Q4 2021 ContextLogic Inc Earnings Call

Okay.

Ladies and gentlemen, thank you for standing by and welcome to the West wished fourth quarter and full year 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone if you require any further assistance. Please press star zero.

I would now like to turn the call over to your host readiness Regal VP of Investor Relations you may begin.

Hi, everyone and welcome to wishes fourth quarter and fiscal year end 2021 earnings conference call I'm, Randy Schrager VP of Investor Relations and joining me today are new.

E L Vijay Talwar and our CFO to being live today.

Today's prepared remarks have been prerecorded. There's also a slide deck that has been posted to our IR website, which is available for your reference.

Once we are finished with the Jay and Vivian <unk> remarks, we will hold a live Q&A session questions can be submitted via the Q&A window chat that will be displayed on your screen.

The remarks made today include forward looking statements that are related to among other things our financial expectations business and turnaround plans timing for a turnaround expectations regarding merchant relationships the potential impact of our strategic marketing and product initiatives.

In the in pit anticipated returns on our investments and their ability to drive future growth. Our actual results may differ materially from the results implied by these forward looking statements.

Certain risks materialize or assumptions prove incorrect.

Forward looking statements involve risks and uncertainties, which are described in today's earnings release, and our Peter periodic reports filed with the SEC any forward looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them.

Also during this call we will present, both GAAP and non-GAAP financial numbers and metrics a reconciliation of non-GAAP to GAAP results is included in today's earnings release, which you can find on our Investor Relations website, and which is also filed with the SEC a replay of this call will be posted to our Investor Relations website.

At this time I would like to turn over the call to our company CEO J tower.

Thank you Randy and welcome to the risk team as well.

I would like to thank everyone on the call for joining for our fourth quarter and year end 2021 earnings call on this call I will update you on our fourth quarter results and I will introduce the three strategic pillars that we expect to drive our successful turnaround and future growth.

After my initial comments, we then Lou <unk>, our CFO will discuss the fourth quarter and year end numbers in more detail.

And then I will provide some closing comments before opening up the call to your questions.

In the fourth quarter quarter of 2021 total revenues were $289 million a year over year decrease of 64% driven largely by lower ad spend.

However cost savings resulted in adjusted EBITDA of a loss of $23 million, which was an improvement of $95 million from a year ago.

In Q4 free cash flow was negative $50 million, which was a material improvement to the negative $344 million of free cash flow in the third quarter of fiscal 2021.

We also finished the year with cash cash equivalents and marketable securities of $1 2 billion.

These numbers tell me, we need some fresh thinking to guide us back to growth.

Aldo as possible let.

Let me start by explaining three foundational pillars that we believe are the most important to the long term financial health and growth of fish.

First <unk>.

Improving our user experience.

Second deeper.

Deep learning a merchant relationships.

Third achieving organizational efficiencies.

We get all these alerts qualified we expect to drive vish into a new era of growth.

Let's take a deeper look at each pillar.

For the wish user experience.

We are investing to improve the platform to drive more daily engagement, which we expect will generate more traffic higher conversion and ultimately increase revenues.

Several new consumer experience improvements that incubated and tested in the fourth quarter of last year.

After a positive reception and consumer facing tests, we are proud to announce a redesign of the <unk> homepage, which is designed to showcase trending products underscore popular brands and highlight popular merchant stores.

Newbridge homepage experience is now available on Android phones in the United States and we plan to rollout these enhancements to other platforms and additional countries over the next few months.

Another consumer experience that wasn't development and testing late last year, because bush clips.

<unk> discussed this with you on previous earnings calls we.

We are happy to announce that we recently rolled out <unk> video features to Android users in our top nine global markets risk.

Wish clips greatly enhances consumer interactivity.

With one tap of the phone our users can view videos of products look at product details and simply and quickly add a product to the shopping cart.

We will begin to rollout the new Bush flips features to iOS users. This April .

Over the course of 2022, we will continue to experiment incubate and invest in exciting new features products and services that we expect will greatly improve our consumer experience.

The second pillar that I would like to discuss the efforts, we're making to deepen our merchant relationships.

As a marketplace, we recognize that our merchants that at the heart of a great consumer experience.

