Bike24 Holding AG (BIKE) Earnings Call Transcript & Summary

[Operator Instructions] I would now like to turn the conference over to Moritz Verleger, Head of Investor Relations. Please go ahead.

Thank you, [ Nathalie ]. Good evening, good afternoon, good morning to from wherever you are joining us virtually today, and welcome to our financial year 2021 results conference call. As you probably know, we pre-released top line results and selected customer KPIs on February 1 already. Today, we would like to give you a detailed full 2021 P&L overview, update on our strategic pillars and give more insights on 2022 as well as medium-term guidance followed by Q&A. Our presenters today are Founder and CEO, Andrés Martin-Birner, joining us virtually today, CFO, Timm Armbrust; and Chief Marketing and Digital Officer, Carsten Wich. Some of you might know Carsten from the IPO. We asked him to join us today again to give you an update on our exciting digital strategy and the recently launched marketing campaign. Let's start with the extended version of our latest promotional video. [Presentation]

Hello. It's great to see again how much interest there is in Bike24's development. We actually offer products that are meant to be fun to keep fit and to help people with their daily mobility. And it's not always easy at the moment when so much suffering happens not far from us. You can close your eyes to it. Therefore, we made a conscious decision quite early on not to accept and ship any more orders to Russia and Belarus. The 2 countries accounted for about 2% of sales last year. Now let's move on to something pleasant, the general update and a look back to 2021. Last year was the best year in the company's history in terms of sales and profit. The results were within our guidance despite a challenging market environment. But most importantly, we grew significantly faster than the market which makes us particularly proud. The on-time webshop relaunch was a highlight and exceeded our expectations. Carsten Wich, our Chief Marketing and Digital Officer, will tell you more about it later. We were again able to acquire new customers at record levels and most importantly, our existing customers are buying more frequently, and the shopping baskets are growing. And our bike brand portfolio, a prerequisite for above-average growth in the coming years has increased enormously. And this despite a difficult environment. But of course, there were also issues that were very challenging. [indiscernible] supply chain and delivery problems with bikes much more growth would have been possible if we had sufficient quantity. At the same time, there was selective pressure on selling prices for some brands in the Apparel and Accessories segment because there was good availability. And our successful IPO was, of course, to invest sustainably in growth, which we are doing. As expected, this led to higher fixed costs in terms of personnel and regulatory costs. But again, of course, we see this fundamentally positive. We use the chance hiring talents, so we use these opportunities and its long-term investment in our growth. Now let's take a closer look to the results. Almost 821,000 active customers, a significant increase. Furthermore, our shopping baskets are now increasing to around EUR 150 in Q4 and EUR 140 for the full year. After 45% of growth in 2020, now again, we significantly grew by 26% last year. And I would like to emphasize how important this value is as we have grown faster than the overall market and gained market share. In addition to sales, a healthy EBITDA margin has always played a major role for the management team. Once again, we succeeded in achieving this at 12.2% in line with despite normalizing margins and higher costs due to the listing and our investments in headquarter hiring. In addition to the main topic bikes, there's also the further strategic focus, our Path to Europe, now triple-digit growth in Spain for the fifth quarter in a row. What this means exactly in numbers, Timm, our CFO, will now explain to you in the financial update.

