U.S. Markets closed

Edited Transcript of RBL.AX earnings conference call or presentation 22-Oct-19 9:00pm GMT

Q1 2020 Redbubble Ltd Earnings Call

MELBOURNE Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Redbubble Ltd earnings conference call or presentation Tuesday, October 22, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Barry Newstead

Redbubble Limited - MD, CEO & Director

* Emma Clark

Redbubble Limited - CFO

* Paul Gordon

Redbubble Limited - Regional Counsel & Company Secretary (Australia)

================================================================================

Conference Call Participants

================================================================================

* Grace Fulton

Goldman Sachs Group Inc., Research Division - Research Analyst

* Owen Humphries

Canaccord Genuity Corp., Research Division - Senior Industrials Analyst

* Timothy Piper

RBC Capital Markets, LLC, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Paul Gordon, Redbubble Limited - Regional Counsel & Company Secretary (Australia) [1]

--------------------------------------------------------------------------------

Good morning, everyone, or afternoon for our U.S. investors. This is Paul Gordon, Company Secretary for Redbubble. Welcome to this teleconference following the release of our first quarter results for the financial year 2020.

With me, I have Redbubble's CEO, Barry Newstead; and CFO, Emma Clark. As we announced earlier this month, the ASX has confirmed that Redbubble is no longer required to provide quarterly cash flow reports, that is Appendix 4C. We will, however, continue to provide Q1 and Q3 market update in addition to our half year and full year results.

The key information for today's update in respect of Q1 FY 2020 is in the ASX release and supporting presentation which we released to the market very early this morning, Australian time. Please note that results and figures are from internal management reports and have not been subject to audit review.

Barry and Emma will now present referring to the supporting presentation viewable via the webcast, then we will open up the floor for questions. This presentation and Q&A session are being recorded.

And before we start, I would like to call your attention to the safe harbor statement regarding forward-looking information in the ASX release accompanying our results. That safe harbor statement also applies to this call and the Q&A.

Now I'll pass to Redbubble's CEO, Barry Newstead.

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [2]

--------------------------------------------------------------------------------

Hi, everybody. Hope all is well. I'm happy to share that in Q1 FY 2020, the Redbubble Group achieved another important milestone. We delivered $7.8 million in free cash flow and $3.7 million in operating EBITDA. Both Redbubble and TeePublic delivered positive results.

We achieved group constant currency revenue growth of 37% and gross profit growth of 48%, powered by the acquisition of TeePublic and the resilience of Redbubble as well as strong group margins.

Underneath the seemingly slow growth of the Redbubble business, noting that the challenging comps from the prior year, our strength is in mobile membership and brand-driven acquisition, along with lower marketing costs that position the business well in coming years. Operating expense growth was slowed as management has a sustained cost discipline, focused on productivity and growth investing. This is a strong result that demonstrates our execution capabilities and our future potential. The group delivered on -- the group continued to deliver on the strategic priorities of the business which focus on long-term growth and flywheel acceleration.

Let me review the progress. The performance of TeePublic cannot be understated. I cannot have imagined a better outcome 12 months ago. This is a great business and has a ton of potential and a strong team. It has integrated well, and the realized benefits are an important contributor to the results we are showing. TeePublic has a strong -- had a strong quarter supported by optimizations in organic search and Google Shopping as well as the rollout of local currencies in Europe, the U.K., Canada and Australia.

For Redbubble, investments in the membership program are delivering real outcomes with growth at 133% year-on-year. The Redbubble iOS app continues to thrive, reaching 12% of Redbubble revenue in Q1. The Android app development is also on track.

Our fan art business is emerging. The focus in Q1 was to get brands on-boarded to TeePublic and to build licensed contents. We launched 4 brands and made progress with existing partners and have a strong pipeline of new deals, including a recently signed agreement with NBCUniversal, one of the world's largest entertainment brands.

These partnerships position Redbubble and TeePublic to extend our advantage as the home for the best and most diverse artistic content and to provide truly innovative fan art experiences for artists, partners and customers alike.

Redbubble launched 7 new products in the quarter for a total of 12 in the past 2 quarters. TeePublic also launched 2 new products.

