Q1 2022 ContextLogic Inc Earnings Call

Yeah.

Yeah.

Good day and thank you for standing by welcome to wishes first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the Speakers' prepared remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be aware that todays call may be recorded excuse me.

Acquire any further assistance. Please press star Zero I would now like to turn the conference over to Randy shrink go wishes Vice President of Investor Relations.

Hi.

Everyone and welcome to wishes first quarter 2022 earnings conference call I'm, Randy Schrager VP of Investor Relations and joining me today are CEO , Jay Cal water and our CFO Vivian live.

Today's prepared remarks have been prerecorded. There is also a slide deck that has been posted to our IR website, which is available for your reference once we are finished with the Jays and Vivian <unk> remarks, we will hold a live Q&A session.

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

And.

Anticipated return of our investments and their ability to drive future growth. Our actual results may differ materially from the results implied by these forward looking statements if certain risks materialize or assumptions prove incorrect.

Forward looking statements include risks and uncertainties, which are described in today's earnings release and our periodic reports that are 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 the call we will present, both GAAP and non-GAAP financial numbers and metrics a reconciliation of our non-GAAP to GAAP results is included in today's earnings release, which you can find out or our Investor Relations website, 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 the call over to our company's CEO the day Telework.

Thank you Randy I would like to thank everyone for joining our first quarter 2022 earnings call today.

All of this investor call I will provide a quick update everyone on our first quarter financial highlights and operational achievements.

After my initial comments, we then do our CFO will discuss the first quarter numbers in more detail.

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

In the first quarter of 2022 total revenues were $189 million. This was a year on year, a decrease of 76%, which was largely driven by a lower advertising spend in Q1.

We generated an adjusted EBITDA loss of $40 million, which was favorable to the $60 million to $70 million EBITDA loss that we had previously forecasted.

In Q1, we finished the first quarter with cash cash equivalents and marketable securities of approximately $1 billion.

At this time I would like to remind our investors of the three foundational pillars that I talked about on the last quarter's call.

First we are committed to constantly improving our consumer experience.

Second we will continue to strive to deepen our merchant relationships.

And third we will work as a cohesive team to achieve operational efficiencies.

We believe that if we execute on all three pillars, we should experience better metrics higher margins and substantial revenue growth.

The first pillar is improving the consumer experience.

Over the past three months, we've made many positive strides to improve our consumer experiences and consumer satisfaction rates.

On our last earnings call, we spoke about our plans for a vision app redesign.

During the first quarter, the new redesigned App was successfully deployed to Android globally.

Along with the addition of a deals hub feature.

The app will be deployed to iOS globally by the end of Q2.

The App redesign has already begun to show some higher levels of engagement.

And traction with our consumers.

In February we launched wish clips, which is our shopper both video feature.

Rich clips is available globally to all Android and iOS consumers.

Our marketplace merchants have been rapidly adopting this feature and have already uploaded more than 170000 high quality shop videos.

We are excited to share that with the deployment of wish clips, we're already seeing positive trends in buyer engagement.

We're making great strides to become a more consumer focused company, we have seen improvements in customer service response times and push shipment refund rates.

I am proud to report that our investments across our shopping experience customer service pricing shipping and delivery have driven significant improvements in our net promoter score or NPS.

NPS is considered a critical metric in determining our company's current success with consumers.

We experienced positive improvements in NPS from December to January and further improvement from January to February .

And from February to March.

In total we've seen a doubling in our NPS score in a matter of a few months.

Based on the improving metrics in our business operations, we plan to ramp up our advertising spend earlier than originally forecasted.

Given our early green shoots, we envision ramping up our advertising spend across our existing and new marketing channels in June 2022, rather than later in Q3.

Our second pillar is deepening our merchant relationships.

In Q1, we began testing our new pricing strategies.

Two improved marketplace orders and sales.

Based on our positive pricing tests during Q1.

These new pricing strategies resulted in about 20% increase in orders versus a control group.

Given the success with the new pricing tests, we plan to roll this out to all of our merchants in Europe in Q2.

