elumeo SE (ELB) Earnings Call Transcript & Summary

Yes. So once again, good morning to our Q3 2022 financial earnings call. Together with my colleague, Dr. Riad Nourallah, I will guide you through the key developments of this third quarter 2022. Let us take a look at the summary. Yes, I'm happy to report that in Q3, elumeo succeeded in clearly outperforming the market, thanks to the decisive measures that we took and we started to take already in Q1. After outbreak of war, we have been able to clearly outperform the market and record the 10th consecutive positive results with an adjusted EBITDA of EUR 0.71 million, which is slightly above Q3 2021. elumeo's operating cash flow was EUR 82,000 is positive despite the investments in the new video shopping app, Jooli. And all this happened in a highly challenging economic context. As you know, the massive inflation rates that we have seen especially in the past months have caused a massive loss in purchasing power, resulting, as I will show you in one of the next slides, in a new all-time low of the German consumer confidence index. According to the Bundesverband E-Commerce und Versandhandel, the total German online jewelry sales decreased by 21.7% in Q3 2022. In contrast to this, we can clearly see that for elumeo, the worst has been overcome and the market has been clearly outperformed. Revenue in Q3 decreased only by 6.3% compared to previous year, resulting in a total revenue of EUR 10.9 million. And for the first 3 quarters, we recorded a decrease of 8.7%. Please bear in mind that 35% of this decrease comes from the reduction of our Italian TV business, which as I have previously already presented, is accompanied by disproportionately high savings in the broadcasting cost. If we only look at the German Life business, without the Italian segment, I'm happy to report that we are back on the path of growth, resulting in a positive growth in September, as I will show you in the upcoming slides. Also, our Jooli app continues to develop very nicely. We have now almost 600 channels worldwide. And finally, regarding the outlook, we confirm the revenue and earnings forecasts. Sales will decline in the single-digit percentage, and the adjusted EBITDA will be in the low million range. Let us come to the next slide of the 10th profitable -- of the development of the quarters. I think we can probably skip these slides presenting the general company strategy, which I believe you all know and immediately take a look at the development of our business since beginning of 2020 with the first [ tough ] quarter we had in Q2. And yes, as I said, despite the challenging economical circumstances, in this quarter, we achieved the 10th consecutive profitable quarter with an adjusted EBITDA of EUR 0.71 million, 6.5% higher than Q3 2021. So let us take a look on the next slide on the general market situation of Q3. And here, you can see the consumer sentiment index for Germany, our core markets of the GfK, the Gesellschaft für Konsumforschung. The index is based on 3 main indicators: economic expectations, income expectations and propensity to buy. And after a record low of this index that I have already presented in our half year presentation, the consumer index, as you can see, has plummeted further to a new all-time low in September 2022, mainly caused, as you know, by the high inflation rates, which are leading to real income losses and thus reduced the purchase power of the consumers. Not surprisingly, this affected the retail market in general. And not only the online jewelry market, also in general, multichannel retailer went down by 21.5% in Q3 compared to previous year. So let us take a look at how elumeo performed under these conditions and especially our main Life business, which accounts for about 2/3 of our total revenue. In the graph on the left side, you can see the development of our growth rates, always comparing each quarter with the previous year quarter. So from Q4 2021 compared to Q4 2020 and Q3 2022 compared to Q3 2021. After growth in Q4 2021, the first quarter of this year, as you know, we had to record a significant drop in revenue, down to minus 13%. And since then, despite the deterioration of the economic conditions, our Life business has recovered in the following months and returned to a positive growth in September. You can see this on the top right graphic with a revenue increase of 2% compared to the previous month, September 2021. And yes, 1 success factor was our strong autumn sale in which we have been able to activate a high number of customers, plus 15% active customers compared to the autumn sale we did in 2021. And furthermore, we have launched several new brands already end of Q2 and in Q3. And these brands clearly performed above average, achieving a profit-per-show-minute, our main KPI to measure performance of brands that is 30% -- also in Q3, 30% higher compared to the average brand performance. So here, our fast supply chain helped us to quickly react to consumer preferences, and all new brands launched have a positive PPM. Also, as part of our digitalization strategy, we continued to develop the Life show experience in our mobile app, resulting in mobile revenue increase of 6% in Q3 compared to previous year quarter. Concerning the webshop on the next slide. We can see that after 2 exceptional growth rates in 2 years, in 2020 and 2021, the revenue stays clearly above pre-pandemic level with plus 64% compared to the quarter 2019 pre pandemic. Of course, Q3 2022 was challenging and we had to record a decline in revenue. However, compared to the total online jewelry market, which went down by 22% in Q3, our webshop has clearly outperformed the market by nearly 50%. And one factor that contributed to this was our clear mobile-first strategy, which resulted in an improvement of the conversion rates for mobile traffic of 14% in Q3 compared to last year's quarter. Also, we have used the time to make some significant structural changes in our marketing channels. Similar to a hotel who used the time of the corona lockdown to renovate their hotel room or hotel rooms, we have invested time and also some marketing money into restructuring our google account, which we have switched to full artificial intelligence bidding. Took some time during Q3 to learn for the AI, but our marketing channels are now very well prepared for the new customer acquisition during the Black Friday season and the Christmas season and Q4 and the upcoming quarters in general. Let's take a look at the development of Jooli on the next slide. Also, our Jooli project is developing very nicely. As you can see here, Jooli has grown to almost 600 channels world-wide now with an improved scalability by further reducing the cost per new channel. And on the right side, you can see that also the number of users continues to grow to now about 800,000 users. On the next slide, we see that we have made significant improvements in different areas. One major area was the improvement of usability. We improved the video playout, for example, seeking and pause of the video, the embedding videos and merchants' shops and we created better sales and usage statistics for our merchants. We improved the channel presentation with a video overview and, in general, put a clear focus on customer-first visibility for the app. The second major area was improvement of the AI-algorithm, one of the core features of Jooli. The algorithm has been updated and further improved. And the first results of the currently running A/B test shows a 30% uplift in user performance. The third area of improvement concerns the testings we are doing in virtual reality. We have developed the first 2 fully functional immersive prototypes for VR headsets. And as you can imagine, we are bringing video shopping to a totally new level, allowing an immersive experience. Yes, the way forward, I would like to give, before handing over to my colleague, Riad, for the financial data, some examples of sales performance and sales improvements that we have planned for Q4 of this year. For the first time of the history of the company, we decided to do a full month of Black Friday sales for not only a week or a weekend. Offering throughout the whole month of November, a high density of promotions, of vouchers, of special actions, new guests and thus increasing the revenue per customer. Also for Q4, we are planning lots of fresh product premieres, which always have a good profit per minute, and we are planning to launch new show formats offering our customers, in general, an attractive Q4 program and appealing Christmas season program and thus increasing the buying frequency of our customers, bringing back customers and increasing, in general, the revenue per customer and total revenue. Finally, we will continue our digitalization strategy, putting a focus on new mobile app features, bidding app functions, bringing together the webshop and the bidding app even more closely with a single log-in. We launched 2 online-only video streams and making important progress on a fully personalized video shopping experience in our webshops.

