Bikeexchange Ltd

ASX:BEX

Earnings Call Transcript 2024-Q2

[Dominic O'Hanlon, executive]

All right. If you can hear me, we're just going to take a minute to get everyone into the call, and then we'll get underway very shortly.

Okay. That's good enough. Let's get started. Thank you so much, and good afternoon for attending our FY '24 Q2 business update for BikeExchange. I'm joined today by BikeExchange's CEO Ryan McMillan, who is based in Germany, but he's currently in Australia, having flown out for these presentations and a couple of other important investor meetings; and also by Kyle Ferreira, who's our CFO. He joined us about 6 months ago. Kyle and I have worked together very closely in the past prior to BikeExchange, and I'm glad having him on board. He's doing a fantastic job as CFO, as you'll see from his pack today and from the information that I'm sure he will share with you as we get underway.

So our agenda today is for me to give you a very brief overview of BikeExchange. I assume that most people on this call know the story, but we'll just give a little bit of an overview for anyone who doesn't. I'm going to hand to Ryan, who's going to do a Q2 performance update, and then we'll go to Kyle, and I'll do a wrap at the end. [Operator Instructions]

So getting underway, BikeExchange is an ASX-listed company, as I'm sure you know. We are the world's leading marketplace for selling all new things bike. And we're changing the way the customers research, find and buy a bike, and we're changing the way that brands and the way that retailers and the way that distributors are getting their products to the customers.

We'll just step to the next slide, I'll give you a very brief overview of how that looks in practice. If you want to sell one bike, you can put it on eBay or Facebook Marketplace. If you're a retailer and you've got hundreds or thousands of products, you're not going to go into eBay and upload all of the photos for every one of those products, typing the inventory for every single one of them. And then when somebody buys one or inquires one, trying to sync it with your inventory management system within your store. It's just not practical.

What BikeExchange does is we log in automatically using APIs to the stores that we work with and the brands that we work with and the distributors that we work with. We extract their inventory. We clean it up and make it accurate, because often it isn't, and then we publish it in one marketplace with 1,300 brands and 115,000 bikes in lots of different countries, as you can see on this page, with 15 million consumers. The value proposition that we offer a brand like, for example, a Giant or a Trek, is that they can have their products in front of 15 million consumers internationally in a platform where consumers have got choice and they can see all other brands and they can compare the products side by side and they can buy. The value proposition that we offer to the retailers is they cannot afford the e-commerce engine and the Google AdWords that's required to build a meaningful store that people will find online. And so we solved both of those problems with BikeExchange, the world's largest marketplace for selling all new things bike.

And you can see here, we've got 1,600 sellers. There's about $700 million in sales inquiry value, about $34 million in e-commerce, total transaction volume, and we've got about 500 integrations to many different products. So the moat around our business, if you want to think about it in those terms, is the integrations that we have built over years and years and years and the IP that we've built specifically for the biking industry and the way that we can clean up data to make it valuable and usable is absolutely unique, and there's no else in the world that can do what we're doing. And that's why you'll see some of those stories, those discussions we'll have today about the growth that we're getting in the business. Thanks. Ryan?

[Ryan McMillan, executive]

Okay. Kicking through to the Q2 performance...

[Dominic O'Hanlon, executive]

There's another slide here. Sorry, there's another slide here, Ryan, just on how Bike -- BEX makes money. That one is still there? I'll quickly -- I'll be very, very quick on this.

There's been a bit of a shift in our business from the time we first listed. When the business was first listed, it was very much focused on charging bike stores subscription for publishing their inventory online. And that's a good model. It's a bit similar to what carsales does with car dealers. The challenge with that model, of course, though, is that if there's hundreds of millions of dollars of sales being made, we're not getting to clip the ticket on those transactions.

So over the last few years, there's been a huge investment in our business, in our IP, in our infrastructure to build an e-commerce platform that's meaningful and valuable and has AI capabilities built into it to drive sales of e-commerce. And now our revenues by category include e-commerce, transactional, where we're charging a fee, those recurring subscriptions that I talked about, and then we've got media and other logistics and other ones that are untapped, data services and platform services. And what I say when I say they're untapped, what I'm saying is we've got a lot of new technology being released in the market at the moment, which gives us the opportunity for upside over and above what we're going to talk about today, but we just haven't launched any of that yet because we've been very focused on the bottom line profitability of the business and not investing ahead of the growth curve.

