Earnings Call: Q2 2021

Aug 12, 2021

Hello, ladies and gentlemen, and welcome to the BIKE24 Earnings Call for Analysts and Investors regarding the Half Year Results 2021. At this time, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to CEO, Andreas Martin Billener. Hello. Welcome to the BIKE 24's H1 earnings call presentation. Today's presenters are Tib, our CFO and me, Andres as Founder and CEO. We are very much looking forward to this call for the first time after our IPO. So let's start with the business update. It was another very successful quarter and we were able to close H1 just as successfully. We were once again able to convince many customers of our offer, both existing and new active customers grew significantly. H1 sales were €127,000,000 and the adjusted EBITDA was €18,900,000 It shows, and this is the clear message, the long term trends in our industry are intact. We have achieved our most important goals. In bikes, we grew 79% in H1 and 40% in the tech business, so that means parts, accessories In closing, compared to H1 2020, high customer demand and limited availability of parts and bikes led to an exceptionally high gross margin induced to a particularly good EBITDA margin. I would like to point out, as far as our localized markets are concerned, Spain again clearly met expectations in Q2. We grew by more than 150% compared to the same quarter of the previous year, and this is the 3rd quarter in a row With more than 150%, especially when you consider that we don't have a warehouse there yet and shipped from Germany, What a big influence the local language has. That makes us very confident for the other big countries, Italy and France. It was again an excellent performance by the whole team in what was at times A difficult situation with regards to the procurement of goods. More sales would have been possible, especially in Q2, With regard to the major part trends as well as for bikes, the basis of our business model is sufficient availability of goods. Unfortunately, this was not always possible in some areas, but our broad and deep assortment Helps to compensate for this in part, so we can almost always offer alternatives to our customers. I've been responsible for purchasing for almost 20 years, and we at Bike 24 have a lot of experience in purchasing, and that will help us in the coming months. Despite these challenges, we are currently convinced that we will achieve sales of €240,000,000 to €260,000,000 and an adjusted EBITDA of €28,000,000 to €34,000,000 for the full year. Now a few additional words on our growth initiatives, the operational excellence, bikes and Spain. First, the relaunch. The Relaunch is on schedule so far. As announced, we want to have the go live in autumn this year, an extensive testing program we have started to ensure high quality. 2nd, Spain. So site visits have been contacted in the Barcelona area. Two properties have been shortlisted for completion before the end of Q1 2022. And by the end of this summer, we want to sign the lease contract. And so far, we also expect the timely implementation for winter of 2022. That means go live the new warehouse, including the outdoor store warehouse system. The 3rd strategic initiative is bikes, traditional e bikes. So we have ordered sufficient volume for the coming season. And it's already a great success that we are able to convince many new bike brands to work with us for the coming season. As you know, that is an important element of our growth strategy, but we expect that there may be some delays in delivery here, but dividing the volume among so many brands should make us more independent. In summary, We are very satisfied with H1, Q2 results, and we are very optimistic about the second half of the year. Now I will hand over to Tim for the financial update. Yes. Thank you, Anders. And first of all, a well rounded from my side. As Anders said in the summary slide, we look back in a very successful quarter. It is the Q1 in which we had a pandemic quarter as the basis for comparison. And therefore, a strong growth takes place. From my point of view, the greatest achievement in the last quarter was that we acquired slightly more new customers than in Q2 2020. As a reminder, Qutu last year was a booster for every e commerce company. A lot of new customers used online as a preferred shopping destination and reaching the same number of new customers this year is a huge success. Together with the customers acquired in the previous year And since we activated existing customers, we were able to increase the active customer base by 42%. The repeat order rate has also increased points at hand. This is an indicator that customer loyalty at 574 Continued to be developed positively. This can also be seen on the next slide when looking at the customized economics. All customer KPIs on this slide increased. Average sales per customer within 12 months increased. Customers are ordering more frequently than the previous year and the average order value is higher. It's clear message here, our customer base is strongly growing and very healthy. As an example, the 2020 cohort It is better behavior than expected. This means the cohort is more active than in life on the behavior of the 2018 2019 cohorts. The very good development of our customer base and the customer economics has, of course, a direct impact on our revenues. In the last quarter, we were able to increase sales by 26%, resulting in a year over year growth of 44% in the 1st 6 months 