Before handing over to Emma, I'd like to discuss Redbubble's growth and reiterate the changes we have been making in our marketing strategy. As discussed over the past year, Redbubble is transitioning from a search transactional business to a branded relationship business. This will enable us to enrich the value of the company, reduce reliance on Google and build a brand moat. The transition is underway with positive signs emerging from membership, the app and brand-driven channels, as mentioned. We have implemented some changes that set the business up well and our good trade-offs between short-term revenue growth and long-term profit growth.

First, we have reduced our use of site-wide promotions significantly and are limiting many of our promotions to members, where the ROI is good. This has an impact on top line growth in the short-term but improves gross profit, as you can see, and provides a real incentive for members and app downloads.

Second, we have tightened up our ROI expectations for paid marketing channels. And again, this is an impact on short-term top line growth for some channels but accelerates our gross profit after paid acquisition as you can see in our numbers.

And third, we continue to build our brand-driven marketing via Snapchat and TikTok, if they influences we are partnering with and via co-marketing collaborations with fan art partners. In fact, in the last quarter, we initiated work with Cartoon Network to promote the Steven Universe movie which is a real success. And we also partnered with Gearbox to promote the launch of Borderlands 3. All of these approaches are generating good results at a relatively small overall scale. We are working to scale them up as we look forward.

To set the business up for the new approach to marketing, we reorganized the function, including changes in leadership. Through these changes and the reduced reliance on Google and Facebook, the quality of Redbubble's revenue is higher when considering the flow-through to gross profit after paid acquisition. We relied less on transactional paid marketing and focused more on relationships that have higher LTV potential at lower cost of acquisition. It tested business after investing marketing dollars effectively for brand building, new user acquisition and LTV growth in 2020 and beyond.

Overall, we're feeling really good about what we have achieved this quarter and where the business is heading. I'll now hand over to Emma to talk more about the financial details before I come back and talk a little bit about the strategic direction. Emma?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [3]

--------------------------------------------------------------------------------

Thank you, Barry. The Redbubble Group has continued to demonstrate the sound fundamentals of our marketplace through our model with a strong financial result flowing from this. Of particular note is our continued profitability, both from an operating EBITDA and EBITDA perspective, with our operating EBITDA margin further improving from 2.3% last quarter to 5.3% this quarter. This was driven by top line growth in both brands, coupled with gross margin improvement and good management discipline keeping both paid marketing and operating expenses at a level that provides the strong operating leverage. We also had an excellent result from a cash flow perspective with our Q1 free cash flow generation at $7.8 million, the highest for this quarter ever.

Now we have had to make an accounting change to how we report both operating EBITDA and EBITDA, driven by the implementation of IFRS 16, which is the accounting standard for operating leases. The implementation of this standard has moved our rental expenses from operating expenses into amortization and interest, which are both below the EBITDA line.

For the first quarter, the impact was $700,000, and we expect this to be $2.8 million for the full year. This standard also results in the cost being treated partly as a financing cash flow and partly as an investing cash flow rather than an operating cash flow, so it does have a flow on impact to our free cash flow position. Please note that our prior-year comparatives in this presentation and in our announcement have also been adjusted to ensure that the growth rates are on a consistent basis.

This change is not specific to the Redbubble Group, and we still would have generated $3 million of operating EBITDA and $7 million of free cash flow without it. But I wanted to be completely transparent with any changes to our reporting.

As I mentioned in the last update, we believe that the company is undervalued compared to our peers, particularly in the U.S. Whilst the group's share price moved up post last quarter's results, we believe the valuation gap still remains.

I am pleased to say that we have launched this week a sponsored Level 1 ADR program, and this listing is now live on the over-the-counter market in the U.S. under the ticker symbol RDBBY.

Both Redbubble and TeePublic continued to grow. TeePublic had another great quarter. The growth rate of 42% driven from efficient paid marketing spend across the rollout of geolocation redirect and currency conversions for EU customers and, to a lesser degree, their launch of their new products. Redbubble growth continues to be powered by growth in customers and accelerating membership base and an improved mobile experience.

As I stated in the last update, we expected the Redbubble growth rate to remain similar to fourth quarter through this quarter, and our results are in line with our expectations. We are now focused on the upcoming holiday season and ensuring that Redbubble's growth rates move higher, whilst retaining the discipline we have had in performance marketing spend, and limiting excessive use of promotions which can improve the top line number but impact negatively lower down through the P&L.

