Mad Paws Holdings Limited (MPA) Earnings Call Transcript & Summary

All right. I think we're going to slowly get started. We do have a technical issue at the moment with Graham not being able to join, our CFO to join the call, but I'm sure we'll work it out by the time -- his time to speak. So welcome to the Q4 FY '22 results presentation for Mad Paws. Thanks very much for joining us today. My name is Justus, I'm the Co-Founder and CEO of Mad Paws, and as I mentioned before, we should have Graham on the call as well, our CFO, who's going to run you through some more of the financials. So we'll go through the results for Q4. We will also have time at the end to -- for questions, at the end of the presentation. So please either raise your hand to talk or use the Q&A function on the bottom of your screen. And there's Graham here and I think we can hear you as well.

Are you [indiscernible] to hear.

Yes. That's good. Thanks a lot. So okay, let's get started. So quick, we care for the people on the call that are not -- or new to the Mad Paws story, we exist to enable pets to live their lives to the fullest. And our goal is to become the most trusted and convenient brand to rely on for all pet-related needs. Mad Paws Australia is dominant pet services marketplace. And over the last couple of years, we really focused on building a strong community of over 35,000 trusted local pet sitters. And they're providing services like pet sitting, dog-walking, day care for pets as well as grooming services to pet owners in the communities around the country. Since IPO-ing last year, we have executed in line with our strategy, expanding into other pet offerings in verticals like food, health and products, you can see on the left-hand side here, which allowed us to grow our customer base from the 85,000 paying customers at the time of via IPO to now over 264,000 paying customers who have made over 558,000 bookings for us. So the strategy is really working, and this is also reflected in our results. One thing to mention with the current results is that we have achieved the growth that you can see here by focusing particularly in the last quarter, more and more in profitability, which included reduced marketing spend, more efficient marketing spend as well as being even leaner on resources and investment decisions we've made throughout the quarter. So with that in mind, we're even more pleased to show the results. We've still achieved over nearly $12 million in GMV, up 189% against last year of operating revenue for the group of $4.6 million, which is up over 294%. 89,000 total bookings and transactions in the group, while -- and this is while growing customers over 63% compared to last year. Marketplace again had a very exciting quarter with a record months in June. So all-time record in June, achieving a total marketplace revenue of $1.4 million for the quarter, up 71% against last year. And last but not least, e-commerce now contributed $3.2 million for the quarter, up 840% which is obviously also a reflection of the businesses that we've acquired throughout the last year. But we've seen some exceptional growth also for the businesses that were also part of the group. One of them is Sash Beds, which has now achieved a revenue 6x higher than at the time when we acquired them in November last year. So this really shows that our strategy of integrating products and services into our kind of existing group and cross-selling between the customers that we have really works, and we can accelerate the growth of businesses that are joining the group. And before I hand it over to Graham, I already mentioned our IPO strategy of increasing Mad Paws' share of wallet for our existing customers and expanding into new verticals. And I think this slide really reflects that growth over the last couple of years. And you can see that our pro forma revenue for FY '22, including Pet Chemist already is sitting at above $15 million, with Mad Paws exiting the last quarter with a revenue run rate margin $20 million for the group. And we're really seeing continuous growth opportunities for the group, particularly focusing on cross-sell for the next couple of quarters, accelerating that growth while still being very prudent in terms of our cash management and marketing investment. And with that, I'll hand it over to Graham for a little bit more detail on the financials.