2021. If you split the revenue by product segments, sales of bicycle costs increased disproportionately. Despite The growth in this segment was slowed by supplier bottlenecks. Nevertheless, the share of sales accounted for bicycles increased. In the 3rd half year, it has risen from 9% to 12% of total sales. In the Pack segment, Packaging, Parts, Accessories, Hooks, Clotilde, 524 could completely demonstrate this at Watershed. We were able to increase sales by 25% in quarter 2, on top of a strong previous year 50% growth baseline. Our Board assortment means that our customer were able to switch to alternative products in the event of supply shortages. And our procurement department anticipated supply bottlenecks at a very early stage And significantly increased stock level. That is a great job. Allowing our core market We were able to increase sales in the Parq segment alone by more than 20%. Also, we have We have an online market share of around 14%. On this slide, we go back to the product As everyone can see, the growth is driven by eBuy. Buy 24 benefits not only from the higher demand For higher quantity, we also benefit from a very high ASP. The ASP in Q2 for traditional bikes was €1800 For e bikes, it was €3,400. The clear statement here, Bite24 can fully participate The e bike trend, and it's precisely the trend that makes us so confident that we can significantly expand this segment in the coming years. With the acquisition of 6 new bicycle brands, we have laid the foundation for further growth. The revenue split by region shows that 524 can grow in all markets. I already mentioned our extraordinary performance in our core market, DACH. Please have in mind our starting point. We grew in the DACH region 64% in quarter 2 last year and have grown another 22% this year. Growth in Europe and the rest of the world is also well into double digit. And the growth rate in Spain shows that our expanding strategy On this detailed slide, you can see once again the impact of our localization measure. As a reminder, we currently offer Spanish customers only a translated website and local customer service. We believe that with the opening of the local fulfillment center, our market positioning in Spain will improve significantly. Our customers will then receive their goods within 24 to 48 hours, and we are convinced that this will help us to increase our market share significantly. Anyhow, Flight24 was able to increase the growth rate in the past quarter once again. After 150% in the last two quarters, it has normally more than 77%, and it's a positive growth. The contribution margin after cost of sales, marketing and fulfillment costs of Spain is positive. Let's now switch to EBITDA. SAIG24 generates an adjusted EBITDA margin of 14.9% in the 3rd half year. This is an all time high. Drivers of this exceptionally high profitability Our main special effects in the gross margin, high demand and a worldwide shortage of supply for bicycle products Due to exceptional high market prices, bicycle components are particularly affected. Other costs, Lines that slide we made as we expected. This includes personnel costs and other operating costs. The main driver here are key development costs. Our second segment, significantly increasing capacities in the development department was successful. This will lead to higher costs in the initial training phase. In the future, Coriant will work on the further development of the system, And we will capitalize accordingly. Other costs also include 1 off ramp up costs for the IT development department These are not included in the CapEx. In addition, new costs have been added as part of the listing process. This includes increased audit costs, quarterly revenues and tax adviser and lawyer costs for simplifying the corporate structure. I would like to point out the majority of these costs, both in personnel and in other costs, are of a nonrecurring nature, so that these items will smooth out in the coming quarters. Overall, back to the 4th can increase EBITDA by 60 3% to SEK 18,900,000 compared to the first half year of twenty twenty. The basis for the success was among other things the performance of our procurement department. They have massively increased inventory and bought everything that was available in order to have a competitive advantage. This was the basis for the strong growth in the past quarter and will help us to achieve our target for the full year 2021. The high inventory level As an impact on our free cash flow, which decreased by 8% compared to the previous period, two effects come together this quarter. Last year, there was a surge in demand. Everything we bought was immediately sold again. Future on good payment conditions, The change in trade working capital in Q2 2020 was positive. And this year, the exceptional situation in the bicycle market Made it necessary to stop products necessary. The revenue growth of 5.24 shows the success of this measure. Now that I hope have hopefully been able to give you a good insight into BioTelemetry's 4th performance, I would now like to comment on the forecast for the full year. We expect revenues between €240,000,000 €260,000,000 That means we are confident and optimistic that we continue to grow substantially in the second half of the year. Nevertheless, the outlook remains volatile, and our guidance for the rest of the year is somewhat more conservative. The reason for this is the supply chain situation in the market. As soon as the supply situation