Q2 2024 Earnings Roundup: Mixed Results and Future Outlooks

Earnings call: BARK reports strong Q1 results, optimistic outlook By Investing.com

In their first quarter fiscal 2025 earnings call, BARK (NYSE: BARK), the company behind the popular BarkBox subscription service for dog owners, reported a significant improvement in financial performance. The company exceeded revenue expectations with $116.2 million and showcased a record high gross margin of 63%. Despite reporting a negative adjusted EBITDA of $1.8 million, this represented a 76% year-over-year improvement. BARK's new leadership team was credited with driving growth through increased BarkBox subscribers and expanded marketplace sales, including Amazon (NASDAQ:AMZN). The launch of BARK Air and a partnership with Chewy (NYSE:CHWY) were among the strategic moves contributing to the company's momentum. With a solid balance sheet, including $118 million in cash, BARK is optimistic about returning to growth in its B2C segment and achieving profitability and positive cash flow in the full fiscal year. BARK's earnings call underscored the company's strategic initiatives and the positive impact of its new leadership. With a strong emphasis on growth through partnerships and an improved online presence, BARK is positioning itself for a sustainable and profitable future. The company's efforts to enhance shareholder value through share buybacks, as well as their focus on customer acquisition and retention, indicate a proactive approach to navigating the competitive pet product market. As BARK continues to expand its product offerings and distribution channels, investors and market watchers will be closely monitoring its progress towards achieving its full-year financial targets. In light of BARK's recent earnings call, InvestingPro offers additional insights that could be crucial for investors evaluating the company's financial health and stock performance. With a market capitalization of approximately $234.4 million, BARK's size in the market is a factor to consider. Despite the challenges, BARK's gross profit margins have remained impressive at 62.24% over the last twelve months as of Q1 2025, reflecting the company's ability to maintain profitability in its core operations. InvestingPro Tips highlight two key points: BARK holds more cash than debt on its balance sheet, which is a positive sign of financial stability. Additionally, the company's liquid assets exceed short-term obligations, suggesting that BARK is in a good position to meet its immediate financial commitments. These factors are essential for investors looking for companies with a solid financial base. However, it's important to note that BARK's stock has experienced significant volatility. Over the last week, the stock has taken a hit with a 9.03% price total return, and over the last month, it has fared poorly with a 21.56% decrease. This volatility could be a point of concern for investors seeking stability. For those interested in a deeper analysis, InvestingPro offers a comprehensive list of additional tips, providing further insights into BARK's financial performance and stock valuation. There are 11 more InvestingPro Tips available, which can be accessed at https://www.investing.com/pro/BARK, offering valuable information for making informed investment decisions. Operator: Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to BARK's First Quarter Fiscal 2025 Earnings Call. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. At this time, I'd like to turn the conference over to Mike Mougias, Vice President of Investor Relations. You may begin. Mike Mougias: Good afternoon, everyone, and welcome to BARK's first quarter fiscal year 2025 earnings call. Joining me today are Matt Meeker, Co-Founder and Chief Executive Officer; and Zahir Ibrahim, Chief Financial Officer. Today's conference call is being webcast in its entirety on our website and a replay of the webcast will be made available shortly after the call. Additionally, a press release covering the company's financial results was issued this afternoon and can be found on our Investor Relations website. Before I pass it over to Matt, I want to remind you of the following information regarding forward-looking statements. The statements made on today's call are based on management's current expectations and are subject to risks and uncertainties that could cause actual future results and outcomes to differ. Please refer to our SEC filings for information on some of the factors that could affect our future results and outcomes. We will also discuss certain non-GAAP financial measures on today's call. Reconciliation of our non-GAAP financial measures is contained in this afternoon's press release. And with that, let me now pass it over to Matt. Matt Meeker: Thanks, Mike, and good afternoon, everyone. Fiscal year 2025 is off to a strong start, building on the momentum we established last year. Our first quarter results are a testament to this momentum and progress, and we remain confident on our ability to accelerate our top line and deliver our first full year of positive adjusted EBITDA and free cash flow. Last quarter, we delivered $116.2 million of revenue, surpassing the high end of our guidance range. This was powered by quick wins from two of the strong leaders we hired earlier this year. Specifically, on the marketing side, we saw year-over-year growth in new BarkBox subscribers for the third consecutive quarter. Furthermore, we saw over 5% year-over-year growth in our commerce business with strong contributions from marketplaces like Amazon. We're confident this is just the beginning for both BarkBox and Amazon. The strong revenue performance was more impressive given we delivered a record high consolidated gross margin of 63%, a 250 basis point improvement compared to Q1 last year. This is our seventh consecutive quarter of year-over-year gross margin improvement, and I'm so proud of the team for executing this well. Finally, supported by further G&A and shipping and fulfillment improvements, adjusted EBITDA was negative $1.8 million for the quarter, ahead of the top end of our guidance range and $5.6 million or 76% year-over-year improvement. Overall, this is a great start to the year. BARK's talent is strong and provides the foundation for the top line growth we expect to begin in the current quarter. This progress, coupled with our strong balance sheet, enabled us to buyback roughly 3 million shares at a price of $1.43 per share last quarter. We plan to continue to seek opportunities to buyback our stock, given our belief that the market has yet to reflect the value of the company. Last quarter, I discussed the strong leadership team we assembled to accelerate growth. Just one quarter later, we're more enthusiastic about this team than ever, and they started delivering right away. As I said, we achieved year-over-year growth in new customer acquisition for the third consecutive quarter, but there's so much more potential. Our new CMO, Michael Parness, is already evolving our approach to customer acquisition and brand awareness shifting marketing dollars from bottom of the funnel, heavily promotional ads to a more sophisticated full funnel approach. Simply put, that means we'll spend less time talking about our promotions and more time talking about our overall brand proposition, including fantastic products. It's already working, and Michael and his team are just getting started. On the commerce side of the business, our new CRO, Michael Black has also hit the ground running. I mentioned some near-term acceleration in marketplaces like Amazon that contributed to our strong quarter. Look for that to continue under his leadership. To that end, I'm excited to share that we have recently launched a selection of our best-selling toys at Chewy. The initial customer feedback exceeded expectations, and we're excited to expand our offerings to Chewy customers to include many more BARK products from toys to consumables in the coming months. Overall, the new leadership team is off to a strong start. We're excited to see what they and their teams do to the rest of the year. One other growth lever that took off this quarter quite literally is BARK Air. BARK Air is the epitome of how we sell emotional experiences with your dog, and customers love it. The consumer response following our launch was incredible. We're less than four months in and demand for the service continues to grow. To date, we have flown 24 flights between New York, Los Angeles and London and booked over $2.5 million in ticket sales. BARK Air is exciting for a variety of reasons. First, it has driven incredible awareness for BARK. Millions of people worldwide have learned the company, our products and our underlying mission to make all docs happy. Second, we are solving a real pain point for dog parents who, before BARK Air, have limited options for traveling long distances with their dogs. We recognize the price point is not accessible to many today. However, with sustained demand, we can lower cost and make the service more accessible to more dog parents. And third, we've quickly realized that this service can become a real business. Most of our flights are sold out, and we've received tens of thousands of requests for new flights and destinations. This is the best start we could have hoped for, and there are more opportunities ahead. Overall, I'm thrilled with how far BARK has come in the past 2.5 years. In that time, we've delivered seven consecutive quarters of year-over-year gross margin improvements. We've built a strong balance sheet with $118 million of cash and has after buying back over 7 million shares to date and $45 million of our outstanding convertible amount. Our inventory balance of $80 million has also have from its peak, freeing up working capital and allowing us to be more nimble. We've also delivered eight consecutive quarters of year-over-year adjusted EBITDA improvement, and we're on track for our first positive adjusted EBITDA and cash flow year in our history. This is a considerable feat considering we were burning nearly $200 million of cash just two years ago. We're accelerating our growth in all channels and further diversifying our products from consumables to air travel. And as strong as our leadership team is today, it will only grow stronger as we build momentum and familiarity with each other. In my view, our business is the strongest it has ever been, and I'm excited for the future. There's so much more to discuss from this quarter. So for that, I will now turn the call over to Zahir. Zahir Ibrahim: Thanks, Matt, and good afternoon, everyone. I'll begin by providing an overview of our first quarter results, followed by our outlook for the fiscal second quarter and