In regards to the holiday quarter, we have historically planned for an ASX release on Thanksgiving sales. Subject to continuous disclosure regulations, we will not be doing this moving forward as we look to maximize value and impact for the entire holiday season rather than focusing on only 5 days of trading within the quarter.

As I mentioned at the last update, given we have owned TeePublic for almost 1 year, it is a good time to pause and reflect on the acquisition. Please also note that once we pass the anniversary date of 1st of November, TeePublic numbers will be included in our prior year baseline, which will affect the year-on-year growth rate at the consolidated level moving forward.

Overall, we realized $1.3 million in benefits over the period from November 2018 to June 2019. And please be aware these were captured in our FY '19 results. The addition of TeePublic effectively doubled our U.S. t-shirt business overnight, and this has allowed us to gain additional value from our entire supply chain. These changes have benefited both businesses. We have also been able to leverage knowledge and insights from one brand to the other to add value.

Our ability to license content for the group has allowed TeePublic to participate in these agreements, with the most notable being Star Trek, which was added last quarter, and Rick and Morty, which was added in the most recent quarter.

Being a smaller, newer business, TeePublic has also benefited from being able to tap into Redbubble's back-office functions and processes, thus avoiding some of the scaling costs of building support functions to support their ongoing growth profile.

Whilst we have driven an immediate return from a synergy perspective, we will continue to explore additional opportunities, sharing artist content and marketing insights to drive further value as well as leveraging on Redbubble's broader geographical footprint and new product development capabilities.

As Barry has already said, this has been a fantastic addition to Redbubble, and it's been impressive to see how both teams have come together effectively in such a short period of time. In addition to our continued profit and loss strength, our cash flow for the quarter has been a real highlight. I think this chart speaks for itself. So I won't add anything other than to reiterate that the group is now free cash flow positive. Knowing, of course, that we will still be subject to seasonality over the holiday period, which inflates our second quarter and reduces our third quarter. And that our cash balance have increased from $29 million to $38 million over the quarter. These dynamics give us the flexibility to selectively reinvest in growth initiatives which will continue to power the flywheel. And as we do, we will keep the market updated on both the investment and the outcomes.

Finally, moving on to operational metrics for the first quarter. Our year-on-year growth rates are still very good across all areas of our flywheel. Our number of active works have crossed the $25 million threshold increasing our competitive moat of content. The number of unique customers continues to grow, which is supporting the marketplace revenue growth rate. Repeat sales continued to increase, moving from 40% of our revenue from FY '19 to 42% this quarter.

As Barry has already spoken about, our paid marketing costs as a percentage of revenue has been held to under 9.5%. This is a deliberate strategy, reflecting the underlying move to branded channels. I do anticipate this percentage will increase slightly over the remaining quarters as we invest more in brand building and scale up our emerging channels. It's also important to be aware that our paid marketing spend usually increases in the second quarter, which reflects the seasonal nature of our business.

Redbubble continues to attract new members and 2.8 million of them logged on as members during the first quarter. This is 1.2 million more than the same quarter in 2019, which is a 75% increase. We will progressively mature our membership offering to encourage more of this user base to convert to sales and repeat sales over time. Our take rate, which is already much higher than other marketplace peers has continued to increase, and our gross profit margin has done the same.

Please note that a couple of our operating metrics which we reported for the full year, specifically our revenue per active member and net promoter scores are going to be reported on a half yearly basis.

Overall, the Redbubble Group has delivered an excellent quarter's results, showing the scalability of our business model, the strength of our economics and the sustainability of our cash flows. I'll now hand back over to Barry.

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [4]

--------------------------------------------------------------------------------

Thank you very much, Emma.

Redbubble and TeePublic are still in early years, and we see a revolution in retail commerce that will open up a large market opportunity. Our vision is to connect authentic artists and content partners with millions of local -- loyal customers, enabling personalized ventures and creativity. As I said before, we are a much bigger marketplace than most people appreciate. The marketplace model extends into a wide array of consumer product markets. We can access these markets as we scale up, build our brand and consumers realize that they don't need to compromise between personalization, quality, speed and affordability.

