Articore Group Limited (ATG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Redbubble Limited Group FY Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Ms. Louise Lambeth, Head of IR. Please go ahead.

Thank you. Good morning, everyone, here in Australia, and good afternoon for our U.S. investors. This is Louise Lambeth, Head of Investor Relations for Redbubble Group. Welcome to this investor call following the release of Redbubble's FY 2021 full year results and reports earlier today. With me on the line, I have Redbubble's CEO, Michael Ilczynski; and CFO, Emma Clark. As well as the full year results report, the key information for today's update is contained in the ASX announcement and investor presentation also released to the market this morning. Please note that unless stated otherwise, the financial results have been subject to audit. The accompanying strategic and operational metrics are from internal management reports and have not been subject to audit. Mike and Emma will now speak, and then we will open up the lines for questions. Please note that this session is also being recorded. Before we start, I would like to call your attention to the safe harbor statement regarding forward-looking information in our ASX release. That safe harbor statement also applies to this investor call. Now I will pass on to Mike.

Thank you, Louise. Hello, everyone, and welcome to Redbubble's Financial Year 2021 Full Year Results. I'm really delighted to be here with Emma presenting our results, which have produced a record year for the company and have demonstrated the power of the business when it is operating at scale. In summary at the group level, gross transaction value across the platforms was $701 million for the year, up 48% versus PCP and up 60% on a constant currency basis. Marketplace revenue was $553 million, up 58% year-on-year and 71% on a constant currency basis. And we're very proud of the $104 million in artist revenue that was earned by artists on the platform. This is an incredibly important milestone as it took Redbubble 11 years to achieve more than $100 million in total cumulative artist earnings, whereas over the course of the financial year, this was achieved in just under 12 months, a testament to the strong growth experienced by the business and the artists that we serve. These record top line results translated into equally strong growth in gross profit, EBITDA and cash flow, and Emma will go into more detail on the financial outcome in a few moments. I'd like to take a moment to step back, reinforce and elaborate on our medium-term aspirations and strategy, which we articulated in our -- in April in our letter to shareholders. I'll then go through a review of our FY '21 operational performance against our key strategic themes before passing to Emma, who will speak to the financial results in more detail and discuss the business' outlook. So moving to Slide 4 for those of you following on. FY '21 shows that we are well and truly on our way to creating the world's largest marketplace for independent artists. This remains our mission. It drives our ambition, and we are passionately committed to it. On Slide 5. To continue towards this mission, our medium-term aspiration is to drive top line growth to enable a step change in our business scale and artist impact. As many of you will be familiar with, Redbubble operates a unique, 3-sided marketplace with genuine flywheel effects where improving one side creates a positive reinforcing impact on the other side. In simple terms, the content that artists sell attracts customers and as more customers purchase, it enables the fulfillment network to scale, lowering costs and thus attracting additional customers. And this increasing customers further creates more artist revenue, encouraging new artists to the platform. They add more content, thus attracting more customers, and the cycle continues. Given the centrality of customer sales through this process, you'll see a focus on driving customer growth and loyalty in our medium-term aspirations and strategy. Slide 6. As we pursue these aspirations, the key high-level outcome metrics by which we'll measure our progress are gross transaction value, artist revenue and marketplace revenue. Our medium-term aspiration is to grow GTV to more than $1.5 billion per annum, to grow artist revenue to $250 million per annum and to produce marketplace revenue of $1.25 billion per annum. It's through these metrics that we hope to demonstrate our success in delivering a step change in our impact in directing consumers to the marketplace, enabling them to purchase, turning them into loyal customers and in continuing to grow and scale with third-party fulfillment network. On Slide 7. We really do believe that Redbubble is uniquely positioned to capitalize on this opportunity and emerge a significant winner in what's a very large addressable market. Not only are we uniquely positioned within markets that are growing towards TAMs in excess of USD 400 billion, we are also continuing to benefit from ongoing structural shifts in some key macro trends that will continue to be in our favor for the foreseeable future. On Slide 8. Our willingness to openly set and share these aspirations and our confidence in our ability to achieve these in the years ahead is also reinforced by the group's track record of top line growth. From FY '17 to FY '21, marketplace revenue grew from $141 million to $553 million, a cumulative average annual growth rate, or CAGR, of more than 40% per annum over that period. If we take our FY '21 underlying marketplace revenue of $497 million, which excludes mask sales in FY '21, the CAGR is still 