full year 2025. As Matt mentioned, we started the year on a strong note, delivering our third consecutive quarter of new subscriber growth and growing our commerce business by over 5% year-over-year, fueled by growth in existing and new accounts and our recent consumables expansion into retail. Additionally, we continue to see healthy improvements in gross margin and strong traction on our path to profitability, the latter being something we expect to continue in the long term. Overall, we are observing encouraging trends across the business, enabling us to capitalize on the significant opportunity ahead. On that note, let's look at our first quarter results in more detail. Total revenue was $116.2 million, exceeding the high end of our revenue guidance range for the quarter. From a segment perspective, our D2C business generated $107.1 million in the quarter. As you may recall, we saw headwinds in new subscriber growth in the first half of last year as inflation and rising interest rates pressured discretionary spending. While it's still too soon to declare victory on this front, we have been encouraged by new subscriber growth over the past nine months, and we are continuing to evolve and refine our customer acquisition tactics. As a result, we expect our B2C segment to return to growth in the back end of fiscal 2025 and to a greater extent in fiscal 2026. Turning to our Commerce segment. We delivered $9.2 million of revenue in the quarter, a 5% increase compared to last year. During the quarter, we introduced our new treat line in 1,000 PetSmart doors, expanded our presence on Amazon and launched an initial line of our best-selling toys on Chewy. Furthermore, after 12 months to 18 months of retail is carefully managing inventory levels, we're beginning to see order patterns normalize. As we've discussed over the past several quarters, we expect our commerce segment to be a key driver of long-term revenue growth, and we're beginning to see it reflected in the P&L. At a minimum, we expect our commerce segment to see high-teen growth in fiscal 2025 compared to fiscal 2024. In addition to promising top line trends, we continue to deliver healthy improvements in gross margin. On a consolidated basis, our gross margin was 63%, reflecting a 250 basis point improvement year-over-year. On a segment basis, D2C gross margin improved by 230 basis points to 64.5%, while commerce gross margin improved by 680 basis points to 46.5%. This is fantastic progress in a short amount of time, and we're incredibly proud of the team for their execution on this front. Turning to operating expenses. Shipping and fulfillment expenses were $34.4 million in the quarter, a $1.8 million improvement compared to last year. Other G&A, which primarily consists of headcount and overhead costs was $29 million in the quarter, a $4 million improvement compared to last year. This improvement primarily reflects realizing the full year benefit of the two cost reduction initiatives we carried out in calendar 2023. Lastly, total marketing expenses were $20.4 million in the quarter, a $2.8 million increase compared to last year. As discussed on previous calls, the significant improvements we've made across gross margin and G&A enable us to invest more in marketing, so long as the returns we are seeing justify that incremental investment. Given our recent progress, we intend to continue to invest incrementally in this line. Moving on. Total adjusted EBITDA for the quarter was a loss of $1.8 million, a $5.6 million improvement year-over-year. Furthermore, free cash flow in the quarter was largely neutral at just $251,000 outflow, a notable improvement compared to Q1 last year, which was minus $13.5 million. We ended the quarter with total cash of $118 million, which reflects repurchasing 3 million shares in the quarter at an average price of $1.43. Given the business' profitability profile and future cash flow projections, we plan to continue to opportunistically repurchase shares at these levels. Following our Q1 repurchases, we have $12.3 million remaining from our most recent Board authorization. Additionally, our working capital situation continues to improve. We ended the quarter with an inventory balance of $80 million, a $4 million reduction in the quarter. As we prepare for the holiday quarter, we anticipate our inventory to grow sequentially in the second quarter. However, we expect it to continue its downward trend in the second half of fiscal 2025, and we will likely end the year below current levels. Overall, we see several exciting developments from promising top line opportunities to ongoing margin and free cash flow improvements. With that in mind, let's discuss our guidance for the second quarter and full year. Starting with the full year, we are reaffirming the guidance we provided during our Q4 call in June. While there are numerous reasons to be optimistic about the opportunities ahead, we believe it's pragmatic to maintain the current outlook given we are just one quarter into the fiscal year. Nevertheless, our strong Q1 results give increased confidence in our ability to achieve our targets. To reiterate, we anticipate total revenue for the year to be between $490 million and $500 million, representing year-over-year growth ranging from flat to 2%. For adjusted EBITDA, we expect a range of $1 million to $5 million, which at the midpoint represents a $13.6 million improvement compared to the previous year. Additionally, we expect to achieve adjusted EBITDA profitability and free cash flow for the full year, a first embarked 13-year history. For the second quarter, we anticipate total revenue between $123 million and $126 million. The midpoint of the guidance range represents 1.2% year-over-year growth, marking an important turnaround after eight consecutive quarters of year-over-year revenue declines. We believe we will see further growth as the year progresses, albeit growth on a much more profitable infrastructure. On an adjusted EBITDA basis, we expect a range of $1 million to $3 million in the quarter compared to $1 million profit last year. The second quarter will index heavier to the commerce channel with retailers taking in holiday product and with greater opportunities for secondary placement. This higher commerce mix will impact our gross margin in the quarter. And as a result, we currently expect Q2 consolidated gross margin to be around 60%. However, for the full year, we continue to expect similar consolidated gross margin to FY '24. In conclusion, we are seeing promising trends across the business. We expect to return to revenue growth in the current quarter. Our profitability profile is improving with each passing quarter, and we have approximately $80 million of net cash on the balance sheet. Collectively, this affords us ample opportunity to execute on our growth plans and opportunistically repurchase our shares. We remain committed to driving sustainable, profitable growth and enhancing long-term shareholder value. With that, I will turn the call over to the operator for Q&A. Operator: Thank you. Our first question today comes from the line of Maria Ripps with Canaccord. Your line is open. Maria Ripps: Great. Good afternoon and thanks for taking my questions. First, I just wanted to ask you about sort of the broader macro backdrop. It seems like your results and outlook were pretty much better than expected. But could you maybe talk about whether you've seen any changes in consumer behavior in Q1 and maybe so far in fiscal Q2, given that recessionary concerns have been reemerging in recent weeks? And maybe how much sort of more pressure do you think category demand could come under if we enter into maybe a prolonged period of softness given that consumers have already been pulling back on discretionary good spend for some time? Matt Meeker: Yeah. Thanks, Maria. And they have been pulling back on the discretionary spend. And that's as you mentioned, it's been going on for some time. And that continued through Q1 on those discretionary goods. We obviously keep close tabs on the macro environment and that category, in particular and manage against that. But the counter to that, as I've talked about in the past, is that we have a lot of room here to execute better, especially when it comes to the growth and marketing side of the business. And we've been showing steady improvement in that execution over the past few quarters. So I think this quarter is another reflection of that. The new subscriber acquisition trend that we saw this quarter, it's our third consecutive quarter of year-over-year growth. It's up in July as well. And if we continue that execution even with that headwind or that pressure that you're talking about, then we expect to see the direct-to-consumer business to start to grow in the second half of the year. And we're seeing ourselves outperforming the category in the retail space as well. As I mentioned, we're picking up steam in Amazon. We announced that we're selling with Chewy now, which is just another great venue for our products to be. So there's a lot of positive momentum in there. If or when, I should say, when the macro environment turns and goes back to the discretionary goods categories growing, then we're going to have Winter back with much better execution in addition to our strong gross margins, our EBITDA positive, our cash flow generation, all of that. So we've got those pieces in place that help us ride it out. But really, it's on us to execute in the face of those headwinds as we've been doing for a good stretch of time here, and it's only getting better. Maria Ripps: Got it. That's very helpful. And Matt, you sort of touched on my second question, but can you maybe talk about some of the key drivers behind continued strength in new customer acquisition this quarter? And what are some of the sort of maybe different techniques that you're deploying that are driving this? And I guess how sustainable is it going forward? Matt Meeker: Very sustainable because as I said, well, there are a few things going on in there. On the direct-to-consumer side, there's the new customer or new subscriber acquisition that's been going well and picking up steam with a variety of new tactics, some of that on the creative side using artificial intelligence tools to generate more and better creative and do so more efficiently. Ironically, part of that is getting us to move away from being so promotionally driven. We've definitely gone way too far to the side of giving customers the only impression to subscribe is because we're offering some promotion or gift with purchase. And ironically, artificial intelligence would rather tell the great stories that our products have to tell. This is what's -- why you should buy it. That's not some