Home24 SE

XETRA:H24

Earnings Call Transcript 2020-Q2

[Operator]

Good day and welcome to the home24 Q2 2020 Finance Report Conference Call. At this time, I would like to turn the conference over to Marc Appelhoff, CEO. Please go ahead, sir.

[Marc Appelhoff, Chairman of the Management Board & CEO]

Thank you very much, and good morning, everyone. Welcome to our Q2 earnings call. We're obviously very pleased to report the record quarter that we've just completed.But let me start with stating how grateful and proud we are of the entire home24 team that has worked together the best to support our customers and industry partners in the midst of these special times of the COVID-19 pandemic. They've done an extraordinary job in managing the impact of the pandemic, both on our end business, but also on the supply chains, often facing challenges like lockdown restrictions themselves, with our partners obviously also being affected.And most importantly, also want to look forward and state that we remain vigilant in terms of health and safety and continue the health and safety measures we implemented in Q1. We've made it free choice to all our employees to continue remote working where that's possible to continue to keep our employees and customers as protected as possible.Before we go into the details today, let me take also a minute to set the context of the financial results we published last evening. The Q2 results highlight the fundamental attractiveness of our home24 value proposition to our customers, especially as many new and existing customers have turned to our platform during these special times, where they spend much more time at their home and turned into making their home a special home.And the results also prove the inherent profitability of the platform we have built and where there were a few question marks just a year ago, and where it's now becoming transparent that the significant operational leverage that the platform is yielding is being realized. And that led to the jump in profitability and the big milestone achievement of last 12 months, adjusted EBITDA breakeven and cash flow breakeven for the first half of 2020.In the bigger picture, the acceleration of e-commerce adoption was the most important driver of our Q2 financials, obviously. And we do expect this to remain, to a certain extent, a lasting benefit to our business because the slow but gradual shift to e-commerce in home and living even before COVID accelerated over the last month. And what we've been waiting for, for quite some time has finally materialized. We believe much of this step change in online penetration will prevail, and adoption is highly likely to continue to shift even faster than it did pre-COVID.But without further ado, now let's go into the details of our financial results. In Q2, as stated already, we had quite a significant push from online demand fueling our Q2 GOV growth rate, which came out at 71%, which is an amazing step-up from Q1, where we were just at 13% currency adjusted. And I think the 71% has to be especially seen in the context of flat marketing expenses year-over-year, yes? So we did not increase marketing expenses. And if you also remember that we frequently have investment quarters and harvesting quarters, yes? H1 2020 with minus 7% marketing spend even speaks, yes, for itself that, that is an extraordinary result. This order intake translated into currency adjusted revenue growth of only 49% in Q2, indicating that there is strong further revenue growth from that Q2 order intake in Q3.Also, our active customers leapfrogged to 1.8 million, which is, especially in the context of flat marketing, quite special. Now we have added more active customers in Q2 than we have added in the 4 previous quarters combined.And yes, the structural profitability, really, yes, then can be best seen with our bottom line profitability improvements where in Q2, we did an 18 percentage point year-over-year step-up in EBITDA margin to 8% despite the GOV spillover from Q2 to Q3, yes? So many of those we've obviously collected already in Q2 but did not translate into IFRS revenue in Q2, while all the costs, including marketing costs, are realized in Q2. And it's also important for us to note that we did benefit significantly from this extra demand in Q2 but that H1 would have also been profitable without these extra demand effects as structural profitability translates into scale effects. And we had planned to be full year EBITDA breakeven in both halves of this year, and we were very much on track with that even in the absence of this extra demand effect.On the cash side, we also had a very positive streak now with 3 quarters consecutively being cash flow positive and the first half of this year ending at EUR 47 million, which also should take most fears away that we are burning significant cash, yes? Over the last 12 months, we've just burned EUR 4 million, and we're now obviously in a much more comfortable situation with 3 consecutive quarters of aggregate cash flow positive trading.While Q2 was seeing most effects of the strictest lockdown