I would therefore like to reemphasize how committed we are to improve the economics of those merchants, who provide an outstanding experience drove this consumer.

In the fall of 2021, we began the rollout of a new program called wish standards.

With rewards merchants that consistently provide an outstanding experience to our marketplace users.

With this program merchant performance is measured and those that consistently provide an outstanding consumer experience.

Awarded with commission discounts better payment terms and increased visibility to buyers on the risk platform.

The second part of our effort to strengthen our merchant relationships.

<unk> consistent and effective enforcement of our merchant policies.

This means increasing the channels in ways that members of the public can report noncompliant product listings to us.

And separately, leveraging our internal systems and processes to help with the removal of such listings.

Removing the listings and merchants that violate our policies as an important first step in improving trust.

Not only amongst our users, but our merchants as well.

Our ability to provide end to end services, including logistics services are a competitive advantage foolish.

Logistics services are highly valued by our merchants, we continue to focus on improving shipping speed and on time delivery for our consumers while remaining competitive in our pricing for logistics services.

Our merchants.

We believe that our investments in logistics will not only generate greater financial returns for bush, but also strengthen our relationships with merchants.

The third pillar is.

Achieving operational efficiencies.

2022 is the start of a new chapter for dish.

With a new leadership team of experienced executives.

In addition to me joining as CEO .

In the last few months, we have added a new chief Financial Officer, a new Chief Technology Officer, and a new chief product officer to the executive team.

We have a lot of work ahead of us to improve this business operationally.

And our first steps are to rationalize corporate overhead and operating expenses.

As part of these efforts we are implementing our restructuring plan and taking a restructuring charges of approximately $3 million for severance and personnel reduction costs.

And a maximum of $21 million related to the exit of certain office leases.

We are focused on making this a much leaner and more efficient business.

With the goal of becoming a more profitable enterprise long term.

With that being said.

Today, we notified wish employees that we will undergo a reduction in our global workforce.

As part of a broader realignment of our resources.

We anticipate that this reduction in force will decrease our global workforce by about approximately 15%.

Or approximately 190 positions.

This.

Incredibly difficult decision to make.

And a process to go through.

Particularly in my first few weeks.

But it is critical that we do.

Rightsize, our spending to match the current size and scope of our business.

Another step up to streamlining our business and more efficiently allocating financial and operational resources was our decision to end our marketplace operations in 79 countries.

These markets provided a nominal contribution to our revenues, but a noticeable drag on our margins. So it made financial sense to exit these markets.

We will be laser focused on the 61 markets in which we have a promising financial results.

And benefit from economies of scale.

With our focus on a smaller number of select markets. We will also be reducing the operational complexity of our business.

In summary, our foundational priorities for 2022 are improving the user experience.

Deepening our relationships with merchants and achieving organizational efficiencies.

I'll now turn over the call to our CFO Vivian to discuss the financial results.

Thank you BJ.

Today, I will discuss our fourth quarter and fiscal year 2021 results.

I will also provide adjusted EBITDA guidance for Q1 2022.

Any information on revenue in the quarter through January .

Our Q4, adjusted EBITDA was a loss of $23 million.

A significant improvement compared with a loss of $118 million from Q4 2020.

This exceeded the high end of the guidance, we provided on our last call.

Our Q4 total net loss was $58 million.

Or a loss of <unk> <unk> per share.

Which improved from a total net loss.

$569 million or a loss of $3 14 per share in Q4 2020.

Q4 free cash flow was negative $15 million.

A decline from year over year standpoint, but a significant improvement quarter over quarter.

Compared to Q free cash flow of negative $344 million in Q3.

We shared on the last call we are focused on cash flow and EBITDA during the turnaround.

The Q4 results are a reflection of our progress you better improvement and cash flow optimization.

Since the July 2021.

We have kept our <unk> at a much reduced level.

Which impacted our user metrics and our financial performance.

In Q4.

Yes.

The active user accounts in the last 12 months active buyer count.

Experienced a 58% and a 41% decline respectively year over year.

Total revenues were $289 million.

A decline of 64% year over year.

This revenue decline was across core marketplace.

Product group and the logistics.

Q4, gross profit was $120 million.

Representing 42% of revenue.