sort of incentive. So better creative, more efficient creative, a lot more of it, better conversion by matching that up to the stories that we're telling about the products. And then as you're starting to balance that you're telling the story of the product and occasionally giving promotional offers. On the commerce side of the business, as you said, I touched on it, but leveraging channels like Amazon and Chewy much more than we have in the past, great leadership from Michael Black and his team on the retail side. So just a lot of good things happening that have been in motion and building. And again, Michael Black, Michael Parness are four months into the role now. So that momentum should just gather some even more. Operator: Your next question comes from the line of Ryan Meyers with Lake Street. Your line is open. Ryan Meyers: Hey, guys. Thanks for taking my questions. First one for me here. Maybe can you just touch on a little bit what you said about the gross margin in Q2? I think you said it was going to be around 60% or so with the more heavily weighted towards retail. Just kind of walk us through the dynamics of that and remind us kind of why that business shakes out to be a little bit lower margin. Zahir Ibrahim: Sure. So we're seeing now seven straight quarters of gross margin growth. So that's improvement in both D2C and in the commerce channel over that period of time. It's been driven a lot by improvements in our product costs, both on the toys and consumables side and some improvement in freight costs as well over that window. We expect all of that to continue during the course of the year. the dynamics of Q2, there's a lot of holiday buying. There's a number of opportunities for, as I said, on the call for secondary placements. So offshore of in-line placements that could be gondolas or center for placement within the store in certain retail customers. And so Q2 is going to be a heavier weighted commerce mix for us than what you'd see on a full year basis. Our margin on the commerce channel is around the mid-40s. D2C is in the mid-60s. So when you index to a slightly higher mix on commerce, that will impact your gross margin. So that's why we called out gross margin. The important thing to remember, though, is the cost to serve, the commerce channel is lower from a shipping and fulfillment and marketing perspective. So when you look at profitability at the contribution margin level, it's very similar on both channels. Ryan Meyers: Got it. That make sense. And then just thinking about the Chewy launch, obviously, congrats on that, but maybe walk us through kind of how that developed. I know you guys have been around for a while and obviously chewy has been around for a while, but I don't believe you guys were selling products to them previously. So maybe walk us through how that sort of developed and kind of how you expect that business to play out? And then maybe could we expect to see products expanded outside of just toys there? A - Matt Meeker: Yeah. We've obviously known Chewy for a very, very long time going back 12 years or so. So and we are both very, very young companies talking about commercial relationships way back then and more recently about selling our products on their platform over the past couple of years. And it's never really clicked into place until earlier this year. And then Michael Black and his team came in, they've got great experience working with Chewy selling there. So I think they helped us from our side in taking those last steps and getting it over the line and building a really strong relationship there. So we're off and running. We're off to a great start. They've been just a fantastic partner so far. And where we're heading is over the course of this year to get our full catalog on to their site and be selling everything, including all the consumables that we can get over there. So great start. We think there's a lot of big upside, a lot of potential. They obviously have built a fantastic business, and it's a long time coming. So we're thrilled to be partnered with them. Ryan Meyers: Well, that's great to see. Thanks for taking my questions. Operator: Your next question comes from the line of Kaumil Gajrawala with Jefferies. Your line is open. Kaumil Gajrawala: Thank you. Hey, everyone. A couple of questions. I guess the first one is subscriber growth, again, great. But it looks like average orders or number of orders still down. So just curious if there's anything in that figure that we should be aware of and maybe what you're doing to try to reverse that? Matt Meeker: What you're seeing in terms of the subscriber growth is what we're doing to reverse it. It's just the subscriptions take time to compound. And so what we've seen in these last three quarters has not yet made up for the declines that we saw in the first half of fiscal 2024. But we expect that to start to turn not this current quarter that we're in, but next quarter. And then overall, we expect the D2C revenue to be flattish year-over-year, but really to begin to grow in our fiscal Q3. Kaumil Gajrawala: Got it. And congrats on the Chewy launch, very cool. I think you might have hinted at it if I look back, I think you might have hinted at it, but we didn't know for sure. I believe it's starting with toys or are your consumables in there as well? And at least on the toy side, how do you differentiate yourself on a site like that? Matt Meeker: The toys are there. No consumables yet. And how do we differentiate ourselves really anywhere. I think part of that is a marketing challenge of knowing the platform and how to best position ourselves in great photography, great video, making sure that we have the right assets and, I would say, descriptions around our products. Another part of it, obviously, is having great products and great reputation and high ratings. And so we have to back that up into our product development and being in tune with the customer. We are fortunate that we have 1 million plus customers every month who are giving us feedback about our products, and we feed that into our product development. So that should be a giant advantage over most other toy or product companies. The thing that we've done now since Michael and Michael have joined is we've now put product development together with the marketing side, bringing those two much closer together. So Michael Parness making sure that every product that we put out is an expression of the brand and living up to the brand and not just being just another toy. So hopefully, product development elevates from where it already is, that reputation gets out there, it comes with a marketing and brand awareness mindset behind every product. And then we go through and we do the -- I'll call them the basics of executing on the platform really, really well. Kaumil Gajrawala: Got it. And I don't know you probably were busy prepping for earnings, but you got to shut out on CNBC from Shopify. So I guess the transition to the technology transition is happening. Maybe you can just talk a bit about -- are we there yet? Have you consolidated the various platforms and it to go forward? And then perhaps what impact that should have on margins as we look in the coming year? Matt Meeker: We're not there, there yet, but we continue to transition over some of our active customers and a little bit of our ad spend. So we have, let's say, the technical pieces in place. So if we wanted to pick up and move everyone today, we could. What we're getting to is getting the business to be at parity with it. But we're still -- we feel like the most realistic time line for that to happen is fiscal Q4. We could probably do it sooner, but one thing we definitely don't want to do is disrupt our holiday season. So it's likely in fiscal Q4. Operator: Your next question comes from the line of Ygal Arounian with Citi. Your line is open. Unidentified Participant: Hey, guys. Good afternoon. You've Max on for Ygal. I guess I just wanted to add some more maybe on the -- some of the commerce and partnership side. I don't know if you've called out Amazon specifically before, but just curious maybe what drove the strength there if you're doing anything differently? And then just maybe on the treats going in commerce, -- just any other color there you can provide on how that's been trending, what you're seeing and then maybe expectations? I know you're in, I think, two stores right now. I'm not sure if you're talking -- assuming you're talking with other stores, but maybe just a time line for how those talks are going and expectations for that to roll out? Matt Meeker: Yes. I'll comment quickly. This is Matt on the Amazon side of it. For Amazon, again, like pointing to the strength of new leadership, Michael Black coming in with some real strong performance there in some past lives and bringing great talent with him, understanding that platform and really elevating our performance there. Some of that is just the basic blocking and tackling of the platform. Some of it is better marketing. And what's really encouraging there is we're only four months into his tenure and some of his team's tenure here. And so the elevation we're seeing there is it because we have some fantastic products, they're using laying around today. So when we start to create product specifically for that channel or that environment and we order properly for the sales volumes, I think we have the opportunity to really accelerate. So it's as simple as talent. That's what it comes down to. And then here is going to chime in on the second. Zahir Ibrahim: Sure. So just on the consumables that we launched into retail, so we're in with obviously target and PetSmart -- we launched with our character treats. Early days. The feedback from our retail partners is they're happy with the start that we've made. Obviously, we're continuing to take the learnings of everything that we're doing in terms of shopper marketing, any promotions we run, how we can elevate our performance going forward. So we're continuing to work on that. We've already managed to secure further distribution within those retailers for seasonal offerings in some of the major holiday windows. So that's really a positive signal. I think just thinking about consumables more broadly. There's really a sizable opportunity for us to expand on Amazon and Chewy fairly quickly, particularly with our dental and Toppers (ph) products. And then as you think about the next resets within retail, which would be Q4 this fiscal year going into Q1 next fiscal year, that's when you'd expect to see further impact in terms of more doors and distribution in retail. Unidentified Participant: Okay. Great, guys. Thanks. Operator: This concludes today's conference call. Thank you for attending. You may now disconnect.