Thanks, Ryan. Sorry, I stepped over the top of you there. My apologies.

[Ryan McMillan, executive]

No problems. I'll take you through briefly the Q2 performance update. I think that the Q2 result really demonstrates the clear turnaround that the business has made, and it continues the positive trend that BEX has delivered for the past 6 successive quarters.

As the headline outlines, we've improved our EBITDA loss position by $7.4 million to $0.4 million EBIT loss position. And if you unpack that and look at the position pre-corporate cost of allocations, the operating business has generated a positive EBITDA, and it's up $1.7 million versus Q2 last year to a positive $0.6 million positive EBIT position pre-corporate cost. And how have we done that? We've actually grown net revenues versus PCP by 60%. And we've actually, underneath that, we've more than doubled our gross margin on those revenues, which is up 116% versus PCP. So we've done that by -- firstly, by increasing e-commerce transaction volumes on the marketplace by 27%, but we've earned a lot more margin on those. So our commissions that we're earning by the -- for each transaction is up by 46% versus prior year. And we've also achieved almost double the return on advertising spend, which means that we're generating those sales more efficiently and effectively. In our North American business, we've replaced the Kitzuma door delivery business, which we shut down in the prior year in Q2. We replaced the vast majority of those revenues with new revenues. And they are marketplace revenues and also 3PL and box delivery service revenues at much, much higher margins. And so all that has contributed to more than double the gross margin for the business versus prior year.

And if you look at that below the line, we've actually delivered those revenue growth and that increased contribution margin at the same time that we've reduced operating cost by 37% versus PCP.

And on top of that, we've actually managed to deliver our new AI consumer platform in our largest market in Germany. For those who don't know, Germany covers, at the moment, about 2/3 of the e-commerce transactional volume for the group. And this is BEX's own tech IP, and it's our largest ever technology undertaking. So we've delivered that through the quarter. And we've got 2 new verticals that are currently in the process of being deployed, which is BikeExchange in Belgium and BikeExchange in Holland, which are both significant cycling markets, and these will be live in the next fortnight. So beyond the high-level metrics that you can see on screen, there's a number of highlights that I'd like to just speak through briefly as I think that they really show the gear change that the business has made. So if you move over to the next slide, please, Kyle.

The North American business, as I mentioned, has really transformed its operation. So we closed down, at the end of Q2, the door delivery business. This was a loss-making and capital-intensive business out of the U.S. And we've replaced that business effectively by, one, like ramping up on the marketplace revenues; by performing better with our core marketplace product; and also by 3PL and box delivery services.

And the magnitude of that turnaround in the business has taken it from making significant losses in the prior year to a stand-alone breakeven EBITDA position -- sorry, positive EBITDA position. And we've got a strong foundation in that business for H2 and a lot of momentum going into the second half.

If you look at our largest market in Europe, we've delivered growth year-on-year and quarter-on-quarter for a long time now, but we're also up 46% on net revenues versus the prior year. And that's driven by improved performance that's generated by the new consumer storefront. So overall, for BEX, as a business, we've delivered 6 consecutive quarters now where we've been able to demonstrate improvements in both revenue and cost base to the business. From the tech space perspective, we've already talked about the new AI consumer platform, but we've also launched a new B2B platform, which is effectively a content management system, e-mail, advertising platform, which is -- which we're putting in place to support digital customer acquisition so to drive more B2B or drive more customers onto the platform.

So from my perspective, I think there's a lot to be excited about leading into the second half. Thanks, Kyle.

[Kyle Ferreira, executive]

I'm building on that earlier thematic on the financial turnaround over the last 6 quarters. I just wanted to take you through a little graph. So the orange line here represents EBITDA pre impairment and the red net cash used in operating activities.

So as you can see on the left-hand side there from Q1 '23, total of values quarter ending December, on the far right, there's been an 86% improvement in EBITDA from a loss of $3.3 million to $400,000, and over the same period, a 72% reduction in operating cash from $3.8 million to $1 million. Directionally, both of these demonstrate the businesses in a much better shape today and on track to profitability.

At the top line, revenue growth for the group was 6% compared to the prior corresponding period as e-commerce subscription as well as 3PL revenue start to plug that gap that Ryan spoke to earlier from the previously discontinued consumer door delivery and Colombian businesses. Having said that, our core business, which excludes Colombia and consumer, is up 60% over the prior corresponding period.

