Freightos Limited

Welcome to Fritos' Q2 2023 Earnings Conference Call. My name is Eitan Buckman, and I'm the Chief Marketing Officer at Fritos. A press release with detailed financial results for Q2 2023 was released earlier today and is available at fritos.com slash investors. Today I'm joined by T. Schreiber, the CEO of Fritos, and Ron Chaleb, Fritos' CFO. Following the prepared remarks, we will open the call for questions. We are sharing slides during the call, so we recommend using Zoom instead of dialing in by phone. The slides, as well as a recording of this earnings call, will be available on the investor relations section of our website shortly after the call. Please note, we have recently launched a new investor website that also includes the opportunity for a period of complimentary access to Freitas' data product, Freitas Terminal, which you will see later in this call. We encourage everyone to have a look at Freitas.com slash investors. Moreover, please note that on September 7, our CEO, Itzvi, will participate in the TD Cohen Global Transportation Conference in Boston, and on September 12, in the H.C. Wainwright Global Investment Conference in New York City. 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 result 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, along with additional information regarding those non-IFRS financial measures, in the press release on our website at Fredos.com slash investors. The company takes no obligation to update any information discussed in this call at any time. As I mentioned, we recommend using Zoom's desktop or mobile application 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 in Zoom. With that, let me please introduce Dr. Tzvi Schreiber, the CEO of Rados.

Thank you, Eitan, and thanks to everyone who's joined. We're pleased to report continued growth in Q2 and significant progress in our mission to digitalize global freight and to make buying and selling of freight services smoother and more efficient for importers, exporters, carriers, and freight forwarders. Total transactions booked across our platform grew 59% year-on-year in Q2, reaching 239,000 transactions, a run rate of almost a million transactions per year. This growth is driven by a number of factors. The first is persistent use by existing users who place the majority of our bookings. These cohorts of users continue to demonstrate strong retention and growth. In fact, the cohort of users who first placed bookings on FreightOS platforms in early 2021 are now doing well over 10 times more bookings per month. Liquidity growth also comes from the supply side. For example, during Q2, both China Eastern Air and Widero went live, while LATAM, Qatar, Avianca, and Emirates expanded the range of air cargo services offered via WebCargo by Freightos. These ongoing expansions continue to grow platform transactions significantly. For example, one major airline partner who has worked with us for over a year still saw transactions grow by over 25% quarter-on-quarter. The second factor in the growth is unique buyer users. Over 16,400 unique business users booked shipments via the Freitas platforms in the quarter. The growth in demand continues to attract more sellers, who in turn attract new buyers, creating a sustainable flywheel growth dynamic. This network marketplace effect is core to our growth strategy and our ability to capture the vast market opportunity which is still ahead of us. We believe that our ongoing investment in product development is also supporting the expanded usage by existing customers and the attraction of new customers. One example is our newly launched airline dashboard, which provides valuable analytics to carriers, leveraging our vast market data to help them optimize pricing, improve conversion rates, and to help them be more agile in updating their airline cargo services. Another important innovation is interlining booking, where one airline purchases cargo services from another. Interlining is similar to code sharing in passenger travel. It's quite common in cargo, but shockingly inefficient. We recently announced the world's first digital cargo interlining booking on a third-party platform, with a test shipment on WebCargo by Freightos by Qatar Airways Cargo on an ITER Airways flight. These are early days, but we're excited that using our interlining technology to combine cargo airlines in thousands of new permutations will unlock new unique supply for our thousands of freight forwarders globally, improve aircraft capacity utilization, broaden the global coverage available on work cargo, and create all kinds of new businesses opportunities for us and our customers. As you all know, the freight market is going through a significant cyclical downturn this year. Let's take a quick look at the industry conditions that form the backdrop to our results and projections, and we'll do that using data from our own Freightos Terminal product. First, on a broader industry level, ocean freight rates from China to the North American West Coast, tracked by our Bellwether FBX01 index, finally saw a small increase in the first half of August, but are still down more than 90% from their peak. At the same time, rates have begun to rebound since mid-July, up $500 per 40-foot container. As we get closer to the holidays and enter the typical shipping peak season months, volumes to the U.S. are projected by the National Retail Federation to increase by 6% between July and August and be slightly above 2019 levels through the peak season months. Asia to North Europe trade, demand increased 3% for the year from June 22 to this June, though it was down year on year for the entire quarter. Despite sluggish demand, carriers were able to keep rates at about 2019 levels, which are $1,300 to $1,400 per 40-foot container. Moving from ocean freight to air cargo, rates are being pushed down by the combination of lukewarm demand and increasing capacity, and the increased capacity is largely due to passenger travel recovering. Many passenger planes do have cargo capacity as well. A significant rebound is not expected at least until air cargo's typical peak season, which is in Q4. The latest IATA data from June does show volume improves slightly relative to May, but still 3% lower than last year. Air cargo rates have fallen. Our global Freight of Air Index, FAX, is down 55% from its peak. FAX for Asia to Europe is down 48% from a year ago, while Asia to North America rates are 43% lower. And transatlantic price is 44% lower than last August. However, unlike ocean, air cargo rates are still above pre-pandemic levels. All these market conditions were an important factor in our decision to initiate the Organizational Efficiency Plan we announced in July to ensure we're on track to reach profitability on our existing cash reserves. This plan saw us significantly reduce spend while barely compromising our investment in both high growth and profitable offerings. Just to recap, we regrettably reduced headcount by 50 employees, approximately 13% of the team, and focused our growth efforts on the platform business for carriers, freight forwarders, and enterprise importers and exporters, together with ongoing investment in our solutions business, which comprises software and data subscriptions. As I mentioned, global freight rates in Q3 appear to be recovering slightly. Higher freight rates could positively impact our business in two ways. First, in the portion of our business where we're paid a percentage of the transaction rather than a flat fee, higher rates do increase our revenue. Second, higher rates mean more revenue for freight forwarders, which should make it easier for our customers to spend money on new solutions. Having said that, despite the strong booking volumes, we're still in the early days of digitalizing the freight industry, and therefore measure our success by transaction growth more than by platform monetization. To summarize, we believe that we're on track to digitalize one of the largest offline industries in the world. If we look at one of our core lanes, for example, European air cargo exports, while industry volumes in June dropped slightly year over year, our booking volumes on those lanes grew by over 40%. Similarly, June data shows a 6.5% dip in North American export air cargo compared to last year, while RE bookings grew a strong 70% year on year. This shows that demand for our innovative solutions is strong, with the efficiency and transparency we offer winning over cyclical industry conditions. As a pioneer in digital freight platforms, we command a strong market leadership and are well positioned to continue to benefit from this demand. And still, only a fraction of the global freight industry is online, so we're only scratching the surface of this market's potential. The team and I are excited to continue to scale Freightos as a sustainable and capital-efficient business. We have a positive trajectory, outstanding growth signals, and the people and resources we need to deliver. Let me now hand it over to our CFO Ron to discuss our Q2 results and Q3 guidance.