Earnings call: Playtika reports Q2 2024 earnings, eyes growth with new games By Investing.com

Playtika Holding Corp (PLTK) has announced its financial results for the second quarter of 2024, revealing a slight decrease in revenue both sequentially and year-over-year. Despite this, the company showed resilience with its direct-to-consumer business, particularly with its Bingo Blitz title, and is preparing to launch a new game, Claire's Chronicles, in the second quarter of 2025. Playtika's recent acquisitions, including Animals & Coins and Governor of Poker 3, are performing well, and the company is actively pursuing further acquisitions to enhance its gaming portfolio. Additionally, Playtika has struck a licensing deal with IGT to incorporate real-world content into its slot-themed games. Challenges faced in Q2 included seasonality and feature launch delays for June's Journey, but the company remains committed to its strategic goals for sustained growth and profitability. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights InvestingPro Insights Playtika Holding Corp (PLTK) has recently faced challenges with slight revenue declines and feature launch delays. However, the company's financial health and market potential can be better understood by looking at key metrics and insights from InvestingPro. InvestingPro Data reveals a Market Cap of $2.55 billion, which reflects the company's significant presence in the gaming industry. The P/E Ratio stands at 12.45, indicating a potentially attractive valuation for investors when compared to industry peers. Moreover, the Gross Profit Margin for the last twelve months as of Q1 2024 is a robust 72.3%, showcasing Playtika's ability to maintain profitability despite revenue fluctuations. Incorporating InvestingPro Tips, it's noted that the company's stock is currently in oversold territory according to the RSI, suggesting a potential buying opportunity for value investors. Additionally, Playtika pays a significant dividend to shareholders, with a current yield of 5.81%, which is notably high for the tech sector and could appeal to income-focused investors. These financial metrics and insights offer a nuanced view of Playtika's performance and potential, beyond the immediate revenue figures presented in the quarterly report. For those considering investment in Playtika, there are 5 additional InvestingPro Tips available at https://www.investing.com/pro/PLTK, providing a deeper analysis and further guidance on the stock's prospects. Full transcript - Playtika Holding Corp (PLTK) Q2 2024: Operator: Good day and thank you for standing by. Welcome to the Playtika Q2 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Tae Lee, SVP of Corporate Finance and Investor Relations. Please go ahead. Tae Lee: Welcome, everyone, and thank you for joining us today for the second quarter 2024 earnings call for Playtika Holding Corp. Joining me on the call today are Robert Antokol, Co-Founder and CEO of Playtika; and Craig Abrahams, Playtika's President and Chief Financial Officer. I'd like to remind you that today's discussion may contain forward-looking statements, including, but not limited to, the company's anticipated future revenue and operating performance. These statements and other comments are not a guarantee of future performance, but rather are subject to risks and uncertainties, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. We've posted an accompanying slide deck to our Investor Relations website, which contains information on forward-looking statements and non-GAAP measures, and we'll also post our prepared remarks immediately following the call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I'll now turn the call over to Robert. Robert Antokol: Good morning and thank you everyone for joining our call today. As we review our second quarter results, it is important to note that this quarter aligns with our historical seasonality and the roadmaps we have set forth. While our overall revenue for the quarter reflects some roadmap challenges, we are focusing on the resilience and the potential of our top games, and our strategic initiatives aimed at boosting our portfolio. Our strategic focus on our direct-to-consumer business and our disciplined approach to headcount and other operating expense categories has led to an improvement in our margins on a quarter-over-quarter basis. Starting with our largest franchise titles: Bingo Blitz performed solidly, with consistent performance year-over-year and a slight quarter-over-quarter decline. We observed strength in direct-to-consumer revenue, and we believe there is still upside remaining. We continue to enhance the game with new features and content to keep our players engaged and excited. Stopping the decline in Slotomania has been a major focus of the company. Our team is dedicated to bringing features and partnerships that will enrich the player experience and drive future growth. June's Journey experienced some feature delays in the first half, but we remain optimistic about the second half of the year as these new roadmap features are planned to launch this summer. I am excited to announce that we plan to launch our latest new game Claire's Chronicles in Q2 of 2025, which is another story driven title from our Wooga Studio. Our team at Wooga is committed to delivering high-quality, engaging content that resonates with our players, and we are confident in the studio's ability to rebound and perform strongly. Additionally, I would like to highlight the performance of our recent acquisitions, Animals & Coins and Governor of Poker 3. We are pleased with the progress of both studios. Governor of Poker 3 has shown consistent growth, increasing quarter-over-quarter since the acquisition. We continue to invest for growth in Animals & Coins and we are optimistic about the potential. We are actively looking for opportunities to broaden our game offerings and to improve our market position. Our focus is to find acquisitions that complement our existing games and drive long-term value. We are taking strategic steps to ensure sustained growth and profitability. We remain committed to delivering value to our players and shareholders, and our focus on execution remains strong. We are confident in our path forward and we believe that our strategic initiatives will position us for success in the coming quarters. Thank you for your continued support. I will hand over to Craig for a more detailed review of our performance this past quarter. Craig Abrahams: Thank you, Robert, and good morning, everyone. Before we dive into the financial results, I would like to provide further insights into some of our recent initiatives in Slotomania, our oldest and one of our largest games. Third-party research consistently positions Slotomania as the number one grossing social casino themed game in the industry. However, we have faced challenges in recent years as we have lost market share in a highly competitive category. To counter this decline, we have increased our performance marketing spend and restructured our executive leadership team to provide more direct CEO oversight. As part of our ongoing initiatives, I am pleased to announce a new licensing deal with IGT. This agreement will allow us to integrate compelling real-world content into our slot-themed games, enhancing our content portfolio across Slotomania, House of Fun, and Caesars (NASDAQ:CZR) Casino. These strategic moves reflect our commitment to stabilizing and growing Slotomania as well as supporting our other slot-themed franchises. Next, I would like to address the performance of our acquired titles from last year. Governor of Poker 3 continues to perform in-line with our expectations, and we are pleased with the performance from the game. We experienced some game economy challenges in Animals & Coins in the second quarter, which have since been corrected. We are pleased to see positive month-over-month trends within the quarter, and this positive momentum has continued into Q3. To best position the studio for long-term growth, we amended the terms of the earnout to spend incremental marketing dollars this year on the game, while lowering the maximum cap of the earn-out. Turning to our financial results. For the quarter, we generated $627 million of revenue, down 3.7% sequentially and 2.5% year-over-year. The sequential decline in sales and marketing spend as well as the growth in our direct-to-consumer business had a positive impact on credit adjusted EBITDA margins this past quarter, as we generated credit adjusted EBITDA of $191 million, up 2.9% sequentially and down 11.2% year-over-year. Net income was $86.6 million, up 63.4% sequentially and 14.4% year-over-year. We are pleased with the continued strength in our direct-to-consumer platforms, as we generated $173.7 million, up 1.3% sequentially and 5.1% year-over-year. DTC growth this past quarter was led by Bingo Blitz and we expect to see ramp-up from June's Journey and Solitaire Grand Harvest in the second half of the year. Turning now to our business results from the quarter. Revenue across our casual games declined 4.3% sequentially and 1.7% year-over-year. Bingo Blitz revenue was $155.7 million, down 1.2% sequentially and 0.4% year-over-year. Our direct-to-consumer revenue from Bingo Blitz once again grew double digits year-over-year. As the number one Bingo game in the world, we strongly believe in the growth potential for this industry leading franchise. June's Journey revenue was $74.6 million, down 2.6% sequentially and up 1.9% year-over-year. June's Journey revenue performance in the last few quarters has been negatively impacted by some challenges the studio faced with feature development timelines, which pushed out feature launches and directly impacted revenue performance. The studio is on track for its second half roadmap, and we remain optimistic about the outlook for the rest of the year for this title. Our Social-Casino themed games declined 2.9% sequentially and 3.4% year-over-year. Slotomania revenue was $133.8 million, down 1.2% sequentially and 7.5% year-over-year. We are focused on reengaging dormant players through targeted initiatives and are also pursuing strategic opportunities, such as our new licensing agreement. Turning now to specific line items in our P&L for the second quarter. Cost of revenue decreased 5.7% year-over-year, driven by a change in revenue mix between direct-to-consumer platforms revenue and third-party platforms revenue, as well as the decline in overall revenue. R&D increased slightly by 0.3% year-over-year. Sales