Thanks, Justus. Good morning, everyone. I will be presenting the performance across our key growth metrics for the fourth quarter FY '22. These metrics include the Pet Chemist acquisition, which completed on the 1st of April 2022. Firstly, looking at our group transactions in GMV for the quarter. Group transactions in the quarter were $89,000, an increase of 124% on Q4 FY '21. Growth came across all of those quarters versus the prior corresponding period, including the Pet Chemist acquisition, which completed in the quarter. Excluding the impact of the Pet Chemist, the group achieved 51% growth versus the prior corresponding period. Group GMV was a record high for the third consecutive quarter, achieving $11.9 million. This represents an increase of 189% or an additional $5.6 million in GMV from Q4 FY '21. Our share with that consumers, why it continues to increase over the last 24 months or the last 12 months, FY '22 GMV was $27.1 million, a $14.5 million increase in the prior corresponding period. With the Pet Chemist acquisition completed, our pro forma FY '22 GMV is $37.1 million, representing a step change in the share of the pet owners wallet transacting through our platform since the IPO-ed in March 2021. Looking at our customer acquisition and operating performance. For our group customer acquisition metrics, we continue to see strong performance in the quarter. Total new customers acquired was 26,000 plus 63% versus Q4 FY '21 and 67% quarter-on-quarter. Pet Chemist added 9,000 customers in the period at a consistent cost of acquisition. We are well advanced in the integration of the Pet Chemist into the Mad Paws Group marketing ecosystem with a positive outlook for the first half of FY '22. New customers acquired, excluding Pet Chemist, increased 32% versus Q4 FY '21 with growth attributable to the marketplace, Waggly and Sash. The levels of customer acquisition are pleasing when we consider the performance marketing cost of acquisition trends we have seen. Our performance customer acquisition costs represent [ Google, Facebook ] and similar cost part of the cost of promotional offers in the period. So of those scores that are operational in the prior comparative period, we have seen a 42% decrease in our customer acquisition cost per customer in Q4 FY '22 versus Q4 FY '21. Our unaudited Group operating revenue was $4.6 million, a new high for the Mad Paws Group. This represents 294% growth from Q4 FY '21. Unaudited FY '22 group operating revenues, $10 million, representing 237% growth year-over-year. Following the completion of the Pet Chemist acquisition in the quarter, the scale of the Mad Paws increasing significantly. As an indication of this, the group's pro forma relative operating revenue for the 12 months ended June '22 is $15.4 million. Moving to our performance at a segment level. The strong rebound in the marketplace continued in the quarter with operating conditions stable and outbound international travel trending towards prepandemic levels. Consistent with the third quarter, we continue to see record levels of GMV and operating revenue in the marketplace. We achieved GMV of $2.4 million in June 2022, a record high for the marketplace. Overall for the quarter, GMV was plus 76% to $6.7 million. We saw growth across bookings in the average price per customer time unit. We see further potential to increase booking growth from adding additional sitter supply to the marketplace in the first half of FY '23, and this will be a focus going forward. Operating revenue increased 71% to $1.4 million in the quarter, benefiting from the GMV drivers outlined as well as improving take rate on a paid basis, which improved to 24.9% and 23.6% in the prior corresponding quarter. Operating revenue in the quarter benefited from the shift of Easter holiday timing to later in April in '22 versus Q4 FY '21. However, this was largely offset by the later timing of its [indiscernible] periods to the line in the current quarter. Looking at our subscription and e-commerce verticals. Subscription and e-commerce revenues totaled $3.2 million in the quarter. Subscription revenues were $1 million in the quarter, an increase of 228% on Q4 FY '21. On a quarter-on-quarter basis, revenue growth was 16%, which reflects the increase in subscribers in our Waggly business with strong customer acquisition in the quarter as well as the full launch of the subscriber site [ auto show ] functionality in Pet Chemist during the quarter. As highlighted in our last quarterly update, we slowed customer acquisition in Dinner Bowl as we transition to our new kitchen space in Melbourne. E-commerce revenues from Pet Chemist, the Waggly shop and Sash Beds totaled $2.2 million with no meaningful comparison in the prior comparative period. Subscription and e-commerce revenues now represent 70% of group revenues in the quarter. Moving to our cost management trends. The group has been focused on efficient revenue growth as well as margin improvements across H2 FY '22. These efforts are seeing positive changes in marketing efficiency with marketing cost as a percentage of revenue decreased across all quarters in FY '22, with Q4 decreasing to 19%. These improvements have been achieved with the increasing use of data to understand and optimize our marketing campaigns to diversion rate optimization across all verticals and sourcing initiatives, lowering our promotional offer costs in our subscription verticals. We expect our marketing as a percentage of revenue to normalize in the range of 19% to 24% going forward. Operating expenses have continued to reduce as a percentage of revenue and us 64% for Q4 FY '22. Prudent cost margin is always a focus and greater operating leverage at Mad Paws Group scales and the main drivers of the improvement across these metrics. Moving to our Q4 FY '20 cash flow. Operating cash flow before the Sitter liability movement was $1.4 million for the quarter, an improvement from the $2 million outflow in Q3 FY '22. The improvement was driven by efficient revenue growth and cost management initiatives across the group. As previously highlighted, our marketplace business as favorable working capital cycle with a customer paying for a service upfront and payment to the pet sitter happening after the service has taken place. There was a favorable cash flow of $0.6 million due to the continued growth in the marketplace, bookings and GMV from this liability. We continue to invest in our key areas of the pet life cycle in the quarter with $0.1 million invested in expanding our kitchen capabilities for our cooked human grade [ tech ] food products. In addition, we continue to invest in our technology platforms to enhance their user experience across the stitched marketing platforms posting $0.5 million. These costs will reduce in the next quarter as we focus our technology investment on those in full return payback. During the quarter, the company settled the initial cash consideration for the Pet Chemist acquisition of $5 million net of the cash acquired of $0.5 million. In addition, the company received the final funds on the completion of the share purchase plan and the share and a shortfall placement in the quarter totaling $0.5 million. At the end of the quarter, Mad Paws has a cash balance of $5.6 million with the group's efficient revenue growth, prudent cost management and disciplined capital allocation, we are well placed to execute on a substantial opportunity in the Australian pet market. I will now hand back to Justus for the group's strategic focus on outlook for Q1 FY '23.