effect, the order intake in Q3 remains elevated. So the hypothesis that I mentioned in the introduction that we believe that online penetration will remain elevated is actually proving to be true in Q3. And we'll go into the differences between Europe and Brazil in detail a bit later. But in principle, I think it's fair to assume that where the COVID restrictions are a bit stricter, the demand is also remaining temporarily even more elevated, yes?But July, constant currency was 49% year-over-year in GOV, which shows also that for the second half of this year, we don't believe this top line growth to be falling off a cliff but rather to continue on quite healthy and strong levels. And that's also why despite the uncertainties of the COVID-19 pandemic evolution, yes, and the uncertainty of when there will be a vaccine, when will -- when lives will return to a bit more normal, with the likelihood of a global recession, with a lot of unemployment to come, we still felt comfortable in raising our guidance to a range of revenue growth of 25% to 35% and profitability on adjusted EBITDA margin in the range of 1% to 3%, yes? So this is not considering that the year will continue as positively as we've seen in Q2, Q3, but this is, in a base case scenario, our assumption.Now looking at the development of Q2 on the business side and a few more details. Where did this record Q2 results stem from? What were the key drivers? And, yes, why do we believe did home24 fared so well in Q2 with customers turning to our home24 platform?We believe that the Q2, especially, but most importantly, the trading in the last 12 months combined demonstrate that our past platform investments pay off with the SAP platform, with the data platform, with the 70% warehouse capacity increases, with our outlet structures, with our assortment investments, yes? And then finally, also the negative profitability effects of the ramp-up investments and those systems introductions are out of the system, yes? So we are now in a position to scale profitably. And over the fourth -- last 4 quarters, we have proven that we can combine strong growth with strong profitability improvements.Also, very importantly, our aided brand awareness in a Q2 refreshed survey shows that our current and historic investments still position us as the leading online platform in our core market, Germany, but also in the other markets. And customers increasingly turn to home24 as their natural destination, especially in the current times, where we've seen both repeat and new customers driving the growth we have seen in Q2.Now if we now go in the distinct segment development of Q2, we see that the high customer demand was most pronounced when the lockdown was strictest and off-line retail alternatives were not available. And you see that in the red line for Europe where April was the peak year-over-year growth, obviously with some baseline effect as well. But we are now still on a very elevated level in July, whereas Lat Am had quite a slow start into the COVID times and because from mid-March to mid-April, we were not seeing elevated e-commerce demand yet. But from May through July, you see that there have been very strong year-over-year growth rates that we achieved.And I think it's important to note that the demand remains elevated in Q3, while where the COVID-19 measures are more relaxed, the demand reduces to an elevated but not excessive level. And when it comes to the demand split, we also do not note any significant SKUs to one category or one channel, yes? So primarily, at the beginning of the lockdowns, home office and garden benefited overproportionately. But up until now, it's pretty much distributed across all categories.The bottom chart on this Page 5, you can see the net additions of customers where you see that we've added more than 200 -- 100,000 active customers in Q2, now reaching more than 1.8 million. And I think that's especially notable, yes, considering that our marketing invest in the first half of the year was below the 2019 levels.And when we look at the growth drivers, there is significant contributions by new customers, with new customer cohort efficiency also reaching record levels. But we do also see that our repeat customer behavior and loyalty is continuously increasing and also has reached record levels in Q2.One question we do expect to get also in the Q&A, that's why we've put up this slide here on Page 6, is why didn't we exploit the growth potential further. Why didn't we ramp up marketing like other peers that have increased marketing spend year-over-year massively in Q2? Basically, the reason behind that is that we consciously balance growth and customer satisfaction. And we don't want to jeopardize a positive customer experience by a quick revenue that might not then lead to a lasting customer relationship.The extreme growth in Q2 of the order intake was a challenge, both for product availability, especially on our inventory and private label side, but also on the operational load across the supply chain, yes, with the supply chain being impacted by COVID-19, initially