Yes. Thank you, Andrés. And first of all, a warm welcome also from my side. I would now like to share with you some details in the result of the year 2021. We have again significantly increased our active customer base. Compared to end of 2020, the customer base increased by 18%. Together with the development of the repeat order rates, this shows that customer loyalty at Bike24 continues to develop positively. This also shows that the cycling trend is here to stay. It was not a one-off or the customers we acquired during COVID are here to stay, and we didn't lose them to off-line stores again. However, it is not only the positive development in number of active customers, it is also the development of the customer KPIs that make us confident of our medium- and long-term targets. The average revenue per customer within 12 months has increased to record high of EUR 305. Customers order more frequently than in the previous year, again, the record high. And the average order value is also higher and now at EUR 140. Let's turn to a more detailed look at our top line performance. The industry-wide supply challenges have had a clear impact on our growth rates as already expected and communicated. Nevertheless, we were able to achieve a strong growth of 12% in the last quarter despite the lack of bikes in offering. Without the delivery difficulties, we would have been able to grow much more strongly. Over the year as a whole, we increased our sales by 26%. After a boom year with growth of 45% to be able to go by another 26% shows that our business model is very successful and long-term orientated. I expect that 2021 will be again a year where Bike24 could gain significant market shares. A deep dive by Product segment shows that our focus on [indiscernible] and remains the right strategic move. With our [indiscernible] more than offset full-bike sales that were behind our expectations. And it shows again that [indiscernible] was a step-up in the bike market. The increased installed base bicycles in the year 2020 drives the demand for parts, accessories and clothing in the market every year. The revenue split by regions shows that Bike24 is growing in all major markets. In our core market DACH, we grew by 24%, despite our already high market share. Here, I would also like to remind you again of the exceptional high comparison base. Last year, growth in the DACH region was around 61%. On a 2-year basis, we were able to increase sales by an average of more than 41% per year. The growth in the European Economic Area is 32%. That shows our ability to win customers even without a localized [indiscernible] brands and product portfolio. The region outside EEA shows under proportional growth, but that is mainly driven by U.K. customers due to the [indiscernible], it was impossible to ship in 2021 to U.K. with reasonable effort. Adjusted for the U.K., the growth in that region was 33%. Good news here, we are able to serve the customers in U.K. against since this year. And last but not least, the performance in our first localized market, Spain, the performance is outstanding. We are able to increase sales by 138% year-over-year. And the comparison is for the last 6 months, an already 100% translated webshop for our Spanish customers. That shows how successful Bike24's localization strategy is. Let us now switch to balance sheet items. Our net working capital has increased significantly due to our investments in inventory. There are 2 drivers behind. First, we had a catch-up effect from the year 2020 caused by the surge in demand, the inventory level end of 2020 was around [indiscernible] lower than normal. Second, we invested in additional inventory. This reflects our decision to significantly increase our stock range in order to reduce the impact of supply chain challenges. The inventory increase also impacts the free cash flow performance. Overall, the free cash flow is slightly negative, but to show that Bike24 is capable of generating significant cash and that despite the strong growth [ structure ], we have included an adjusted free cash flow in the chart. To finance the goals in 2021 and prepare for the demand in 2022, we had to build EUR 15.8 million of inventory. In addition, maintenance investments of around [ EUR 2 million ] were necessary, especially in logistics and office workplaces. This results then in the free cash flow before special items of EUR 12.9 million. The additional inventory buildup due to the delivery situation is already included in this figure. But the catch-up effect in inventories through 2020 of EUR 11 million and the expansion investments of EUR 4.6 million were defined as special effects. The expansion investments are related, in particular, to investment in our IT platform, as communicated during our IPO. Let's now move to profitability. As expected, the gross margin has normalized in the second half of 2021 as we had an apparel summer sale this year and the normal Black Friday period. Both were almost absent in previous year as well as a slightly different product mix. But due to the unnatural high margins in the first half of the year, driven by the combination of very high demand and limited supply, the year 2021 was a record year with a gross margin of 31.6%. As announced, Bike24 increased performance marketing spending to promote the market [indiscernible] Spain and to address a wider customer [indiscernible] please allow me to comment. Bike24's marketing spend is still tiny for a fast-growing e-commerce company. This shows again that Bike24 convince customers with its wide product portfolio, availability and services. Alone in 2021, we have served 450,000 new customers. The contribution margin shows the operating results after deduction of costs that are related directly to revenues. This is a very good indicator of how the operating business is performing. With 22.8%, it is well above the medium-term target of 21%. On the other side, our investment into talents had a drag on profitability and some position simply did not exist last year at this time. It is important to note that these are strategic investments, particular in our second management level and in teams that deliver very high strategic value to the business, for example, business development international, including online marketing specialists and IT engineering. These teams are essential for our growth and be higher than earlier than initially anticipated. Operational and administrative functions such as logistics, customer service, accounting and purchasing are just as effective as in previous year. Overall, Bike24 generated an adjusted EBITDA margin of 12.2%. Now I would like to hand back to Andrés and Carsten, who will give an update on our strategic initiatives.