37%. This track record enables us to look ahead with confidence as we aspire towards a CAGR of 20% to 30% over the next 4 to 5 years in order to achieve our top line aspirations. On Slide 9. To achieve this aspiration, we shared our high-level plans in April of making investments that will be phased and evolved over the years ahead. These investments can be directly matched to the 4 strategic themes, which we have outlined on several occasions now and which continue to underpin the foundational work the business has been progressing through the year. We've provided this slide to give you a visual representation of key areas of focus against these strategic themes and how they will evolve and develop over time. In the interest of time, I'm going to go through every detail of this chart, but I will highlight how this strategy demonstrates the number of growth levers that we have and how our focus and investment will change over time. For example, this shows the OpEx investments that we're making right now in the coming year, particularly in our product and engineering teams, is to improve the digital experience for both artists and customers. It shows how we expect it to be another year or so before we will see an increase in brand marketing and the growth that, that will drive and how geographic expansion also forms a core part of our growth strategy, but that's likely to be a few years away from now. I'll now run through a review of the -- of what the business achieved operationally during FY '21. So on Slide 11. Many of you who have been following us over the last 12 months will be familiar with this page. As I mentioned earlier, these 4 strategic themes embody the foundational work that we're undertaking to enable continued growth, and we've made some exciting progress against each of these themes, which I'll run through on the following pages. So starting with the theme of artist activation engagement on Slide 12. From an outcome perspective, FY '21 saw a record $104 million earned by 728,000 artists across the RB Group marketplaces. As I said earlier, this was the highest annual amount earned by the artist community, an incredible milestone for the business. In addition to the total dollars earned, we're also very pleased to see such strong growth in the number of selling artists during the period. On Slide 13. This is a really important chart for us as a business as it demonstrates the ongoing compounding value of artist cohorts each year. The chart shows our marketplace revenue is not only generated from new artists but also primarily from existing artists on an ongoing basis, which demonstrates the long-term value that artists and their content bring to the marketplace. Operationally, our group-level artist function was established in the second half of the year, and this group will take a more proactive, segmented approach to artist acquisition and engagement across both the Redbubble and TeePublic marketplaces in the news ahead. On Slide 14, on to the second theme of user acquisition and transaction optimization. We had 9.5 million unique customers that made purchases on the Redbubble marketplace during FY '21, up 40% year-on-year. Across our various customer acquisition channels, organic was strong. It remains a key source of competitive advantage for the group, while we saw growth in Google Ads, affiliates and PR, and we continue to experiment with new channels to diversify our acquisition sources and find new areas of opportunity. On Slide 15. The mobile experience continues to be increasingly important, 55%. So more than half of all sales on the platform occurring via a mobile device. Within a mobile environment, our apps are an important part of our long-term strategy, so as such, it was really great to see Marketplace revenue on our apps grow 77% year-on-year during FY '21, outpacing the strong overall growth, and now 14% of the Redbubble marketplace for sales are coming via iOS and Android apps. We continue to see stronger engagement and retention from customers who use our apps, and as such, we will continue to invest in improving and attracting customers to these platforms. On Slide 16. As I flagged in April, developing a culture and process of targeted experimentation across the business is a key aspect of enabling us to achieve our medium-term aspirations, and initial and certainly an ongoing area where we've been taking this approach is across the customer funnel. I'm happy to share some examples of our experimentation, which is starting to provide some insights into our future growth opportunities. We've been experimenting with new social channels in order to expand our audience reach as well as on improving audience targeting to drive ad efficiency. This includes showing podcast ads that I highlighted earlier, which creates new audiences of over 3.5 million. We also trialed free or reduced shipping costs and delivery date experiments, which is showing the potential for conversion gains. For example, one of the -- one of our free shipping experiments showed results of a 40% gain in conversion although this does need to be balanced against the decrease in margin from reduced shipping revenue. So more work is needed here on the best way to take these findings forward. And finally, we recently launched our second buy-now-pay-later provider experiment, and the early signs show up to a 50% increase in average order value for customers using the buy-now-pay-later option in one of the experiment variations. So we will continue these particular experiments as well as, more importantly, this overall philosophy of targeted experimentation to drive improvement. Finally, I also want to