in February, March throughout Asia then March, April in Europe. Now we do see limitations in Brazil. So we are managing those restrictions very, very consciously. And in the end, what is our guiding principle is that we do want a positive customer experience.And during Q2, what's also been showing improving very positively is the strength of our 2-pillar model, yes, where you see at the -- in the top chart that the private label inventory that's usually on stock with -- for quick delivery was getting sold out and sold off faster than we had initially forecasted for 2020. And obviously, restocking takes some time, especially if there's restrictions on the supply chain. But -- therefore, it's so powerful to have a third-party pillar, where we not only have a broad assortment but also a redundant offering in nonbranded home and living product categories where we could then tap into that demand to still grow. And you also see that in terms of gross margin. We have not really seen a negative impact here because our private label outflow was still very, very good in Q2.The NPS is especially important when it comes to how we manage our relationships with the suppliers, yes? We don't now go for the quick growth and stretch suppliers or switch suppliers to just get a few percentage points of more growth. So we are in a very trusted and conscious dialogue with our suppliers, often discussing their concerns and limitations together from just raw material supply limitations to even factory closures and us then being able to place bulk orders before temporary closures so that we have sufficient stock through this special time for everyone in the industry.Now if we just look at the pure financials, you can see the Q2 GOV, 71% growth, very strongly and very significantly driven by the number of gross orders, with a slightly decreased basket. I think that, that is testimony to many new customers having joined us and typically, new customer orders being, especially in Brazil, slightly smaller than existing customer orders. In Europe, the basket was pretty much stable even though home office and garden typically have a slightly smaller basket than average of our category baskets. And the growth was primarily driven by the higher number of orders placed by the active customers in general. So it was the activity of our customer base and -- that's falling through to GOV.Why did the 71% GOV growth only translate into 49% revenue? If you remember, especially the Brazilian curve of GOV growth year-over-year, you also see that June did, both in Brazil and Europe, still show significant GOV intake. And we do realize our revenues at time of delivery and not at the time of order intake. And therefore, there is significant further revenue potential of that Q2 growth for Q3 revenue, IFRS revenue, through the open order realization that are still out there and have already been delivered to a very significant extent as we're already mid-August.And you also see that the growth has been fairly balanced across the segments, with Europe outgrowing Lat Am primarily because of the different timing and duration of the stricter lockdowns of COVID, Europe showing a very strong 52% growth in Q2. And what is also important to note is obviously the FX development and the devaluation of the Brazilian real, where you see that in constant currency, Q2 was 39%, yes? But in real, this is diminished to -- down to only 4% because of year-over-year FX effect, yes? We've lost more than 30% year-over-year in FX.How does that translate into profitability, yes? So it is a great milestone for us to have finally achieved last 12-month accumulated EBITDA profitability. That's a big milestone we've -- we had set ourselves for the full year of 2020. And I think that's pretty much how the profit boost can also be interpreted, with basically 1 half year of profit and cash progress on our scalable and sustainably profitably -- profitable platform, with Q2 showing a EUR 9 million profitable EBITDA and most of the EBITDA performance in Q2 coming from Europe.Also here, again, remember that the Brazilian revenue realization of the significant growth in Q2 is even a bit more Q2, Q3. And the second extraordinary effect that led to Brazil only showing a 1% EBITDA is that the lockdown restrictions had a more significant impact on the operational business, where in Europe, already from end of April, we were able to sell off our return items again through our outlet infrastructures and where even during the tight lockdown, we had found measures to sell off our outlets through Instagram, Facebook and telesales activities. In Brazil, this -- we did not realize to the same extent, yes? So the sale -- the sell-off of return items in Brazil is something that negatively impacted profitability in Q2 because we took a full write-off of those returns because we don't have certainty when we will be able to sell them off in a much more normalized off-line retail environment.And as highlighted already in the summary, yes, it's important to note that even without the COVID-induced demand push for Q2, the first half