Thank you, Timm. Back to the agenda and our business update. The entire Bike segment has performed very well despite [indiscernible] supply chain problems. We keep getting questions about how big this market is in Europe. Once again, we can see that sustainable growth was possible, and that there is great potential. And there is still a great potential, especially for the online market, Bike24's market. So there's a lot of market share to be gained, both because of the off to online shift, but of course, also within the online market. And as a reminder, the megatrends in our industry have not changed, including the trends, the trend to e-bike, trend to be fit and healthy and the megatrends green mobility. And we are in a position, you can see that the online channel is also excellent for complex products, for expensive products and for bulky products. Our growth is based on a clear strategy and the 100% focus on it. We will again benefit from our clear strategy, given the current situation with high gasoline prices. That should give us another boost. At this point, I would like to pass on to Carsten, our Chief Marketing and Digital Officer. Carsten has been on board for almost 2 years. And as you know, maybe he previously worked at Mobility in a leading marketing position. So it's all yours.

Thanks, Andrés. As Chief Marketing and Digital Officer, I'm excited to take our customer experience to a new level. With that, I mean the digital shopping experience on the one hand and stronger brand values on the other. As we are celebrating our 20th anniversary this year, it is clear that we know our customers better than anyone else in the industry. This goes both ways. Our customers know what we stand for, and we know what they expect from us. Let's start with digital products first in our major milestone, the webshop relaunched in November. Andrés promised you further insights and here we go. The relaunch [indiscernible] directly up to launch. Based on our pilot, customer consumes 50% more content, the shopping time, so the time customers spend on our site increased by 10% and the balance rate improved by 30%. Ultimately, you can conclude that the more products the customer is looking at, the more she or he is going to buy at the end. In addition to that, the new webshop provides an even stronger front and back-end performance. With the increased site speed, we could improve our search visibility of Google by 60% over the last months. That means we increased our online footprint organically at no additional cost. So these are great results, but of course, not the end. We move on improving critical touch points like the checkout or the product content to build a best-in-class experience. With the new webshop [indiscernible], we started our first international image campaign 2 weeks ago. In the campaign, the campaign is rolled out in 4 countries: our major markets, Germany and the localized markets, Spain, Italy and France. The main goal is to reach new customer groups by building a strong brand across Europe. Then the 360 campaign, we will cover our touch points from out-of-home, print, display to YouTube and social media. By including third-party data, we know we have potential new customers sit and how to optimize each campaign contract. So it's a power of the package for the first image flight. To just give you an impression of the campaign, these are 3 different campaign fields. So one for road bike, one for mountain bike and [indiscernible]. The campaign messages are, of course, localized. It's a great effort by the whole team. To sum it up, with the webshop launched, the go-to-market in Italy and France and the [ brand ] campaign, we delivered strong value, and there's more to come. We are already working on the full road of the new Bike24 Search to improve our conversion rate even further. With the new search, we will anticipate what customers are looking for and suggest relevant product offers. While the bike industry is indeed heavily seasonal driven, customer relation management will allow us to stay connected with our users all the time. To leverage the buying peaks in an optimal way, we will heavily invest in e-mail marketing automation and also invest in scalable content to guide users in a perfect way. With the [indiscernible] brand and the competitive product, we, of course, will have a look into the next markets to localize. And with that, I'll hand over to Andrés again.