reinforce that this view of the customer funnel has very much evolved beyond being a single-transaction view to also include driving repeat rates as we improve customer loyalty, which I'll touch on in the next second and as we've talked before will be an ongoing focus in the years ahead. So on to -- on to Slide 17 and customer understanding, loyalty and brand building. It was really pleasing to see that even with the record number of customers and record sales results, purchases by repeating customers made up 42% of marketplace revenue with the growth rate of revenue from customers making a repeat purchase outpacing that of first time purchases. In particular, I wanted to highlight that the large number of new customers who came to the site in the first half of FY '21. So this was the COVID holiday period, the surge that came at that period of time. Those customers are demonstrating the same repeat rate, which is a key loyalty metric as the equivalent but much smaller cohort from the prior year pre-COVID. So specifically, in the first half of '21, the new customer cohort was 62% larger than the same cohort in the first half of '20, yet it's showing the same rate of repeat purchase behavior after 3 and 6 months. This is important as it shows that those customers who are arguably forced to do their shopping online during the shutdown last year have stayed with us at the same rate as those we acquired pre-COVID. Moving to Slide 18. As we discussed in April, one of the critical pieces of work that we've been investing in is our new customer data platform. This lays the foundation for the deeper understanding and engagement with customers as well as enabling us to gain insights into the lifetime value and acquisition costs that customers acquire through different channels at different times. For example, the cohort repeat data that I mentioned on the previous slide was generated through this platform. So it's still early days in our implementation of CDP and building our internal capability, but we wanted to share some initial examples of the opportunities that this will bring. So for example, in a recent Facebook experiment comparing audiences created through the CDP to a Pixel-based free marketing audience, we saw a 33% increase in the click-through rate and a 17% uptick in return on ad spend. In addition, using the CDP, both Redbubble and TeePublic marketplaces are investing to create and structure more first-party data to ensure continuity in our marketing effectiveness as ATT, which is Apple's App Tracking Transparency program, and other privacy changes that are particularly impacting the effectiveness and attribution of marketing on third-party platforms. So it's helping us to maintain our marketing effectiveness despite these changes. On to Slide 19. We've flagged an increase in brand marketing to drive awareness and engagement will be a large part of the next phase of investments in growth, likely a year plus away from now. However, our Redbubble and TeePublic marketing teams are already making progress with early experiments on our brand positioning, and these are resonating with media and target audiences. This includes a 31% increase in click-through rate through our recent Redbubble brand commercials relative to other video campaigns. The focus on growing our PR channels that started about 18 months ago is going really well, and we're very much encouraged by these early results, which indicate that we're laying the right foundations for launching future success of brand campaigns. And then finally, on Slide 20, let me turn to the third-party fulfillment network and improving our physical product range. This is an area where the business has made significant investments previously to diversify the network, to build in redundancies and reduce the time it would take to add new fulfillments on new products to the marketplace. You'd see that the value of prior year investments into the network was really demonstrated as the business was able to respond to the increased demand due to COVID and deliver the largest holiday season in the company's history. During FY '21, there were 11.6 million packages shipped, up 47% year-on-year. The third-party fulfillment network model enabled to maintain continuity of operations and supply in the face of surging demand, record volumes and constrained shipping conditions due to COVID. I'm really proud of what was achieved without compromising the customer experience. On Slide 21, Redbubble added new products, including jigsaw puzzles, aprons and magnets. We've also started to have a particular focus on improving and refreshing existing product ranges, and we saw this deliver acquisition and conversion gains along with the quality uplift to improve repeat purchasing. So this is something that will remain an ongoing focus now alongside selectively adding completely new products. So for example, there was a 30% increase in marketplace revenue for tri-blend tees by adding 4 new colors. We're also undertaking work to improve the physical product experience with experiments running right now, looking at the impact of changes to brand quality, the packaging inserts and delivery pay changes. And on to 22 -- Slide 22. Finally, I'm really excited to share with you that Redbubble has become the first at-scale print-on-demand marketplace to launch caps. These are now available from local facilities in the U.S. market. So for those of you who are in the U.S., would love you to order some and tell us what you think. We've launched 2 types of caps, the structured baseball cap and the softer, unstructured dad or polo cap. And now I'll hand over to Redbubble Group CFO, Emma Clark. Emma?