A decline from 57% of revenue in Q4 of 2020.

The declines in gross margin was primarily driven by logistics revenue accounting for a higher percent of total revenue in Q4.

Total operating expenses were $184 million.

A reduction of 81% year over year.

Sales and marketing expenses were $89 million.

A reduction off of $494 million year over year.

Representing 31% of revenue in Q4, 2021, compared with 73% of revenue in Q4 2020.

The change in sales and marketing expenses were primarily driven by reduced ad spend.

Product development expenses were $51 million.

A reduction of $99 million year over year.

G&A expenses were $44 million.

A reduction of $186 million year over year.

Representing 15% of revenues compared with 29% of revenues in Q4 2020.

The change in product development, and G&A expenses were primarily driven by higher stock based compensation in 2020.

The year of which at the IPO.

Now turning to wishes the year end results.

2021 revenues were $2 $1 billion.

A decline of 18% year over year.

Core marketplace revenues were one point is $3 billion.

Representing a decline of $685 million or three 4% year over year.

The decline was primarily driven by lower order volume associated with a lower AD spend during the year.

Additionally, product boosted revenues were $165 million.

Representing a decline of $35 million or 18% year over year, driven by lower level of activities on the <unk> platform.

Logistics revenues were $743 million, representing an increase of $229 million or 45% year over year.

This increase was primarily due to accelerated merchant adoption of our logistics offering.

As well as the expansion of our eight plus program you wish with managers to the majority of shipping relating to activity for the merchant.

Gross profit for 2021 with $1 $1 billion.

Representing 53% of revenue down.

Down from 53% of revenue in 2020.

Similarly to Q4 the decline in gross margin percentage for the year was primarily driven by logistics contributing a higher portion of total revenues.

Total operating expenses for 2021, we're one of $5 billion.

A decrease of 34% year over year.

Sales and marketing expenses were $1 $1 billion.

$606 million lower year over year.

Representing 53% of revenue compared with 67% from revenues in 2020.

Product development expenses were $208 million.

$14 million lower year over year.

G&A expenses were $165 million.

$130 million lower year over year.

Representing 8% of revenue compared with 12% of revenue in 2020.

Our 2020, adjusted EBITDA was a loss of $199 million.

The improvement from a loss of $217 million in 2020.

Our total net loss was $361 million improved from a total net loss of $745 million in 2020.

The improvement in profitability.

Net results of significant cost savings across the board more than offsetting the decline in revenue after we reduced ad spend.

A few comments about cash flows.

We ended 2021 with a solid cash position of $1 $2 billion in cash cash equivalents and marketable securities.

In 2021 net of cash used in operating activities.

Well, it's <unk> hundred $51 million.

This was primarily driven by our net operating losses and unfavorable changes in working capital.

I'd like to note that some of the unfavorable changes in working capital are not expected to recur in 2022.

For example.

We negotiated a payment term extensions with some vendors in 2020.

Those terms expired in Q1, 2020 ones, resulting in additional cash used of roughly $170 million.

We do not anticipate a similar event this year.

As previously shared our cash flow in Q4 significantly improved quarter over quarter, reflecting cost savings and the lack of volatility in working capital since Q3 last year.

And at this time I will be providing our outlook for Q1 of 2022.

We expect adjusted EBITDA in the range of negative $70 million to negative $60 million.

We expect Q1 EBITDA to be lower relative to Q4 due to seasonality as well as price changes in select areas that are where you mentioned the during Q1.

Collectively those price changes are expected to reduce revenue and EBITDA for the quarter, but enhance user engagement and conversion rates going forward.

We also continue to rationalize.

Advertising spend until we see consistent improvement in metrics, such as a buyer retention and MTS.

Q1 revenues are expected to reflect the relatively low ad spend level during the quarter.

As a reference point our revenue in January 2022 were down 28% relative to October 2021, the first month of the last quarter.

During my first three months at which I have spoken with a number of existing and potential investors.

I received a feedback that a which may consider disclosing additional metrics to help the investor community evaluate the business operational and financial performance.

As a reminder.

Currently we should report actual results on PPI, including but are not limited to Q monthly active users last 12 months total buyers revenues and adjusted EBITDA.

Which also provide quarterly guidance on adjusted EBITDA.