Thanks, Carsten. Yes, back to the agenda. So in the segment of bikes, as you know, we didn't have a demand issue. We just didn't have enough stock. What was important, we delivered. We laid a very good basis for the future. We could convince new brands to work with us. This makes us confident for the current season and for the years ahead. We were able to get 20 new bike brands for the current season and many more we expect for the next season. In the meantime, we also covered the topic Cargo bike, and we were elected from readers by an online bike magazine to German's best road bike online store. Now more about our localization. The websites for France and Italy went live in January. So fully on schedule and as promised by us. The warehouse construction in Spain is progressing. We started [indiscernible], and we expect to ship the first packages in Q3 this year. And the [indiscernible] implementation is scheduled to start in the fall. I mentioned it before. Now here are the figures for our localization topic. Spain grew very successfully again in Q4. And not to forget that the comparable quarter in 2020 had already grown tremendously with 150%. We can obviously convince existing customers and convince many new customers. So our focus is working. 2021 was a very good year despite the partly turbulent environment. Our very good position in the market and our investments were ideal conditions for this. Bike24, of course, is an established player in this market. 2022 is also our anniversary year. So we have proven for 20 years that we can grow continuously. And the result of the IPO is a very good basis for future sustainable growth and will takes us to a growth dynamic, a whole new level of growth. We delivered what we promised in 2021. So we have achieved the original guidance in the midpoint and are certainly and certainly one of the few e-comm companies to have achieved it. And we have plenty challenges both in bikes and in the top tier brands and [indiscernible]. And our internationalization strategy is successful. So as I mentioned, the local webshops for France and Italy are online and the warehouse construction of the Spanish fulfillment center will soon be finished. And we think that we will -- that we are able in May this year to report more on Italy and France results. And we will continue to invest in localization because we see that this strategy is successful. Now to the outlook. It's really a complex economic situation. Not all of the external factors that influence our business can be reliably predictable today. But we believe in the bike business and all the megatrends. Just look again at the gas station that will really convince more customers to use the bike more often and for longer distances. We are confident that we can grow by 25% in the coming years with a double-digit EBITDA margin as in the past. This year, we are a bit more cautious. We are confident of growth, and we will remain highly profitable, but the challenges in the supply chain exists, we have to deal with higher inflation and the geopolitical situation lowers consumer sentiment. We also trust ourselves again to grow faster than the market. And despite higher fixed costs, we remain highly profitable. The long-term trend and our targets will not change, but the situation cannot be reliably predicted in the short term. So we are confident of growth of 10% to 17% this year, provided the situation, especially the geopolitical situation does not deteriorate further. So thank you for your attention, and now we are open now for your questions.

[Operator Instructions] The first question is from the line of Grace Smalley from JPMorgan.

This is Grace Smalley from JPMorgan. Perhaps, could we just start with your margin guidance for the full year this year and that to explain what's driving the margin compression year-over-year in 2022 versus 2021, and perhaps breaking that down the different cost lines in terms of gross margin versus the growth initiatives and investments in talent they're making? And then as we look beyond 2022, could you similarly explain kind of your confidence in going by that double-digit EBITDA margin target and going towards sort of that 12% margin target by 2026?

Grace, thank you for your question. Maybe let's, could you move to switch to Slide 14. I think that's very helpful to answer the question a little bit. I think it's very important to note that despite that we expect the normalizing in gross margin and slightly higher marketing costs for 2022, we expect to reach our medium and long-term target of 21% of sales at contribution level. That's very important. And as I said during the presentation, that's a very good indicator how the operational business is working. And the reduction in EBITDA is really purely the result of bringing forward investment in talent. As already mentioned, for departments that are adding high strategic value to the future goals of Bike24. So we have significantly increased talents in the engineering, IT engineering and also in the marketing department and I would say, business development for our new geographies. And that's nothing that will be in the future increase together with increasing revenues. That's more like fixed cost that we now put into the business that is really valuable for our future growth, but it will not increase like our revenues in double-digit percentage over the coming years. And to be a little bit more exact, for example, second management that is around about EUR 2 million costs there and also the IT costs, we really have a lot of talents that we could hire so that we have an increase this year, and that has also an impact on the period -- next year of more than 60%.

The next question is from the line of Catharina Claes from Berenberg.

I have a follow-up question actually on the point that you just discussed in total, so do you think the decrease in margin effect entirely the hiring. So could you give [indiscernible] million for cycle management line for the total, if possible? And then on the top line, you mentioned that 2% of revenues, I think last year was coming from Russia and Belarus. So that should then also impact the 2022 guidance to that extent, doesn't it? And then lastly, how you think about the underlying market in 2022, the cycling market? What's -- apart from how you plan for Bike24 specifically? What's your view of relevant trends for you, for example, also split between full-bikes and parts and accessories of the general underlying market?

