Q3 2022 ContextLogic Inc Earnings Call
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Good day and thank you for standing by welcome to wishes third quarter 2022 earnings 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. That's good question. During the session you will need to press star one one on your telephone you will then.
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I'd now like to turn the conference over.
To Randy sure I'll go.
Wishes Vice President of Investor Relations. Please go ahead.
Hi, everyone and welcome to wishes third quarter 2022 earnings conference call.
Randy <unk> VP of Investor Relations and joining me today are interim CEO , Julianne and our CFO and COO Vivian Liu.
Days remark prepared remarks have been prerecorded.
Also a slide deck that has been posted to our IR website, which is available for your reference.
Once we are finished with Joe's and <unk> remarks, we will hold a live Q&A session.
Their marks made today include forward looking statements that are related to among other things our financial expectations.
Business and turnaround plans, the turnaround timeline consumer experience and engagement expectations regarding merchant relationships and strategic partnerships the potential.
The impact of our strategic marketing and product initiatives, including AD spending in the rebrand and the anticipated return 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 are certain risks materialize or assumptions prove incorrect.
Forward looking statements involve risks and uncertainties, which are described in today's earnings release, and our 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 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 on our Investor Relations Web site, and which is also filed with the SEC.
A replay of this call will be posted to our Investor Relations website.
I will now turn the call over to wishes interim CEO Juliet.
Thank you Randy I would like to thank everyone for joining our third quarter 2022 earnings call. This is my first earnings call since I joined two months ago.
Excited to be part of the wish team at this important moment in the company's evolution.
And I see tremendous growth opportunities for the company as one of the worlds largest mobile e-commerce platform.
Which distribution is to unlock the work potential.
Thomas for underserved value oriented consumers around the globe I.
I believe that wishes uniquely position to capitalize on the growth where cross border e-commerce and the emerging trends in social commerce intersect.
Today, I will start by highlighting some of the major accomplishment by the team my observations on how the macro environment conditions affecting wish Dan share. Our Q3 financial highlights followed by updates on our foundational pillars of the business.
<unk> will then comment on our operational efficiencies.
Provide a deeper dive into our third quarter financial results and the shared the fourth quarter guidance.
Lastly, I will provide additional closing remark before opening up the call to your questions.
Flipping into the interim CEO role two months ago I was in.
We didn't really impressed by how much the research team has done in strengthening the foundation of which over the course of one year.
The improved app experiences reduce shipping time and to improve on time delivery rate.
The new pricing practice for buyers implement new commission structures for merchant.
Luxury brand campaign, we launched our women's fashion category.
The list goes on.
Many of these foundational fixes are in full swing improving buyer experiences on the <unk> platform and deepening our relationships with global merchants.
We have received positive feedback from both of merchant and the buyer community reflected by our improved customer NPS and the merchant NPS result, this year over last year.
At the macro level, we experienced a higher level of economic uncertainty that emerged in both of our North American and our European markets.
Which we believe to have impacted consumer buying behavior.
Our value oriented consumers, particularly in Europe have been impacted by the dramatic rise in energy cost, which translates to a slowing of discretionary spending across the region.
We expect this uncertainty to continue.
Potentially impacting.
Impacting our buyers behaviors in the upcoming holiday season, and the EBIT into 2023.
During these challenging economic times, we will remain committed to our value oriented consumers, who seek out shopping experience to get more for their money.
Now this time I will share some high level financial highlights for the third quarter.
Total revenues were $125 million down 66% from the third quarter of 2021.
Mostly driven by lower spend in our new pricing practice, which was fully effective in Q3.
However, I am glad to know that our order volume grew from Q2 to Q3, the first the sequential quarterly growth since Q1 2021.
Our adjusted EBITDA in Q3 was a loss of $95 million, which was favorable compared to our previous guidance of a loss of $110 million to $130 million.
Our balance sheet remains healthy with a balance of 837 million of cash cash equivalent and the marketable securities and no short term or.
Long term debt.
I will now quickly highlight some of the progress we have made on two of our foundational pillars.
Improving the consumer experience and the deepening merchant relationships.