Over the past few months, we've been stepping up our efforts to enhance our flagship program called vis standards and to ensure compliance with these standards.

This includes a new invite only policy for Onboarding, new merchants onto our marketplace.

We also continued removing noncompliant merchants faster.

And more efficiently.

We continue to provide logistics services as part of our end to end solution for our merchants the percentage of merchants using our logistics services continued to increase year on year during the first quarter of 2022.

Time to door and on time delivery rates will continue to remain a high priority in the near future.

Now I would like to talk about our third pillar.

Which is working as a cohesive team to achieve operational efficiencies and take care of our employees.

Following the reduction in workforce that took place in Q1. The current team continues to demonstrate a great deal of determination in working quickly and systematically to achieve operational efficiencies and move forward on our turnaround strategy.

For example.

In March the company shipping operations in Shenzhen, and Shanghai were both impacted by Covid shutdowns.

Our employees on the ground in China responded quickly and moved more than 90% of our shipments out of the Shenzhen and Shanghai shipping hubs into other hubs with minimal impact on our deliveries there.

We are actively monitoring the situation in China, and we will continue to adapt our logistics operations to best serve our consumers.

Which has approximately 200 employees in Shanghai.

During the lockdown certain parts of the city experienced shortages of everyday essentials.

The local wish management team found a local partner to deliver supplies to our employees.

Many English employees in Shanghai received a packages within days and continue to receive supplies throughout the lockdown.

Our management team remains committed to doing everything that we can to assist our employees during these challenging times across the globe.

Our people are our greatest resource and we are committed to their success and their well being.

At this time I will turn over the call to our Chief Financial Officer Vivian Liu.

Thank you Vijay.

Today, I will discuss the financial results for the first quarter of 2022.

I will also provide adjusted EBITDA guidance for the second quarter.

Additional information on the revenue trend through the month of April .

Yeah.

Our Q1, adjusted EBITDA was a loss of $40 million.

I improvement over a loss of $79 million.

Q1 2021.

So you did a performance also compares favorably.

Our Q1 EBITDA guidance.

Which was a loss of $60 million to $70 million.

Our EDA spend remained at a reduced level throughout Q1.

We will continue to impact our user metrics and our financial performance.

We had a 27 million monthly active users.

And a 28 million last 12 months' active buyers in Q1.

A 73% and 54% decline respectively year over year.

Total revenues were $189 million.

A decline of 76% year over year.

This revenue decline was across core marketplace.

Boost and the logistics.

Q1 gross profit.

Was it $64 million.

A decline of 85% a year over year.

Gross margin was 34%.

Versus a 57% in Q1 2021.

The decline in gross margin was primarily driven by a decline in marketplace profitability.

And the fact that relative to last year.

The logistics business contributed a higher percentage to the total revenues.

Total operating expenses were $126 million.

A reduction of 78% year over year.

Operating expenses were 67% of revenues.

Paired with a 74% of revenues in Q1 2021.

The drop in our AD spend.

Accounted for a majority of the reduction of operating expenses.

While the decline in revenues and other calpine metrics are significantly from year over year comp standpoint.

It is important to highlight that our AD spend in Q1.

Was it less than 10% of that in Q1 last year.

We are committed to building a flywheel that its more efficient with ad spend.

And our platform today is propelled by affordable quality.

Reliable services.

And the phone shopping experiences.

Our Q1 free cash flow was a negative $148 million.

A significant improvement.

From a negative free cash flow of $354 million in Q.

Q1 2021.

Quarter over quarter.

<unk> consumed additional $98 million in cash.

The higher cash consumption was amendment driven by lower EBITDA performance.

Further pay down of liabilities and a one time expenses.

Such as severance payments associated with the workforce reduction announced earlier this year.

Cash flows and EBITDA will continue to be our priority through all the turnaround phase.

We ended Q1 with a solid position of a $1 billion in cash.

Cash equivalents and marketable securities.

Okay.

Now turning to our outlook for Q2 2022.

We expect adjusted EBITDA to be a loss in the range of $90 million to $100 million.