and marketing increased by 20.0% year-over-year. The increase in sales and marketing expenses was primarily due to the increase in performance marketing spend this year. Majority of the growth in sales and marketing spend year-over-year was related to our newly acquired studios and incremental spend in our largest titles, such as Bingo Blitz and Slotomania. On a sequential basis, sales and marketing expenses declined by 11%. G&A expenses declined by 35.1% year-over-year. The decline in G&A expenses were due to lower accrued expenses related to our long-term cash compensation program and a favorable adjustment of payable contingent considerations. As of June 30th, we had approximately $1.1 billion in cash, cash equivalents, and short-term investments. Looking at our operating metrics, average DPU declined 3.6% sequentially and 2.9% year-over-year to 298,000. Average DAU decreased 8% sequentially and 5.8% year over year to 8.1 million. ARPDAU increased 4.9% sequentially and 2.4% year-over-year to $0.85. Finally, we expect revenue to be within the bottom end of the range for revenue guidance and middle of the range for credit adjusted EBITDA guidance. We are revising our capital expenditure range to $95 million to $100 million for the year. With that, we would be happy to take your questions. Operator: Thank you. At this time we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Colin Sebastian of Baird. Your line is now open. Colin Sebastian: Thanks and good morning/good afternoon everybody. Maybe just to follow up on some of the sequential declines in social casino and in games like Bingo. I guess, as you evaluate that performance and then obviously take a look at the marketing plan, how much of that performance overall is seasonality? How much would you say is related to macro factors or separately game specific issues and sort of the marketing plan, if you can kind of separate it out that way? And then my follow-up question would be just in terms of new game launches, is there any sort of strategic shift at the company between allocation of capital to M&A versus funding new games? Or is that still relatively consistent with the prior strategy? Thank you. Craig Abrahams: Thanks, Colin. Listen, as we look at the second quarter, there is some seasonality if you look at prior years from Q1 to Q2. Our focus has been on our top five franchises that are number one in their respective categories. Within the quarter, if you look at a title like Bingo Blitz, our largest title, that was flattish year-over-year, down just 0.4%, but direct-to-consumer there grew double digits year-over-year. We're seeing positive trends into Q3 and so a lot of confidence in our biggest franchise. Slotomania, we've talked about focus on stabilization there, focusing on new marketing opportunities as well as our new licensing agreement, we really believe bringing real-world slot content into that title. We'll continue to bolster that as well as well as other strategic initiatives we have with that studio. As we look at June's Journey, Q2 was affected by some future launches that were delayed from the first half of the year to the second half of the year. And they're also looking at ramping up their D2C business. So I think overall, we continue to focus on growing the biggest franchises. And I think -- as we look at the new games initiatives, I'll let Robert handle that one. Robert Antokol: Good morning and thank you for the question. We took a few quarters ago a decision to focus more on M&A. And this is still our strategic decision, so we believe in M&A. We think the ROI is much better for the future growth. However, we always said that the Wooga Studio is a different student in our portfolio. It's coming with lots of innovation, a lot of creative. And we have a good opportunity to launch an amazing game, and we have really good hopes for the game. So it's not changing our strategic decision, but when we see good opportunities, we are going very strong on it. So we are really optimistic about the future. Thank you. Operator: Thank you. Our next question comes to us from Drew Crum of Stifel. Your line is now open. Drew Crum: Okay, thanks. Hi, guys. Good afternoon/good morning. On the casino games, can you give us a sense as to what the timing is of integrating content or features from the IGT licensing deal? And then I guess on a related note, a competitor earlier this week suggested that the free-to-play sweepstakes category is having a negative effect on the social casino category. Could you comment on this and whether you believe it's impacted your casino titles? Thanks. Craig Abrahams: Sure. Thanks for the question, Drew. So in terms of new content, we're focused getting new content live by the end of this year and into next year, and we're excited about that because it goes across Slotomania, House of Fun and Caesars Casino, so across our slot-themed portfolio. Listen, in terms of referencing the sweepstakes market that market has grown into a multibillion dollar market. As we think about that product it's probably closer to what a gambling product looks like than necessarily a social gaming product. So I don't necessarily see that as a substitute, but it's hard to say any market that's grown into a multibillion-dollar market that's adjacent to us hasn't had some impact on the market. Drew Crum: Got it. Okay. And then, Craig, you mentioned the majority of the uptick in performance marketing spend was related to the recently acquired studios. And I think last quarter you suggested that you expected the year-on-year increase to moderate as the year progressed. We obviously saw that in 2Q. Is that still your expectation as you move into the second half through the balance of this year? Thanks. Operator: Thank you. One moment for our next question. Our next question comes from Aaron Lee of Macquarie. Your line is now open. Aaron Lee: Hi, good morning. Thanks for taking my question. Can you touch on your M&A pipeline and how that's evolved where seller expectations are now versus maybe a year or two ago and what opportunities you're seeing out there in the market? Thank you. Craig Abrahams: Sure. I don't think anything has changed from what we talked about last quarter in terms of our M&A strategy. We continue to see ourselves as a consolidator in the industry, very well positioned with our liquidity on our balance sheet. I still think that as we sort of look at ourselves and our execution on the M&A front, the years 2023 through 2025 are really going to be the years that drive growth, 2026 and beyond. And for us, continuing to execute and add new titles and higher growth titles into our portfolio is going to be a key part of the portfolio mix going forward. Aaron Lee: Okay, understood. As a quick follow-up, international penetration used to be talked about more as a potential growth pillar for you guys. Since you guys have a broader portfolio now and maybe AI can help with some of the localization, is this something that there is still be an opportunity? Or just how does this rank among your priorities? Robert Antokol: Hi, thanks for the question. So yes, of course, opportunity, we're doing a research on markets. We have a few markets that were already very strong and working very hard, especially in Europe. I don't know if it's related to AI or not. But for us, as we always said, this was one of our main priorities for growing the business. Thank you. Operator: Thank you. One moment of our next question. Next question comes from [indiscernible] of Goldman Sachs (NYSE:GS). Your line is now open. Unidentified Analyst: Hi, guys. This is Lee on for Eric. Thanks for taking my question. So with the revenues being down in the first half, can you just talk about the health of the broader market as well as what you're seeing from competitors? And then I was hoping you could speak to what you're seeing in the overall customer acquisition landscape in terms of ROI and payback periods? Thanks. Robert Antokol: So thanks for the question. First, we can say the market is challenging. We are not hiding this. We're working really, really hard. And I think we're doing well compared to the market. On the other hand, we see opportunities of games that are growing. We see opportunities of future games that are performing very well. And I can tell you honestly, from my side, I'm very optimistic about the market. I'm optimistic about the market even comparing to other platforms like PC and console. And this is something that going to control the world and everyone has mobile devices. So it's very optimistic. On the other hand, I think M&A for us was always something that we grew our business. In the last few years, we did very few deals. Our major deal was last year ago and we already see the fruits. So this is going to be the future growth for our company, comparing the current games and the operation that we're doing there. Thank you. Craig Abrahams: Just to follow up on the second question about the marketing, it's Nir Korczak, Playtika's CMO. So just as a reminder, as you know, we have a big portfolio with different games from different genres, different maturity. And the way we look at our business is we look at things for the long-term when we look at LTV, not for the short-term to optimize things. So when we look at ROI, when we look at the long-term, we definitely see some opportunities. We are shifting all the time budget between different games and different sources. But as Craig mentioned at the beginning, most of -- the majority of the marketing activity goes to the new acquisition and the leading games and there we still see room for improvement and for growth. Thank you. Unidentified Analyst: Okay, thank you. Operator: Thank you. One moment for our next question. Our next question comes from Omar Dessouky of Bank of America (NYSE:BAC). Your line is now open. Omar Dessouky: Hi, thanks a lot. Okay. You guys have given some good color on the performance marketing so far. But I wanted to double-click on that a little bit. And please help us think about where you are in terms of your performance marketing journey. I just heard your CMO say that you see some opportunities, but are we -- are you -- do you think that you're going to continue to ramp up the amount of spend in performance marketing compared to where you've been in the first half as the rest of the year goes on and into 2025? Is performance marketing do you think going to become a permanently larger percent of your marketing budget? And -- so those are two questions. And then finally, the ad tech environment is