Freightos Limited

Hi, welcome to Freydos' 2022 Fiscal Year Earnings Conference Call. My name is Eitan Buckman, and I'm the Chief Marketing Officer at Freydos. A press release with detailed financial results for Fiscal Year 2022 was released a few minutes ago and is available at freydos.com slash investors. There you can also find our investor presentation and other related material. Today, I'm joined by Steve Schreiber, the CEO of Freydos, and Ran Shalev, Freydos' Chief Financial Officer. During the call today, Tzvi will discuss key strategic and business achievements from 2022. He will be followed by Ron, who will provide our full year 2022 financial results. We will then return to Tzvi for 2023 guidance. Following the prepared remarks, we will open the call to questions. Please be aware that today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors. Please refer to today's press release and our SEC filings for more information on risk factors and other factors which could impact forward-looking statements. Copies of these reports are available online. In discussing the results of our operations, we will be providing and referring to certain non-IFRS financial measures. You can find reconciliations to the most directly comparable IFRS financial measures in the press release, along with additional information regarding these non-IFRS financial measures. We recommend using Zoom's desktop or mobile applications to submit questions during the course of the call. If you are using the Zoom client, questions can be submitted in writing during the call by using the Q&A feature. If you would like to ask a live question during the Q&A portion of this conference call, please click Raise Your Hand. If you are dialing in from a phone and not using the Zoom app, you can raise your hand to request to speak by pressing star 9 on your keypad. With that, let me please introduce Dr. Steve Schreiber, the CEO of Fritos.

Thanks, Seitan, and thank you all for joining our very first earnings call. As you can see from the results, we've had a strong year of growth and continue to execute successfully on the strategy which we presented in our prospectus when we went public just about six weeks ago. Since this is our first earnings call, let me start with a quick reminder of what we're about. At Freightos, we're digitalizing the international freight market. Global trade is about 23% of the world economy. An estimated 90% of products purchased in the West are imported. So it's a huge part of our economy and of our lifestyles. The third-party logistics industry, which includes air and ocean shipping of goods, is worth over a trillion dollars. but this vast and critical industry is surprisingly offline creating tens of billions of dollars of waste and the offline highly intermediated nature of global freight is a factor in all the supply chain problems we've experienced in recent years. At Freightos we're pursuing the same business strategy that was so successful in digitalizing passenger travel, retail and other industries. The strategy of being the vendor neutral digital platform that connects industry players. and a central function of our platform is being the marketplace that matches buyers and sellers of freight services. Now, the power of a two-sided marketplace is the flywheel effect. Buyers attract sellers and sellers attract buyers. This flywheel can create decades of sustainable defensible growth at a very low cost of growth. We've actually taken it a step further. Freightos is a three-sided marketplace, connecting carriers like airlines and ocean liners, freight forwarders, and importers or exporters. I'm happy to report that the numbers show that we have successfully created a marketplace flywheel. Although we may still be small in terms of revenue, we believe we have created the dynamics and foundation to grow fast now and to continue to grow with excellent capital efficiency for many years to come. So how do we track that growth? In common with most marketplaces, we consider the most important measure of our progress to be the volume of transactions that are booked on our platform. The two primary KPIs we will typically report on and guide on are number of transactions and the value of transactions, which we call gross booking value. The number of transactions is the purest indication that our platform is growing. Number of transactions on the Freightos platform grew 154%, reaching nearly 670,000 bookings in 2022. The value of these transactions, our gross booking value, or GBV, grew by 102%, reaching $611 million. In terms of GBV, we had a headwind in that freight prices dropped sharply in the latter part of last year. And even with that, our GBV more than doubled. So our marketplace is growing fast. We'll drill into that more later to show you why we think this is a sustainable marketplace growth flywheel. But you're probably, and rightly, wondering about revenue and profit. We earn fees on almost every transaction on our marketplace. Depending on the type of transaction, it's either a flat fee or a percentage of the transaction value. Our revenue overall grew by more than 70% year over year to about $19 million. Now we operate in two segments, platform and solutions. I would emphasize that our platform segment revenue doubled from 3.3 million in 2021 to 6.6 million in 2022, partially from acquisitions. Going forward, you'll see our platform revenue growing as the number of transactions and GBV grow, and as our monetization capabilities improve. We'll talk about the solution segment soon, but first, two important points about our marketplace. We really have excellent capital efficiency as sales and marketing spend on the platform is less than 2% of the GBV and it's trending even lower. Other marketplaces spend much more than that to fuel growth with some B2B marketplace leaders spending upwards of 5% of GBV on sales and marketing. Some marketplaces have poured billions into promotions to buy growth, but Freightos is growing its platform organically, based on buyer and seller demand, with modest spend on customer acquisition. And secondly, we have excellent unit economics from an operations perspective, better than many mature marketplaces. In 2022, we showed platform gross margin of 37% or 45% on an online IFRS basis, a significant improvement over 2021. So our platform revenue is producing a healthy gross profit, and that gross margin keeps improving. As for our second segment, our growing solutions business consists of software as a service subscriptions, data subscriptions, and related services. This is strategic in that our solutions actually support platform use. For example, freight forwarders can use our software to automate their routing, pricing and quoting to their customers. And that readies them to sell electronically on our platform. Our solutions segment doesn't have the same growth flywheel as platform, but it is growing and it's a profitable business. In 2022, we sold $12.4 million in solutions, mostly recurring software-as-a-server subscriptions, with a gross margin of 73%. Okay, so if both our platform and solutions are generating healthy gross profits, you may be wondering why we aren't yet generating a net profit and free cash flow. and the answer of course is that during this growth stage we've made a strategic decision together with our board of directors to prioritize investment in our product and in our growth. We spent over $10 million on research and development last year and almost $13 million in sales and marketing as well as G&A expenses. That's really a small investment compared to the size of the opportunity that we have and the investment is really paying off in spades. You can see the trend. Last year our gross profit grew by 67%, but our total operating expenses, excluding IPO transaction costs, only grew by 42%. Provided we continue the underlying growth, it's inevitable that our gross profit should exceed our expenses and we will become a profitable company and, as the growth continues further, a highly profitable company. So if you're invested in Freightos and are betting we become a big, highly profitable company, I think the main thing you will want to verify is that the growth of our transaction volume is sustainable. So let's drill down on our platform transaction growth. Firstly, we have seen substantial growth in the number of transactions on our platform every quarter for 12 consecutive quarters. Overall quarterly transaction volumes are up 28 times from the first quarter of 2020. In order for you to verify that we have a supply-brings-demand-brings-supply flywheel, we publish two more KPIs. The number of carriers, that is the number of air and ocean carriers selling on our platform, and the number of unique buyer-users buying on our platform, which includes the number of unique individuals at importers, exporters, or freight forwarders who are logged in and make a booking. On the supply front, we've been continuing our efforts to bring leading carriers, primarily airlines, online and to connect them to the thousands of freight forwarders on the platform. The total number of airlines on the platform reached 35 in 2022, with some initial growth in ocean liners as well. By the end of 2022, our platform boasts airlines representing over 50% of global air cargo capacity, including some leaders that are only available on our platform, like China Southern Airlines and Emirates Skycargo. I think it's a huge milestone to have airlines representing more than half of the world market available on our platform. True, the vast majority of air cargo is still booked and practiced offline, but that actually means there is still a huge growth opportunity. To give you some context, just five years ago there was zero air cargo available electronically. Moving on from supply, we continue to expand demand on the platform. The number of unique individual business users booking freight services on our platform rose from about 11,000 in the fourth quarter of 2021 to almost 16,000 in the fourth quarter of 2022. Even better, on average, each unique user placed 18 bookings in Q4 2021 and 43 in Q4 2022. That's more than double the transactions per user. In fact, there are at least five large countries in Europe where our data indicates that over 10% of all air cargo shipments are booked on WebCargo by Freightos. So, the marketplace flywheel is alive and well, supply is attracting demand, and demand is attracting supply. Finally, a word about the state of the freight industry. Freightos has actually become a leading publisher of indexes for the freight industry, so we're well positioned to comment on industry trends. We publish the FBX index of containerized shipping rates. You can find FBX on your Bloomberg screens. You can even trade futures of the FBX index on the CME and Singapore's SGX. Or you can see more granular data at data.freightos.com. The headline FBX Global Index is down more than 80% from a year ago. FBX01, the Bellwether Trans-Pacific Index, is down a staggering 94%. Afratos Air Index, FBX Global, shows that air cargo prices are also down some 25% from the market a year ago. In addition to prices being down, volumes are down too. Now, to a large extent, this massive adjustment is simply a reversion to pre-pandemic prices and volumes, but it still represents a dramatic drop in price levels and a drop in volume too. So I think it's a wonderful testament to the strength of our platform that we're able to project strong growth this year, even in an industry which is going through a contraction cycle. And with that, let me hand you over to our CFO run, after which I'll be back to talk about 2023 briefly.