Q2, EBITDA loss is expected to be higher than that in Q1.

Mainly due to two reasons.

First.

Vijay shared earlier.

We plan to increase AD spending in Q2.

Encouraged by positive leading indicators.

Such as improved NPS and a refund rates.

Secondly, the pricing experiments conducted.

Conducted in Q1 has proven to be effective in increasing user retention and conversion rates. Therefore, we have decided to expand it the pricing changes to more markets in Q2.

Increased ad spend and pricing adjustments are expected to be unfavorable to revenues and EBITDA.

In the near term.

As a reference point our revenues in April 2022.

First month of Q2 were down approximately 30% relative to our revenues in January the first month of Q1.

However.

We believe that both measures are the right steps to building a more robust and a profitable business for the long run.

This strengthened operations and upcoming new growth initiatives.

We will put us in a strong position to restart at the flywheel in the second half of 2022.

We are excited by the progress made to date.

And as the new opportunities ahead.

With that I will hand, it over back to Vijay to discuss our new growth initiatives.

Thank you Vivian let me expand on what Vivien was just talking about.

There are two major initiatives that we plan to launch in the second half of 2022 that I would like to share with you today.

First is the launch of a comprehensive women's fashion category.

The second is the rebranding of wish.

Let's start with fashion over the past few months, we've been experimenting with various fashion buying experiences for our marketplace consumers we've.

We've seen very encouraging results from those tests.

Over the past few months.

I am excited to announce that we plan on Relaunching, our fashion category on the rich marketplace in the second half of this year.

This will be a discovery first in.

Inspirational.

And engaging shopping experience.

Early beta tests.

We will begin this quarter.

The timing of the fashion launch will enable us to capture the important holiday selling season for women's fashion.

Second.

Is a plan.

For a complete rebrand of wish.

I, mostly talked about how we are changing operations.

At wish.

But we are fundamentally changing the entire visual experience.

To amplify that to our consumers we aim to launch in August the rebrand of wish with a new logo, new design image and communications.

The campaign, which will run in each of our key markets from August through the holiday season and.

And we will shine a light on some of the recent changes that wish.

To close I.

Leave you with these final thoughts.

First.

We have and we will continue to make excellent progress with key metrics, such as NPS and on time delivery rates.

Second early green shoots enable us to increase our advertising spend earlier than we had originally planned as we continue our 18 to 24 month turnaround strategy.

And finally.

I would like to thank our dedicated employees, who have worked tirelessly to execute our turnaround strategy.

We're already seeing good progress from those efforts and we are excited for vicious future.

Thank you for joining us today I will now open up the call to questions from analysts and investors.

Thank you as a reminder to ask a question you will need to press star one on your telephone again Thats Star one on your Touchtone telephone to ask a question to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Kunal Madagascar UBS. Your line is open.

Hi, Thanks for thanks for taking my question congratulations on the on the Green shoots that you're seeing a few if I could.

There's just so many questions. So on the MCU side, the $27 million under us what percentage of the $47 million was like organic where you didn't have to pay any wonder anything.

Okay.

So I don't know if we have ever reported that level of details.

What I could say is that we have reduced our AD spend is significantly since last August .

As I mentioned in Q1, the amount of AD spending in total is less than 10% of what we spent in Q1 2021 and is therefore.

The MAA I may use that are new.

I guess I know you acquired through the <unk> is going to be very very small.

I would say you have to put out an estimate most of them will be.

Returned or recurring users on the platform.

Just for the sheer volume of EDA spend we spent in Q1, which is very small.

And I think the.

The existing <unk> serious and will mostly be returned to customers.

I mean, why we can't show that number I would just say a majority of it is through organic yes.

Okay great.

And then what percentage is Android so what percentage you're seeing the new experience.

And again, we don't share an exact number but Android is majority of our customers and thats, partly driven by its slightly skewed towards Europe and rest of the world.

Versus the U S. That's one of the big differences that we see.

But it is below 50% again.

Okay, and then as we think I would like to queue, how should we think of like revenue and free cash flow trends.