Over the past 12 months, we have made tremendous investments to upgrade our mobile app improved listing quality.
Reduce delivery time.
And the enhanced customer service and to better address our buyer standpoint.
Those improvements were first the reflected in customer NPS results.
As previously shared we have seen customer NPS improved compared to last year.
Next we have seen significant improvements in refunds and other consideration right.
Our monthly customer refund rates have fallen 34% from January to September of this year.
And the customer order consolidations dropped to 68% within the same time period as well.
I would also like to update you on our relaunch of women's fashion offering which was started in August .
The new experience is now available across both Android and iOS platforms.
Data so far shows that both.
<unk> rates and average order value are improving within the new women's fashion experience.
We also now have over 2700 women's fashion merchants on boarded in this experience providing a wide range of over 160000 women's fashion garments and accessories to our consumers.
As we continue on our path to improve the customer experience.
We will focus on the areas that enhance the easy of use.
And the activity and the entertainment value of the platform.
One example is our new lockout experience.
Under this new design consumers on iOS, and drawing mobile and the desktop web will no longer be required to download and install the app and to create a new account in order to browse the product available on which.
We have made great strides in deepening and enhancing our merchant relationships.
Throughout the year the wishes tenders program continue to improve the quality of merchant and lifting on wish.
We also enhanced the transparency.
Our pricing practice with both our buyers and our merchants globally.
Additionally, we began implementing a new commission structure in Q2 to align with the industry practice and to bring greater clarity and the more competitive commission rate to our merchants.
We'll roll out the new rate card for European market in Q2, and successfully complete the global launch by deploying to the rest of world, including U S. In Q3.
We now also offer our merchants more tools to merchandise the product on which.
We already have banners collection and the storefront, but we'll be adding in certain markets as dedicated deal cop, where merchants can showcase their products even more.
During the month of November we will be running everyday is black Friday campaign, where we will have daily deals and the weekly fresh sales for our popular categories, such as electronics accessories home toys.
And the fashion.
For the month of December we will continue to run daily and weekly holiday sales, we intend to partner closely with our merchants and providing great value and satisfying holiday shopping experiences to customers.
At this time I would like to turn the discussion over to our CFO and COO Vivian Liu to discuss our operations as well as our third quarter financial results in more detail.
Thank you Joe.
First to comment on the third pillar of achieving operational excellence.
We believe that the positive logistics offering.
Critical differentiator to our global merchant.
Therefore, we are committed to improving our logistics operation in terms of time to door and on time delivery rate.
During the third quarter, we overcame multiple COVID-19 related lockdown in China.
The average time to to work in five of our major markets.
Has it improved by five days since the beginning of the year.
Our on time delivery rate was around 92% in the third quarter.
An improvement from approximately 80% during the third quarter of last year.
We're also taking steps to expand our merchant base outside of China.
In Q3, we officially launched our merchant operations in Vietnam, with our highly capable and achieving team on the ground.
We will continue to expand and strengthen our merchant basis in Europe .
Southeast Asia countries and America.
Over time, we expect this initiative to enhance our product variety in category important Jewish Andover.
And to reduce our reliance.
Any particular country for merchandise supply.
Now I would like to discuss the financial results.
For the third quarter of 2022.
I'll also be providing adjusted EBITDA guidance for the fourth quarter.
In Q3.
We had 24 million monthly active users.
Yes.
And a $16 million last 12 month active buyers.
Which was a decline of 60% and 65% respectively year over year.
This decline was mainly driven by the cumulative reduction in marketing spend over the past year.
Our total marketing spend during the past four quarters.
Q4, 2021 through Q3, 2022 was approximately 85% lower compared to the marketing spend of the four quarters prior.
Marketing expense, what's the most important driver of our topline performing from a year over year standpoint.
We noted that the decline in <unk>.
<unk> has started to stabilize.
Further.
Q3 was the first quarter since Q1, 2021, where our <unk> increased quarter over quarter.
As Joe mentioned earlier.
Volume also increased in Q3, the first sequential quarterly growth since Q1 2021.
We're cautiously optimistic.
Over time more operational metrics will show similar improvement.
Total revenues in Q3 were $125 million.
