Good morning, everyone, and thank you for joining today's first half FY 2024 results call for Cettire. My name is Sam Wells from NWR, and I'm pleased to have joining me today, Cettire's founder and CEO, Dean Mintz, as well as Chief Financial Officer, Tim Hume. Both Dean and Tim will spend some time reviewing the first half results released to the ASX this morning, including some notable financial and operational highlights. Following their comments, we will have some time for questions at the end of the call. As a reminder, if you would like to ask questions of the management team, please submit written questions only via the Q&A function at the bottom of your screen. You can submit questions throughout the duration of today's call. We will endeavor to get to all questions submitted, in some cases, consolidating questions on the same topic.
Thanks again, and I'll now pass it over to Dean. Dean, please go ahead.
Thanks, Sam. Good morning, everyone, and thank you for taking the time to join Cettire's results briefing for H1 FY24. I'm joined here today by our Chief Financial Officer, Tim Hume, and it's our pleasure to present to you our results for the half year. Before we start, I'd like to call your attention to the disclaimer statement in our results presentation released to the ASX. That disclaimer statement also applies to this investor call. Turning now to slide three. I'm very pleased to share that Cettire has delivered an exceptional set of results. I believe this to be our strongest print since our IPO in December 2020. Cettire has delivered exceptional top-line growth, profitability, and substantial cash generation, and we continue to see very strong momentum across our footprint.
Compared with H1 FY23, gross revenue increased 90% to AUD 460.5 million, and sales revenue increased 89% to AUD 354.3 million. Importantly, we've been able to maintain strong growth rates while also cycling increasingly challenging comparables. With our focus on profitable growth and strong execution, we delivered Adjusted EBITDA of AUD 26.1 million, representing 7.4% of sales. This compares with Adjusted EBITDA of AUD 16.7 million in the same period last year. Further, we generated AUD 65 million in operating cash flow in the half, with a closing net cash balance of around AUD 100 million, more than double where we were in June. This provides us with excellent flexibility to capitalize on growth opportunities while also exploring capital management initiatives.
Cettire has a unique business model operating in a very attractive, large global market. Longer term, we continue to see a huge opportunity for Cettire. The luxury market is enormous and in the early stages of moving online. We are well-positioned to continue to benefit from the secular growth as online continues to grow its share of the market. This provides us with a real tailwind. We are a leading global luxury platform. We are profitable. We have strong unit economics and extremely competitive cost structure, and we have a commercial proposition, which is clearly resonating with both the supply and demand sides of our platform. We remain committed to scaling as quickly as we can in a sustainable way, and we continue to believe we are very early in our growth journey.
With the momentum we have, we are very excited about the second half of FY24 and beyond. Turning now to slide four. It has been a further half year of execution, and this set of results shows that we have delivered. Tim will talk you through the numbers in more detail shortly, but in summary, we have observed broad-based growth across our footprint in both established and emerging markets. All our key markets are performing strongly. The business ended the calendar year on a high note, with growth accelerating from mid-October into the calendar year-end, reflecting the strength of our execution through the important promotional period. The revenue profile also demonstrates that we have not really had to compromise on growth in order to drive sustained profitability.
The attractive loyalty characteristics of our customer base, combined with the company's strong financial position, continue to provide us with confidence to invest in the pursuit of our global growth. In this half, we've leaned a bit more into our marketing investment. This was a deliberate strategy to be a bit more aggressive to capitalize on our marketing, on our market momentum. We achieved a significant milestone during the period, with active customers surpassing 500,000 for the first time, to close the half at around 567,000... 576,000, sorry. Again, we have observed an acceleration in the growth rate through the course of the half, in part due to the success of our marketing, but also due to a material improvement in our 12-month retention rate versus the same period last year.
On the supply side of the platform, we have demonstrated further significant growth since our last update in August. We are now aggregating more than AUD 2 billion of luxury inventory across many suppliers. We have a strong pipeline of potential new supplier as we continue to penetrate the supply chain, and we also hope to launch with Zegna in the not-too-distant future. Localization remains a key strategic priority for us. During H1, our operational focus was scaling the localization features deployed in FY 2023, including multi-language and localized payment options. Primarily, this has included optimizing our marketing investment and approach in the emerging markets. China, of course, remains a focus of our localization. I'm pleased to share today that as a part of our China strategy, we are seeking to launch a direct channel into the market, in addition to our platform opportunity with JD.com.