The management team is actively assessing the feasibility of adding new <unk> to our disclosures either in actual results future guidance or both.

We will keep you informed as we finalize that decision.

I will now hand, it over back to Vijay.

Thank you Vivian.

We must be objective in our outlook and realistic that any successful turnaround does not happen overnight.

We are refocusing on our roots of providing an affordable and entertaining shopping experience for our marketplace users.

Lately appreciate the support from our Investor community, our employees, our merchants and other key stakeholders.

Expect to see the first green shoots of our operational progress later this year.

However.

To achieve sustainable growth and a full turnaround we expect this journey to take many more months.

At this time I want to thank all the hardworking employees at Bush.

As the new CEO .

I would be remiss not to acknowledge that our employees have been through a lot in the past year.

This is at its heart a people business and our success has been and will continue to be driven by your creativity. Your hard work your talent and your focus.

I am thrilled to be Youll CEO .

Look forward to being in the trenches as we work hard each and every day to make this a more successful company.

We will now open up the call to questions from analysts and investors in addition to myself and Vivian.

Chief Technology Officer, Farhan, and our Chief product Officer will also be available to answer your questions. Thank you.

Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please.

Our first question comes from Michael Mcgovern's Bank of America.

Hey, guys. Thanks for taking my question.

I wanted to ask about.

The strategic perspective from here on a couple of aspects of the business one would be from a geographic perspective.

You outlined that you are closing.

Our exiting 79 markets are remaining in 61 I was wondering if any particular markets or other specific focus for you.

Particularly the U S are you more focused on growth in the U S.

Now, then maybe which might've been in previous years, and then secondly.

The strategic perspective on <unk>.

Are you more focused on say call it higher.

Items relative to lower priced items going forward, which is a scheme that we had heard.

Some previous quarters and desktop thanks.

Thank you Michael So just to kind of repeat the question you were asking about our strategic perspective.

From a geographical perspective, and B from an <unk> perspective.

I'll start the answer and I'll ask the others to chime in as well from a geographic perspective, we already talked about the fact that we have recently left about 79 markets.

And we are focused on the 61.

The 79 markets, we talked about the fact that they were relatively small or very nominal in terms of the revenue. Although there was still a drag on our sort of margins and therefore, it made financial sense to exit those businesses.

In terms of the 61 that will continue continue to focus on.

I believe that the biggest markets, we're going to be focused on continue to be North America, and the and sort of best in Europe . So and if you think about the top 10 markets that we're focused on they are predominantly sort of Canada and U S as well as sort of the you know the.

Big seven big eight markets in Europe .

So those markets will get more attention as part of the new strategy and the new realignment.

The second part of your question was as it relates to <unk>.

And I think there is some work that we still need to continue to do to provide that sort of.

Amazing consumer experience.

And I think part of the strategy will be to increase it'll be we may not see that immediately.

Immediately.

But we have started some conversations and collaborations with our merchants to talk about what does that look like right. I mean, if you are if you are shipping something.

Below $5 and paying a significant amount in shipping the actual value that the consumer is getting is lower right.

Alright, so how do we try to and there's lots of ideas in terms of how we.

We prioritize that to kind of increase at <unk> and we believe that ultimately as part of this turnaround strategy, increasing <unk> will be a big factor in increasing our topline revenue. So I think there'll be more to come on that as we as.

As we continue to progress over the months.

I don't know if there's anything you want to add from a country perspective sure. Thank you Vijay. This is settled here the chief product officer had at wish.

The only thing I'll add is.

Then we focus on the 61 Mark here, so I picked up the markets that offer us the most growth potential and our intent is to significantly invest in these markets. So we better serve our users and merchants.

If you look at the selected markets, it's less of a country by country exits more of a regional execs. So we plan to double down and invest significantly in the North America and in the Europe region.

We continue to operate in all countries in the U S and in EU, which have been.

Really driving and growing markets from us from all perspectives from cosmetic expedience and NPS perspective from a financial perspective and from growth perspective. So to answer. Your first question. Yes. These are the key markets that we will continue focusing on.

Sure.

Okay. Thank you got it yes.

Super helpful. Thanks, guys.