Yes. Let us come to the financials in Q3 2022 and let's take their look. If we take a look at Q3 2022, we see, of course, like a decline in the revenues. However, as Florian already mentioned and explicitly said, we are clearly outperforming the market. So summarizing, the minus 6.4%, a quite good result. We see the same reflection within the gross profit and within the margin and which is really very good. So adjusted EBITDA, which, in comparison to the last quarter Q3 2021 rose by 6.8%. Let's take a look at the first 9 months and all together. So we see a decline in the revenues of 8.7%, gross profit declined by 11.2%, overall adjusted EBITDA by minus 25.1%. And overall, we see like starting in Q3 and especially also like in September, really like the change in the atmosphere. If we take a further look at the costs, so we see clearly that we reached and achieved in decreasing the reach cost by 10.5%, driven by our optimization of the Italian TV business. And nevertheless, we make high investments in our app -- video shopping app at Jooli. And nevertheless, we've succeeded in 10 consecutive positive adjusted EBITDA. If we take a look at the major adjustments we made for the adjusted EBITDA, first of all, they comprise the video shopping app, Jooli, was EUR 1.3 million. And the other part is our option program was roughly EUR 200,000. Let's go further and let's take a look at the key performance indicators. And then we can see really like a part like from the operative result, we see, which is very -- quiet interesting, is the cash flow. So we succeeded in achieving a positive operating cash flow of EUR 82,000. And I think overall, this is very good success. Let's take a look at the other KPIs. I think that we reflect the shift in our business. We see really the new customer breakdown coming really like on the web market. Overall, everything like an expected horizon. Outlook. The outlook is confirmed. So as we said at the beginning of the year that we have a high volatility, but nevertheless, we are sure that we keep our outlook, which says concretely that we expect a single-digit decrease and adjusted EBITDA will be in the low single-digit million range. And we never show [ forget so ] that the major or better big part, roughly 35% of the decrease comes from the TV business in Italy, which we succeeded in optimization. Let's take a look, so the outlook 2022 is confirmed also like the gross profit margin will be stable at over 50%. And as already said, adjusted EBITDA will -- is to be expected in the low single-digit million range. And thank you very much.

