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spk04: Good day and thank you for standing by. Welcome to WISH's third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's prepared remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. I would now like to turn the conference over to Randy Chirago, WISH's Vice President of Investor Relations, please go ahead.
spk07: Hi, everyone, and welcome to WISH's third quarter 2022 earnings conference call. I am Randy Chirago, VP of Investor Relations, and joining me today are interim CEO, Joe Yan, and our CFO and COO, Vivian Liu. Today's prepared remarks have been prerecorded. There's also a slide deck that has been posted to our IR website, which is available for your reference. Once we are finished with Joe's and Vivian's remarks, we will hold a live Q&A session. The remarks made today include forward-looking statements that are related to, among other things, our financial expectations, business and turnaround plans, the turnaround timeline, consumer experience and engagement, expectations regarding merchant relationships and strategic partnerships, the potential impact of our strategic marketing and product initiatives, including ad spending and the rebrand, and the anticipated return on our investments and their ability to drive future growth. Our actual results may differ materially from the results implied by these forward-looking statements if certain risks materialize or assumptions prove incorrect. Forward-looking statements involve risks and uncertainties, which are described in today's earnings release and our periodic reports filed with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we will present both GAAP and non-GAAP financial numbers and metrics. A reconciliation of our non-GAAP to GAAP results is included in today's earnings release, which you can find on our investor relations website and which is also filed with the SEC. A replay of this call will be posted to our investor relations website. I will now turn the call over to our WISH's interim CEO, Joe Yan.
spk01: Thank you, Randy. I would like to thank everyone for joining our third quarter 2022 earnings call. This is my first earnings call since I joined WISH two months ago. I'm excited to be part of the Wish team at this important moment in the company's evolution. I joined Wish as I see tremendous growth opportunities for the company as one of the world's largest mobile e-commerce platforms. Wish's vision is to unlock the vast potential of e-commerce for underserved, value-oriented consumers around the globe. I believe that Wish is uniquely positioned to capitalize on the growth where cross-border e-commerce and the emerging trends in social commerce intersect. Today, I will start by highlighting some of the major accomplishments by the team. My observations on how the macro environment conditions are affecting Wish. Then share our Q3 financial highlights, followed by updates on the foundational pillars of the business. Vivian will then comment on our operational efficiencies. provide a deeper dive into our third quarter financial results, and share the fourth quarter guidance. Lastly, I will provide additional closing remarks before opening up the call to your questions. Stepping into the interim CEO role two months ago, I was immediately impressed by how much the Wish team has done in strengthening the foundation of Wish over the course of one year. Improved app experiences, reduced shipping time, and improve on time delivery rate, adopt a new pricing practice for buyers, implement new commission structures for merchants, launch a rebrand campaign, relaunch our women's fashion category, and the list goes on. Many of these foundational fixes are in full swing, improving buyer experiences on the Wish platform and deepening our relationships with global merchants. We have received positive feedback from both of merchant and the buyer communities, reflecting by our improved customer NPS and the merchant NPS results this year over last year. At the macro level, we experienced a higher level of economic uncertainty that emerged in both of North American and our European markets, which we believe to have impacted consumer buying behavior. Our value-oriented consumers, particularly in Europe, have been impacted by the dramatic rise in energy costs, which translates to a slowing of discretionary spending across the region. We expect this uncertainty to continue, potentially impacting our buyers' behaviors in the upcoming holiday season and even into 2023. During these challenging economic times, we will remain committed to our value-oriented consumers who seek out the Wish shopping experience to get more for their money. At this time, I will share some high-level financial highlights for the third quarter. Total revenues were $125 million, down 