Thanks, Mike, and hello to everyone. I will now cover our financial performance in more detail and provide our near-term outlook. Please be aware that unless otherwise stated, the financial results discussed are on a delivered basis as per our statutory requirements, and all have been subject to audit. As Mike covered at the start of the call, Redbubble delivered a record year of results in financial year 2021. When looking at the year, it is pleasing to see that all of our financial metrics experienced exceptional growth. In particular, I would like to call out the $553 million in marketplace revenue, up 58% and 71% on a constant currency basis. Customer demand has been sustained throughout the entire year even as off-line retail has started to reemerge from COVID-impacted trading. From the start of the fourth quarter, the business began to cycle very strong prior year comparatives. Global macro conditions, particularly in the U.S., which is our largest market, have changed noticeably. The situation is still evolving. However, in most of our geographies, people are able to move around more freely, dine out and travel, and as such, we are seeing a return to more normalized seasonal patterns. We are very satisfied with the fourth quarter's performance where if one adjusts out mask volumes from both years, we grew 1.8% year-on-year on a floating basis. As the prior year is such an unusual period, it is useful to measure the growth of Redbubble over a longer period of time. For example, if we look at the growth rate over a 2-year period for the fourth quarter, underlying performance on a -- is a compound annual growth rate of 32% since financial year 2019 on a constant currency basis. This demonstrates that the business has kept the majority of its pandemic-driven gains. Moving down this year's profit and loss. We maintained and improved unit economics. Gross profit margins were higher in the financial year, primarily due to the strong contribution of higher-margin products such as face masks. This resulted in gross profit of $223 million, up 66% and 79% on a constant currency basis, outpacing what were already impressive revenue growth rates. We are pleased with the fourth quarter margins, which stabilized at 40.2% and provide a solid foundation for both continued experimentation and optimization. Redbubble full year EBITDA was $53 million, up $48 million from the prior year. The ramp-up has been significantly accelerated due to the record revenue growth with most of the uplift dropping directly to EBITDA. Financial year 2021 certainly demonstrated the powerful effects of our marketplace model and how quickly profitability could scale with additional revenue. It is worth pointing out that FX continues to have a notable impact on the year-on-year comparable as the AUD-USD tail was a headwind in the second half of our financial year. We provide growth rates on a constant currency basis to take out the noise that can occur in our quarterly results. As these 3 charts show, when viewed over the medium term, strong growth has been consistent and is continuing to underpin key profit and loss lines. The business was able to pivot and respond to macro events to achieve record financial results during the last year. However, leading into this period, this was already a business delivering long-term year-on-year growth, as demonstrated by our 5-year historical compound annual growth rate of more than 40% across marketplace revenue gross profits and gross profit after paid acquisition. Even if one adjusted out last year's mask sales, the growth rates would still all be in the high 30s. It is certainly a strong, long-term track record, and we are confident in our ability to drive continued growth into the future. Although ASX listed, Redbubble is a truly global business, and our multiregional footprint is a key strength with growth continuing across all of the core geographies. There is a combined population of almost 1 billion consumers in those key markets, and you heard Michael earlier talk about the large total addressable market that we have set our sights on, and as such, there is no risk that we will hit a hard constraint on the number of customers available to us in those geographies in the medium term. There are a diverse range of physical product offerings available on the marketplaces, and each category has grown during the last year. We have added data showing transactional volumes to each of the categories over all years, and this was done to highlight the fact that absolute dollar growth has occurred across each and every product category over multiple years. Homewares and artwork, including wall art, were popular categories during the pandemic. And T-shirts and other apparel also saw good growth over the last 12 months. Even stationary and stickers managed to grow 11% year-on-year despite most students being confined to remote learning. Finally, face masks unsurprisingly were a significant contributor during the year, boosting accessories growth to 119% year-on-year. I will go into more detail on this in the next slide. As we start to cycle the COVID comparatives, it is pleasing to see categories that had more muted growth rates during the last financial year, such as apparel and [ stickers ], start to accelerate again. In total, masks contributed $57 million to financial year 2021 marketplace revenue. If we take this out, the underlying marketplace revenue was, therefore, $497 million. Underlying marketplace revenue growth was still strong at 47% and represents substantial growth over the prior year marketplace revenue of $350 million. As we have shared, over the last 12 months, the benefit of masks were seen from predominantly in the first half during which face masks were contributing as much as 27% at their peak. We have