very dynamic, improvements happen all the time. Is there something that's happening in the environment in the ad tech ecosystem that is compelling this? Thank you. Nir Korczak: So -- it's Nir again and thanks for the question. It's important to understand that this is a super dynamic landscape. So, of course, we are looking at everything around ad tech and different solutions, goes with different AI solution and other things that we see from measurement point of view, but the industry is super dynamic. So at the end of the day, what we're always looking for? We're always looking for opportunities. Sometimes you have new channels that is growing, and that's when I say the opportunity. Sometimes we see new channel and we see opportunity and we go deep on that section. But we have a very diverse portfolio, not -- obviously, this is not the case with all of our games, and we are always trying to optimize and shift budget to areas that we see growth. Just as an example, but Craig also mentioned about Bingo Blitz and things like that, we keep increasing the marketing there, and we are trying to optimize things and to improve results. So yes, we still see opportunity. But obviously, this is a very dynamic landscape. So we cannot identify exactly how the next year will look like right now. Omar Dessouky: Thanks. Appreciate the answer. Operator: Thank you. One moment for our next question. Our next question comes from Eric Handler of ROTH Capital. Your line is now open. Eric Handler: Good morning and thanks for the question. Craig, I wonder if you could just quantify how much of the G&A decline was one-time? And what does that line item look like going forward? Craig Abrahams: Yes. So I don't -- I think as we look at G&A, it's something we've been managing as we look at our cost structure over the last kind of 24 months. As we look at it going forward, obviously, it's something where we're looking to keep that as stable as we can in light of the overall market environment. So I think any adjustments to that you might see are probably one-time in nature, and we can dig into it further if needed. Eric Handler: Okay, thanks. And then -- with regards to Solitaire Grand Harvest, I mean that had a great couple year run, peaked out around $85 million, $86 million. It's now -- I'm assuming it came in below June's journey. So you could talk about maybe what's been happening with the decline in that game and what you're doing to sort of get that back on track? Craig Abrahams: Sure. So I think as with all games, there's volatility quarter-to-quarter. You need to look at long-term trending. And it's one of our most successful acquisitions if you look at the growth over the last three or four years since we acquired it. So I think as we look at as games get more mature and as we continue to invest and work on the roadmap, you expect to see some volatility quarter-to-quarter. We're looking forward to investing into DTC there and other new product features going forward, and that continues to be one of our top titles that we're going to invest in. Eric Handler: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from Clark Lampen of BTIG. Your line is now open. Clark Lampen: Hi, good morning everyone. Thanks for taking the questions. Craig, I just wanted to know, as we think about sort of progress with DTC launches, I understand that you're still in the process of establishing both June's and Solitaire in that environment. But you are also approaching -- we're getting close to that sort of 30% target you've established previously for mix. Is it realistic to assume that now either sort of the base or maybe bull case for DTC mix should be higher? And if so, is there a new target that you're comfortable sharing with us? Craig Abrahams: Thanks for the question, Clark. It continues to be an area of focus for us on execution. We're not changing our target at this time. But obviously, DTC is a differentiator for us. It really helps differentiate as well our M&A strategy in terms of a tool that we can use for acquired titles as well as pitching studios as to how we can help them further enhance their business. And so I think as we have updates on our roadmap there and execute, we'll update the market accordingly. Clark Lampen: If I may also, you mentioned, I think, there is one of the bullets in the presentation deck and IGT partnership. I don't think that's come up on the call thus far. So I was hoping maybe you could provide a little bit more detail around sort of the content when that might be released and playable. And is this something also that you're targeting for sort of strictly the mobile environment or could this be sort of both mobile and browser down the road? Craig Abrahams: Sure. So this is a licensing agreement that we recently signed with IGT to help bring their real-world content into our top slot themed games, both Slotomania, Caesars Casino and House of Fun, all are going to have access to their content. We're looking to go live with that towards the end of this year and into next year. So excited about the opportunity to further bolster those games with that content. And once it's in those games, it would be in those games, cross-platform across all platforms, those games exist on today. Clark Lampen: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from Matthew Cost of MS. Your line is now open. Matthew Cost: Hi, good morning everyone. Thanks for taking the questions. Maybe just starting with Slotomania, as you mentioned in the prepared remarks, it's been a challenging couple of years for the franchise. I guess when you think about your expectations for Slotomania in the second half of this year, are the marketing changes that you're making and the IGT deal, are those enough you think to get the game to a point where you can stabilize it? I guess what are your expectations from here to the end of the year given those new initiatives? And then I have one follow-up. Thank you. Craig Abrahams: Yes. Absolutely, our focus has been on stabilizing that product and investing in it. I think as we look at other strategic partnerships and other opportunities to bring great content and increase the competitiveness of that game within a category as well as bolster with further marketing hopefully sets that up for success. It still is the number one game in the category. And we're obviously spending time and effort to improve the product and bring a better entertainment experience for our consumer. Matthew Cost: Great, thank you. And then on the new title from Wooga that's coming out I think it was 2Q next year. I guess any way to think about your expectations? Or is it going to be comparable to June's Journey or anything else in the portfolio in the bull case, if it's a success? Like how should we size the potential for that title? Craig Abrahams: Sure. So it's -- they are best known for story-driven games. That's where the Wooga Studio has excelled and here's another opportunity to bring another story-driven game to the marketplace. And so more details to come in the future. Obviously, this is just wanted to preview it with the market. And as that game gets in a soft launch and relaunch, we'll update accordingly. Matthew Cost: Great, thank you. Operator: Thank you. One moment for our next question. Our next question comes from Christopher Schoell of UBS. Your line is now open. Christopher Schoell: Great, thank you. Earlier this year, you had streamlined the management structure and you pushed marketing strategies back to the studios. Any early learnings you can share from this shift? And then maybe just taking a step back, there has been a debate about how much of the mobile market pullback in recent years has been due to competition, macro or issues related to targeting. What do you believe has been the biggest factor? And how does that inform your outlook for the industry in the second half and in 2025? Thank you. Robert Antokol: So, thanks for the question. We started the change two, three months ago. This is a very big change after we're working differently for eight years. It's really very early to say, okay, we see an impact. We see something. The only thing that we can see immediately, it's a different strategic between the games. They're thinking differently. It's a very big advantage for us. Now as a company, we can do many things, different things with many games. So to tell you that I see right now something moving, it's really early, but I'm very optimistic about it. And I see a change of behavior in the company. What was the second question regarding the market in the last few years? Can you repeat it? Christopher Schoell: Yes, when you look at the market performance in the past two years, how much of this do you think has related to macro competition or targeting issues? And how are you thinking about the shape of the market's recovery here in the second half of 2025? Robert Antokol: First, this is a tough question for us about 2025. I think in the last few years, we see the market became a mature market. We see the same players. We see -- we don't see you change in the top grossing and the games in the U.S. or other places. We don't see new players coming. It's become a tough market. So now when you look very carefully at the studios, the advantage will be for a company that know understanding operation. This is like the second phase of the industry, the mobile industry, understanding operations, marketing, understanding how to retain the community. So for us, again, I can speak about a little bit more about the Playtika in center of the market. This is the target. This is what we are doing very well. This was always our advantage, and I am very -- I am a big believer in 2025. Thank you. Christopher Schoell: Okay, thank you. Operator: Thank you. This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Superior Group of Companies, Inc. (SGC) Q2 2024 Earnings Call Transcript

