Q3 2023 ContextLogic Inc Earnings Call
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Good day and thank you for standing by welcome to wishes third quarter 2023 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 this session you will need to press star one on your telephone.
To remove yourself from the queue simply press Star one again as a reminder, today's program is being recorded.
I'd now like to turn the conference over to Ralph Fong wishes director of Investor Relations. Please go ahead.
Okay.
Good afternoon, everyone and welcome to wishes third quarter 2023 earnings conference call.
I'm, Rob song Director of Investor Relations and joining me today are CEO, Juliet, our CFO and COO.
Today's prepared remarks have been prerecorded. There is also a slide deck that has been posted to our Investor Relations website, which is available for your reference.
Once we're finished with Joe and <unk> remarks, we will hold a live Q&A session.
The remarks made today include forward looking statements related to among other things.
Our financial expectations business and restructuring plans.
Sticks and operational efficiencies.
Application of secondhand, smiths, including tools and initiatives to improve customer experience and engagement.
Expectations regarding merchant relationships and strategic partnerships impac.
The impact of our strategic marketing and product initiatives.
Including AD spending and promotional events.
And we anticipate a return on our investments and the 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 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'll present, both GAAP and non-GAAP financial numbers and metrics.
Reconciliation of non-GAAP to GAAP results is included in today's earnings release, which you can find on our Investor Relations website, which.
Which is also filed with the FCC a replay of this call will be posted to our Investor Relations website with that I will now turn the call over to wishes CEO Julian.
Thank you, Rob I would like to thank everyone for joining our third quarter 2023 earnings call.
First and foremost I would like to express our centers at both the Devasting attacks on Israel on October seven 2023, as well as the resulting wall.
We extend our deepest sympathies to the families of all victims.
As well as who have been impacted by this tragedy.
We should have merchant contractors and the business partners throughout the region and our employees have family and friends there too.
The entire team is committed to supporting this friends families and colleagues during this most difficult time.
On this call I will share with you our Q3 financial update and discuss the business highlights <unk> will then provide a deeper dive into financial results share the fourth quarter guidance and a common on our operations.
Finally, I will provide additional closing remarks before opening up the call to your questions.
Before I discuss our results I would like to take a moment to speak about other important news that we announced earlier today.
The board decision to initiate a process to explore a range of strategic alternatives for which underscores our commitment to exploring all avenues to maximize shareholder value.
We have engaged J P Morgan.
Our financial adviser to support this process.
While the board conducts this work we will continue to execute on our strategic plan for growth and value creation, we have not set a definitive timetable for completion of this process. We will not have any further comment on this process today.
I want to emphasize that there can be no assurance regarding the results or outcome of this process.
We also do not intend to comment further on this process and we'll make further announcements as we deem appropriate and in accordance with Roc.
With that said that.
Let's discuss our third quarter results.
In the third quarter of 2023 total revenue was $60 million down 52% year over year, primarily driven by lower ASP and note that Q3 revenue were in line with guidance range of $55 million to $65 million.
On the bottom line, we reported adjusted EBITDA loss of $54 million.
Compared to adjusted EBITDA loss of $95 million in the same time period last year and a loss of $66 million in Q2 2023.
Also note that the Q3 2023, adjusted EBITDA result exceeded the higher end of guidance range of a loss of 65.
$255 million.
We ended the third quarter with cash cash equivalence and marketable securities of $445 million.
While we are not able to change the macro and industry trends, we continue to focus on what we can control.
Across the entire organization, our team demonstrated resilience and agility throughout the quarter in the approach to navigating increasingly challenging market dynamics.
Characterized by macro and the competitive pressures.
Our ability to reduce our adjusted EBITDA loss on the both year over year and sequential basis has been the result of proactive and decisive actions to manage our cost structure and improve our operational efficiencies.
Throughout the third quarter and in the last several weeks, we continue to make progress on our three foundational pillars.
Let me now share the reason business highlights.
Our first pillar is improving the customer experience as.
As part of our efforts to further improve the customer experience and to drive basket building our product team experimented with the keep shopping feature on the homepage of which app.
The Ctrip highlight specific landing pages and the feed to better showcase categories and the products that are of interest and it makes more product.
Ensign recommendations.
Our goal is to further drive user engagement convert interest into transactions better ads on hot leads and to recommend complimentary items.
Additionally to further assist in our customers' product exploration journey. Our team is working tirelessly on exploring ways to leverage generative AI to create product collections at scale to further drive engagement and the basket building opportunities for our customers.
In Q3, we formed a partnership with North American parcel pickup and Dropoff countered network put all the.