provided the split of mask contribution by half, which highlights that of the $57 million of marketplace revenue that came from face masks, $47 million of this occurred in the first half of financial year 2021. This exacerbated our normal seasonal split with 64% of marketplace revenue occurring in the first half versus 36% in the second half. The more normalized seasonal split is closer to 58%, 42%. Last year's record financial results from a profitability perspective have also provided many other benefits, not the least of which is a substantial cash balance that the business is now holding. For the first time in our history, we can sustainably invest into our future growth. If, for example, one of our experiments shows promising early results, we can use our own cash reserves to rapidly accelerate the experiment to generate the most material impacts upon both revenue and ultimately more profit in future periods. It also gives management and the Board considerable strategic flexibility around a range of capital management strategies, from M&A at one end of the spectrum to share buybacks at the other end. All of these options are under active consideration by the Board. Redbubble currently operates with no debt facilities and, due to its positive working capital dynamic, has only accessed equity funding once in 2018 for the purchase of TeePublic. There are also a couple of other balance sheet-related items that are worth mentioning. As some of you would be aware, we have $37 million of off-balance sheet tax losses. As the business becomes profitable from a taxation perspective, these losses are available to be utilized to offset tax payable at that time. And as we discussed at some length in our last full year results call, Redbubble is required to recognize revenue upon delivery of goods rather than when the customer has paid for the order. This results in revenue being deferred to the balance sheet. As of the 30th of June 2021, this was $8.7 million. Let me now explain our near-term outlook for financial year 2022 and provide our views on the medium-term financial parameters. As you are aware, we don't normally provide any form of guidance, but given the ongoing uncertainties in the macro environment, this can result in those modeling the business generating widely varying outcomes. We would like our shareholders to be as aligned as possible with our own current internal views on near-term performance, which take into account business performance for the current year-to-date in July and August. The last 12 months saw phenomenal growth across the business. This means that in the near term, Redbubble will cycle strong prior period comparatives. As we have flagged, masks were a significant contributor, adding $57 million to last year's marketplace revenue. And as you saw on the previous slide, the underlying financial year 2021 marketplace revenue was $497 million. Looking forward, Redbubble expects financial year 2022 marketplace revenue to be slightly above financial year 2021's underlying marketplace revenue. This will still represent solid growth on the $350 million achieved in financial year 2020. The first half of financial year 2022 marketplace revenue growth will likely be negative year-on-year as the business cycles a particularly strong prior period due to both COVID lockdowns and including masks. From the second half, we expect a steady return to year-on-year growth rates consistent with meeting our medium-term aspirations. Targeted investments will continue to be made and will affect gross margin, marketing and OpEx lines. Investments in financial year 2022 will focus on key aspects of the customer experience, both digital and physical. These are aimed at driving cumulative increases in users, order rate, average order value and repeat rate. As noted in the April release, EBITDA margin as a percent of marketplace revenue is expected to be in the mid-single-digit range for financial year 2022 with EBITDA margin expected to expand over the medium-term with top line growth. Looking into the near to medium term, I'd like to reiterate the potential for Redbubble to build margin and bottom line improvement as the business scales. As we shared in April, our medium-term aspirations are to continue growing the business to $1.5 billion in gross transaction value, artist revenue of $250 million and marketplace revenue of $1.25 billion in calendar year '24 plus. We shared this slide in April, and most of these numbers will be familiar to you. One of the nuances has been a long-term, high-growth business rather than a stable, low-growth business is that there will continue to be volatility in margin from year-to-year. Long-term, above-system revenue growth requires investment, and as such, the EBITDA margin in any given year will depend both on the overall scale of the business at that time, combined with whether we are in an investment phase as we are currently versus a consolidation phase. We've expressed all major profit and loss lines with a range to attempt to illustrate this dynamic but had left OpEx as a single data point, which, in hindsight, is not the best representation. Accordingly, we have updated this to a range of 12% to 15%. The flow-on effect to the EBITDA level is that the range has increased from 10% to 15% to 13% to 18%. This change better illustrates the economic potential of the business when it is operating at scale and its ability to generate EBITDA and cash flows at that point. Like all great marketplaces, we operate with discipline and maintain an agile and appropriate balance between revenue growth and margin generation. We are focused on building towards our midterm aspirations and looking at our historical performance, continue to believe that this is an achievable goal. I will now pass back to Mike.