A decline of 66% year over year.
The decline was across core marketplace.
Product booth.
And the logistics.
The revenue performance was attributable to lower marketing spend as mentioned above.
And of the new pricing practices implemented throughout Q1 and Q2 this year.
As communicated during the previous earnings call.
We expected those pricing changes.
For better customer engagement and the pricing transparency with our merchants.
But for the near term due to create downward pressure on both revenue and profit.
Q3 was the first quarter, whereas the new pricing practice with a fully effected at a global scale.
Thirdly.
We believe that the high inflation rate and the market uncertainty in most of our buyer market.
Particularly the European market.
Also contributed to the revenue decline year over year.
Q3, gross profit was $34 million.
<unk> up 80% year over year.
Gross margin was 27% versus 45% in Q3 2021.
The gross margin decline was driven by the aforementioned pricing changes as.
As well as the logistics business, which has a lower margin now contributing a higher percentage to the total revenue.
Total operating expenses.
$162 million in Q3 2022.
A reduction of 30% year over year from the $230 million in Q3 2021.
Net loss was $124 million.
Compared to a net loss of $64 million.
The third quarter of 2021.
Our Q3, adjusted EBITDA was a loss of $95 million.
Compared to an EBITDA loss of $30 million from Q3 2021.
The EBITDA performance year over year was mainly driven by the movement with our revenues and our gross profit described earlier.
However, the Q3 2022, EBIT result that compare favorably to our guided loss of $110 million to $130 million.
The more favorable EBITDA outcome versus our guidance was due to lower than expected marketing and outside services spend.
As well as higher than expected gross profit.
Our Q3 free cash flow was negative $100 million.
A significant improvement from a negative free cash flow up $344 million.
In Q3 2021.
We ended Q3 with $837 million in cash.
Cash equivalents and marketable securities with no debt.
Now turning to our outlook.
We expect adjusted EBITDA to be a law in.
The range of $90 million to $110 million for Q4 2022.
As a reference point.
Our estimated revenue.
October 2020 to the first month of Q4.
As expected it to be flat or slightly down when compared to our revenues in July 2020 to the first month of Q3.
As the global economy continues to experience uncertainty.
Due to geopolitical risks.
Inflation and interest rate hikes.
We will remain focused on operational efficiency and unit economics.
Building upon the much strengthened which foundation.
And a week.
With a strong sense of urgency.
We're actively working to acquire and retain customers more efficiently.
<unk> organic growth and improve the lifetime value of our core customers.
Before turning the call back to Joe.
I'd also like to address another topic for investors.
On October 28 2022.
We received a letter from NASDAQ.
In non compliance with the NASDAQ listing rule that requires listed securities to maintain a minimum bid price of one U S dollar per share.
The company has been provided 180 calendar days or until April 26, 2023 to regain compliance.
The management team will be considering a number of alternatives.
<unk> the possibility of a reverse stock split.
Bring the company back into compliance with Nasdaq's listing requirements.
We remain committed to creating shareholder value.
Firstly through the successful execution of our turnaround plan.
And the developing a strategic path to long term sustainable growth and profitability.
Now I will hand over the call to Joe for his closing remarks.
Thank you Vivian to close I'll leave you with a few final thoughts.
During the past two months are have been able to assess the situation trough plans and begin to drive execution I was able to hit the ground running since I was previously at wish SVP of merchant services in 2020, and I have spent most of my career.
In operations of E Commerce companies.
So I would like to share a few notes with you that our based upon what I have seen the last two months as interim CEO .
First off.
It's a simple fact that turnarounds are heart I have met with all of our team and am tremendously impressed with the dedication.
<unk> has shown to make this turnaround successful.
What I have seen over and over if thats <unk> employees have been making tough decisions over the last year.
To make sure we are building for long term success implementing simplify the pricing.
Tianjin the commission rate structure and significantly reducing our <unk> spend with difficult decision that we are clearly reflected in our shop to numbers, but those fundamental changes have also set us up with a strong foundation for us to leverage for the next stage of the turnaround.
What's ahead of US is to use this platform now to accelerate our pace of innovation and to drive the product towards of mission.