Our contribution...

[Dominic O'Hanlon, executive]

Kyle, I think it's worth just pointing out also that while we took a hit from the revenue of that business that we shut down, it was bleeding cash and losing money. So from a bottom line perspective, it was absolutely the right thing to do. And it's also given us the ability in the North America to focus our team on what matters the most. Sorry, Kyle.

[Kyle Ferreira, executive]

I think you see that come through in the contribution. So our GP, as a percentage of total transaction value, is up from 16% to 24% in the current quarter, as we continue to focus on that high-margin growth that Dom mentioned there. That, in conjunction with our costs being down 70% compared to the prior quarter or 46% if we exclude the impairment, gives us an EBITDA result from all operations, which has improved by 94% from a loss of $7.9 million to a loss of $436,000 in this quarter. On a cash basis, the EBITDA loss before share-based payments was $390,000 for the quarter.

I'm now going to hand back to Ryan to take you through a bit of now next later.

[Ryan McMillan, executive]

Okay. No problem. So in terms of our outlook and pathway forward, you might have seen the next 2 slides in previous presentations, but we're really sticking close to our strategy, which is about driving the business to profitability.

So if you go to the next slide, this is our -- these are the 5 -- sorry, the next slide, sorry, Kyle. These are the 5 strategic initiatives or focuses for our business going forward. So the first 1 to 3 is really about the execution without our new technology stack in our core business, which I'll take you through on the next slide. Number 4 is about operational efficiency, which is about automation and running an efficient back office and laying the foundation that we can grow and scale our business from. Number 5 is about developing a competitive advantage through technology.

Now Dom mentioned before that with any tech stack, we've got -- and our new tech IP, we've got a major part of our architecture in our own hands. And this presents us with many opportunities that we can take advantage of to extend and create a competitive advantage for BikeExchange within the bike industry value chain. So for us, it's about navigating that opportunity, but staying focused on driving the business outcomes into the core business within the new AI consumer platform. If we move on to the next slide, what we mean by that, it's all about executing fast now. So we've got a new consumer platform. It's about executing on our marketplace business with that platform. So from a marketplace execution perspective, this is our -- this is basically our e-commerce and our marketplace teams, which are focused on connecting the right sellers, we've got the right products and getting the right products and prices on page. And then the e-commerce team, it's about converting the maximum number of customers coming to our platform, to a product and a transaction on page. And we mentioned before that in the past with our subscription business, our classifieds business that was generating $700 million worth of product inquiry onto the platform which went offline into the retail selling network, what we're trying to do with this new platform is convert the maximum number of those sales and bring them on to a transaction on the BikeExchange.

From a technology execution perspective, it's really about launching the platform, first of all, in the remaining markets. It's about iterating and optimizing what we have. So we've gone from having a consumer platform that we'd optimize to the maximum -- to our maximum ability. Now we're starting with a new tech stack, which is a modern best-in-class tech stack, and we've got a great opportunity then to optimize over the year to drive better conversion through the platform and scaling out the business through technology.

So this -- from my perspective, it's still a very consistent story line to previous presentations. And for us, it's all about closing the gap on our pathway to profitability. Move over to Don to close out the presentation.

[Dominic O'Hanlon, executive]

Thanks. Thanks, Ryan. Before I talk through the summary, one thing I'd like to say is that there are probably a number people on this call that have been following the story for a while and many of you since I joined the company well over a year ago now. And at the time, I was telling people of the story that this reminds me of the last listed company I ran, which was RHP, Rhipe. Kyle also worked in that business. And in that business, we made a few core decisions such as, let's do less things and do them really well and invest in them properly. Let's spend less on people and more on technology. Let's build operating leverage by rolling into new geographies without needing a large team of people to support them because they're showing the IP that comes from head office. And I mean that was a very successful business.

I think what we're doing here at BikeExchange is looking at a very, very similar model where you've got a company with a very, very small market cap that's got 15 million customers that's basically got a global footprint, and it's growing aggressively while also cutting its cost base out. In the U.S., we cut our headcount down significantly, and our revenue went up. And the same thing is occurring around the business. Now we are at a point now where we've cut pretty much everything that can be done. But what we're really focusing on now is growth and growth in our profit.