We are uniquely positioned to win as we are a flywheel business that is hard to replicate. Our strategy aims to solidify our advantage. First, we are the artisan content leader that is a magnet for authentic artists. The 25.8 million strong back catalog of art is evergreen, generate long-running value at a tiny cost to maintain. Artists continue to join and upload at negligible cost of acquisition. The RB Group is the most attractive place for no hassle monetization.

In the near term, the offering for artists will only get more attractive as we roll out new services, including promotional tools, art theft prevention and value-added marketing offers for high potential artists to manage their businesses more effectively. For content partners, Redbubble and TeePublic present a new way to engage fans and evolve the merch business in partnership with artists. We are working with them to create a scalable way to manage thousands of brands and ultimately license millions of content units on a global level. This will extend our content advantage.

Second, we have a diverse product catalog that multiplies the value of an artwork. This is what makes new products so attractive in the marketplace as we instantly create a massive personalized catalog at launch. We will launch many more products in the coming years on both platforms to build category leadership.

Our supply advantage is solidified by the fulfillment and operational capabilities we've built over a decade. Our supply economics continue to improve as the biggest business begins to reach scale on each product area. The supply side is our existing moat.

This brings us to the customer side of the strategy. For customers, content is king. And Redbubble and TeePublic continue to have the best content. The business is deepening relationships with customers to enrich the experience. Customers are flocking to Redbubble's iOS app and are signing up as members at a rapid rate. This allows us to provide customers with more personalized experience with improved recommendations with enhanced merchandising and really critically, the human connections to artists and content partners.

We're extending TeePublic into new markets with progressive -- and will progressively build out the personalized member experience that is proving so valuable on Redbubble.

Fourth and finally, Redbubble and TeePublic continue to generate a lot of inbound organic search and social traffic, which keeps marketing cost low. The group has well-established paid search capabilities, which provide for profitable growth. As I mentioned earlier, what is emerging is a powerful shift towards brand and content based marketing partnerships that are enabling new sources of growth. We have the potential to take our brand to scale by partnering with people who love content, artists, customers, partners and influencers. We want to build a brand moat to augment our supply side.

Our business is a flywheel. So as our moats get stronger -- our moats gets stronger as each strategic initiative reinforces the whole.

The final slide, the summary slide, covers the investment thesis for Redbubble. We think it's compelling. Redbubble and TeePublic provide a new kind of commerce marketplace for artists, partners and customers. We have a long and profitable growth investment runway ahead of us, both in the core and via adjacencies. Competitors face a daunting investment challenge to try and reach a similar scale. This is a formidable business with the advantage of some of the best marketplaces on earth. We have a committed, energized team that knows what it takes to win. We've reached a big milestone of having the ability to start generating internal cash resources to fund future growth. Our next milestone is to go to $1 billion in sales, and we feel this is very much within our grasp.

So thank you, and we'd like to now open the floor for your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Grace Fulton from Goldman Sachs.

--------------------------------------------------------------------------------

Grace Fulton, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

There was a pretty significant improvement in gross profit versus first quarter '19. Sorry, you said that the fourth quarter result that you've got some efficiencies which had only started coming through at the end of FY '19. You've sort of talked a bit about the efficiencies you've got on with TeePublic as well. Can you maybe talk through the margin outlook for the remainder of FY '20?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [3]

--------------------------------------------------------------------------------

Sure. Thanks, Grace, for the question. So yes, you hit the nail on the head. So at last quarter, we did say that some of the initiatives that we had through our supply chain has only been recently implemented. And therefore, we would get the full year impact of them, and you can definitely see those having an impact on our first quarter margin. And yes, the TeePublic synergies also continue to flow through.

I would think that in terms of our gross margin, looking forward, it's relatively stable at its current rate. We might see some small further improvement in it, but not to the extent that you wouldn't take last year to now and then just keep extrapolating that out. I would hold the margin relatively consistent to what we have now with some small improvement over the rest of the year because we did see the full impact of those things through the quarter that we're reporting at the moment.

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [4]

--------------------------------------------------------------------------------

And I think that's really more this year versus longer term?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [5]

--------------------------------------------------------------------------------

Absolutely. I completely agree. Our longer term thesis remains intact on gross margins.