Thanks, Emma. Just before we open up to questions, I'd really like just to reinforce how optimistic we feel about the future for Redbubble. It's a business with some truly unique assets and a competitive position with compelling opportunities and many growth levers. I'm just over 6 months into the role myself, and I feel more confident about the opportunity than when I started. I'd also like to publicly thank all of the team across Redbubble and TeePublic for their efforts through the year, for their dedication and their ability to adapt to these trying times. We believe a continued and consistent focus on investing in order to scale and grow the marketplace is the optimal path for the business right now and the best way to generate maximum long-term shareholder value. And I'd like to thank all of the holders for your continued support on this path. I'll now open up the lines to questions.

[Operator Instructions] Your first question comes from Anthony Porto from Morgans Financial.

I guess the first one, just with cycling the COVID tailwind. Emma, you mentioned in the second half, you think revenue growth is going to be picking up there. I guess, yes, what we had all assumed kind of the next couple of quarters were the hardest ones to cycle, but I know Etsy came out the other -- a couple of weeks ago and just spoke about the impact of U.S. stimulus and how the first quarter and next calendar year would be the hardest for them to cycle. So can you just maybe provide a commentary on that and just your ability to cycle that kind of U.S. stimulus? I do know you grew less than what was in that quarter. I guess the second question, just on the Brandy Melville case. I hadn't seen anywhere in the numbers at all where you've provisioned for that. I assume that's because it happened after the financial year. But just the U.S. $520,000 in damages, I guess, if you can provide -- how many other cases have you got in litigation? There said to be a number in the California District Court. And I guess reading through the announcement there, it was more the kind of repeated refusal to take off the infringing products there that really got you caught in contributing -- contributory negligence there. And just some commentary around that. I know it was before your time, but just some commentary around that. And then I guess, going forward, how much kind of nonauthentic, is how it used to be referred, kind of content is still on the site? And then just lastly, around marketing efficiency going forward. I guess numerous e-commerce players talking about the impact of Apple's IDFA changes and on marketing efficiency. Have you guys seen any impact there? And then just general cost escalation in digital advertising. How do you think you pay -- you pack -- payback kind of holds into the next couple of years? And just the -- not really putting that much more above-the-line marketing seems at odds with a lot of the other e-commerce players in the market. So there are 3 reasonably in-depth questions.