And so the things -- the levers that we can pull to get that to invest further in our tech stack. We've currently already rolled out our consumer front end, our AI consumer front end, which is really exciting for us. But we also have a seller platform that the bike sellers use. That's currently not our IP. We're going to spend something like $1 million on that to a third party next year. We can build and replace it for that and own the IP and give us a strategic place in the market where we own 100% of everything that we -- that we are using makes us a much better acquisition target, for example. So we're looking very much at investing in that tech.

We're also looking at the headcount we've taken out. There will be pockets of the business where we invest again, but we'll be very mindful that we can't turn the taps on. We've got to be very, very careful to show to the market that, that trend line that you've seen around working capital and cash in the business is not damaged.

I would say that as the business grows, especially the rates we're growing at, there will be a requirement for more working capital in the business. We're just selling more. We're ordering more, bigger creditors, bigger payables. So that's going to be an issue for us as we move forward, but we're working through that. We've got very supportive shareholders on the register. The register is very stable. I think something like 70-plus percent of the stock in this company is owned by the 20 largest shareholders, and they know the story well. They're very well across what we're doing. They support the tech stack.

And so we've got a good register of people that support we're doing. We've got a good team around us executing the plan. I think we're at the point now where we've sort of proven that we can deliver on the promises that we made to the market over the last year. And the next stage for us is to really focus on how do we light this up a bit more? How do we get more growth? How do we get more cost out that we can't do by just removing headcount, and that will be by taking more on in terms of our own tech stack.

And if you look at the -- this quarter, I think last quarter and the quarter before that, I kept saying to people I run into, you wait till the next quarter because you're going to start seeing the fruits of all the work that we've done. Our financials over the last couple of years have been pretty messy because every time we decide to shut something down, there's impairment charges, there's restructuring costs. There's things that make the P&L and the balance sheet look worse than they are.

But we've just decided we don't care, we're going to get on with it. We show everybody that we're up running a proper business here and get on with growing it. So that improved EBITDA loss you see, there's been a lot of low hanging fruit there, but it's been a lot of hard work. I mean shutting down an operation in Colombia is not easy. And closing down the business in America is not easy, and dealing with all the people issues and management issues associated with that, it's been a lot of hard work, but that's behind us.

And our AI platform, the reality is we wanted to have that roll out into every country by now. But we just haven't been able to. We don't have the headcount to do it. So Germany is our largest market. That's where we've been focusing. We've got Benelux coming. We've got Holland coming in the next couple of weeks. After that, we've just got Australia and then we've got America. Beyond that, we could launch into other new markets at a fraction of the cost than what it would have cost us in the past to do that because we previously built a completely different version of BikeExchange for every country we operated in. And those days are all gone.

So I think that what you're hearing and what I'm happy to share with you is that we're expecting the performance of this business to get better and better. There will be a bit more investment, but we're mindful that, that investment is going to be managed carefully so that we don't blow up all the good hard work we've done. But I think you're going to see this business go from 15 million customers to many more than that. And you're going to see us having one platform that's global beyond the countries we're in at the moment, and you're going to see us building out that IP so that one day we're annoying or helping a much, much bigger company than us and making us an attractive takeover target or attractive strategic partner of one of these companies at some point in time in the future.

I think that's kind of my summary. The details are on the page, but I think what we'll do is open up if there's any questions that have come through on the chat, Kyle. And if not, then we can just take verbal questions.

[Kyle Ferreira, executive]

I don't have any in the chat yet, Dom. So I think we'll open it up whether people would like to raise a question off mute or through the chat, either or works.

[Dominic O'Hanlon, executive]

Sounds good. No one? All right. Well, we've got -- we're very -- we're making ourselves as accessible as we can to everybody in the market. We really appreciate the support we've had from our loyal shareholders. And we know that the trading volumes in our business are absolutely minuscule, and I think it's something -- it's very, very small at the moment. We've got over 1,000 shareholders, but 20 of them hold 70% of the stock. So that's just where we are in the market at the moment.

I think if you've got any questions from us, if you see that there's an opportunity here for us to be working together or if you want to know more about our company, we'd love to take your call or your email. Please reach out to us, and we'll try and make ourselves available.

I appreciate your time today. Thanks, Kyle, and thank you, Ryan, for all the hard work you've put in over the last quarter and over the last year. It's really awesome to see the results that are coming through. Well done.

[Kyle Ferreira, executive]

Thanks, all.

[Ryan McMillan, executive]

Thanks, everybody.