernization.

Initiative, which clips is a new feature that allows users to shop directly from high quality entrusted merchant created videos. We are currently testing to speech or an Android devices in the U S and we believe that both play bathroom live video shopping are key components of the discovery Bay shopping platform and we intend to.

Build one of the largest repositories of high quality shoppable videos and the world.

We also made progress and redesigning our homepage through active experimentation both to make it more visually appealing and to better showcase deals trends in unique products and we are testing, allowing users to freely browse the best of wish without having to create an account.

Providing for users with more flexibility Co-payments is also a key initiatives.

And cute three we partnered with Corna, a leading global retail bank payments and shopping service to allow flexible payment options for users in the U S.

This is part of a broader drive to expand our buy now pay later offering.

With this corner partnership wish users in the U S have the flexibility to spread the cost of their purchases over four interest repayment we've.

We expect this new partnership will drive increased average order volume and revenue.

Third we continue to recruit additional top quality merchants and brands to our platform and give them tools to drive their own success.

During two three we onboarded more than 12000, new merchant partners earlier. This week, we hosted more than 450 merchant partner and an <unk> summit in China.

At the event, we announced a variety of new features to support their businesses and the long term sustainability of the wish platform.

Among these tools are a new merchant promotion platform enables merchants to fund Enron a variety of their own promotion campaign.

We believe this will provide our users with better value and reduce or on direct promotion costs, all while empowering our merchants with the tools to easily manage their campaign.

As we focus more on direct to consumer brands, we will be launching improves merchant stores that will enable merchants to create customized store fun on the wish platform.

We plan to provide tools for merchants to directly engage their customer and followers around the world.

Our ad products products.

Has been an effective tool for our merchants to drive incremental conversions and growth we.

We continue to invest in engaging AD formats, new pricing models and add load optimizations, while delivering compelling robots to our advertisers.

On the logistics side, we continue to focus on reducing delivery time <unk>.

Increasing on time race, and improving consistency on narrowing the delivery window users T. At checkout display global supply chain Shark story, Makoto, we were able to reduce their delivery times and improve our on time right.

As we look ahead towards the holiday season, we've taken steps to manage our three P. All cost.

Walgreens fencing air cargo capacity to enable a greater number of pre holiday celebration. Furthermore to make planning easier farm <unk>, we announce will be we will be maintaining fixed shipping costs for our quality merchant throughout the holiday season.

Along with all the improvements to the user and merchant experiences we've added to our leadership team to best position the company to execute successfully on our strategy. We recently announced the appointment of Vivian <unk> Chief Financial Officer, Vivian as the seasons can ask the executive who recently joined wish from Shutterfly.

Where she oversaw the finance function, while transforming the business to achieve accelerated top line growth and profitability.

Her experiences directly in line with our goals here it wish.

Finally, I'd like to take this opportunity to thank Brett shop, and Jennifer Oliver for stepping in as interim coach CFO is during what has been a transformational time for the business with that I'll turn the call the breath for a review of our financial results.

Thank you Jackie please note that some metrics we discussed today will be on an ongoing basis reconciliation of GAAP to non-GAAP results is included in our earnings news release, which can be found on our industrial.

Alright, and involved with the a C C.

During two three total revenue was $368 million that represent the decline of 39% year over year, 44% over to to a Jackie mentions the decline in revenue was driven primarily by our decision to significantly pullback on digital ladson, while we address the operating challenges will be outlined on the last call back.

Backfield in marketing spend with only 40% of revenue compared with 64% in two three of last year.

On a dollar basis sales and marketing spend 162% lower year over year.

Two three that lost with $64 million and adjusted EBITDA was a loss of 30 million well ahead of our high end over outlook rink Park as Jackie described do two more efficient digital ladson.

Adjusted EBITDA margin improved 200 basis points on an absolute basis from 222, 8% 300 basis points compared with two 320, 20th.

As expected our user metrics were directly affected by the lower digital aspirin total monthly active users declined 40% year over year 60 million in the last 12 months active buyers increased 32% of your of your to 46 million.