Michael Benstock - Chief Executive Officer Mike Koempel - Chief Financial Officer Good afternoon, everyone. Welcome to the Superior Group of Companies Second Quarter 2024 Conference Call. With us today are Michael Benstock, Chief Executive Officer, and Mike Koempel, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives and strategies, and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates and assumptions. Words such as expect, believe, anticipate, think, outlook, hope and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company's periodic filings with the Securities and Exchange Commission, including, but not limited to, the company's most recent annual report on Form 10-K and the quarterly reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements except as required by law. Thank you, Operator, and welcome to our call. Today, I'll start with the financial highlights from our second quarter. Next, I'll cover how each of the three business segments performed, including a high-level discussion of some of our go-forward strategies. I'll then turn the call over to Mike to take us through a detailed financial discussion and our outlook for 2024, after which both Mike and I would be happy to take your questions. Let's get started. We delivered profitable results in the second quarter. However, our results were not as strong as we had originally forecasted due to softening market conditions as well as supply chain delays. We expect to recover the revenue associated with the supply chain delays in the branded products and healthcare apparel segments in the third quarter. On that basis, we are maintaining our full-year outlook. On a consolidated basis, we generated revenues of $132 million, up 2% over the prior year period. Our EBITDA of $5.6 million was down from $7.4 million a year earlier, with a margin of 4.2% compared to 5.8%. Our continued growth in gross margin dollars and gross margin percentage were more than offset by higher SG&A as compared to last year. While our second quarter SG&A costs were down slightly from the first quarter, our costs deleveraged on the lower-than-expected revenues. As a result, our second quarter diluted EPS was $0.04, as compared to $0.08 in the prior year quarter. We continue to drive solid operating cash flow during the second quarter, which, with the balance sheet improvements we made over the past year, enabled us to maintain a strong net leverage ratio. Therefore, we remain in a strong financial position to make strategic investments that will help us capture additional market share over the long-term across our three very attractive end markets while standing ready for any highly compelling M&A opportunities. I mentioned last quarter that we were cautiously optimistic on the demand trends across our three business segments. While first quarter demand was strong, we began to see a shift to slower customer decisions to purchase during the back half of the second quarter, as the uncertainty around inflation, interest rates, the upcoming election, and global geopolitics weigh on our customer sentiment. With that said, we remain focused on what we can control, which is positioning the company for long-term growth. I'll reiterate what I mentioned last quarter. Superior Group of Companies, still has a very small but growing share of three large, attractive, and growing end markets. We are driven to win more than our fair share of new customers while maintaining impressive customer retention statistics through providing a superior customer experience. We're optimistic on the future given the enormous size of our target markets and our own ability to capitalize through wise investment in our people, in our products, and technology. Turning to our business segments, I'll start with healthcare apparel. During the second quarter, our revenue was down 5%, due largely to continued softness in our store-based uniform wholesale business and a timing of revenues as compared to last year, due in part to temporary supply chain issues. These headwinds were partially offset by continued strong growth in our digital business, both in our wholesale and direct consumer channels. While the gross margin rate was up versus last year, the SG&A percentage increased at a higher rate, primarily driven by investments in marketing to drive further awareness of the Wink brand and support for the early stages of our direct-to-consumer channel. As a result, EBITDA was $1.3 million as compared to $1.9 million in the prior year quarter. Despite the second quarter sales decline in healthcare apparel, we believe our selling strategies in healthcare apparel, including last year's successful rebranding under the Wink trademark and expanding our direct-to-consumer efforts will drive long-term growth. Over time, we see ourselves capturing significant additional share of this large growing and resilient addressable market, expanding well beyond the more than 2 million caregivers who already wear our brands to work every day. Turning to Branded Products, our revenue was up 2% compared to the year-ago quarter, despite an inventory shift related to certain contract uniform customers whose inventory was contemplated to be on the shelf in June, but instead arrived in the third quarter. As a result, the revenues from these contract assets will be realized in the third quarter. Interestingly, the overall demand trajectory for Banco [ph] in particular, which is the largest portion of the segment, is being driven by a significant increase in the number of customer orders, partially offset by smaller order sizes and lower value products reflecting a cautious buying pattern by our customers. However, the increased number of orders, including from new customers, results in capturing additional market share and, therefore, greater opportunity for growth when the headwinds normalize for expanded revenue. The good news is that customers haven't stopped buying. They are, however, being more prudent with their spend. The increase in gross margin dollars and rate was offset by higher SG&A, which was primarily driven by employee-related costs, including commissions on the higher gross margins. As a result, the branded product EBITDA of $6.7 million was down slightly from $7 million a year earlier. From a strategic standpoint, our game plan for branded products revolves around strong customer retention, growing our wallet share, driving greater RFP activity, increasing our sales rep recruiting. Our market share of less than 2% has ample room to expand in this $24 billion market. Wrapping up our business segment discussion, contact centers grew revenues 9% year-over-year, accelerating slightly from last quarter's 7% revenue increase. Due to the attractive long-term growth opportunities, TOG continues to invest in advance in talent and satellite offices to support new and existing customer growth, which puts pressure on both gross margin and SG&A, but only in the short term. As a result, our EBITDA performance was almost flat with the prior year period at $3.2 million, despite the stronger top-line results. We're seeing solid demand for TOG's offering from both existing and new customers, and our strategy is to continue growing our pipeline and ultimately earning more business, while ensuring that our offering is competitive and reflects the value we bring to our clients. We're also investigating and already using some of the latest technology to provide the highest quality customer experience, while at the same time, employing additional technologies to enhance our efficiency and grow margins over time. I'll now turn the call over to Mike to walk us through our second quarter financial results in greater detail and to provide an update on our outlook for the full year. Mike? Mike Koempel Thank you, Michael. During the second quarter, we grew our top line 2% over the prior year period. This was our second consecutive quarter of year-over-year growth. And while our second quarter revenue was somewhat light versus our forecast, we're able to reiterate our full-year revenue expectations, given our favorable outlook for the rest of the year. Our consolidated sales growth was driven by our branded product segment, which grew 2% to $81 million, and our contact center segment, which grew 9% to $25 million. These increases were partially offset by a 5% sales decline in our healthcare apparel segment to $27 million for the quarter. In terms of our profitability, our consolidated growth margin expanded 170 basis points over the prior year, coming in at 38.5%. Both branded products and healthcare apparel continue to drive year-over-year margin expansion, with increases of 240 and 120 basis points respectively, driven by a combination of improved supply chain costs and pricing. These gross margin rate increases were partially offset by a 140 basis point decline at our contact center segment, driven by increases in employee-related costs of our agents, training in anticipation of new clients in the back half of the year. Our SG&A expenses were $48 million for the quarter, up from $43 million a year earlier, primarily driven by higher sales-related compensation from growth in the branded product's gross margin, higher marketing and advertising expenses, increased third-party professional fees, and increases in employee-related costs. Our EBITDA of $5.6 million was down from $7.4 million in the prior year period. Looking at this by segment, branded product EBITDA was down just slightly to $6.7 million, as stronger sales and a stronger growth margin were offset by higher SG&A expenses. Healthcare apparel EBITDA came in at $1.3 million, down from $1.9 million in the prior year period, primarily due to the lower revenues and higher marketing expenses this quarter. Contact center's EBITDA was almost flat year-over-year at $3.2 million, as sales growth was offset by the combination of a lower growth margin rate and a higher SG&A rate, largely reflecting investments in talent to support future sales growth. Shifting gears, our interest expense for the second quarter was $1.5 million. That sequentially improved from $1.8 million in the first quarter this year, and much improved from $2.6 million in the year-earlier quarter. The interest expense decrease from last year was primarily driven by a $53 million reduction in our weighted average debt outstanding, which I'll touch on in a moment. In terms of net income, we reported $600,000 for the second quarter, or $0.04 per diluted share, relative to $1.2 million, or $0.08 per diluted share, in a year-ago period. Turning to our balance sheet, which continued to improve, we ended the second quarter with cash and cash equivalents of $13 million, and we reduced our debt outstanding by another $12 million during the quarter. We've also generated $16 million in operating cash flow year-to-date, and our net leverage ratio at the end of the second quarter was 1.7 times trailing 12-month covenant EBITDA, much improved relative to 3.7 times a year earlier. I'll wrap up with our full-year 2024 outlook, which is unchanged from what we provided on our last quarterly call. Specifically, we look for full-year revenues to be in the range of $563 million to $570 million, and a full-year earnings per diluted share to be in