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Edited Transcript of MMM.AX earnings conference call or presentation 29-Jan-20 10:30pm GMT

Q4 2019 Marley Spoon AG Earnings Call

Feb 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Marley Spoon AG earnings conference call or presentation Wednesday, January 29, 2020 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gilbert Fabian Siegel

Marley Spoon AG - Co-Founder, Chairman of the Management Board & CEO

* Julian Lange

Marley Spoon AG - CFO & Member of Management Board

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Marley Spoon Q4 2019 Conference call. (Operator Instructions)

I would now like to hand the conference over to Mr. Fabian Siegel, CEO. Please go ahead.

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Gilbert Fabian Siegel, Marley Spoon AG - Co-Founder, Chairman of the Management Board & CEO [2]

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Yes. Thank you. Good morning, and thank you for joining our investor call. So my name is Fabian Siegel, Founder and CEO of Marley Spoon. And I have with me here today, Julian Lange, our CFO.

So this morning, we released our Appendix 4C for the fourth quarter of our financial year, and we are pleased to use the opportunity to provide you with an update on the business performance as well as an update on funding. And at the end, as usual, we'll open the call to you for questions.

So over the past year, Marley Spoon has made solid progress building a sustainable recurring revenue business with global operations and scalable manufacturing technology. And we feel we are well positioned to take advantage of the ongoing transition of grocery shopping from off-line to online, which is likely to continue for the years ahead. And as you know from prior calls, we are in the early stages of a 5-year strategic partnership with Woolworths Group, and the growth opportunities and operational synergies from this collaboration have only just begun.

Now in 2019, we have seen our Australian business continue to show strong growth margin improvements and turning profitable. More importantly, though, we are seeing a similar path of growth and margin improvements in our international segments and expect a similar development on those regions, as we've demonstrated in Australia going forward. Now Q4 2019 revenue was at EUR 35.2 million. And contributed to a strong full year net revenue growth to around EUR 130 million or 41% year-on-year, which exceeds the prior guided range. Now this represents more than 22 million meals that we delivered to Marley Spoon customers over the course of the year.

Our Q4 growth was achieved with lower acquisition costs and improved marketing efficiency as marketing expenses as a percentage of revenue decreased from 26% in the prior period to just 17% in Q4. Contribution margin in Q4 reached a record of 28%, with all regions contributing. For the whole year 2019, contribution margin improved to 25%, which is up 4 points year-over-year and within the prior guided range.

Now in addition to contribution margin, we are introducing a new KPI today, which we think will help to better understand the margin profile of our business. We are reporting operating contribution margin or operating CM, which basically is defined as contribution margin excluding the impact of marketing vouchers and fixed costs such as expenses related to our manufacturing center leases. Now this operating CM will give you a better understanding and how just growth alone will be affecting margin profile without considering continued improvements in our supply chain or our manufacturing operations.

Now this operating contribution margin reached 36% in the fourth quarter. Our revenue growth, margin improvement and the continued control of overhead costs continued the positive trend and led to an operating EBITDA loss of EUR 2.4 million for the quarter, which is an improvement of EUR 6.2 million compared to the prior corresponding period. This represents an operating EBITDA margin of negative 7%.

So let's maybe review our 3 regions in more detail.

Australia grew 50% in the fourth quarter year-on-year and improved contribution margin to 36%. Operating contribution margin improved to 43%. As you know, we are working closely with Woolworths Group and expect to see further benefits to materialize throughout 2020. And we have been closely following the development of the bushfires, which have impacted a large number of people and communities across many parts of Australia. And we are committed to supporting our suppliers and we are partnering the bushfire relief initiatives where possible.

Currently, we do not see any significant incremental impact on our food supply chain, which has been under pressure from the drought throughout the past year. We continue to monitor the situation, and we have put contingency plans in place to mitigate potential future impacts. Now our U.S. business grew 18% in the fourth quarter year-on-year compared to a very strong prior period, which was driven by the 2018 scale-up of Dinnerly. Overall, U.S. sales grew 52% year-on-year for the calendar year.

Operational improvements and scale effects led to an improved contribution margin in the fourth quarter of 23%. Operating CM reached 31%. We have also appointed a new U.S. CEO, Julie Marchant-Houle, to run our U.S. operations. Now Julie comes with a strong background in running CPG businesses and companies such as Procter & Gamble, Revlon and Hain Celestial, and we are excited to have such a seasoned and successful industry expert to join the team, and we are looking forward to her leadership to -- for our U.S. team.