improves, We are able to accelerate growth again. The demand is very high. 2x24 is very well positioned. The turnaround date in Black Friday, November, will probably cause that the gross margin to normalize in the second half of the year. And therefore, we expect an adjusted EBITDA of €28,000,000 to €34,000,000 Before we move into Q and A, I would like to summarize. The megatrends in the bike market are still very strong And by 24, the growth drivers are also fully up and running. Our new customized machine is efficient and continues to be at a very high level. At the same time, we managed to increase average sales for existing customers. We were able to acquire 60,000,000 bike brands Despite the supply chain situation, growth rates in Spain are impressive, the localization works. For full year 2021, we expect growth between 23% 30% for the full year, On top of a very strong previous year, 45 growth baseline. Our EBITDA margin with around 13% matching last year's excellent level. With this positive outlook, I would like to close the financial update, And Anders and I look forward to your questions. The first question comes from Grace Morey from JPMorgan. Please go ahead with your question. Hi, good afternoon. This is Grace Morley from JPMorgan. Thank you for taking my questions. I have two questions, please. Firstly, on supply, could you elaborate more on what's driving the supply chain disruption you're seeing? And then what your guidance Embeds in the back half in terms of impact from continued supply constraints. And then secondly, on gross margin, You saw very strong gross margin in the Q2. What drove that strong gross margin performance? And do you expect this to continue? Thank you very much. Yes, this is Andreas. Maybe I can start with the supply chain question. So What we've heard from our industry and it was affected in the first half of the year And what we've heard that it's going forward for the second half and also we will see effects in next year It's that the supply chain is stressed, yes, because the big bike part manufacturers as Srem and Shimano, they are not able to increase volumes so quickly so quick and that's why we will see some Supply chain or that the supply chain is stressed. That's also the reason why some yes, many bike manufacturers I have some issues or challenges to yes, to build so many bicycles. That's the thing we have heard from the industry. And also when you look to the newspapers, Yes. That was affected in the second quarter and also in the half year of FY 'twenty four. And what we can point out is that we were able to sell more if we had more goods, Especially for the big bike brands and also for the big parts brands, especially the Srem and Schimmel. Yes. And that's also the reason of the drive off to very high gross margin in the first half year or in last quarter. So it was really Special situation in the worldwide bike market, so we have a very high demand from consumers. We have a very high demand From bike manufacturers to bike parts. And on the other hand, we have supply chain bottlenecks. And that means in the end that the market crisis, Especially of bike parts increased almost everywhere to the recommended retail price, and that's not a normal level. Thank you. And then perhaps just on the gross margin outlook So the back half, whether you expect that situation to normalize? Yes. So in the second half of the year, The product mix is more moving to closing. That's very important. We start with the summer sale that's mainly closing Also in November, we have a very important period of time with the Black Friday for our To acquire new customers, that's also very closing driven or also discount driven. And that's why we expect that the gross margin We'll be levering out to a normalized level. Okay. Thank you very much. At the moment, there seem to be no further questions. Ladies and gentlemen, And the next question comes from Katerina Klee from Berenberg. Please go ahead with your question. Yes. Hello. Thank you very much. I'm interested in the guidance and the implication for the second half. In the press release this morning, you said that you expect an increase in sales for the second half of double digit Percentages, but then if I look at the lower end of the guidance that would imply 7% growth year on year. I just wanted to understand how I shall think about that these 2, yes, the 2 hints or that you gave there in that sense. And then if you could comment at Tow on a monthly development in Q2, whether its revenue has picked up or growth has picked up towards the summer months, Just for my understanding how the development is there. I have a few more questions, but maybe we just take 1 by 1 or 2. Okay, sure. So maybe first of all, what I really have to repeat, that it's conservative guidance And the reason is really the supply chain. So it's voluntary. It's not comparable to other years where we really Could really deliver what we promised, so there we have to be a little bit carefully due to the supply chain reaction. And that's the reason because the lower range is a little bit below the double digit growth rate. On the other side, how the month starts. So July was a very special month. If you remember, last year, the VAT rate in Germany was decreased By 3% points, and that was really a spike in demand in July. So we still have a growth On a day to day basis, around 8% to 10%, and August starts very, very well. So we see order entry since beginning now. 3 weeks, this was