Yes. Anthony, I think you've just won an award for managing to jam the most pieces of information into a single question ever. I'll start and answer some components so that -- ahead of Mike with some others. And if we miss a piece, just remind us, okay? So in terms of the commentary that you made regarding Etsy stimulus and what's happening in the U.S. and the near-term comparative, we certainly would see similar dynamics to that particular business in terms of how those prior year comparatives are either the hardest or the easiest at certain points in time. So as I've discussed in the call earlier, primarily, we see the difficult comparisons through the first half of the year, and certainly, within that business quarter is the hardest -- the first quarter is the hardest comparative period for us to cycle. And then as we also said, we would then start to see a normalized return to the growth rate, so we really need to see it in order to be able achieve our mid-term aspiration. So I would concur with the statements made by that. We can certainly...

Sorry, Emma, that's kind of at odds with it. Etsy statement is the -- your third quarter is the hardest to cycle, given the U.S. stimulus in that kind of March period.

Yes. So okay. So apologies for any confusing calls, I obviously deal with calendar quarters instead of financial year quarters as they do. So for us, it's the first quarter of the financial year, which is the July-to-September period. After that, the comparatives do start to get easier because for us, and based on what we're seeing at the moment, and the difficulty in the comparatives is actually primarily caused by the impact that masks had on the marketplace at certain times because obviously, they moved quite quickly, peaked quite high and then fell off. And so it -- as we go through that cycle, which for us is in the July-to-September period, primarily, we see the most difficult comparative if you're just looking at a headline year-on-year basis, and then they start to get a bit easier for us. So that's the answer on comparatives. On the Brandy Melville, in terms of provisioning, we do have a provision. I'll let Mike talk in more details more generally about the cases, but there was a change in the damages awarded that happened soon after year-end reducing it to USD 220,000. We do have that now provisioned in our accounts, but we also have an offsetting receivable because we do have insurance that covers situations like this, and there is an insurance receivable that effectively matches and offsets that, though they appear in 2 different places in the balance sheet. So the net P&L impact is not there, but they are recorded in the balance sheet. And then the third piece I'll quickly pick up in, I think in your third question about marketing spend before I hand to Mike is in terms of digital channels. I mean as we said last quarter, we've definitely seen a return to more normalized competitive conditions in the online marketing space. Most players are back. They're bidding for inventory the same as us. And you can see in the fourth quarter, our marketing as a percentage of sales was 13.2%, which is probably a little higher than what we would ideally like to see but is driven by those market dynamics and the competitors that are out there at the moment. We would consider that to be well -- I mean, obviously, looking at marketing quarter-to-quarter is tricky because there are times when we will actively invest in more marketing. So for example, around now for back-to-school and, obviously, in the traditional holiday period, so it can bounce around a little bit. But I think underlying, our view would be that where we're sitting at the moment, we don't see any shifts at the moment in that landscape. That would mean we would drastically have to change the amount that we're spending in paid marketing as a percentage. So I think what you're seeing at the moment in our financials is what you could reasonably expect to continue to see in the near to midterm. And so I think that's mainly the financial ones. I'll hand over to Mike for some of the other elements of some of your questions.