Our next question comes from Stephen Ju with Credit Suisse.

Thank you.

So the 79 countries to follow up on one of the earlier questions.

That's your exiting from you know what percent of the remaining I guess 44 million user base that you disclosed for the fourth quarter does this.

Cop four at this point.

And it also.

Can you explain the link between the price changes you mentioned in the prepared remarks and <unk>.

Do you expect that output up improvement into conversion rates or are you just offering better terms to a higher quality of solar is or is there something else going on thank you.

Thank you Steven just to kind of repeat the question. So you're talking about the 79 countries what percentage of the user base is impacted I will hand that piece over to tone and on the price changes what I will just talk about there just as an introduction and have Vivien kind of follow up is that a real focus is.

Focusing on the merchants, which will ultimately drive a better user experience and helped to increase our net promoter score from a consumer perspective, and so in doing that what we really want to focus on is focus on our best merchants right. So we've started to do some testing and piloting with what we would consider our top tier.

Our platinum our best merchants and that's that's where we're sort of starting to invest dollars to work collaboratively with them to figure out how do we provide a much better consumer experience and these are again pilots either specific to countries or regions or categories.

And that what we're doing is we're just sort of testing and learning right now, but a lot of that is happening in Q1. So we can get enough data so.

So that when the back half of the year, when we start to accelerate from them.

Top line perspective, we can we can make the right long term decisions. So hopefully that gives you some color on that but I'll, let Don add some more color on the countries and then Vivian will talk a little bit more about the price changes. Thank you.

So on the country's piece, we're not disclosing their dollars associated with <unk> 79 countries because it is not material to our total number the decision to exit these markets.

On the buyer side has been driven by our long term business goals. This reduces our operational complexity of their business across marketing across logistics across customer support across payments and various other facets of the business and that has been the key driver.

We don't anticipate material impact on any of our.

Numbers from Hereon.

Yeah. So on the pricing changes I think Vicki explained already very comprehensively and thoroughly I would just add based on the experiments that we run.

We see encouraging signs the impact on fiery.

Fiery patients and.

And the engagement level.

So I think that.

While we carnival with when you're doing the turnaround and that that will we started the flywheel. Once we increase the Ida spent in second half, which will benefit both top line growth.

Bottom line overtime. Thank you Vivian I would say the one thing I would add to that is that our goal really is to become a much more consumer centric company right. So again, a lot of the focus whether it's on other aspects of the business, whether it's the employee morale to deepening our relationships with the merchants ultimately it's about <unk>.

Giving and delivering a much better consumer experience one of the metrics that we are starting to track and seeing some pretty good progress on is the net promoter score.

That is something that we're very very laser focused on and we believe that ultimately.

That's a leading indicator for us and in our transformation into becoming a much more consumer centric company.

Thank you.

Our next question comes from Shneur I'm under car of UBS.

Hi, Thanks for taking my question a few if I could one is under 44 million and May use that you had in the quarter what percentage of this $44 million was and they use that tool so hard in <unk> to 'twenty, one and what percentage of this 44 million was they may use that you had in the year it will be.

So that is one secondary.

The NPA side.

And the focus to being a more consumer centric company.

I talked a whole gould on for rich <unk>.

To be a consumer centric company.

Right from the get go so how is it that your focus is now changing how bad is it.

Do you think that the company kind of lost its focus on the consumers and what is it that you really need to reboot.

The consumers. Thank you.

Thank you could I really appreciate the question I will ask <unk> to comment on the 44 million customers on the <unk> as well as the retention, which I believe we share a very little information on from quarter to quarter, but I will tell you. This from a consumer centric company, let me just kind of address that first.

While that has always been the goal to be a consumer centric company I can tell you coming in.

<unk>.

Again, having worked at other e-commerce companies are the retailers.

Our our scores and our.

Data.

K P is Don matched at one of our consumer centric company. So I think there is a lot of headroom there and we can just become much more consumer centric if that makes sense right. So that's where we're going with it I think over time with some of the issues, we had whether it was logistics and supply chain related whether it was issues with.

Sort of delays from a.

On delivery or the quality of the product there are things that sort of kind of.

But partially driven.

Our accelerated because of all the constraints caused by by Covid.