of this year would have been adjusted EBITDA profitable. So we were on track to reach our full year 2020 goals as communicated externally. And yes, we basically gained 6 months and obviously, significant scale now through the step-up in online penetration that we've seen since March.When we look at the full P&L, the scale effects prove to materialize pretty much across all P&L line items, yes? And they also show that the platform investments of the last years are truly paying off and proving that we've built a structurally profitable platform that now is scaling very efficiently, yes? We have invested in terms of gross margin drivers into, obviously, assortments like the private label strengthening. But we've also introduced the own physical outlet network that is driving gross margin because our negative contribution in gross margin from selling off those returns is being reduced, yes? And you see a very strong development where now Q2 2020 is at 46%, on the same level than Q1. And if you remember that our private label share was reducing because of the inventory stock we had, then this is a very, very nice development.And if you look further on fulfillment expense ratios, you see that our logistics networks, with increasing utilization rates and especially warehouse handling efficiency, is also delivering very significant scale effects. And then obviously, marketing has seen the strongest deleverage where even in our terminal margin guidance, we'd said we believe marketing expense ratio will remain 10%, 12%, will remain in the low teens. So this 10% marketing ratio is certainly extraordinary.But also then, if you look at G&A, you see that we delivered this growth with less G&A costs than in any of the last 4 quarters as also the ramp-up costs that were included are falling away. So the investments in that profitable platform are falling away. Our G&A ratio will also continue to improve in the future. And yes, I think it's testimony that the investments of the last 2 years and the hard work of our team over the last 2 years is paying off and reaching profitability.When it comes to cash flow, the positive cash development from end of Q1 to end of June, with plus EUR 4 million, has been primarily driven by the operational profitability, which shouldn't be a surprise, and it was not even driven by working capital. As you can see, the change in net working capital was 0. So -- and the beneficial working capital effect of a decline in inventory to that unexpected high order intake and revenue realization was balanced with increased customer receivables, where we obviously would have had also opportunities to manage those more aggressively, but we chose to steer conservatively in Q2, yes, as with [ IPS ].So overall, over the last 3 quarters, we are now in aggregate cash flow positive. Over the last 12 months, we've only consumed EUR 4 million of cash. I think this also shows that home24 is in a much different position than a year ago. And we've proven that the milestones we had communicated last year, that we have delivered and achieved each quarter-over-quarter, are translating into gradual profitability and growth improvements that also translate into cash, yes? Over the last 4 quarters, each quarter has shown significant growth, significant profitability improvements. And 2 of those 3 quarters were cash breakeven. Yes, we showed that we're actually in very good shape, not only COVID-19 demand induced, but also, yes, would have been in a very good shape without that extra demand.So coming to the outlook before we jump into Q&A, yes? So for us, it's actually very important to remain humble and focused on our most important priorities at task. And those are that we actually truly believe that remaining vigilant and keeping our customers and employees safe is our highest priority.The development of the financial results in the second half of this year are obviously linked to how the COVID-19 pandemic will evolve further. And up until now, we do see elevated e-commerce demand levels persisting. And we, therefore, felt very confident to raise our guidance, but we don't know how the uncertainty to consumers but also the uncertainty towards further lockdown measures will affect our business, yes? So there is a significant degree of uncertainty for the next 6 months and maybe, yes, probably also for 2021.And so if we just briefly look at the possible negative effects that could occur, yes? So our operating business could face restrictions in case of lockdowns, yes, from factory lockdowns, warehouse lockdowns, carrier lockdowns. This is not in our control. We obviously work with all of our partners together to put precautious measures in place, yes? But this cannot be ruled out.In the same way, consumer behavior could change again, especially if the restrictions fall away entirely and off-line retail is being able to offer the same experience than pre-COVID. And the overall economic situation obviously will also have an impact on our business, even though we believe that even in times of a recession, our value-for-money offering and the fact that