--------------------------------------------------------------------------------

Grace Fulton, Goldman Sachs Group Inc., Research Division - Research Analyst [6]

--------------------------------------------------------------------------------

Okay. So just to be clear, FY '21 to FY '22, could you just talk about that?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [7]

--------------------------------------------------------------------------------

A great question.

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [8]

--------------------------------------------------------------------------------

Look, we -- I think we've demonstrated historically that we are very good at seeking out improvements in our gross margin. We've got really well-established capabilities in the business to do that. We're consolidating on the most recent improvements that we had. But that team will continue to be tasked with finding further improvements. There's also continued scale. So as we continue to sell more products, we get efficiencies out of that as well. So those things will continue over the longer-term to continue to improve our gross margin.

--------------------------------------------------------------------------------

Grace Fulton, Goldman Sachs Group Inc., Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

Okay. Then just pivoting towards marketing. So as you said earlier, you expect that it was a little bit lower in the first quarter and a bit of a step-up through the rest of the year. You mentioned in the release that you've got targeted levels. Can you give any indication what those are? Or for [2] different platforms?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [10]

--------------------------------------------------------------------------------

We don't specifically publicly give out the targeted levels, and we do change them internally at times depending on the results that we're actually getting. So it's not a sort of a static number that's easy to publish so to speak.

But really, I think the point that we wanted to make sure that everybody understood was that we have not loosened our requirements for first transaction profitability in terms of marketing spend. So even whilst we're changing our channel mix, we haven't loosened that requirement at all. Now at the moment, we're finding those brands of channels to be less expensive than some of our other historical channels like paid social. So we're getting a benefit from that. And that's what keeping marketing somewhat low. As we scale, they're not probably become a little bit more expensive. But really, it's that first transaction profitability that we have not loosened on at the moment that's impacting that low marketing spend rate.

--------------------------------------------------------------------------------

Grace Fulton, Goldman Sachs Group Inc., Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Okay. And just in terms of the content partner pipeline. I think you mentioned a new partner you'd recently signed, Barry, during the call. I didn't quite catch it. Can you maybe just talk about that pipeline a bit more?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [12]

--------------------------------------------------------------------------------

Sure. So the partner I mentioned was NBCUniversal. And if I'm not wrong, and I think they're the second or third largest media company out there. So it's a pretty significant player. Really up in the sort of top echelons of the licensing world. So that was the partner.

I think the pipeline continues to be nice and strong. I think there are other deals are, of sort, of with top 10, top 20 players that we're working on in a number of sectors, not just in television and film. So I think things are coming.

As I said to you previously, or as I said to the investors previously, these are deals with very large companies. So they can take upwards of 1 year to get negotiated and finalized. And so they do take a little bit of time and effort, but we're confident that they're really valuable over the sort of medium term, as we've seen with Cartoon Network.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Tim Piper from Royal Bank of Canada.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [14]

--------------------------------------------------------------------------------

Great results. Just a couple of quick questions. Could you just drill down on the $1.3 million of synergies a bit further, just following on from Grace's question there? Can you give us a bit of an idea of what the split is between the supply chain savings you've made within that? And what's sort of cost and revenue synergies.

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [15]

--------------------------------------------------------------------------------

Yes. Certainly, Tim. So as I said, the synergies were actually across both businesses. So the supply chain synergies did benefit both Redbubble and TeePublic. They're approximately 2/3 of the synergy benefit and the remaining 1/3 is the other things that I mentioned.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Okay, great. And the cash flow results are particularly strong. Just in the context of sort of the way you're talking about cash flow at the end of FY '19, moving into the fourth quarter -- the first quarter this year. Were there any sort of one-off timings around working capital or payments and receivables within that cash flow number?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [17]

--------------------------------------------------------------------------------

So there were working capital benefits within that number. And we obviously have seen working capital benefits, both from a Redbubble perspective and a TeePublic perspective. Based -- the Redbubble, if I drill down to the working capital benefits for Redbubble, I [interrogated] this number in quite some detail, they are in line with the same quarter for prior year. So there's nothing unusual in the number.