also the last week of July, that was very strong, With order entries around 20%, so very good start also in Q3. Perfect. And then if you really look at Q2, how have the month performed? Actually, I can imagine that obviously there was still lockdowns in the beginning. So whether there has been any movement in growth? You mean here the month in Q3 last year or? No, in Q2, In Q2 2021. Okay. In Q2? Yes. So the different money. Yes, exactly. It was, I would say roundaboutflat growth rate. There was no significant deterioration between the months. It was really stable. And we don't see any that is going down in the last month of the quarter. So that was only in July That was the effect of the VAT reduction. Okay. Perfect. And then Can you guide us a little bit on France in Italy when you will Are you looking to launch the webcast a bit more in the first half of the year or how can we take that information? So could you repeat it, Tazal? How we what we In France and Italy in Q1? Well, no, I mean, when were you Well, that's actually also interesting, but I was more looking to understand at which part of 2022 are you looking to launch the local language website? In the Q1. Okay. Yes. So we are really we are already The translation is in progress, and we have to experience from launching the Spanish website So that's the I'm sure that it will be in the Q1. The message here is that we are here on schedule And yes, the current plans for the localization, so for both languages, French and Italian, And on the respective country domains then for the Q1, as Tim mentioned. Okay. Okay. Sounds great. And the new website front end, can we expect that to be more in store in Q3 or towards Q4 for this year? So the plan for the new website is autumn this year. We started with testing, intensive testing because we yes, what is Yes. Our website is well known for the quality and that's why we started intensive testing and when everything is ready Then we will launch it. It could be the end of Q3, but we are focusing on autumn. So It's that what we can guide autumn this year. Okay. Okay. All right. And then maybe a bit More on closing, you mentioned that the segment shift towards that or the decrease. What is your View on this, how do you plan that? Or how can we think about the development there? Yes. So what makes us confident is our actual stock level, so that we really very early anticipated supply about Next, that we really our procurement department, we are very well stocked also in the clothing department. That's also what we saw in August In the sales season, that we really have the high price. And as I mentioned before, we have order entries above 20%, and that's A big success here. So as I mentioned, so apparel clothing It's a very important part of our business. And as you know, the installed base of bicycles were sold in the Since corona began, so many new customers need parts, accessories and of course also apparel. And that's why we are looking very confident and looking forward to the yes, also what apparel Results we will see in the second half. Okay. And then maybe lastly on new customers of Q2, I think I could only see it now for H1. How many new customers did you gain in Q2 2021? And I think in general, do you expect in H2 for the remainder of the year, would you rather expect Also a very nice level of new customers coming in, you mentioned Black Friday. Or do you Think this is going to be more about the existing customers for the remainder of this year? No, both. So the number of acquired new customers was in the last quarter, it was 130,000, Yes, compared to $127,000 quarter 2 2020. And we expect and we see that in August the sales period again is really a driver in new customer It's the same. We will expect for the back Friday season in November. Okay, great. Thank you. That's all from my side. Thanks. You're welcome. Thank you. And there is one follow-up Could you maybe just speak to your On the opportunity to expand into private brands and if so, in which categories? And then also So just on kind of your localization, Shashi, I'd be interested to hear to what extent you're spending on marketing in Spain, what that ratio as a percentage of sales currently looks like and how that compares to your initial expectations of your localization strategy? Thank you. Maybe I can answer for the own brand initiatives. So we there has not been No changes. So we expect the first product till end of August. And we are Plan or we want to start with the parts segment. And Yes, that's what I can say about own brand initiative. And we are now in the plan for more products, And that's what we are planning for the coming months. And the second question was about localization, I think. For marketing, so in Spain, what we saw or what we initially our initial plans that we also presented to you during the analyst presentation and during the road show was to invest 10% of the local revenues into I think in the first year, what we did in the last quarter is about 7.6% or 7.8% marketing expenses. So below the expectation, the new customer acquisition is more efficient than expected, and we have this revenue growth rate of 170 7%. Great to hear. Thank you. That's all from me. There are no further questions. Okay. Then thank you very much from my side or from our side. Yes. Thank you for the And yes, we will for the next call. Yes, we're looking forward for the next call and Maybe we'll see you on the roadshow or at conference. Thank you very much. Bye bye.