people will likely spend more time at home until the end of next year at least, with COVID-19 playing out further, will give us a good opportunity to tap into the online demand for homebuilders.On the upside, we have seen an acceleration of the e-commerce adoption rate in Q2, also in July. And up until now, demand remains on an elevated level. And for now, we haven't even increased marketing spend to tap into that demand. So we have measures up our sleeve to actually continue to steer this business, both on growth and profitability sustainably. We're not relying on extraordinary demand that's basically coming in for free because as you remember, we are scaling further profitably our customer acquisition, and we have also scaled further profitably pre-COVID-19 effects. Especially flexible and remote working models may lead to consumers spending more time at their home and thus also spending more on the furnishings, not only for home office, but, yes, homes that, in a typical workday, were not used for many hours a day will become the center of family life again, yes? And we believe this will have a lasting positive effect on the industry.And as mentioned, our quarter-to-date intake remains on an elevated level compared to pre-COVID demand. And July was at a 49% constant currency. August, the first 2 weeks of August have now been very hot in Europe. And Brazil has shown a very stable continued demand. So both geographies continue to trade on elevated levels, but we are in no position, with the significant uncertainty prevailing, to give you a forecast of the full Q3 turnout or the Q4 turnout. That's why also in terms of guidance, we've cautiously taken the uncertainty into account.And also, as mentioned before, the growth is stronger where the COVID restrictions and the consumer concern and uncertainty are more pronounced. This is, at the moment, unfortunately, the case in Brazil. So growth is, at the moment, a bit more pronounced in Brazil so contrary to Q2.And in general, we will keep our strategy in place to consciously balance NPS, profitability and growth, with NPS being our guiding principle for the customer relationship because we want to create lasting and sustainable customer relationships. So as the last comment today, I think Q2 has not also -- not only been a record quarter for home24, but it's also proven that our terminal margin profile is very realistic. And we've basically leapfrogged a few quarters of development towards that terminal margin profile, yes? We shouldn't forget that Q2 and Q4 are always harvesting quarters that are structurally more profitable than the investment quarters in Q1 and Q3. But in principle, you see gross margin continuing to grow, and we had always guided that our ambition is to reach 50% plus.In terms of the gross profit after fulfillment costs, trending towards the low 30s, we believe that's very realistic. You see that in Q2, we have already realized 28%. As already mentioned earlier, marketing will remain on the 10% to 12% levels -- yes, will remain a significant portion of the spend because we are participating in a nonbranded mass market category. And we believe spending for top of mind of the destination platform is crucial also for long-term success.And last but not least, G&A will continue to show very strong leverage effect. So we have ample opportunities to continue to drive our EBITDA margin further to reach the midterm goal of low teens EBITDA margins.And in terms of guidance, yes, I did start with that, yes, so let me close with that. We did raise our guidance based on Q2 and July trading. We did raise it also, very consciously acknowledging the uncertainty that prevails for the remainder of the year. We just don't know how it will play out. We don't know how severe restrictions or even disruptions of our consumers' lives or our supply chains or our employees' lives will materialize. That's why we have consciously guided to a 25% to 35% currency adjusted growth and a profit range of plus 2 -- plus 1% to 3% adjusted EBITDA margin.So to sum it up, yes, we've always said we're uniquely positioned to exploit the vast home and living market opportunity. It's a EUR 117 billion market that's finally getting a step change in online penetration in our market, and we were in a unique position before the COVID pandemic.The market remains huge. It's now accelerated in terms of consumer behavior. Our customer value proposition remains very valid and is proven to be delivering positive NPS with our best value offering combined with the vast selection. And our data and technology setups and our value chain proved to be scalable and deliver the scale effects that we had in the past, always reasons -- as the root cause why we take all those spectrum investments. So we're very motivated and very keen to, yes, look at the future and exploit the vast potential that's still out there in the home and living market, yes, especially with off-line retail, yes, having their own struggles at the moment.With that, I thank you for listening for those 35 minutes and open the operator line for questions.