The partnership enables which customers do click and collect parcels from more than 1200 could opine counters across the U S and Canada.
The calibration, which kudo support our broader goal to improve the shopping experience by providing enhanced level of convenience for our shoppers through enabling hassle free package retrieval from number of locations.
At the same time it opens up new avenues for independent retailers to drive increased foot traffic and revenue streams generated by packaging collections by end of the year. The local network of pickup points are expected to reach 24000 globally.
Turning to our second pillar, which is deepening our merchant relationships.
As the marketplace platform, we continue to recognize that our merchants play a pivotal role in providing excellent customer experience.
We have always had.
Wavering focus on strengthening relationships with our global merchants, who have delivered best in class experiences to our consumers.
As an example every month, we conducted a survey of our merchants to better understand their needs and the cash the overall sentiment to walk.
Consistent with the last several quarters the findings of our reason merchant Npls. The way in Q3 indicated thats merchants valued highly the ease of onboarding and selling our global customer traffic and the logistic support.
Moving forward, we expect to continue to survey our merchants to learn more about how to make <unk>, an even better and more user friendly marketplace 40 businesses.
Throughout the third quarter, we continued to refine the wishes tenders program, which is designed to help improve the quality of merchants and the product listing on which we continue to see the program have a positive impact on the business, resulting in a reduction in customer refund rate.
At which we are poised to drive the overall customer experience at the platform level through measuring and rewarding merchants, who performed well in areas that matter most to our customers such as refund rates and a policy compliance.
To listen and we recently published our inaugural anti Counterfeiting report in essence to report provides insights into the progress we have made over the past six months in our efforts to reduce the sale of content feeds goods and enforced policies preventing the lifting.
Condensate products on our platform.
Counterfeiting is a serious problem in our industry and as a large marketplace. We recognize we have a responsibility to our customers to promote a greater degree of transparency on this important issue and do what we can to identify and remove listing of counterfeit goods.
Last week, we announced an agreement with French ecommerce SaaS solution provider October here, which is expected to open up a gateway for hundreds of Europe based merchants to stop selling on the <unk> platform.
As part of the agreement, which is set to go live in the current quarter, which will only allow merchants with merchant rating of four five or above as we continue on our journey to improve the range of listing on our platform.
We're excited to develop our partnership with October.
The breadth and depth of merchants that October.
He is bringing to our platform is differentiated as the merchants offer a broad range of goods spending consumer electronics beauty fashion home and garden and hobbies.
I will now discuss our third pillar of achieving operational excellence as.
As a result of our ongoing efforts to reduce friction on our platform. We continue to make good progress in the key operational metrics in Q3 for example, the average time to door in six of our major markets further improved by approximately five days when compared to the same period of 2022.
Our on time delivery rate was about 91%, mostly flat when compared to last quarter.
The continued progress in our average kinds of doors in the major markets. We serve also favorably impacted we found rates and the customer experience.
Specifically, our customer account rates decreased by 9% year over year in the quarter.
We also saw a 19% year over year improvement in customer NPS, alongside encouraging average transaction value and the buyer conversion rates in Q3 in particular average transaction value and the buyer conversion increased by 31% and approximately 5% respectively.
In the third quarter of 2023, when compared to the same period last year.
Yes.
As previously announced.
The implementation of the workforce reduction was largely completed by the end of Q3 going forward, we expect to realized run rate savings of approximately $43 million to $46 million on an annualized basis.
In the current quarter.
In addition, we have taken a number of actions to rationalize our cost base and reduce overall operating expenses.
Bringing it all together I am pleased with the progress we are making on each of our foundational pillars.
Now I would like to discuss our strategic focus certain years ago, which revolutionized the e-commerce space by creating a mobile first discovery based personalized and fun shopping experience.
Switching gears into our journey, our mission hasn't changed which is to unlock e-commerce for the underserved by giving users access to a wide selection of affordable goods and providing merchants with access to millions of users globally.
What has changed over the years is that we are now.
Accelerated path to reinvent wish with an ever greater sense of urgency.
We remain committed to providing a differentiated shopping experience and the competitive prices for our customers.
Our key focus is to keep improving the customer experience.
Which we believe plays a critical role in driving user engagement and growth.
Looking ahead as part of our sustainable growth strategy first of all we intend to differentiate through what he calls by expanding our product range within the beauty and health and consumer electronics categories.
For the beauty and health category, we recognize that there is an increasing consumer demand for health and wellness products that are designed to support and enhance wellbeing physical mental and emotional health importantly, affordability is critical to improving the accessibility of those products for consumers.