As mentioned in previous comments, the key question we are working through is: what is the ideal launch window? Our profitability and cash generation in the period has left us with an enhanced cash balance of around AUD 100 million, which provides flexibility to capitalize on growth opportunities and explore capital management initiatives. On slides five and six, you can see this half year is, in many respects, a continuation of the journey that we've been on since inception. The business continues to get stronger as we grow, and our strategic priorities have not changed. On slide seven, you can see the breadth of our growth, which is very encouraging. We continue to experience very promising growth rates in our emerging markets, where we saw a year-on-year increase of 138% in gross revenues. This demonstrates the effectiveness of our localization strategy.
We continue to experience good momentum in conversion rates in these markets as we grow our business here from a standing start. While many of our emerging markets are performing extremely well, we've particularly seen strong growth rates in markets like Japan, where we have launched local language features. Emerging markets have now reached a scale where the growth is reshaping the group, accounting for 31% of gross revenues in the half, up from 25% in the same period a year ago. It's reasonable to expect a further reshaping of our geographic revenue mix as our presence in these markets continues to scale. That said, established markets remain a huge opportunity. We're still early in the journey, with Cettire growing 74% year-on-year in its established markets. During the period, the strongest performing of our established markets was the UK.
I'll now hand you on to Tim to walk you through the key financial aspects of the H1 FY24 results.
Thanks, Dean. Slide nine shows you the continued exceptional growth in customer acquisition. We remain focused on driving new customer adds at this stage in our life cycle. We've grown our active customer base by 83% over the year. Now, if you recall, the corresponding growth rate at our trading update back in October was 69%. So we have continued to see an acceleration here, driven by improved retention metrics and record gross adds. In Q2, we added around 90,000 net new active customers, which is a new quarterly record for the business. Repeat customers continue to represent an increasing proportion of our gross revenues, with 58% of gross revenue coming from repeat customers in the half, up from 56% in the same period last year.
We've seen a bit of a mix shift in the last few months towards new customers, driven by the sheer volume of new customer adds. Repeat customers continue to spend materially more per order than first-time customers, driven by basket size. On slide 10, you can see how the customer loyalty and frequency dynamics are playing out over time. Once customers are introduced to the Cettire platform, not only do they re-transact, but we tend to see growing frequency over time. You can observe this in the growth in orders per active customer. Now, when you combine higher AOV for repeat customers and increasing order frequency, this translated into continued growth in revenue per customer over time. We've been able to maintain this growth, even though we've been adding customers on a very steep trajectory.
This is very pleasing for us to see, as it really highlights the long-term position in our platform. On slide 11, you can see our unit economics remain strong. Now, if you take a last 12-month view, which aligns with our definition of active customers, CAC has been relatively stable and margin per active customer has improved. Now, focusing on the first half of 2024, as Dean mentioned, we were a bit more ambitious with our marketing during the half, compared with the same period last year. We also placed a greater emphasis on traffic quality or higher converting traffic over traffic volume, resulting in revenue growing faster than overall traffic volume. In the first half, we also saw a slightly higher CAC at AUD 115.
We also saw a corresponding increase in our AOV during the period, enabling a continuation of our strong returns on investment. Overall, returns in the half remained healthy. Turning to slide 12, which shows the P&L or key points from the P&L, you can see Cettire's rapid growth continued in the first half of 2024. We delivered sales revenue of AUD 354.3 million, an increase of 89% year-on-year. Returns rate was relatively stable year-on-year, at around 23%. Delivered margin increased by 75% to AUD 82.8 million, around 23.2% of sales. We experienced an increase in our fulfillment costs as a proportion of sales revenue. This is partly impacted by a stronger Euro FX rate versus the Aussie dollar.
Now, as we foreshadowed at our trading update in October, our marketing investment increased during the half. Paid acquisition represented 8.9% of sales. This compares with 7.9% of sales in the same period last year. The increased marketing reflects a deliberate strategy to market more aggressively, to capitalize on our strong financial position and our market momentum. Brand investments remained relatively modest at AUD 2.6 million, compared with AUD 1.5 million in the same period a year ago. The result of this was sustained profitability, with Cettire delivering Adjusted EBITDA of AUD 26.1 million in the half, a 7.4% margin.
Net profit after tax was AUD 12.8 million, although the cash impact of any tax expense on the P&L is mitigated by the utilization of the deferred tax assets on our balance sheet. The P&L tax expense is impacted by intangibles, amortization, and unrealized FX losses, which are both non-deductible for tax purposes. Looking at the balance sheet on slide 13, we closed the period with around AUD 100 million in cash and no debt. We believe this is sufficient to support our continued strong growth with current operating settings. The growth in cash balance reflects the operating profitability of the business, further supported by our favorable working capital cycle. We continue to invest in our technology platform to develop new capabilities and reinforce our competitive advantage.