And I also checked, obviously, that in terms of our flows of payments and everything like that, that we were normal in terms of paying everybody, and that was 100% on track as well. So there's actually nothing abnormal in the result. And we continue to grow, and that's reflected in the free cash flow that we're generating.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [18]

--------------------------------------------------------------------------------

Okay, sure. And then just at the top of the release where you referred to both brands being profitable. I assume you're referring to at an operating EBITDA level?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [19]

--------------------------------------------------------------------------------

That is correct. Yes.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

There are no further questions at this time. I will now hand back to Mr. Newstead for closing remarks.

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [21]

--------------------------------------------------------------------------------

Actually, just give folks a moment, if you could, to see if anybody wants to jump back in. We realize that maybe the early hour. It was not intended to produce a number of questions. Here we go. Thank you. I figured that we get some people moving. There's a couple of questions in the queue.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Your next question comes from Owen Humphries from Canaccord.

--------------------------------------------------------------------------------

Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [23]

--------------------------------------------------------------------------------

I thought I might just touch on the PCP, obviously very strong in the first quarter of '19, in the 40% percent mark. And now we're cycling through that into the second quarter. If you rewind your minds back to last year, I think, September -- at the end of September, we saw some issues around the organic traffic, and that was flagged in November. Can you maybe just touch on how this quarter has been trending? Are you're saying, you're cycling out of that quite well. Just maybe just provide a bit of color around how we're seeing, how the numbers reversed the PCP which kind of fell. Was it quite hard last October?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [24]

--------------------------------------------------------------------------------

Yes. So this call is about the last quarter, not this quarter. So probably going to just say that this point on a question that we're going to tackle. I think if there's things material that we want to share, we will obviously share them at the appropriate time.

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [25]

--------------------------------------------------------------------------------

Yes. I appreciate it's frustrating for everybody and it's a maybe a billion dollar question on everyone's lips as we go through this quarter. We're keeping our quarterly release, update cycle intact in part because we want to have frequent touch points with everybody. But unfortunately, you're just going to have to be patient and wait until we talk to you in January about the holiday quarter.

--------------------------------------------------------------------------------

Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [26]

--------------------------------------------------------------------------------

No worries. And maybe, obviously, you spent a bit of time, kind of re-platforming your tax back to particularly on the (inaudible) side to allow you to kind of ramp up the amount of products on your website. You had a strong quarter in terms of incremental product set. Just maybe touch on where you could take that to, is that some of your peers have in the hundreds of products, just to touch on where you expected? I know you kind of said there that you'll ramp up the amount of products being launched, but just if you passed on 12 or 24 months, where do you see your product numbers going to?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [27]

--------------------------------------------------------------------------------

So I think, no question. I mean, as we've talked about, really, for the last 18 months that there was a big priority to get the platform in really good shape to take new products to scale. The 12 products we've launched since -- I think it's really since May 1, I think it just shows that we're really fully backing that, like that work is strongly achievable, really wanted to get it done. It's actually notable that we're actually going to do more work to make it even more scalable.

I think as we look forward 2, 3 years, I think we're talking hundreds of products. And so I think our goal is to really be on a cadence of just increasing the rate at which we're able to launch products for the next few years. So I think, clearly, the expectation next year would be that we would solidly beat the number we've launched this year. And that's really fundamentally because, as I said in the -- in my speaking notes, products are a multiplier in the marketplace. So the artwork goes on more products, it's a great multiplier. And also, we also think that it's going to be critical on the consumer side to offer real category experiences. So build out home, build out accessories, build out apparel. These are all areas where, I think, the more products we have in those categories, the stronger the overall categories come. So it's really -- it is core to the future strategy and the platform of work has done a lot to help us that -- help us there.

I also think, by the way, that a lot of the platform we work, we've done on the core customer experience, which I didn't really talk about very much earlier. Also helps that because we're actually going to be able to merchandise these products far, far better than we have been in the past because our platform is just so much more flexible, and we're going to be able to do things like 3D and potentially augmented reality in previews because we're really working on a top class platform now.

--------------------------------------------------------------------------------

Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [28]

--------------------------------------------------------------------------------

Good one. Okay. And I know in FY '19, there was a drag as you guys are proactively kind of taking down the nonauthentic artwork and monitoring that. Obviously, just to touch on page number -- let's go page #8, talking about the growth from authentic sellers increased by 20%. Is that for the Redbubble core, is that for the group of Redbubble?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [29]

--------------------------------------------------------------------------------

That's just for the Redbubble.