We are encouraged by the growth trajectory in this vertical and.
And we believe we are positioned to capitalize on the business opportunities. There we expect to further expand the range of products within the beauty in the health category on the platform.
Within the consumer electronics vertical refurbished electronics is a fast growing market.
Third party market research indicates that global refurbished electronics market is estimated to be valued at $48 billion in 2023 and are expected to grow at the tech of 10% from 2023 to 2030 <unk>.
<unk> of the growth in this market is attributable to increased consumer focus on environmental sustainability, coupled with the rising demand for high quality electronics product at the budget friendly price points in the current environment.
In terms of our competitiveness the critical success factors for the FERC market include strategic partnership and our local inventory, which is some of the peer companies in our industry may not have access to.
At which we already have a strong merchant network in the U S and Europe for reverb electronics supply moving forward, we intend to capitalize on our merchant base to deliver value driven refurbished tier one consumer electronics, such as cell phones.
Laptop is central as well, a small home appliances and home improvement products.
Second building upon what we call differentiation, we are sitting out on the next phase of our sustainable growth strategy, which is to reinvent the customer journey with our content and interest part of even.
The success of which is really driven by innovation for example, the discovery base the shopping experience for which we are known is designed to inspire our customers, but we want to do much more with it.
For starters, we are planning on leveraging AI to create personalized shopping content and experience that are brought to life through target micro collections and innovative social content.
Simply put our platform is expected to evolve over time as we look to infuse the customer shopping experience with curated interest that content.
In the very early stages of implementing our content strategy a list juncture and we look forward to sharing our progress with you in the coming months.
On top of that our team is focused on increasing our <unk> and it will be looking to execute on several key initiatives going forward, including investing in our search experience on the platform enhancing video and AR continue exploring experience to make it easier for buyers to continue exploring products and adding.
Two shopping carts.
Optimizing the incentives deals and coupons available to our users to boost the conversion and introducing new growth channels as well as improving existing unpaid channels like notifications and E mails.
To sum it all up I'm energized by the opportunities ahead of us and our ability to draw on our strengths to develop new shopping experience for our customers with that let me now turn the call over to our CFO <unk> <unk> to discuss our financial results in more detail.
And to give you an update on our operations.
Thank you Joe.
Now I will add more color on Q3 financial performance.
The Q4 financial guidance.
Scott operational update.
On the user metrics.
We had 11 million monthly active users and the $9 million last 12 month active buyers.
In the third quarter of 2023.
Which represented a decline of 54%.
And a 44% respectively.
Yes.
The decline was largely driven by our decision to reduce AD expense over the past several quarters.
As we remained focused on achieving target returns.
Edison.
You put in perspective our.
<unk> was lower by 60% during Q3 on a year over year basis.
The total last 12 months added spend decreased by more than 30%.
Great. Thank you all of the prior year.
Additionally, we continue to see increased the computation in the e-commerce industry.
And some of our peers focused on driving new user acquisition and retention.
Offering deep discounts and incentives.
We believe that such competition further impacted our monthly active users and by account in Q3 2023.
Total revenue in Q3 were $60 million.
A decline of 52% year over year.
This decline was across core marketplace.
Bruce and the logistics.
Primarily driven by lower order volumes associated with a lower monthly active users in the last 12 month active buyers.
As a result of a lower ad spend.
Previously mentioned.
Q3 gross profit was <unk>.
$14 million.
A decline of 59% year over year.
Gross margin was 23% versus 27% in Q3 2022.
Gross margin performance was mainly driven by the decline in marketplace gross profit.
Due to lower revenue.
Quarter over quarter. However.
Gross margin improved by 4%.
Two higher commission rates.
Additional cost savings and higher logistics margin.
Total operating expenses were $94 million.
A reduction of 42% year over year.
Reduced ad spend.
Lower customer support of services cost.
And the lower employee head count.
Accounted for a majority of the reduction in operating expenses.
Okay.
<unk> stock based compensation.
Total operating expenses were down by 40% year over year.
Our net loss was $80 million.
Compared to Q, a net loss of one.
<unk> hundred $24 million in the third.
Third quarter of 2022.
On a year over year basis.
The decrease in gross profit was offset.
The decline in operating expenses.
Resulting in a decrease in net loss.
In Q3 2023.
Our adjusted EBITDA was a loss of $54 million.
Compared to Q EBITDA loss of $95 million.
In Q3 2022.
Q3, 2023 EBIT result.
Above the high end of the guidance range.
Of a loss of $65 million.
$5 million.