66% from the third quarter of 2021, mostly driven by lower ad spend and our new pricing practice, which was fully effective in Q3. However, I'm glad to know that our order volume grew from Q2 to Q3, the first sequential quarterly growth since Q1 2021. Our adjusted EBITDA in Q3 was a loss of $95 million, which was favorable compared to our previous guidance of a loss of $110 million to $130 million. Our balance sheet remains healthy with a balance of $837 million of cash. cash excellence, and marketable securities, and no short-term or long-term debt. I will now quickly highlight some of the progress we have made on two of our foundational pillars, improving the consumer experience and deepening merchant relationships. Over the past 12 months, we have made tremendous investments to upgrade the mobile app, improve listing quality, reduce delivery time, and enhance customer services and better address our buyer standpoints. Those improvements were first reflected in customer NPS results. As previously shared, we have seen customer NPS improve compared to last year. Next, we have seen significant improvements in refund and order consideration rate. Our monthly customer refund rate have fallen 34% from January to September of this year. And the customer order considerations dropped 68% within the same time period as well. I would also like to update you on our relaunch of Women's Fashion offering, which was started in mid-August. The new experience is now available across both Android and iOS platforms. Data so far shows that both add-to-call rates and average order value are improving within the new Women's Fashion experience. We also now have over 2,700 women's fashion merchants onboarded in this experience, providing a wide range of over 160,000 women's fashion garments and accessories to our consumers. As we continue on our path to improve the customer experience, we will focus on the areas that enhance the ease of use, interactivity, and the entertainment value of the platform. One example is our new logout experience. Under this new design, consumers on iOS, Android, mobile, and the desktop web will no longer be required to download and install the app and create a new account in order to browse the products available on Wish. We have made great strides in deepening and enhancing our merchant relationships. Throughout the year, the Wish standards program continue to improve the quality of merchants and the listing on Wish. We also enhance the transparency in our pricing practice with both our buyers and merchants globally. Additionally, we began implementing a new commission structure in Q2 to align with the industry practice and to bring greater priority and the more competitive commission rate to our merchants. We roll out new rate cards for European markets in Q2 and successfully complete the global launch by deploying to the rest of the world, including US, in Q3. We now also offer our merchants more tools to merchandise their products on Wish. We already have banners, collections, and storefronts, but we'll be adding in certain markets as dedicated deals hub where merchants can showcase their products even more. During the month of November, we will be running every day is Black Friday campaign, where we will have daily deals and weekly fresh sales for our popular categories, such as electronics, accessories, home, toys, gifts, and fashion. For the month of December, we will continue to run daily and weekly holiday sales. We intend to partner closely with our merchants in providing great value and satisfying holiday shopping experiences to wish customers. At this time, I would like to turn the discussion over to our CFO and COO Vivian Liu to discuss our operations as well as our third quarter financial results in more detail.
spk02: Thank you, Joe. First, to comment on the third pillar of achieving operational excellence, we believe that our competitive logistics offering is a critical differentiator to our global merchants. Therefore, we are committed to improving our logistics operations in terms of time to door and on-time delivery rates. During the third quarter, we overcame multiple COVID-related lockdowns in China. The average time to door in five of our major markets has improved by five days since the beginning of the year. Our on-time delivery rate was around 92% in the third quarter, an improvement from approximately 80% during the third quarter of last year. We're also taking steps to expand our merchant base outside of China. In Q3, we officially launched our merchant operations in Vietnam. with a highly capable and driven team on the ground. We will continue to expand and strengthen our merchant bases in Europe, Southeast Asian countries, and America. Over time, we expect this initiative to enhance our product variety in categories important to wish and