Capitalized investments decreased as a proportion of sales to 2.1% in the half, compared with 2.6% in the same period last year. I'll now hand you back to Dean.
Thanks, Tim. Moving now to our trading update and outlook on slide 15. We continue to experience a healthy demand environment across our geographic footprint. Our positive trading momentum has continued into early H2 FY 2024, with all our key markets performing strongly. Gross revenue increased by around 80% in January. We also maintained positive adjusted EBITDA during the month. We continue to operate the business to maximize profitable revenue growth, while also self-funding. That concludes the presentation. I'll now open up the line for questions.
Thanks, Dean. Just as a reminder to the audience, we are taking written submission, written, written submitted questions only via the Q&A function. We have received a lot of questions, so as I mentioned at the outset of the call, we may have combined a few on the same or similar topic. There were a few pre-submitted questions, so I'll kick off with them. Looks like an acceleration of sales from mid-October through the balance of the quarter. What drove that?
Thanks, Sam. Look, ultimately, this is a consequence of very strong execution. I think during the period we had a great selection of inventory. Our tech platform has continued to develop, and we're able to offer just a better user experience for our customers and our suppliers. You know, on the marketing side, we were very focused. There's actually quite a bit of complexity on the marketing and promotion side in Q4, and we navigated that very well. Overall, we executed strongly. It was really a coordinated effort from the whole company. And, you know, this was also supplemented by additional marketing investment compared to the previous years, where, you know, where I think we...
Compared to the previous year, where I think we underinvested a bit.
Okay, thank you. Next question on China. You've hinted to this in the past. Any updates you'd like to provide?
Yeah, look, as I mentioned earlier in the call, we're, we're now focused on finding the most appropriate launch date. You know, so China is something we remain very excited about, and, it's about finding the right time, which which is imminent. I, I think the other important piece of news, that we announced today is that we'll be launching our own direct channel into China, and, this will be in addition to our relationship with JD.com. So we've really spent a lot of time setting things up right. We have multiple channels into the market, and we're very close from a timing perspective.
Okay, great, thanks. On receivables, at the last result, there was a meaningful increase in receivables. That looks to have unwound entirely during this half. Can you please elaborate on this?
Tim, you want to take that?
Yeah, it's probably for me. Thanks, Sam. Look, we said at the full year results that, you know, at the time, we had an amount on balance sheet that was receivable from suppliers. We said at the time that we did not expect this to be a discussion point going forward, and the short answer is, it's not. So the receivable you're referring to has fully unwound and been converted to cash. So you'll actually see on the balance sheet that the receivables balance has decreased compared with June, even though our sales have clearly got a lot of momentum, right?
Thanks. Turning to the U.S. market, how is the U.S. market performing?
Yeah, the U.S. market continues to perform very strongly off a higher base. You know, we're still very early in terms of penetrating the U.S. market. We're seeing very strong retention from active customers in that market, and it's also a very strong market in terms of AOV. So that's all. But interestingly, I mean, we had some numbers in trading. You know, we continue to show very strong growth across the business in January, and I think it's worth calling out that we've seen a bit of a re-acceleration in the growth rate in the U.S. in the month. So the U.S. continues to perform very strongly.
Great, thank you. A few or many questions coming through. The first from Chami at Bell Potter. Could you please elaborate on some of the features on web, on both the web and mobile, and any early customer responses?
Yeah, okay. I think the reality is, as I mentioned earlier, the strong performance that we had was a consequence of really high-quality execution, and so this is a consequence of many things. So I don't particularly have some killer feature to talk about because everything we've done has been continuously iterated many, many times. Whether it is about the returns process from our customers, right? Which has undergone numerous updates. Whether it's about improvements to our logistics platform, which has allowed our suppliers to ship faster to our customers, or whether it's about user experience on the site, like search, all of this has undergone continued and iterative improvement. And the progress over the half year has been tremendous.
You know, actually, if you look at it over a slightly longer time horizon, like a year or two, we're very advanced compared to where we were not so long ago. So that's the more important point to think about.
Thanks, Dean. Getting multiple questions on the competitive landscape, both from a supplier and customer's perspective, but how much of the boost are you getting from issues with Farfetch, and what do you think Cettire has done differently to Farfetch in terms of the overall proposition?