As anticipated each of our three main revenue streams saw declines during the quarter for marketplace revenue decreased 55% year over year 283 million, primarily due to lower order volume associated with reduced mouths an L. P M active buyers.

Probably goes revenue decreased 24% year over year to $37 million due to an overall lower volume of impressions that wish was able to deliver as traffic to the workshops load driven by the pullback in that Sir.

Which is fixed revenue in the third quarter was 148 million or 3% year over year decrease driven by overall lower parcel boy.

Now turning to our costs and expenses cost of revenue for the third quarter of 2021 was 201 million, 17% year over your decrease non got cost of revenue, which excludes doctors conversation with $196 million a decrease of 19% year over year. The overall decrease was primarily due to lower the logistics related.

<unk> as if he had significantly lower volumes compared to the prior year.

Gross profit was 157 million down 54% year over year on.

<unk> gross profit, which excludes doctors compensation was 172 million down 53% from two 320, 20th.

Yeah, I've been non-GAAP gross margin declined on a year over year in sequential basis, 245, and 47% of revenue effectively primarily due to a higher mix from logistics revenue, which has a lower margin profile then.

Market place right.

Third quarter sales and marketing expense of 147 million or 40% of revenue.

64% of revenue and two 320, 20, and 50 per cent of revenue in two 220 21.

<unk> sales and marketing expense, which excludes doctors compensation for 39% of revenue down from 64% of revenue and two 320 20th.

<unk> sales and marketing expense was down 62, and 63% respectively year over year, primarily due to lower digital ads advertising spend as we worked to address our operating challenges plan.

Glad to resume our investment in user acquisition. Once we begin to see positive user engagement trends, which we continue to believe will be achieved in the back half of 2022.

Third quarter product development expenses were 54 million or 15% of revenue.

Non-GAAP product development expenses, which excludes soccer as compensation for 37 million or 10% of revenue as we continue to invest in improving the user experience.

Third quarter General administrative expenses were 29 million or 8% of revenue non-GAAP G&A expenses, excluding starfish compensation for 25 million or 7% a runner.

Looking at our balance sheet and cash flow statements, which ended two three with a solid cash position of 1.2 billion in cash cash equivalents and Margaret Securities.

Free cash flow was negative $344 million, primarily driven by our net loss, which was primarily driven by a lower order volume and unfavorable net working capital changes due to the timing of cash outflows tumor trusted vendors did.

Did I get up working capital changes and two three were mainly driven by accounts payable merchants available approved and refund liabilities.

These changes should be one time in nature to bring us down to the lower operating level going forward, we expect free cash flow to remain near breakeven until we can start to invest in growth again later next year.

While we are not providing too for revenue guidance, we expect to for revenue to be below two three despite the holidays. This is primarily driven by the benefit of higher AD spent at the beginning of two three specifically to for revenue through the end of October is down approximately 20 per cent compared to.

Our average Q3 revenue adjusted for someone number of days.

In terms of outlook for the fourth quarter, we expect adjusted Eve at a loss in the range of 35 to 30 <unk>. We will continue to maintain a disciplined approach to cash management and closely monitor adjusted EBITDA on a go forward basis.

And I would like to turn the call back to Jackie to provide our closing remark.

Great. Thank you Brett at its core which has an incredible opportunity within the mobile ecommerce space.

We believe we have the right technology and platform to be a global ecommerce later and we are building a great team to be able to capitalize on the opportunity.

But certainly we have work to do we face macro headwinds and the challenge to enhance our platform into the differentiated and engaging E. Commerce experience, we know what can be done.

He will continue to maintain significantly lower digital AD spend while we focus on improving use your attention and P core marketplace fundamentals.

We are at the beginning of an aggressive turnaround strategy that we believe will transform the way, we operate and improve the experiences of our users and I'm <unk>.

We made solid progress during the third quarter and we're confident that we will be continuing our strategic momentum as we close out 2021 and proceed into the New York.

We expect this momentum will build and ultimately translate into growth in the second half of 2022.

So with that I'll stop and operator, we're ready for the first question.