reduce our reliance on any particular country for merchandise supplies. Now, I would like to discuss the financial results for the third quarter of 2022. I will also be providing adjusted EBITDA guidance for the fourth quarter. In Q3, we had 24 million monthly active users, MAUs, and 16 million last 12-month active buyers. which was a decline of 60% and 65%, respectively, year over year. This decline was mainly driven by the cumulative reduction in marketing spend over the past year. Our total marketing spend during the past four quarters, Q4 2021 through Q3 2022, was approximately 85% lower compared to the marketing spend of the four quarters prior. Marketing spend was the most important driver of our top-line performance from a year-over-year standpoint. We noticed that the decline in MAUs has started to stabilize. Further, Q3 was the first quarter since Q1 2021 where our MAUs increased quarter-over-quarter. As Joe mentioned earlier, order volume also increased in Q3, the first sequential quarterly growth since Q1 2021. We're cautiously optimistic that over time, more operational metrics will show similar improvement. Total revenues in Q3 were $125 million, a decline of 66% year-over-year. The decline was across core marketplace, product boost, and logistics. The revenue performance was attributable to lower marketing spend, as mentioned above, and the new pricing practice implemented throughout Q1 and Q2 this year. As communicated during the previous earnings calls, we expected those pricing changes to drive a better customer engagement and the pricing transparency with our merchants. But for the near term, it creates downward pressure on both revenues and profits. Q3 was the first quarter where the new pricing practice was fully effective at a global scale. Thirdly, we believe that the high inflation rates and the market uncertainty in most of our buyer markets particularly the European market, also contributed to the revenue decline year over year. Q3 growth profit was $34 million, a decline of 80% year over year. Growth margin was 27% versus 45% in Q3 2021. The growth margin decline was driven by the aforementioned pricing changes as well as the logistics business, which has a lower margin, now contributing a higher percentage to the total revenues. Total operating expenses were $162 million in Q3 2022, a reduction of 30% year-over-year from the $230 million in Q3 2021. Net loss was $124 million, compared to a net loss of $64 million in the third quarter of 2021. Our Q3 adjusted EBITDA was a loss of $95 million, compared to an EBITDA loss of $30 million from Q3 2021. The EBITDA performance year-over-year was mainly driven by the movement in the revenues and the growth profits described earlier. However, the Q3 2022 EBITDA result does compare favorably to our guided loss of $110 million to $130 million. The more favorable EBITDA outcome versus our guidance was due to lower than expected marketing and outside services spend, as well as higher than expected gross profit. Our Q3 free cash flow was negative $100 million, a significant improvement from a negative free cash flow of $344 million in Q3 2021. We ended Q3 with $837 million in cash, cash equivalents, and marketable securities with no debt. Now turning to our outlook. we expect adjusted EBITDA to be a loss in the range of $90 million to $110 million for Q4 2022. As a reference point, our estimated revenues in October 2022, the first month of Q4, is expected to be flat or slightly down when compared to our revenues in July 2022 the first month of Q3. As the global economy continues to experience uncertainty due to geopolitical risks, high inflation and interest rate hikes, we will remain focused on operational efficiency and unit economics. Building upon the much-strengthened WISH Foundation and with a strong sense of urgency, we're actively working to acquire and to retain customers more efficiently, drive organic growth and improve the lifetime value of our core customers. Before attending the call back to Joe, I also like to address another topic for investors. On October 28th, 2022, we received a letter from NASDAQ that we were in non-compliance with the NASDAQ listing rule that it requires listed securities to maintain a minimum bid price of one US dollar per share. The company has been provided 180 calendar days or until April 26th, 2023 to regain compliance. The management team will be considering a number of alternatives. including the possibility of reverse stock split to bring the company back into compliance with the NASDAQ listing requirements. We remain committed to creating shareholder value, first through the successful execution of our turnaround plan and developing a strategic path to long-term sustainable growth and profitability. Now, I will hand over the call to Joe for his closing remarks.