<unk>.

<unk> been a worsening versus <unk> what are the puts and takes on that guide.

Yes, So we don't guide on revenue or cash flow, we do guide on EBITDA and based on the guidance versus the actual performance of Q1.

We we already said at the.

Q2, EBITDA will be negative now have $90 million to $100 million versus our actual Q1 was 40 and we also give you indication of the April revenue versus month, one of Q1 revenue.

And.

You guys can take a lot of information from those two numbers I suppose.

And I think the from.

From cash flow standpoint, we think the cash flow for Q1, there were some one time cash consumption that we do not expect to reoccur in Q2.

But Q2, if the EBITDA is lower than Q1, so thats a headwind from <unk> Zafar Q2, so long way of saying that it takes some gives and takes in offsetting.

And if one day it will be I would say probably more in line with our EBITDA guidance for Q2.

The cash flow versus EBITDA.

EBITDA for Q1.

Yes, no that clears and one last one if I could.

So.

I'm curious why you're accelerating on advancing the marketing spend to June from August <unk>.

<unk> when you are going to do a whole XE brand with like new logo and everything else and that is going to start in August would that be like.

If you can help me understand the rationale there.

I can step in on that one so I think the thing that we did fine and again. This is also talking to many of our partners.

Where we spend our digital marketing dollars the ramp up in digital marketing is not as easy as kind of doing a multichannel rebranding effort. So by starting in August for multichannel rebranding, but let me start with that date first that's the ideal time because of the fact that we are trying to catch the the.

The holiday season, if you will right. So I wanted to start early for the holiday season and ramp up from August all the way through kind of November .

Just kind of our peak kind of month.

When in terms of June and July they will be months that will what we realized is you can't go from a situation, where youre sort of cut back marketing by 80% to 90% and suddenly try to ramp it up all in one month. So June is specifically geared towards more of the digital channels.

And starting to do.

Use those channels to start to ramp up so that we can start to measure the <unk> see the improvement.

Slowly, but surely build on that marketing based on those marketing investments. So they will sync up the rebranding will be just a part of it. It's almost like you think of it as phase one phase two and phase III phase one will be kind of the early learnings and the early testing predominantly kind of the digital channels in June July .

September will be the ramp up the digital channels as well as a lot on the on the branding which will include multiple channels.

Including things.

Everything from organic Seo type stuff to affiliates to.

Two things like TV and radio and other other channels as well and then you get into the peak, which is much more about October October and November and so it's kind of more it's really more smoothing out the curve in our original plan versus a much bigger spike that we had originally planned for.

Okay got it and just.

Just a quick one then so the June July step up in marketing and not be performance marketing it would be more digital channels basically smoothing.

On the on the spend.

Actually I'm, sorry, maybe I misspoke or that when I speak to digital.

Dooming performance marketing.

Okay. Okay. Okay got it. Thank you that's one of the distinctions in June July it will be largely driven by by performance marketing, whereas the other channels kick in more in August September October November sorry.

Thank you. Thank you.

Thank you again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your touched on telephone to ask a question.

Our next question comes from the line of Stephen Ju of Credit Suisse. Your line is open.

Alright, so thank you so.

Im thinking that youre, probably not going to be spending performance marketing dollars as you say unless you feel like the new site experience has been repaired but.

At the same token we're now as opposed to looking at a completely different experience.

Versus what <unk> was before so can you talk about what your expected customer lifetime value is now I mean, how that has changed.

Versus pre pandemic levels and higher anticipated payback period may look now versus what might have been before so I'm just thinking that this is probably an hour a.

Transform business hopefully so I'm just wondering what the long term margin outlook would look like and how the business has changed overall thank you.

Yes, I think as Vivian said earlier, if you think about our retention rates right or are consumers, who are coming back we're largely kind of dealing with a much smaller subset of customers who have been shopping at fish and our main focus has been on how do we get them to come back and shop with us more which will drive lifetime value will go.

Not ready at this point in time to share or make any predictions on lifetime value at this point so.