Look, I mean, we've had continued strong reception from the supply chain. But that's been happening for some time now. Over the course of the last few years, the engagement and the reception that we've had from the supply chain has continued to evolve as our suppliers, you know, look for diversification. So I, I think, I think really it's sort of more of the same for us. Ultimately, we're most focused on ourself and on executing our own strategy, and that's where our, that's where our priorities really lie.
Great, thanks. Maybe a follow-on to that from Julian at Evans and Partners. Given you have plenty of access to inventory, the main brake on growth is the rate of customer adds. Given the attractive CAC metrics, what is the scope to push even harder?
I think that we've been continuously trying to find the right balance between growth and profitability. You know, I think that's something we've done well, and you see that reflected in our results that we've had today, where we grew very quickly off a higher base, generated a lot of cash, and we're heavily profitable. The reality is, you know, there is potential scope to grow faster, but we've been good at finding the right balance.
Yeah, and Julian, we've talked in the past about marketing investment in the 8% to 10% of sales range. And, you know, we're not... There's no change to that set of parameters at the moment. So, you know, I think over time, we may move up and down within that range, but for now, I think that's, to Dean's point on balance, that's, you know, you can see from this result that there's a huge amount of wood to chop and drive growth within that investment envelope. Yeah.
Thank you. Next question from Julian. Churns look to have dropped to below 30%. Do you expect any further falls going forward? You wanna talk to that one?
Yeah, so I don't know so much about the number that you've got there, Julian. But I think it is worth noting that we have seen a significant improvement in retention over the last 12 months, right? In a 12-month retention rate, that is. So we've seen a very significant improvement there. That is, you know, certainly been very helpful when you look at the growth profile of our active customer base. You know, we've had. We've reported the growth rate of active customers at quite a number of intervals over the last 12, 18 months. And certainly since around about this time last year, we've seen a big acceleration in that growth rate in active customers.
A big driver of that is retention rate improvement. What's driving the retention improvement? You know, underlyingly, the product and customer experience is improving, per the comments Dean made. And, you know, keep in mind as well, that the platform today, we're aggregating more than AUD 2 billion in inventory. A year ago, that corresponding number was around about AUD 1 billion. So, in that dimension, you could say the product is twice as good today as it was 12 months ago. All right? So that's very supportive of driving re-engagement from our customers once we onboard them.
Okay, the question's from Ari at Barrenjoey. You grew 80% or over 80% in Jan, similar to Q2 FY 2024. Is there any reason why this growth can't continue for the rest of the second half of this financial year?
I think, look, it's clear from the first half performance, and what we've shared on January, that there continues to be a lot of momentum in the business. So, you know, we're pretty, certainly quite optimistic about the outlook at this point. I think, you know, it's the business. Everything's in place for the business to continue to grow strongly for the rest of this fiscal year. I don't know, Ari, if we can hold that rate for the balance of the half. I think, you know, things always get more challenging as you continue to cycle larger and larger bases. Okay? So there's a kinda law of large numbers effect there. So we'll have to wait and see precisely what's possible, but, you know, we're certainly pretty confident about our outlook.
Okay, next question from Ari: How should we think about EBITDA margins in FY 2024 and FY 2025?
Ari, as you know, we don't provide guidance either at the revenue or the EBITDA level. But I think the kind of the key inputs in terms of our the arithmetic on the business, right? So, you know, in this half, we've had a delivered margin of around 23%. We've generally been at that, around about that level, if you look back at the history. Okay? And we've talked about investing in marketing in the 8% to 10% range. Okay, so I think they're two very important inputs in terms of arriving at the near-term EBITDA margin outlook.
I think certainly, you know, you'll be able to see in the numbers in this half in particular that there's clearly some operating leverage coming through on the operating cost side of the business. So that's obviously constructive as well on the margin outlook. But, to come back to Dean's comments, we're trying to get the right balance here between growing as quickly as we can, but also generating good profits. Okay? And so, you know, we're not prioritizing harvesting the business for margin at this point.
Thanks, Tim. Last question from Ari, and we are getting multiple questions on this topic, but can you give some color on what capital management may look like? Does this also consider M&A? And is there any color on timing? And sorry, one final piece. How do you prioritise these capital management decisions?
would you... I'm happy to take that one, Dean.
Yeah, you can take it.