Thanks, Tzvi, and good to see everyone. I'm pleased to review our Q2 23 quarterly results. Revenues for Q2 23 was $5.1 million, down 1.3% compared to Q2 of 22, or 2.6% on a constant currency basis. Our IFRS gross margins remained excellent at 7.3%, compared to 59.6% last year, with the non-IFRS gross margin stable at 65%. Gross margins reflect a mix of our very high solution segment margins mixed with a somewhat lower margin in our platform business segment. Over the long run, we expect gross margins to increase as our transactional platform business matures. Adjusted EBITDA in Q2-23 was negative $5.3 million compared to a negative $3.6 million in Q2-22, primarily due to the cost of being a public company. Perhaps a more meaningful comparison is to Q1-23, our first quarter as a public company, when adjusted EBITDA was negative $5.8 million, as I mentioned in our last quarter. The quarter-over-quarter improvement reflects both the efficiency plan announcement in July, as well as our constant emphasis on efficiency. We believe we will grow transactions across our platforms to between 1 million transactions a year. As industry rates remain low with 5% and 13%, we are pleased to be able to achieve such growth rates on a lean cost structure, particularly in light of the broader market conditions. Combined with our operation efficiency band, as well as our high end stable growth margins, we are anticipating adjusted EBITDA losses of $5.1 to $4.5 million. As industry rates remain low, we anticipate gross bookings value will add up to $146.5 billion and $156.5 billion. Marketplaces thrive on liquidity, so transactions are the north-south of our platform segment. We continue to expand our market share by growing both our supply and demand, while enhancing our underlying platform. The majority of our transactions are still monetized on a fixed-fee basis, which we are increasing gradually as we increase the value delivered to our partners. The fixed-fee structure may reduce our short-term revenues, our growth, but it also ensures that our revenue is less exposed to cross-bordering value fluctuations. In our solution business segment, revenue is typically recurring and high gross margins. Beyond revenue, we've also found that our software and data businesses strongly support acquisition and retention of users responsible for transactions. This powerful strategy is known as SaaS-enabled marketplace. As for our full year guidance, we are reiterating our previous expectations. The figures are presented in the press release and on this slide. Let me pass it back to Zvi for some remark before we take some questions.