Maybe I think Andrés will take the question regarding the market, but I will start with revenues. Yes, around about 2%, our revenues from Russia and Belarus and Ukraine. Yes, it also has an impact on our guidance for sure because that's, in the end, it's lost revenues. But on the other hand, we also -- that I mentioned that we could ship to U.K. again to reasonable costs. So that's U.K. coming back. And that, in the end, will limit the effect in the region outside the European Economic Area. And your first question, I hope I get it right because I think partly, I already answered it in my last answer. But anyhow, so the second management level is for next year is around about EUR 2 million personnel expenses. We have a lot of new hires there that really comes from very famous and very successful companies like [indiscernible] and for the customer [indiscernible]. So that really will help us to maintain the growth. And the same is for the IT with joining [indiscernible] as our new CTO, for more than a year, we really further professionalize our IT setup and are now able to hire talents that help us really to invest in the platform and make it wealthy for our targets, 2026.

Yes. Then maybe the second question or second part of your question, when we look to the market and the forecast for 2022 and maybe the trends, I think I mentioned it, the megatrends, we think that they are all intact. We had, especially in the second half of last year, we have the [indiscernible] problems, as I explained, and this affected the entire industry. But we think that the demand remains very good. And of course, we had really high comps last year. And due to the poor availability last year, the demand has been slightly postponed. And I hope or I think that it is postponed to this year where we can see better delivery situation, especially when we look back to the last 12 weeks. When you see -- maybe you know [indiscernible] 2021, a survey, a representative survey conducted by the German Federal Ministry of Digital Affairs and Transport. And when you see only according to this survey, so 27% of all respondents and when you extrapolate it, then it's around 60 million are planning to buy a bicycle in the next 12 months. So -- and additionally, cycles, when you look to the survey, they want to use their bikes 40% more often. So we are very optimistic when we look to the market, especially the online market.

Maybe one more comment from Andrés on the internationalization -- and how -- the next steps ahead of part from 2022 can look like?

Andrés, you take the question, or should I?

Yes, you.

So yes, of course. So we are very happy with rollout into France and Italy in January this year, but we will really give you detailed information about that in our conference call in May. And anyhow, what our plan -- our future, we see our localization strategy works very, very good. It's very promising results in all the countries. And so that's also that we're starting to plan the next steps. Yes, in the second half of this year, we started preparing for the next country or countries. And our discussion so far is that it will be a country in the Benelux. It's a very big market for us, where we see very good opportunities to grow with Bike24 and we're aiming to go online before start of the season in 2023.

We have a follow-up question from Grace Smalley.

Yes, just a couple of follow-ups on revenues and top line, please. Firstly, could you perhaps share in terms of the 10% to 17% revenue growth in 2022? What you expect for your parts, accessories and clothing segment versus what you expect in terms of growth for your bike segment? And then secondly, if we think about the quarterly performance and in particular, now that we're at the end of Q1, could you share how we should think about that 10% to 17% growth by quarter and whether we should expect Q1 to maybe be slightly below that given some of the near-term supply chain constraints?

Welcome. So first with the budget, and we expect growth of around 10% for the parts, accessories and clothing business and significant growth in the bicycle business. What makes us so confident there is that we have the incoming bikes in the first 2 months was very promising. And also, you saw our figures last year that was below expectations. So we will see what we expect that we see an effect that we could bring some revenues that normally would take place in 2021 back to 2022. And regarding quarterly seasonality, maybe some comments on our first quarter. We will see -- we expect in the first quarter of 2022, a high single-digit growth, despite the situation, the geopolitical situation and also the stressed supply chains in January and February. So it starts -- January starts extremely good. They are heavily supported by our winter sale. February was touched given the beginning of the war and the inflation pressure. And March will be more or less in line with this last year, given a very tough start to the beginning of the war, but also supported by good weather from mid-March onwards and March last year was the record month of the whole year with a growth rate of more than 90%, so very tough comparables. Overall, we see in 2021, also due to the supply chain, a little bit backloaded growth during the year. And the main reason is they are really the supply chain in bicycle, we now see the first time that we have good supply, but it takes some time until we could offer all the models. So that will help us in the second half of the year, mainly.

There are no further questions at this time, and I would like to hand back to Moritz Verleger for closing comments.

Thanks, [ Nathalie ], and thanks, guys, for joining. It's great also to see the number of participants increasing every time. This is the first time we released our annual report as a publicly listed company. So it's also great to see more and more interest. We are looking forward to speaking to many of you on the road in the next couple of weeks and then speak to you again on May 10 for the Q1 results and an update on France and Italy. Thank you very much, and have a good rest of the day.

Thank you. Bye-bye.

Thank you. Bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.