But I guess the overall thesis is exactly what you said which is that.

Or are coming in point when we started this whole thing are consumer churn was a much higher rate, but if you go back to last year in June July August September .

It was a much higher rate what the work that the team has done over the last six months over the last nine months is really to plug that sort of leaky bucket. So that we can get more consumers back into our fold and that is what we just reflected both in terms of our higher NPS scores in terms of Ohio sort of customer satisfaction rates.

Higher on time delivery.

And just in general people, having an overall better experience as you described so what what we are planning to do now is kind of been opened the aperture. So that a lot more new consumers starting in slowly in June and July but much more aggressively in August through November , bringing new consumers and we will need to test the data.

With new consumers, because the existing consumers could potentially behave slightly differently than you consumers.

So I think the interesting part of issues.

Consumers in some sense.

Given that we had such a large installed base right. It's over 500 million people. If you kind of think about the lifetime of fish.

What happens is a lot in a lot of cases, these are consumers, who experienced fish or interactive, which before but it's our job to convince them that this new vish is different and the fundamental experience is different and that's why the rebranding. Please its own part in kind of making that will slip.

Process come alive.

Hopefully there's enough insights and then in terms of what I was talking about to for you to understand how we're thinking about the problem.

Okay. Thank you.

Thank you. Our next question comes from Laura Champine of loop capital. Your question. Please.

Thanks for taking my question.

The ramp up of advertising you mentioned that you can't bring it all back in one month, but how significant of a ramp are you thinking about for June at this time.

We are not well so it won't be a material ramp up.

Depending on the definition of material. So we will taking a pretty cautious approach.

Yeah.

It's not going to double I mean, let me put that way it is not that a steeper ramp.

But it will be material enough to hopefully move the needle and test it out the effectiveness of all of the channels I'll turn to channels that Jay described and.

The more major step Hopkins AD spend will really start late.

Late Q3, RCC August September and throughout Q4, so thats, where the major Stefan will take place in conjunction with our <unk>.

<unk> launch and.

Overall kind of our growth strategy as we shared in that will get a call but.

Yes, we do wanted to test our.

Hypothesis hypothesis starting.

May and June and.

With a gradual ramp but like I said, it's probably not going to be double.

Those two months.

Got it.

Just one additional question on regional trends.

Been a while since we got the mix of the business Europe versus the Americas versus Asia.

Would love to get an update on that and any significant differences that youre seeing by region at this time.

No. The short answer is there's a mix of steel.

Relatively steady.

Since that from the buyer market standpoint.

America and to Europe , or the major buyer market for Us and Asia.

<unk>.

Small immaterial alloy.

Buyer standpoint.

And wanted to highlight one thing that we didn't touch on.

Our prepared remarks.

<unk> War actually.

Impacting our biomarker begin Europe as.

Everyone anticipated.

And I think if from a regional standpoint, we saw.

Europe .

It's not as strong as North America in Q1, so thats a kind of indication.

You can go into impacting customer behavior to the mentality there are concerns.

But from a mix standpoint, we don't think there will be material shift.

Europe will continue to be a very major strategic market for us and escalate as North America.

Got it thank you.

Thank you again to ask a question. Please press star one and you touched on telephone again star one on your Touchtone telephone.

Once again Thats star one on your Touchtone telephone to ask a question.

This concludes the question and answer portion of today's call at this time I would like to turn the conference over to.

Our wishes CEO Vijay Talwar for closing remarks.

Okay.

No I don't have anything specifically to add other than to say like us.

Left off I wanted to just say a big thank you to the team I know it's been a very.

Tough three months for the team given the.

The reduction in workforce and all the work that's.

Been done in the last three months as well as the work ahead of us. So I just wanted to stop.

In this call with a thank you to the team and also to communicate the.

The amount of excitement that we feel as we're looking at kind of the.

Fully redesigned wish and we will share more of that with you along the way. Thank you.

Ladies and gentlemen, this does conclude today's conference call you may all disconnect and have a wonderful day.

Yes.

Okay.

[music].