[Operator]

[Operator Instructions] We have our first question, it's from Mr. Christoph Bast of Bankhaus Lampe.

[Christoph Bast, Analyst]

A couple of questions from my side, please. Firstly, regarding your FX adjusted revenue outlook of 25% to 35% for 2020, could you give us an indication how this range could look like, including the FX effects, so on a reported basis?Secondly, could you have [ lain ] the slight drop in contribution margin in Brazil compared to the strong margin increase in Europe? So what are the moving parts here? And which margin level do you regard as realistic in the near term?Thirdly, on G&A. I mean the number did not only decline as a percentage of sales but absolute terms. Could you tell us which G&A to sales ratio is included in your long-term EBITDA margin target of 10% plus?And last but not least, you stated during the call that you believe the off-line to online shift in furniture is going to prevail even post-COVID. Could you elaborate [ a bit ] in more detail how you come to this conclusion? Is it only the fact that order intake in July has been strong and that customers have started to buy other furniture than home office product? Or do you have any additional data points you are willing to share with us? That's it.

[Marc Appelhoff, Chairman of the Management Board & CEO]

Thank you, Mr. Bast. So on FX, when we started the year, the Brazilian real was at BRL 4.4, BRL 4.5 to the euro. And you're now asking me to predict where it goes from current BRL 6.3 in the next 5 months. If I would know, we could all exploit that, and we'd be, yes, we'd probably be running central banks. It's not possible, yes? There is obviously a significant effect with FX. And it will have an effect on real growth as you have now seen in Q2.I think Q2 is a good indicator where the Q2 average FX was, I think, 5.9%, a bit above 5.9%. So that has led to the Brazilian growth from close to 40% being then only 4% in Q2. So we will very likely remain in our revenue guidance range also with real, but if FX goes to 9% or 10%, yes, that's probably not the case, yes? And I think, yes, unrealistic to predict that in the current market environment.And the drop in contribution margin, I already did hint at extraordinary effects in Brazil. That led to the margin decline. One of them that I already explained was the fact that the outlets were closed, and we did write-off the returns that we collected. And that goes into contribution margin, yes, through gross margin.The second big effect is that over a much longer period than in Europe, our off-line retail was closed. And our off-line retail, the showrooms have typically significantly larger orders and larger -- higher margins.And the third effect is that in that period, because off-line was closed and outlet did not materialize revenues, the revenue share of marketplace revenues are also increasing. And for marketplace, margins are significantly lower as we have no marketing costs associated, yes? That's the drivers for the contribution margin.To your question of where we expect that to evolve, we expect that to return to pre-COVID levels as soon as those effects ease off, yes? And that could be the case already in Q3, looking at a bit more normalized market environment for the first weeks in Q3.To your question on G&A, we did see a decline also in absolute terms, mainly because we were still in the ramp-up phase of the investments last year, yes? So that's the only reason. And we never guided on individual line items with the concrete percentage points. When we said we want to reach low teens EBITDA margins long term, then G&A plays a significant role here. But if you do the math, we would reach the low teens already if we only realize the 50-plus in gross margin and keep the current ratio. So I think it's fair to assume that we can, over the next 2 or 3 years, still gain a few percentage points also from G&A, but there's no target that we guide to, yes? So yes, if you want to model that, I think it's fair to at least model a couple of percentage points further leverage on G&A.In terms of online penetration, we don't have any studies that we directly quote, but what we have seen, both on our own side and speaking to other e-commerce retailers, is that customers that historically did not buy online have now given it a try. And they've done it for the last 4 months, and those customers have had a good experience, and also the off-line still being impacted. And therefore, we believe this consumer behavior to also be sticky, yes, because they've now gotten used to it, plus we have not seen the shakeout of the off-line retail industry because of insolvencies yet. As soon as the insolvency law will change again, our expectation is that there will be significant market capacity also coming -- getting out of the markets.You've seen that Conforama and [ Boots ] in France had to file for insolvency. One was taken over the other. So we believe both from the customer data indications we see and also the current market environment where you can actually go shopping freely in Germany or pretty much across our European footprint. And yes, you have to wear a mask, but if you want to, you can.Nevertheless, the online demand remains elevated, and customers are not only buying home office and garden anymore, but they're buying across our assortment. And they're also showing active repeat customer behavior, which, for us, is an indication that it was not a onetime effect, but that it is possibly and hopefully a lasting effect. Thank you very much.