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [30]

--------------------------------------------------------------------------------

Redbubble, because we only have the content of authentic sellers for Redbubble at the moment. It doesn't have that content.

--------------------------------------------------------------------------------

Owen Humphries, Canaccord Genuity Corp., Research Division - Senior Industrials Analyst [31]

--------------------------------------------------------------------------------

Good one. And is that 20% constant currency there?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [32]

--------------------------------------------------------------------------------

Of course.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Tim Piper from Royal Bank of Canada.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [34]

--------------------------------------------------------------------------------

Yes, I'm back. I thought just to ask a couple more. Just on the Android update, update on the Android app. Is that timeline changed at all? Was it calendar year end or so that, that was going to be launched?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [35]

--------------------------------------------------------------------------------

That was hoped and we haven't changed the time line on that. So stay tuned.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [36]

--------------------------------------------------------------------------------

Okay, sure. And then, I guess, looking at this EBITDA number, $3.7 million for the quarter, and the market sort of consensus at circa 10 for the full year, we're going to sort of look at extrapolating out and what the EBITDA number is looking like. Your GPAPA is growing at 60% and OpEx is up 22%, from sort of an OpEx perspective and you've provided some detail around marketing spend. But more specifically on OpEx for the remaining quarters of the year. I know there's potentially more OpEx growth within TeePublic, but can you give us a bit more detail around the final quarters of the year for OpEx?

--------------------------------------------------------------------------------

Emma Clark, Redbubble Limited - CFO [37]

--------------------------------------------------------------------------------

Yes. Look, it's a good question, Tim. So obviously, the first thing is you need to take $3.7 million down to $3 million even because of the rent adjustment, right? So just to be really clear on that.

Once you look at the $3 million, which is still a very strong result. And we talk about the 22% growth, that's across both paid marketing and operating expenses. If I sort of adjust the operating expense part of that, operating expense growth was very, very low. And so that's -- we've managed to get a good tailwind from that in the quarter, and that has definitely contributed to the strong EBITDA result.

In terms of what that thing looks like. I expect that we will -- we've benefited from that for a period of time. Our OpEx growth will start to creep back up again. We do have some vacancies internally that we're currently recruiting for which are impacting that number. And we're allowing that recruitment to continue. In terms of the -- is there a step change up in OpEx later on in the year, that's really going to come down to how we see the next quarter. How the growth rates rebound on Redbubble. And therefore, what the forecast is going to look like for the rest of the year and how much we can actually grow within our internal cash flow generation. So we're keeping a really close eye on that. At the moment, I'm holding the first strings on OpEx very, very tightly.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [38]

--------------------------------------------------------------------------------

Okay, understood. And just one final one on -- further on the content partners. I think you talked about $620,000. Is that product in terms of the number of active works on the website? Is that what we're comparing that number to?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [39]

--------------------------------------------------------------------------------

What products, first thing? Yes. So it's really the number of SKUs that are available. So it's the combination of the license works themselves and the products that they're on.

--------------------------------------------------------------------------------

Timothy Piper, RBC Capital Markets, LLC, Research Division - Analyst [40]

--------------------------------------------------------------------------------

Those are $620,000 in construction?

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [41]

--------------------------------------------------------------------------------

Yes. So you might have one image from Alfred Hitchcock, which by the way, is one of my favorite fan art we've got, and very, very [updating] me, I guess. But that would be that one image from -- that was on a sticker and a poster and a t-shirt, that would be 3 units. Just so it's clear what that really is.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

There are no further questions at this time.

--------------------------------------------------------------------------------

Barry Newstead, Redbubble Limited - MD, CEO & Director [43]

--------------------------------------------------------------------------------

Great. Well, thanks, everybody. Thanks for the early start for those of you who are in Australia. And hopefully, not the more humane time for those of you and other parts of the world that was in North America. Really, as I said, we're really thrilled with the milestone we've achieved this quarter. We're feeling confident about the direction of the business. I think in the short term, but I think most critically, in the medium to long term, we're super excited about where we are. And we think the prospects are very strong. So we look forward to continuing to keep investors updated and progressing the business. So hope everybody has a wonderful day.