spk01: Thank you, Vivian. To close, I will leave you with a few final thoughts. During the past two months, I have been able to assess the situation, draw up plans, and begin to drive execution. I was able to keep the ground running since I was previously at Wish as VP of Merchant Services in 2020. And I have spent most of my career in operations of e-commerce companies. So I would like to share a few notes with you that are based upon what I have seen this last two months as interim CEO. First off, it's a simple fact that 10 rounds are hard. I have met with all of our teams and am tremendously impressed with the dedication everyone has shown to make this 10 rounds successful. What I have seen over and over is that which employees have been making tough decisions over the last year to make sure we are building for long-term success, implementing simplified pricing, changing the commission rate structure, and significantly reducing our ad spend, with difficult decisions that we are clearly reflected in our short-term numbers. But those fundamental changes have also set us up with a strong foundation for us to leverage for the next stage of the turnaround. What's ahead of us is to use this platform now to accelerate our pace of innovation and to drive the product toward our mission. Buckings made fun, Discovery made easy. That's why I'm excited. Discovery is a completely different approach to solving search and the relevancy in e-commerce. It's like more in real life. We take people who have a general intent to purchase something and inspire them to build a basket of interesting items that delight them at a reasonable price. This is a fun experience for buyers and offer costs. We are working hard to make this more fun with gamification and incentives. This is also fun for which employees to build as we are a technology company and the list is cutting-edge data science and the personalization at scale, along with bold user experience and design innovation. Where I'd like to end my discussion today is to highlight what my focus will be for the next several quarters. My plan is to build much stronger operational muscle across all of our teams. Our vision is amazing, but that is not where we need to focus. What we are going to fight for inch by inch is making sure that we can drive business results using all of the tools and the capabilities we have built or can build as a technology company. This is what I jointly wish to do, and I invite all of you to join me as we push forward with the transformation of this company. At this time, operator, could you please open the call for analyst and investor questions?
spk04: As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile a Q&A roster. And our first question comes from Kunal Madikar with UBS. Please go ahead.
spk05: Kunal Madikar Hi. Thank you for taking the question. A couple, if I could. One could be on the GMV side. So you saw an uptick in MAUs and you saw an uptick in order volumes. I get that the commission rate is maybe lower now, but what was the GMV trend on a Q-by-Q basis, if you could get a sense of that? And the second thing is, you spent $80 million in marketing. and you generated 40 million of core marketplace revenue, that's 2x the revenue. So can you help us understand, you know, where that marketing spend went, how much of that was, you know, brand and rebranded, rebrand building versus, you know, performance marketing in order to help us understand what's happening with the marketing spend? Thank you.
spk02: This is Vivian Liu. Thank you very much for the question. So first on the GMV, we don't share a lot of details on the GMV at this time, but what I would concur on your comments is that the GMV was impacted by the pricing change that we implemented first half of the 2022, which was fully effective for Q3. So when we, as previously shared, when we changed our pricing practice, which is mostly to simplify and, you know, to be more in compliance or consistent with the market of practice, that was expected to drive downward pressure on the revenue and the GMV as well. So, you know, GMV certainly was impacted by that. But going forward, you know, this will be the – it's already implemented, you know, since Q3, and going forward, this will be a constant factor in our GMV performance and our revenue performance. Your second question is about the marketing spend. Again, it's a detail of how much we spend on performance marketing versus rebranding. That's a detail level we don't disclose. But it is true that the total marketing spend that you see in the financials includes both. And we started our rebrand campaign two, three, and it will actually continue throughout two, four. And obviously, it's very hard to quantify how much GMV is driven by the rebrand marketing. Usually there's a delay effect of the rebranding marketing. But we do believe that it's the right thing to do and convey the new image of the wish and drive the brand awareness and customer acquisition, all that. Having said all that, I do agree that we have done a lot to improve the efficiency of ad spend overall. And we will continue to do so. And it's a very high focus for us to make sure that wherever we spend the ad dollar, whether it's digital or non-digital spend, we make sure we spend on the areas that provide a higher return for the dollar. So we will continue to focus on marketing efficiency for the foreseeable future.
spk05: Thank you.
spk04: Thank you. One moment for our next question. And our next question comes from Laura Champagne with Lube Capital. Your line is open.
spk00: Thanks for taking my question. I'm a little confused at the spread between marketplace revenues and logistics revenues. I did not expect the logistics revenues to outpace marketplace. What's driving that dynamic and how... With that in mind, the comments that, where I think that GMV in October was flat or slightly down versus July, is that true? Or are you talking about overall revenues?