All right. Thanks, Graham. Yes. A quick look at the priorities for the next quarter, and I won't go through every seeing the one here, but you can see that we've got a clear focus and Graham has already mentioned that a couple of times around driving efficient growth and every decision that we're making is based around profitability. So this means essentially 3 things for us that we're focusing on in the next quarter and the next coming quarters. One is efficient marketing spend using data even better than before and looking at the cash profile for us than making sure that we use the marketing spend as efficient as possible. Cross-sell between verticals. This is already working really well and helped us to reduce the CPI significantly. We had record growth with the marketplace while actually achieving record low CPAs for the marketplace as well. So this is something that's working, but this is something that we'll be doubling down on to drive efficiencies even further. And the last -- and last but not least, certainly, is margin expansion. As you've seen in the numbers now, we're certainly at a level now with nothing $20 million in run rate revenue, where small improvements to our margins makes a big difference to our bottom line. And we see opportunities for all our businesses to expand our margin and therefore improve the bottom line. So this is what we're focusing on for the next couple of quarters and we're extremely excited with the growth that we've seen and the momentum that we have going into the next quarter. And so finishing off the presentation, just a reminder on kind of the industry we're in and the environment we're in, which is extremely beneficial. We've got a lot of tailwinds that help us. Pet ownership is dramatically up 69% of all the Australians now own a pet. Pet humanization and premiumisation is one of the key drivers for us. People are spending more with their pets, pets are part of the family now. And as you would do with your family, you want only the best for them, and we're here to provide that. The pet industry is a significant scale now. And COVID has really helped to shift the whole customer thinking from offline to online. So that is something that we've seen over -- even before the pandemic, but now even more so often. And what's really played out well for the marketplace is the pent-up demand for travel, you can see in the numbers that our average booking value has gone up, which is a reflection of people not just traveling nationally anymore, but people are now traveling internationally. I've got a lot of friends in Europe at the moment. And this obviously helps our business as well to drive the growth. And last but not least, our strategy is working, expanding into new verticals has really kind of lifted us up to a significant size now, and we can now really pull the levers to make the business profitable even earlier than we expected. And it's something that the business has really, and the team has really embraced as well, and we're looking forward to the next couple of quarters, particularly still sitting on a very strong balance sheet. And with the prudent cost management that Graham has mentioned before, we expect really to deliver cash flow breakeven and profitability earlier than expected. And with that, I close the presentation and open it up for questions.

So if you want to use either the QA function or you can speak, if you like, just put in any questions being to the Q&A function. Okay. There's a couple of questions. Graham, do you want to maybe answer the one about when are we hitting cash flow breakeven that came up once to twice in the questions.