<unk> made the fund discovery made easy.
That's why I'm excited discovery is a completely different approach to solving search and the relevancy in E Commerce.
It's like the more in real life, we take people, who have a general intent to purchase something and inspire them to build a basket of interesting items that they like them at a reasonable price.
This is a fun experience for buyers and of course, we are working hard to make this more fun with communication and the incentives.
This is also fund for which employees to build as we are a technology company and the latest cutting edge data science and the personalization at scale.
Along with bolt user experience and design innovation.
I'd like to end my discussion today is to highlight what my focus will be for the next several quarters.
My plan is to build much stronger operational muscle across all of our teams.
Our vision is amazing.
That is not where we need to focus.
What we are going to five four inch by inch is making sure that we can drive business results using all of the tools and the capabilities. We have built all can viewed as a technology company.
This is what I joined and wish to do and in wide. All of you to join me as we push forward with the transformation of this company.
At this time operator could you. Please open the call for analyst and Investor questions.
As a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Okay.
And our first question comes from Kunal <unk> with UBS. Please go ahead.
Hi.
Thank you for taking the question a couple if I could one could be on <unk>.
Besides so you saw an uptick in AR.
And may use that you saw an uptick in order volumes.
Get the commission rates may be lower now.
But.
What was the GMB trend on a cumulative basis, if you could get a sense of that.
Thing is.
$80 million.
Marketing.
And new generated $40 million.
Core marketplace revenue that's two ways.
Revenue.
Can you help us understand.
Where that marketing spend and how much of that was.
Brian then rebranded re brand spending what it says.
Performance marketing in order to help us understand what's happening with <unk>.
But the marketing spend thank you.
This is <unk>. Thank you very much for the question. So first of all the <unk> are we.
Don.
Sure a lot of details at this time, but what I would.
Concur on your comments is that the T&D.
What was impacted by the pricing changes that we implemented in the first.
Half of the $2022 22, which was fully effective for Q3, so when we.
Previously shared when we changed our pricing.
<unk>, which is mostly to simplify and.
Morgan compliant are consistent with market practice.
That was expected to drive downward pressure on the revenue and <unk> as well so.
So <unk> certainly wasn't as impacted by that and.
But going forward this will be the.
Implemented since Q3 and going forward it will be a constant factor in our T&D pro forma annual revenue performance.
Your second question is about the marketing spend again detailed how much we spend on performance marketing versus the rebranding <unk>, we don't disclose but it is true that the total marketing spend that you see in the financials to include both.
And we are.
Started off.
Lee brand campaign Q3, and then it will actually continue throughout Q4.
And obviously, it's very hard to quantify how much of DMV isn't driven by the rebrand of marketing usually there is a delay.
And in fact after rebranding marketing, but we do believe that it's the right thing to do and convey the new image, which and you can drive the.
Brand awareness and custom.
Customer acquisition all of that having said all of that.
I do agree that we may feel we have done a lot to improve the efficiency of AD spend overall and we will continue to do that right and it's a very high focus for us to make sure that whoever we spent AD dollar whether it's digital or.
$90 spend we make sure we have we spent on the areas.
Provide a higher return for the dollars. So we will continue to focus on marketing efficiency.
For the foreseeable future.
Yes.
Thank you.
Thank you one moment for our next question.
And our next question comes from Laura Champagne with loop capital. Your line is open.
Thanks for taking my question I'm still I'm, a little confused at the spread between marketplace revenues in logistics revenues did not expect it logistics revenues to outpace marketplace, what's driving that dynamic and how.
With that in mind, the comment that that where I think that <unk> in October was flat or slightly down versus July is that true or are you talking about overall revenues.
Yes. So thank you for the question first of all the largest versus the core marketplace.
So there.
The drivers that cause it impacted both such as volume right and I think I think I still mentioned I mentioned as well Q3 to Q2, we actually.
The increase in our volume because that's a tailwind for both core marketplace revenue and the largest revenue.
Sure.
The pricing changes and kind of we mentioned earlier that has much more impact on the core marketplace revenue versus logic, because that's a price change in the pricing practice, then a monthly kind of <unk>.
<unk> on the.
