27/10/2022 - Q3 2022 4C
Highlights:
- Q3 2022 net revenue of €100m, +26% growth year-over-year (+13% growth in constant currency)
- Global Contribution Margin (CM) in Q3 at 28.8%, up 160 basis points (bp) vs. the previous quarter and 70 bps better than the previous corresponding period (PCP)
- Q3 Operating EBITDA loss of €(1.0)m, an improvement compared to the previous quarter (€(3)m) and the PCP (€(13)m)
- US and Australia both delivered positive Operating EBITDA in the quarter; initiatives under way to turn EU to profitability
- Operating Cash Flow at €3m, including foreign currency tailwinds, and quarter end cash balance of ~€22m
- On track to deliver full year 2022 guidance
- Q4 22 Operating EBITDA expected to be profitable, €2-4m
Guidance is re-affirmed:
- Mid-to-high teens YoY net revenue organic growth plus full year contribution from Chefgood
- Contribution Margin in-line with 2021
- Operating EBITDA better than €(15)m
My comments on previous quarter (Q2) guidance vs Q3 results:
Q2 guided for “H2 Operating EBITDA expected to be breakeven” which seems to be on track with Q3 Op EBITDA only slightly negative at -1m (-0.1%). Means Q4 Op EBITDA will need to be at least slightly positive, which they have guided for in Q3 4C at 2-4m for Q4. If that happens it means they’ll handily beat their full year guidance of Op EBITDA of better than -15m. Current YTD Op EBITDA is -13.7m, so forecasting to end up on -11.7 to -10m for the full year. That would be a good result IMO.
Q2 also guided for “Continued growth at lower levels of marketing spend” and this hasn’t gone quite as well. While, positively, marketing spend as a % of revenue is down QoQ and YoY, revenue for the quarter unfortunately went backwards, declining by 8% QoQ, the first QoQ decline since Q3CY21 and the largest ever decline.
So the question still remains, can they continue to grow revenue while reducing marketing spend as a % of revenue?
This also calls into question their ability to hit their 2025 target of 1 billion EUR in revenue, given YoY growth of only 26%.
Once Full Year results are out in February I will need to reassess my valuation based on their ability (required growth rate) to hit $1 billion in revenue in 2025.
My comments on Q3 4C:
Overall mixed results for Q3 with good bottom line performance but a drop off in top line.
On the positive side:
- Improved CM% QoQ and inline with yearly guidance (29%)
- Marketing spend was down QoQ and YoY, both in absolute and % of revenue terms
- Op EBITDA loss of only 1mEUR, the smallest since the COVID boosted year of 2020
- Positive EBITDA in both USA and AUS for second quarter in a row
- Positive Operating cashflow of 3mEUR, best quarterly result since 1Q21
- Free cashflow of 0.327mEUR, first ever quarter of positive free cashflow
On the negative side:
- Revenue down 8% QoQ to 100mEUR and lowest quarter of revenue YTD
- Revenue down QoQ across all regions
- Increase in G&A costs QoQ and YoY, both in absolute and % of revenue terms
- Active subscribers down 11% QoQ (Q3 does seem to be a seasonally weak quarter)
- Active subscribers down across all regions and lowest YTD
While the positive OCF result was pleasing, it was driven almost entirely by reduction in marketing spend with other payments broadly flat.
The result also seems boosted by timing of payments with receipts from customers higher than quarterly revenue and payments less than reported costs. So I would expect a return to negative OCF next quarter.
The drop in revenue and active subscribers is concerning, particularly given how large it is.
Is the lower marketing spend leading to a drop in revenue? Can they continue to grow revenue while reducing marketing costs as a % of revenue? Or will revenue continue to decline inline with reduction in marketing spend?
The next quarter will tell!