Sure. So look, it's a good place to be in, as a business, to be able to talk about what to be doing with a large cash balance with our shareholder base. So I think the fact that this is a discussion point at this results says a lot about not just the inherent performance of the business, but that we're feeling good about the outlook. Okay? We have a business which is inherently capital light. Okay? So, you know, we can fund our growth within the, you know, at the current settings, you know, in a self-sustainable manner... So, you know, it's certainly a good development that we're able to talk about things like capital management initiatives with our shareholder base.
In terms of quantum and shape, I think it's a bit too early to say, right? We'll be engaging with the board over the next time period to be working through with more precision what things might look like. But you know, at this stage, I think there was a specific part of the question there on M&A. I think M&A is something that we will be opportunistic about. You know, it's not the top priority for us, given we have a vast organic runway. But it's not something that we have a point of principle against, so we're open-minded about that.
But as I said, we also have a business which is inherently capital light, and given our profitability, that places us in a good place to be considering what to do with any capital over and above the business need.
Thanks, Tim. Wei Weng from RBC is asking: "You flagged an increase in marketing and therefore CAC in the first half. Is the expectation for CAC to continue to rise?
You want to take that, Tim?
I don't know that we can say, Wei Weng, that CAC will necessarily increase. Okay? I think what you will see is, you know, we've talked about the overall investment envelope. Okay? So I think, you know, we're focused on investing at that overall level. We have... In this most recent half, we placed more emphasis in our marketing on traffic quality. Okay? So, or higher converting traffic, if you will. And, you know, I think associated with that, we also saw a meaningful uptick in our average order value, right? We're nudging $800 in terms of order value in this half. So I think CAC is, as a metric, it's gonna go up and down over time. We're not solving for a specific number.
But I think, you know, the ability to have or to generate higher AOVs also enables us to pay a higher CAC and still generate, you know, very, very strong returns. Okay?
Thanks. Next question from James Bisinella at Unified Capital Partners. Great to see the cash generation in large balance. Given the likely cash build into the December month, can you give us an idea of how cash is at the end of January, please?
Hi, James. I don't think that's a number that's disclosed in our release, James, but I would say that, you know, the cash in the business through the course of the year, it moves up and down with the seasonality. Okay? And generally, where we see the cash peaks are in the November-December timeframe, and then again around May and June. Okay? So, cash will move up and down through the course of the year, and we'll have those two seasonal peaks, which corresponds with the seasonal peak in revenue as well. Yeah.
Next... Thanks, Tim. Next question from Sam Haddad at Petra. Conversion is obviously lifting in your emerging markets. Can you give a sense of the further upside still at hand in conversion to get to established market conversion levels?
Look, there's still a long way to go. Have to bear in mind that we've been operating in our, you know, sort of core markets since launch, and really our emerging markets are years behind. And conversion is something that it builds up in time, right? It's also. It's in some regards also a consequence of the mix of our customers being new customers and returning. So I think as we continue to penetrate these markets, conversion will naturally grow, and we are in very, very early days, so there's still material headroom there.
Thanks, Dean. Just another question from Sam regarding China. Is there any further needed in terms to get approvals or getting the platform ready, or are you simply now just waiting for the right time to launch?
Yeah, look, now, now it's about timing. I think that... Just bear in mind we've just come out of Q4, and everyone knows how important that is in the fashion calendar. The strong result that we have here today was a consequence, as I mentioned a few times, of very laser-focused execution, and so we'll be deliberate about our timing into China. But yeah, we're almost there.
... Great. Thank you. And the last question from Sam, the Zegna relationship update, any other details on how that's progressing, please?
Yeah. Thanks, Sam. Things move pretty slowly in luxury, but I think both sides are working hard to get operational. There's been a big effort from, you know, from both companies to get sort of to where we are now. You know, it's something that we'll be able to launch with very, you know, pretty soon.
Great. Thank you. And just the last question for today's Q&A session. It looks like the frequency of returning customers increased materially in the half. Can you confirm this is the case, and is this a trend you expect to continue as users become more familiar with the Cettire platform?
Look, I don't think we've disclosed specific repeat customer frequency metrics. We have a metric in the investor presentation which shows the orders per active customer, which kind of can give you a sense of how things are progressing. What I would say is, generally, over the course of the last few years, we've seen continued growth in frequency from repeat customers. And, you know, we are obviously hoping to continue to grow that metric, but it's not something that we disclose externally. Okay?
Okay. Thank you very much. That concludes our Q&A session and brings us to the end of today's first half FY24 earnings call for Cettire. Thank you very much for joining, and have a great day. Goodbye.