Yes. Many thanks, Riad, and thanks, everyone. This was the presentation of our Q4 -- Q3 financial data and we will now start to do the Q&A session. [Operator Instructions]

So I see the first hand raised by Mr. Frey.

It's actually quite refreshing. You're probably the first call I have this earning season where excess inventory shouldn't be a topic, so nice for this refreshing change. So in that regard, probably can you talk a bit about what are you seeing in terms of customer preference changes? Well, you mentioned lots of new products with higher margins and spend so do you see a general shift to lower priced products? Or are you seeing also a bit more investment-driven demand, anything? And what implications are you seeing for gross profit margins? Are you actually at all concerned regarding the pretty high comparison in gross profit that you have in the fourth quarter of this year? So probably some color on that on -- start with. We'll continue one by one, if it's okay for you.

Yes, that would be perfect. So many thanks, Mr Frey. Yes, indeed, I think it's good to see that our inventory level remained very stable if you compare end of 2021 with end of Q3. It's exactly the same level. And this was possible, thanks to our close relationship with the manufacturers we have, allowing us to very quickly react and sure this very responsive supply chain allowed us on one side to reduce the line sizes. So what does this mean? We quickly reduced line sizes per product line. So instead of, for example, buying 50 pieces offering, we only had 30 pieces offering. And yes, didn't have the problem of an exceeded inventory, remained flexible, and we're able to adapt to customer preferences, which is a complicated topic on one side, especially in the beginning of the crisis, we saw a shift towards higher-priced brands, higher-priced items. So indeed, as you said, Mr. Frey, we have this investment topic, of course. At the same time, in the past months, we have also seen an interest in the lower price section. We have seen an interest in new designs. And therefore, it's not one clear thing. It's just a general development towards different topics that we can see and where we are always very quickly able to react to.

Sounds good. And in that regard, probably for sourcing costs, I think we can say that you had quite some headwind over the last 6 months also from a currency point of view. Are you getting a bit more relaxed now that, for example, the Indian rupee is starting to devaluate? Or how do we see it as a headwind going forward?

I mean we had this topic, I think, since always. And sometimes there's headwinds, sometimes there isn't. So I think in general, we are quite relaxed on this. And I mean, as you know, we don't have any more, just 1 single manufacturer. We have over 30 suppliers throughout the whole world. Of course, there are major hubs in Thailand and India but we are much more flexible compared to a couple of years ago, and this allows us to easily react to the different developments.

Sounds good. And while the marketing costs increased 20%, which particularly in light of this investment, certainly a good result. Was there also a compare -- an increase in marketing for Juwelo or is this mostly driven by Jooli? It's probably the first one. And then can you a bit talk about when you lump together the customer acquisition cost at Jooli in the U.S. and India, is there any reason satisfactory closer together than the U.S. and Germany? Or probably you can talk about that a bit as well.

Sure. So I will start with the marketing costs in general. So yes, a huge part is driven by Jooli. At the same time, we kept the marketing investments on Juwelo on a stable level, which could also surprise. So why didn't we reduce it? And this is, as I said in the presentation, this happened for a particular reason. Since we switched in Google to a new technology, it was important for us to take this time of reduced traffic to well prepare for a strong Q4, to do the switch, to invest some time into it and to make sure the artificial intelligence of Google can learn in order to now be well positioned for a good customer acquisition in this last and important fourth quarter.

Okay. And I would like to answer the question regarding Jooli and the launch in the United States. As you all know, we planned our launch for the United States of America prior to February of this year, and our entire setup changed quite significantly after that. The launch of -- for the United States was always managed through our team in India, so the American market has been fully managed and administered from India. And in the American market, we do have some specific American channels, but we do also have some of the Indian channels for broadcasting their content into the United States of America, which is why it is a little bit tricky to separate these channels from each other. And in particular, it's tricky to do this in customer acquisition costs because other than in Germany and in India, the American market relies much more on organic traffic because we have decided not to go all in on American customers prior to consolidating our development in Germany and India. Which is just because of the fact that cash flow in Juwelo is fortunately still stable and fortunately still very good. But at the same time, we still do have this crisis, and we try to manage the development of Jooli in a way that we do not spend more money on Jooli that we can make on Juwelo in order to be able to sustain this development for a very long time. We believe that the worst of the crisis has been put behind us, but we all don't know how this is going to develop in the future. And we also don't know how long this process is going to take. And we try in Jooli, but also in Juwelo to settle and the directors of Jack Welch of GE, who said, and we hope for the best and prepare for the worst. So clearly, we are trying to be cautious in further marketing investments, in particular, in the U.S., which is why we're not kind of trying to set with this and develop it differently.

Sounds good. And congratulations on increasing marketing efficiency in that regard as well.

Many thanks, Mr. Frey. We have Mr. Friedmann.

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