spk02: Yeah, so thank you for the question. First, on the logistics versus the core marketplace. So there are drivers that can be impacted both, such as volume, right? And I think, as Joe mentioned, I mentioned as well, Q3 to Q2, we actually experienced an increase in order volume. So that's a tailwind for both core marketplace revenue and logistic revenue. However, the pricing changes that we mentioned earlier, that has much more impact on the core marketplace revenue versus logistics, because that's a change in the pricing practice that mostly impacts on the product price on the platform. and with very little impact on the logistic revenue. So that's the main reason why the logistic revenue performed a lot stronger than the core marketplace revenue in Q3. Again, as a reminder, we started to implement the pricing changes in Q1 and Q2. And Q3 was the first quarter where the new price is fully effective globally. So this is the first quarter where we see arguably major impact on the core marketplace revenue for the first time. I'm sorry, can you repeat the second question if you don't mind?
spk00: Sure. The question was about the spread between logistics versus marketplace and And really, when you talked about the trend in October being flat to slightly down versus July, are you talking about total revenues or is that GMV?
spk02: Oh, sorry. I was talking about total revenue. That's a comment on the total revenue, October versus July.
spk00: Okay. Would you expect longer term for logistics revenues to be higher than marketplace revenues? Yes.
spk02: We expect longer term, you know, net of all the pricing changes and the changes in the commission structure, you know, which impact more on the core marketplace versus logistics in the near term. Now, longer term, we expect both to be highly correlated with the volume on the platform. So, as we continue to improve user experiences and, you know, the overall platform features And as we continue to drive volume, we expect both to start to show much stronger momentum, both core marketplace and the logistics.
spk00: Thank you.
spk04: Thank you. And if you would like to ask a question, please press star 1 1. Please stand by for our next question. And our next question comes from Michael McGovern with Bank of America. Your line is open.
spk06: Hi, this is Steven McDermott for Michael McGovern. I was just wondering, on the last call, you mentioned about aggressive recruitment. Three months later, the macro has only deteriorated further. So how should we think about managing G&A and costs in the last quarter and going into 2023?
spk02: Thank you. Thank you for the question. So we have been working very hard on managing our GNA and marketing, just general all that. And I think if you recall, at the beginning of the year, we not only reduced our marketing spend pretty aggressively, we also announced the limited restructuring on the workforce, and we reduced our headcount by 18%. So, and I think a lot of people hear the news in the marketing, you know, in the past few days, and as a company, we were actually ahead of the curve. And over the year, we have managed our employee expenses pretty efficiently and effectively, and that stays pretty low. But in some of the critical areas, we do need to recruit and attract high-quality talents because at the end of the day, we are a high-tech company and we continue to drive innovation and build important product features for the customers and our merchants. So we will continue to be very, very focused on cash flow optimization, cost attainment, operational efficiency, and that's why in my preparative remarks, we highlighted all the three things, and unit economics, that will continue to be our focus for 2023. But we started this journey arguably a lot earlier than many other companies, and we'll continue to focus on efficiency.
spk06: Great. And then if I could add another question. How many points of pressure do you guys estimate the pricing changes affected revenue? And how should we think about comps going forward? I know you said it started in Q1, but just kind of like the magnitude of these pricing changes. Thank you.
spk02: Yeah, thank you for the follow-up question. It really varies by product category and also even product level. It was a pretty complex pricing practice we had before, which was why it was, you know, to some extent it could be a little bit confusing to the buyers and the merchants, which was the reason why we simplified it and made it more straightforward, transparent, and, you know, to improve the user trust and engagement of our merchants. So it was a long way of saying it's hard to quantify, but it's very, I would say it's very material impact overall. If you look at what we did in the first six months, 2022, and the impact is definitely material. As I said, Q3 is the first quarter where that new pricing practice is implemented globally. And going forward, it will be consistent, but if you compare, you know, our Q3 and Q4 performance to last year for uses before we started this change, it would be apples to oranges, you know, in terms of top-end performance.
spk06: Got it. Thank you. Appreciate it, guys.
spk02: No problem.
spk04: Thank you. And as a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by momentarily. All right, this concludes the question and answer portion of today's call at this time. I would like to turn the conference over to WISH's CEO, Joe Yon, for closing remarks.
spk01: Thanks everyone for joining our earnings conference call and we look forward to talking to you throughout the quarter.
spk04: Ladies and gentlemen, this does conclude today's conference call. You may all disconnect and have a wonderful day.
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