Did impact our consumer our customer journey as well as our cost consumer experience. So.

It may just be they are getting back on track.

Pretty big dislocation, given what has happened globally.

Across all the markets around the world.

The impact of Covid and so this is really more about getting back on track and getting much more.

We're focused on sort of delivering on that consumer promise.

With that I will hand, it over to Vivian to talk a little bit about the 44 million customers. Yes. So at least he mentioned that we are we don't disclose.

Close the retention rate specifically.

But you know historically, which are very focused on acquiring new customers through paid advertisement spend as we scaled back EDA spend.

July last year.

Obviously had an impact on the.

The new <unk>.

Iron ore uses we brought to the platform.

So our goal is to really focus on improving our user experiences and the merchant engagement.

And we will try to obviously drive more organic revenue growth going forward.

User experience any commercial engagement.

So those $44 million as of today I think it's probably more let me turn to buyers of users than new buyers acquired during that period of time.

Thank you and as a follow up to that then.

Do you think of like should we go to the next question.

Sure.

Okay. Our next question comes from Laura Champine of capital.

Thanks for taking my question I'm wondering about your.

Yes can you hear me sounds like there might be some issues.

Can you recruit and you hear us.

I can hear you can you guys hear us.

We're still here.

One moment Laura.

But if we get disconnected hello.

Can you hear me David.

Uh huh.

Hello.

It seems like I can hear the operator and likely many.

Tell us sell siders, but not with the management team.

If they can't hear me.

Okay. Laura go ahead with your question.

Okay.

My question is around the philosophy for sales and marketing expense.

What is the what's the thought process there for this year in 2022 and is there a general belief that debt.

That wish historically over earned from product boost in and had an.

Hi.

Great.

One moment Lora.

Yes.

So I think the question really is more about what is the thought process on sales and marketing.

Expenses.

Yes.

Just you know for some reason we cannot hear.

Through audio so we're reading the question I think.

And the chat window. We believe the question is about the thought process around the sales and marketing expenses in 2022.

Syed a soft marketing plan to support that's forward looking at a forward looking statement.

And as a general trend.

<unk> reported on 22.

We continue to focus on the turnaround and improving user experiences and.

Merchant engagement, which is the first half of 2022, we will keep the AD spend itself in marketing spend at a very rationalized level until we see consistent green shoots in operation and then we will increase our AD spend to restart its a flywheel.

We started this in the last call and we can plant we feel to do.

Is that in the second half of 2022.

Okay.

Okay can we can we ask the question about product boost tense.

Oh did wish historically over earn there and have an unsustainably high take rate.

One moment I believe they still can't hear you.

Right.

Okay, ladies and gentlemen, please standby.

Again, ladies and gentlemen, please standby call resumed momentarily.

Okay.

Again, ladies and gentlemen, please standby.

Yeah.

Okay.

Yeah.

Again, ladies and gentlemen, please standby your call resume momentarily.

Okay, our backup but Mike can you. How this is all Kevin the operator can you hear me.

Yes, we can hello, Okay, and Laura could you. Please I'll start with your first question over again just to make sure you get a complete answer.

Sure sure.

Two parter, so lets skip to the second part.

On product do specifically, but also generally if we look at which historically had the firm been over earning meaning should we see the take rate below that historical level that we talked about.

Qualitatively at the time of the IPO.

Thank you.

So in terms of the product revenue as well as the market place core marketplace Ravi you usually thought.

Goes with the auto volume on the platform.

So as we reduce the added spend.

Revenue stream of work that can be impacted year over year.

In terms of take rates I don't think we historically shared a lot of information on that I'll guide on that.

But as we as part of the turnaround strategy, we are attacking our pricing strategy across the board.

D G charity people are too.

To improve our economic before high caliber merchants on the platform and use are disappearing. So that may have an impact on the take rate, but we are not ready to share you provided guidance for sure, especially on that just yet as of today.

Understood. Thank you.

Ladies and gentlemen, this does conclude the Q&A portion of today's conference and this does conclude today's conference call. You may all disconnect and have a wonderful day.

Thank you so much bye.

Hi, Julien.

Okay.

Okay.

Sure.

Right.

Yes.

Yes.

Yes.

Good morning.

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Yeah.

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