In Europe, Q4 revenue contracted 4% compared to prior year period, and full year revenue grew by only 8%. This temporary decline was due to changes in the company's new manufacturing technology and footprint in the first half of 2019, which made us pare back customer acquisitions throughout 2019 in Europe. After resolving these challenges in the second half of 2019 and consolidating our production activities in our Netherlands manufacturing center, European contribution margin has been trending up, ending the fourth quarter with 26%. Operating CM reached 32%. Now these improvements in Europe are positioning us for growth in 2020, also driven by a larger geographical reach as we launched Denmark in October 2019 and Sweden this January.

Now let's take a closer look at our 4C and cash flow, for which I will hand over to Julian.

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Julian Lange, Marley Spoon AG - CFO & Member of Management Board [3]

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Thank you, Fabian. Operating cash flow was negative EUR 7.4 million for Q4. This is due to -- mainly due to the seasonal decrease in payables, which is in line with lower marketing expense and sales during the holiday period at the end of the year. Nothing unusual. Included in this number was one particular achievement of the team on inventory, where we finished calendar year 2019, effectively flat at EUR 3.7 million for the third year in a row. So given how much bigger the business is today, you can imagine, it's a great achievement with a lot of functions and people contributing.

Cash outflows from investing activities was EUR 1.2 million for the quarter mainly for self-develop software. In Q4, the

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equity investment from an existing investor to reported on in the first of USD 7.5 million tranche of USD 15 million loan from Silicon Valley-based investor, WTI, which is (inaudible) for now.

Our adjusted cash balance at year-end was EUR 5.4 million, down from EUR 7.9 million at the end of Q3 and EUR 8.6 million at the end of 2018. As we further strengthen our cash position, we're all ready to announce the U.S.-based venture capital firm Union Square Ventures. USV invested another $2.5 million in the company. The investment structure essentially mirrors the previous USV investments that we had in 2019. Initially, the funds will be provided in the form of a 3-year commercial loan and then subject to shareholder approval, which we're seeking by May. The company made an elect to substitute this loan for 2 convertible bond instruments with the conversion share price of $0.50 again.

Similar to the instruments before, shareholder approval is not granted or the company elect to not issue the convertible bonds then USV may declare the loan immediately due and payable. But for the complete terms, please refer to our release from this morning.

But finally, let me talk about 2020 guidance. After the successful fourth quarter, as Fabian talked about, we're happy to reaffirm our previous guidance from October. We expect continued robust revenue growth and margin, operating EBITDA improvement. Contribution margin in 2020 should improve similarly, as you've seen in '18 and '19.

In second half of 2019, which -- it should mark the point from which operating EBITDA losses in each half year period are lower than in the prior corresponding period. We continue to work towards turning operating EBITDA positive by the end of the calendar year.

With this, I will hand it back to Fabian.

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Gilbert Fabian Siegel, Marley Spoon AG - Co-Founder, Chairman of the Management Board & CEO [4]

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Yes. Thank you, Julian. So over the past year, when you think about it, we have proven our business model in Australia, and we are now seeing improvements towards profitability, attractive unit economics and high operating margins on a global level. Now as consumer behavior and groceries switches to online, we see significant opportunities for growth and have invested in our manufacturing capabilities globally in order to ensure that we have the right foundation to support continued expansion and customization and growth.

Our fourth quarter performance was marked by the strong revenue growth, increased margin and resulting improvements in operating EBITDA. As we expect to continue our growth and margin expansion toward 2020, we are, as Julian mentioned, reaffirming our guidance of turning operating EBITDA positive by the end of calendar year 2020.

Now as more and more consumers switch to online shopping for groceries, we see us, we see Marley Spoon, still at the very beginning in our path to building the direct-to-consumer brands that provide an easier, more convenient, more sustainable and eventually cheaper way to provide a home-cooked meal to the people our customers care about.

Now thank you for taking time this morning. And with that, I would now like to open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We are showing no questions at this time. I'll hand back to Mr. Siegel for closing remarks.

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Gilbert Fabian Siegel, Marley Spoon AG - Co-Founder, Chairman of the Management Board & CEO [2]

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Yes. Thank you. And so maybe if I want to summarize our perspective. So we believe that 2019 was an important year as the Australian business showed us what this business should look like. And what we see is that we have put the infrastructure in place, both in Europe and Australia that -- sorry, in Europe and the U.S., that should allow us to reach a similar profile globally. And so we're seeing good overall global development and bringing this company into profitability, while benefiting from the channel switch and from the growth of the industry.

Now we have our full year results coming up in roughly 1 month. And with that, the full year results, we'll be happy to then go into a little bit more detail, and we'll be looking forward to showing you some of those structural developments that I just referred to. We'll also be on the roadshow in the second week of March. So we'll be looking forward to meeting most of you in person. Please reach out to either me or Michael Brown, who is directing our Investor Relations strategy.

Thank you very much for your attention today, and we'll be looking forward to being in touch with you shortly.