We reported operating cash flow and our free cash flow of negative $86 million.
Our Q3 2023.
Compared to Q operating cash flow and our free cash flow.
The negative $100 million.
In Q3 2022.
The year over year improvement in operating cash flow was primarily driven by a decline in net loss coupled.
Coupled with a favorable changes in working capital.
We ended Q3 with $445 million in cash.
Cash equivalents and marketable securities and no long term debt.
I would now like to provide guidance for the fourth quarter of 2023.
For Q4, we expect total revenue to be in the range of $50 million.
$60 million.
And the adjusted EBITDA loss to be in the range.
Of $65 million to $55 million.
Revenues are expected to remain under pressure.
I am really driven by intensified customer acquisition.
Both incumbent and the newer competitors e-commerce.
EBITDA is expected to improve significantly.
On a year over year basis.
The projected decline in revenues is more than offset by cost savings across Cogs and operating expenses.
Let me now offer a few updates.
Operation.
But is it still increasing sequentially versus what you believe that you saw a quarter ago or is this just an expectation that as the holidays approach things will get more competitive.
Thank you Laura this is Joe Thanks for the question. So as we said earlier, we will not be commenting further on the strategic review process. So given this and that we <unk> to discuss our financial and operational performance for the quarter. We would appreciate it if you keep your questions focused on our results.
Okay, but on the competition could could I get an answer on that.
Is the competition greater sequentially than it was in the June quarter or is.
Is it just that the holiday quarter is always more competitive than you would expect that to continue.
So we are still facing the intense competition in the e-commerce industry as salt market participants focus on driving new user acquisition and the retention by offering deep discounts and the incentives. So we would not be we may not be able to outspend salto competitors in terms of the marketing dollars.
However.
We can do here is to drive the sustainable growth and a focus on acquiring users through the high touch category is what we shared in the prepared remarks and also convert users to buyers through the remote and recruit friction in the user journey. This is something that should we keep focusing on kind of improving user shopping experience on our <unk>.
Al.
And lastly, it's about increasing the average transaction value right through the freight rail shipping and also other basket beauty initiatives, there's something actually really can help us to drive basket size building.
Understood. Thank you.
Okay.
Thank you one moment for our next question.
And our next question comes from the line a good call.
Irene <unk> from Citigroup Your question please.
Hey, guys you have maxed more on for Yigal. Thanks for taking the question.
I guess maybe cleaning.
On the competition side.
What are you seeing in the macro today kind of quarter to date.
How does the consumer trending and Youre cautious cautiously optimistic about.
The holiday season, so I guess kind of what's driving that.
Optimism.
This is <unk>. Thank you for the question.
As Joe mentioned, we have been really focused on driving.
Driving organic growth.
And I think.
The holiday season, obviously is helpful and we have launched.
The everyday is black Friday campaign, and that momentum is pretty strong.
A big plus for us for the call for the Q4.
Besides that we are also implementing a set up for growth initiatives to further improve the conversion rate.
Friction for the new users and sort of the list goes on.
And I think the.
With that top line growth and also our focus on cost efficiency, we feel.
Pretty good about Q4, so far.
But obviously, we can't share a whole lot more we only have one month.
Thank you first of all Brian a lot could happen in the second and the third month.
But so far the momentum.
From the crop conditions are.
Pretty strong and we are pretty we are cautiously optimistic for that reason.
Okay.
Yes.
Okay. Thanks, I guess is there anything else you can share I guess, just more broadly like macro trends.
Maybe not necessarily.
With specific but what.
What youre seeing from the consumers in general.
Yes, I think on a macro standpoint.
Obviously, the inflation is still pretty high and the disposal income it feel pretty tight if our mobile shoppers and in this environment people tend to trade at all on price.
More deals and promotions.
<unk> has been known for value for price right.
Destination for a lot of value conscious customers.
In particular for the holiday shopping so we expect that momentum to continue to be a favorable favorable to us.
So I think thats.
Probably a tailwind.
<unk> 44 as well.
Yes, I think.
Yes.
If the inflation pressure continue to rise at a certain point could it be kind of a headwind for us, but so far I think.
On a macro level it would be helpful.
Okay.
Okay, great. Thanks.
Very helpful.
Thank you once again, if you have a question at this time. Please press star one on your telephone.
Yes.
And this does conclude the question and answer session of today's program I'd like to hand, the program back to wishes CEO Joe Yang. Please go ahead Sir.
Thanks, everyone for joining our earnings conference call and we look forward to talking to you throughout the quarter.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
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Okay.
Okay.
Yes.
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Thank you.
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