Thank you presenters and as a reminder to ask a question. Please for a star one on your telephone keypad.

And to enjoy your question you May press the pound key.

Who will cost for just a moment to compose a Q and their roster.

We have our first question from.

Doug onions from J P. Morgan.

Your line is open.

Yeah. This is neato doing for drunk uhm. So just a couple of questions on number one is.

Just if you could do like some color on the quarterly by of Dreams that you used to <unk> <unk>. So what if you can <unk>.

And number two is just wanted to touch on the new strategies will read and don't see any updates on <unk> two is <unk> and the new Doom.

Sure. Thank you so much for your question. So in in terms of the quarterly buyer Tran address Bratton mentioned our quarterly.

R. R. M. A use were down in Q3, and so I'll see him active buyers.

And we anticipate that this trend will continue into queue for driven by the lack of the heightened Q3 aspirin.

And let me so thank you for the question. Good afternoon, everybody on important cast all your Chief Technology Officer on the question of which local yes, we shall cause remains a priority for us we <unk>.

Two three and then going into two four.

Focused we should've called on local pick up in local returned books. Because these are really good experiences for Ah, but it was also because cost synergies Oh shoot.

Ah network, so we are improving.

Ah next finding a local.

<unk>.

And.

<unk>.

Have you resolved as as they come.

I'm a little bit about.

We talked about about 10% off or total orders are coming from the local networks and some countries are pretty significant b U a 40% plus does remains unchanged.

If I can add you know the broader met appoint that you're gonna see us continue to focus on is that we won't be experienced to be great for our users and where we can do that by providing local pick up that's absolutely cord and the strategy and I think we've got to focus on our two priority, making the experienced great.

For our users and building trust and so within that will continue to pursue the strategies that that make the experience better for pick up that's a key part of our marketplace.

Alright, Thanks Grayson.

Okay.

We have our next question from drunk Blackledge from calling your line is open.

Hi. This is this is still on for John I have two questions if I could.

You guys are able to tighten the belt on.

Show the marketing expenses more than we expected in the third quarter do you think you could just frame for us your expectations for that spend for four Q21, Oh, just a little bit more and then when do you anticipate turning that marketing spend back on his head ahead of that second half turnaround or just any color there would be helpful and then.

You guys have a solid cash position and given your expectations for breakeven free cash flow going forward do you think you could give us an update on it just capital allocation strategy and the potential for share buybacks. Thanks.

Sure. Thank you so much further questions on the marketing side of things are artificial fee exiting Q3 was actually on the highest is being since 2017, we continue to take a disciplined approach to our AD spend and we're gonna continue to do so we're really looking for those green shoots specific to retention transaction Mcf and growth and the lawyer loyal user rates, but.

Four we further invest in growth and the plans bill is too.

Invest in growth in the second part of 2022.

On the piece associated with free cash flow.

We plan on in the next few quarters before we start reinvesting drugs to monitor is we monitor.

Monitor adjusted your budget be low so we plan on it to feed their breakeven until we start reinvesting in the growth of 2022.

Yeah finally on the buy back.

Yeah, we have not been looking at a buyback will focus right now I'm reinvesting in the business of making sure that we stay laser focused on user crossed and an experienced that are customer have.

And so that's really been our core priority.

Great really helpful. Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

We have our next.

Question from US even do from credit Suisse. Your line is open.

Hey, Thanks, This is Tyler on for Steven.

I guess just.

Hone in on reacted by our question one more time.

Just in terms of your expected buyer count for four Q.

Should we be thinking about.

Similarly levels versus your October revenue decrease expectation. Thanks.

Thanks, So much for your question I think it's fair to say that and that our revenue will decline in line with buyers and now for the quarter.

Thank you.

Okay.

And once again, if you would like to ask you a question. Please press star one on your telephone keypad.

Okay.

There are no questions at this time I will turn the call over back to the management. Thank you great. Thank you very much first I'd like to thank everyone for your questions today, we greatly appreciate it.

And we look forward to providing you an update on our call next February thanks, So much bye bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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