Product price right on the platform.
With very little impact.
The impact on the largest of revenue. So that's the main reason why.
The largest revenue performed a lot stronger than the core marketplace revenue in Q3 again as a reminder, we started to implement some pricing changes in Q1, and Q2 and Q3 was the first quarter, where the new price.
Sure.
Fully effective globally. So this is the first quarter, where we see arguably a major impact on the core marketplace revenue.
For the first time.
I'm sorry can you repeat the second question if you don't mind.
Sure. The question was about the spread between logistics versus marketplace and and really when you. When you talked about the trend in October being flat to slightly down versus July are you talking about total revenues or is that G. M D.
Oh, sorry, I was talking about total revenue so I propose that comment on the total revenue October versus July .
Okay would you expect longer term for logistics revenues to be higher than marketplace revenues.
We expect longer term.
Net of all the pricing changes and it changes in the commission structure.
The impact of more on the.
Core market place are first the logistics in the near term not longer term, we expect both to be highly correlated with the volume on the platform.
So as we continue to improve user experiences NSA.
The overall platform features and as we continue to drive volume, we expect that both too dark too so much stronger momentum both core marketplace Endologix.
Alright, thank you.
Yeah.
Okay.
Thank you and if you would like to ask a question. Please press star one one.
Please standby for your next question.
And our next question comes from Michael Mcgovern with Bank of America. Your line is open.
Hi, This is Steven that permit for Michael Mcgovern.
I was just wondering on the last call you mentioned about aggressive recruitment.
Uh huh.
Three months later, the macro has only security further so how should we think about it.
<unk> G&A and <unk>.
Costs in the last quarter and going into 2023. Thank you.
Thank you.
Thank you for the question.
So we have been working very hard on managing our DNA and marketing just general all that and I think if you recall.
At the beginning of the year.
Not only reduced our marketing spending pretty aggressively.
We also announced the limited restructuring on the workforce and we reduced our head count by 18%, though.
And I think a lot of people hear the news in the marketing in the past few days and at the company. We were actually ahead of the curve.
And over the year, we have managed our employee expenses pretty efficiently and effectively and that stayed pretty low.
But again some of the critical areas, we do need to recruit and.
Check.
High quality talent, because you know end of the day, we are high Tech company and we.
We continue to drive innovation and build the important product features.
For the customers and merchants.
So.
We will continue to be very very focused on cash flow optimization.
Cost of 10 million.
Operational efficiency and.
That's why in my prepared remarks.
We highlight that all of the three things and.
Economics that will continue to be our focus for 2023, but.
But we started this journey arguably a lot earlier than many other companies and it will continue to focus on.
Efficiency.
Great and then if I could ask another question.
How many points of pressure can you guys estimate the pricing changes affected revenue and how should we think about comps going forward. I know you said it started in Q1, but just kind of like the magnitude of these pricing changes. Thank you.
Yeah. Thank you for the follow up question.
It's it really varies by product and the product category and also even product level. It was a pretty complex pricing practice, we had it before which we still have to why it was.
To some extent it could be a little bit confusing to the buyers and merchants and which was the reason why we simplify that and makes it more straightforward test parent.
Building a team to improve the user traffic and engagement of our merchant.
So it wasn't that long.
It's hard to quantify but it's a very I would say, it's very material impact.
The impact overall, if you look at the what we did in the.
First six months 2022.
And the impact is definitely material.
As I said Q3 is the first quarter, where that new pricing practices implemented globally and.
Going forward it will be consistent but if you compare.
Our Q.
Q3, and Q4 performance to last year for US before we started the 10 it would be apples to oranges.
Terms of top line performance.
Got it. Thank you I appreciate it guys.
No problem.
Thank you and as a reminder to ask a question you will need to press star one one on your telephone.
Please standby momentarily.
All right. This concludes the question and answer portion of today's call at this time I would like to turn the conference over to wishes CEO Joe Jan.
For closing remarks.
Thanks, everyone for joining our earnings conference call and we look forward to talking to you throughout the quarter.
Ladies and gentlemen, this does conclude today's conference call you may all disconnect and have a wonderful day.
Okay.
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