Thanks to you and thank you for everyone joining our first annual report. One thing that is clear from what we discussed is that we demonstrated our capability to scale in a capital efficient manner. One of my main focal point as a CFO of Freightos is to ensure that every single metric in every department is trending towards more efficiency as we scale. Pretos is unique in the international freight tech sector in that we're a scalable platform, not a logistic provider, which allows us to scale without massive headcount increases. And we are unusual compared to many platforms in that We are scaling to capital efficient growth rather than in buying market share. By continuing with these principles and always driving for economies of scales, we ensure that we become highly profitable once we reach a certain scale. Here's a brief overview of our 2022 annual results. Revenues for 2022 was $19.1 million, an increase of 71.7% year-over-year, or 76.2% on a constant currency basis. This growth includes an integration of two businesses which we bought, Clearit and 7-Ed Freight, which we acquired at the end of 2021 and early 2022, as well as organic sales slots. Our IFRS gross margins were 58.8% compared to 58.7% in 2021 and our non-IFRS gross margins were 65.2% compared to 60.5% in 2021. These improved margins are a product of our economies of scales and constant drives for efficiencies through automation. Our adjusted EBITDA in 2022 was negative $14.6 million compared to negative $12.4 million in 2021. As a proportion of our revenues, this is an improvement from negative 111% in 2021 to a negative 77% in 2022. That is another indication that as we scale, we are constantly trending towards profitability and positive free cash flow. I want to assure you that we are managing our expenses very carefully and we expect to reach profitability with the cash we already raised. Let me hand back to Zvi to give some more context for our 2023 guidance.