[Operator]

Our next question comes from Graham Renwick of Berenberg.

[Graham Ian Renwick, Analyst]

Just 3 questions for me, please. Just firstly, just following on from your talk around off-line peers. As they've reopened, have they been a lot more aggressive in marketing and pricing, possibly with some liquidations if they're struggling? And are you seeing any impact from that? Or could you see an impact from that over the coming quarters?Secondly, just wondering what your EBITDA margin could have been in Q2 if you'd recognized all the Q2 GOV as revenue in Q2 and didn't have that spillover into Q3. I'm just trying to think about what your true underlying profitability is if we better align your revenues to your costs.And lastly, you, in the past, talked about first proving profitability in 2020 and then proving cash generation 2021. And then at that point, you may choose to reprioritize growth over profit and start to invest more into growth. Now you have demonstrated profitability over the last 12 months, you seem to have 12 months of positive cash generation. How has this changed your view on how you manage the business in the near term and from 2021? Should we expect margins to continue to rise towards your target model? Or is this now an opportunity for you to be a lot more aggressive in marketing and other investments?

[Marc Appelhoff, Chairman of the Management Board & CEO]

Thank you, Graham. Yes, thanks. So on the off-line peers, we had feared that when we were in that phase, March and April. And therefore, we had prepared also to react. But also the off-line peers, the strong off-line peers with the relevant offering has seen very solid demand since the reopening. So for now, we have not had that effect in at least in our core markets.Pretty much, everyone is also challenged with securing sufficient supply because there is disruptions in securing supply as the whole supply chain is impacted by COVID. So I think everyone is a bit more cautious.In general, home and living has always been a very high promotion intensive industry, yes? So the large off-line players have pretty much every month given massive discounts on a nonbranded product where customers don't have a reference price. So we believe that in the contrary to branded electronics or other branded goods in home and living, this will play a much less pronounced role, and we have not seen any negative impact to date.On the EBITDA potential, yes, I mean, I think you can do the math there. If you take the -- our gross-to-net ratio and just materialize the 71% in Q2 instead of the 41%, that should get you to a 10%-plus adjusted EBITDA margin. I think it's all theory because for one, it's -- we shouldn't forget it's a harvesting quarter, yes? So Q2 profitability was always better than in Q1.And I think the other element, when you just speak about potential, is that if we would have just optimized for Q2 financials, we would not have been flat in marketing at minus 10% in marketing in Q1, yes? We did have massive potential from mid-March to acquire more customers. And if we would have just wanted to tune Q2 IFRS financials, we would have significantly spent more and then also realized significant more EBITDA margin.On the trade-off between growth and profitability, I mean, yes, leaving all uncertainty due to the COVID-19 pandemic aside, and I think it's very important that -- to note that we take that seriously. And we won't just jeopardize our core profitability, our EBITDA profitability, cash flow breakeven in the last 3 quarters, that we won't jeopardize that by excessively shifting into growth mode again. But I think it's also fair to assume that we want to be a relevant destination, and we want to play a relevant role in the industry end game for online home and living, where there is no clear winner yet.And that will also mean that as long as we remain bottom line profitable and control cash and NPS on a very conscious level, we have vast potential to continue to accelerate growth to levels that are above the levels of Q3, Q4 or Q1, yes? So we will continue to rather shift into a growth mode than trying to reach our terminal margin profile very soon and generate more than 10% EBITDA margins.

[Operator]

Speakers, we have no further questions at this time.

[Marc Appelhoff, Chairman of the Management Board & CEO]

Thank you very much. Then, if there's not another question coming up, let me thank you all for joining the home24 Q2 earnings call, and I wish you all a safe and healthy Q3. Looking forward to speaking about our Q3 results to all of you again in 3 months. Thank you very much.

[Operator]

Thank you, everyone. This concludes today's conference. You may now disconnect.