Definitely, there has been different types of cost escalation in different marketing channels, and some of that has absolutely been impacted by ATT. It just makes it a lot harder to see conversion on different channels that we use. But we -- the -- our marketing spend, our paid acquisition spend, as we talked about, is really spread across a lot of our channels, a lot of different channels. Our team is pretty nimble. So they've got an ability to monitor what's being effective, what isn't and shift spend across channels, which is why we're sort of confident in the total spend, but absolutely, it moves around, and things are moving, that's quite a dynamic environment at the moment. External litigation, it's really challenging for us to comment on individual cases. What I would point out within the public domain is that the Brandy Melville damages were reduced by more than 50% straight off the mark by the judge [ in some refiling ]. And we continue to file motions. And we continue to disagree with the premise of the findings by the jury in that case. And I disagree with the premise that there was any repeated refusal to take down in printing content, that's just not an accurate statement. [ We heed the words of the ] rights holders very, very seriously. Whenever anything is raised, there is an incident -- like an incident 24 hour or less turnaround by our team on looking into any potential right infringement. And if there's any infringing content, it's removed. And then we continue to monitor for infringing content on an ongoing basis. The challenge is in any technology or human-based system, it is not fool-proof. It's not fool-proof. Image detection is not fool-proof. Tagging detection is not fool-proof. And sometimes, unfortunately, bad actors -- content gets through by bad actors. Every single site that deals with UGC has to deal with these issues. We take it very seriously. And as soon as we're made aware of infringing content, that's taken down. So I just -- that concept that there's repeated refusal to take down, it's just not accurate at all, and we feel really strongly about that. And then finally, on the comps. It is important to point out, if you look back on last year, there are a few things going on as well as market sales. This kind of COVID surge that happened that was driven by, firstly, an inability to shop off-line because of lockdowns or shutdown of retail coupled with stimulus, that happened at the same time, really did increase overall demand in the marketplace. And actually, during, really, 3 quarters of last year, but particularly for us in the first half until a little bit into late Q3. And what's really encouraging for us is we look at where the business is now, and I can't emphasize enough that in the U.S. and the U.K., from a consumer spend perspective, we're in a post-COVID world. Every single off-line retail outlet is open. Every single bar and restaurant is open. The U.S. is traveling domestically and internationally. So we might be hearing a lot about the Delta variant. But from a consumer spend perspective, in the U.S. and in the U.K., it is back to -- we're in a post-COVID world. And in that post-COVID world, we're seeing our demand hold up. Even in Q4, if you adjust out masks, we were flat, which we're really encouraged by because it means that we're -- it means we're holding those COVID surge numbers almost completely, which was the big question is how much did we hold. And that means we're 50% up on where we were 2 years ago. So we're really encouraged by the position we're in.

The next question is from Martin Tran, a private investor.

So first question I had is around artists. Some artists have said that they post their work on lots of print-on-demand sites to increase their profit pool. How are you guys saving Redbubble's competitive advantage given that consumers can access the same art on multiple websites?

Thanks, Martin. I think primarily for us is what we hear from our artists is even those that do multi-post, that they -- the great thing about Redbubble is that it's the one that generates the -- generates by far the majority of their sales. And so we are the go-to place. And what we see with our artists is when they come on, they very, very rarely leave. We had very -- we have almost no issue at all with artist attrition or with content going off the site. So what we know from an artist's perspective is the #1 thing that they want is they want to generate sales. They want to generate sales. And so that's why our job, the job of the platform is to bring that demand to their content, to their product and generate -- and help them generate sales. And that's our big competitive advantage. There's no other site, there's no other marketplace in the world that has the scale of consumer interest that we do and that really is itself reinforcing. As we get more artists, our SEO gets better, our marketing gets better. And particularly, while we've talked a lot about our paid marketing, it's really important to remember the huge driver that SEO and organic traffic is for Redbubble. It's one of our core competitive advantages. And it really does generate its own little flywheel. So the #1 proposition we have for artists is that you will generate more sales at a lower cost than any other platform out there. If you -- particularly -- even compared to doing it themselves that they've got to spend all of their own money on marketing, they don't need to put a single dollar down to operate on Redbubble and that's the huge advantage. It's completely free for the artist unless they make sales. There's absolutely no risk. And we're very, very confident that for almost every artist, they'll make more sales on our platform than they will on every other. So that's our core competitive advantage.

And just another question that I had, [ with regards to doing any -- improving the existing products' quality and probably around that as well that the -- how ] do you guys think about that?

As if -- meaning physical product quality, Martin?

Yes, yes, product quality.