the range of $0.73 to $0.79. These ranges call for acceleration over our first-half results, including the later timing of quarterly sales that were originally expected during the second quarter, as previously discussed. That concludes our prepared remarks, and, Operator, if you could please open the line, Michael and I would be happy to take questions. Thank you. [Operator Instructions] The first question comes from Kevin Steinke with Barrington Research. Please go ahead. Kevin Steinke Thank you, and good afternoon. I wanted to start out by asking about the supply chain delays. You mentioned healthcare apparel and branded products. You mentioned that delayed revenue being pushed to the third quarter. Just trying to get a sense as to if you could size the revenue that was delayed and, therefore, how much the third quarter will benefit. Mike Koempel Hi, Kevin. This is Mike. I'll take the question. What we started to see during the second quarter was really a combination of certain suppliers reducing capacity and then just an increase in demand in getting product, particularly out of China. We started to see some delays in product that we were receiving. It impacted us on the finished goods side, which, again, did directly impact the recognition of revenue. We also saw it in terms of delaying some of our fabric to our production facility in Haiti, which also did impact sales in the healthcare side as well. Again, we experienced those delays, which did create a shortfall in our expectations to the tune of, I would say, approximately a few million dollars for the quarter. Again, that's timing, some of which we began to recognize in the month of July and will recognize throughout the third quarter primarily. Michael Benstock Yes, Kevin, some of those delays were precipitated by the fact that with the anticipation that there could be tariffs placed on a lot of products coming out of China, in particular next year, if Trump were to be elected, a lot of people are trying to accelerate their shipments out of Asia. That has placed a lot of demand on the backbone of the logistics companies to try to meet that demand. That's certainly one of the reasons for the delay. Kevin Steinke Okay, great. That's helpful commentary. With regard to the softer marketing conditions you mentioned and the slower customer decision-making, does that apply primarily to branded products? Is that kind of across the segments? Is that slower decision-making continued thus far as you progressed into the third quarter? Michael Benstock Good question. We had a leadership summit about a week and a half ago and brought all of our presidents together. They all concurred that they had never seen slower decision-making on all of our customers' parts. RFPs are going out. The responses to the RFPs are taking forever. Sometimes we're being told that we've been awarded business and it takes forever to get things through people's legal departments. Even after that happens, it is taking our customers the longest period of time to actually pull the trigger and give us purchase orders. That is true in all of our businesses. I don't know what's causing that exactly except an uneasiness on their part or mandates from their own companies to slope their spending down or defer certain spending items. The spending will be there. It's just taking longer than ever. We're even seeing in our pipelines that our pipelines of business are larger than they've been in some time. But part of the reason why they're larger than they've been for some time is it's taking people longer to make a decision. That's just a fact of life. We're happy that our pipelines are dramatically larger than they've been in the past. When things do start to pop, we believe that that will result in us taking additional market share. Kevin Steinke Okay. Thank you. You talked about increased marketing and advertising expenses, I think, in a relation to direct-to-consumer and healthcare or maybe some other areas. Could you just expand upon that and, again, what the magnitude of that was? That will continue into the back half of the year. Mike Koempel Hey, Kevin. This is Mike again. The predominant increase in marketing and advertising continues to be in the healthcare apparel segment. As Michael mentioned in the prepared remarks, that's still attributable to us rebranding and continuing to build the awareness of the Wink brand, which we, I'd say, officially rebranded last year, as well as continuing to invest in the growth of direct-to-consumer. Obviously, these are heavier investments in the early stages of that channel specifically, which, again, over time we would expect to gain leverage as we build that customer base. That certainly is putting pressure on healthcare in particular, especially in a quarter, as you can see, where sales are down. We expect to gain more leverage on that as we move forward with our sales expectation in the back half of the year. Again, we'll continue to have a meaningful investment, but, again, we would expect to begin to gain some leverage in return on that as we move into the back half of this year. Kevin Steinke Okay. That's helpful commentary. Lastly, I wanted to ask about the second half of the year as you think about the outlook. Obviously, you talked about some of the revenue being delayed due to supply chain issues, but you expect that to come back. But I guess does your outlook also assume kind of a typical seasonal ramp in revenue? Is that something you're seeing or expecting in the business? Is that kind of factored into the outlook? Mike Koempel That is what we're expecting, Kevin. I would say just to add a little bit more to what Michael was saying in terms of RFPs in our contact center business where the decision making has been longer, the good news is that our pipeline is very strong, particularly with new customers. With that timing of the decision making, that would translate for them in a larger magnitude of sales in the back half of the year Q4 in particular than we might otherwise see just because of the timing. Again, that is factoring into the back half of the year. Kevin Steinke Okay. Thank you for taking the questions. I'll turn it back over. Our next question comes from Keegan Cox with D.A. Davidson. Please go ahead. I just wanted to ask and dig a little bit more on the higher SG&A. I got that it was from kind of early investment in your contact center business, but I was just wondering if you could talk about it a little more and why you're growing that out. Michael Benstock Sure. The SG&A increase is driven by a handful of factors, one being we did have an increase in gross margin with our branded products business. As we said before, we pay commissions based on gross margin dollars. As gross margin dollars rise, so will our commission expense within branded products. I would say within our branded product space as well as our contact centers, we are making some investments in talent to support what we believe to be obviously the future growth trend of those businesses. So building out what I would call a little bit more infrastructure. Thirdly, also within the contact center business, we have made some incremental investments in a couple of what I would call satellite offices, obviously off of our current office format, which really helps us enable to access additional pools of talent, train on board faster. So again, we're making some of those investments in the early stages here to support the growth of new customers coming on board. And then lastly, another meaningful part would be the marketing and advertising expense that I just referenced with Kevin, which again is predominantly within our healthcare business. Keegan Cox Awesome. And then to kind of just follow up on that, you talked a little bit about supply chain delays, and I know you guys have facilities in the Caribbean, like in Haiti and such. Have they been impacted at all by the storms heading through there? Michael Benstock They have not been impacted by the storms, thankfully. In the civil unrest in Haiti, which is the other side of what happens in Haiti that could impact, has not impacted us much at all either. We've really had no downtime in the past quarter as a result, so we're in good shape there. Keegan Cox Awesome. And then I think I just had one more kind of, you were talking, Michael, about the pipeline of business kind of picking up in the back half of the year. And I just wanted to dig down into what segment that's in. Is it in the contact center? Just trying to make sure I got it right. Michael Benstock Yes, that's in the contact center business where the pipeline of prospects is much higher. And when I say prospects, I'm talking about people who we're having serious conversations with about taking over their business. They only make it to that list if that's the case. And then, of course, the second side of that is even when we're told that we've won, it's taking longer to close business. But business is closing at a rate that we're very satisfied with. Next question comes from Jim Sidoti with Sidoti & Co. Please go ahead. James Sidoti Hi, good afternoon. Thanks for taking the questions. So I'm looking at the results of the first half of the year and the results of the guidance. And it seems that you expect Q3 and Q4 to be even better than Q1 was. So what's giving you that confidence? Michael Benstock I would say a couple of things, Jim. One is there is what I call some seasonality in terms of we know historically that branded products in particular typically has a very strong third quarter leading into the fourth quarter. Two, I would say that from a timing perspective, we talked a little bit about the supply chain delays, which will obviously benefit the back half of the year. Thirdly, I would say from a timing perspective, there are a couple of customers in the healthcare business where those sales took place in the first half of last year are now coming in the back half of this year. Kind of gets a little bit to what Michael was referring to in terms of the timing of decision making. And those sales are purchase orders. Those are sales ready to go. And then lastly, I would just again comment on what Michael and I touched on before just from a contact center standpoint, just in terms of the timing and onboarding of new customers, which is coming. Again, that put a little bit of pressure on SG&A expense for contact centers in the second quarter as we were training in advance of the back half of the year. But because of the timing of new customers, we expect that to drive improved sales trend in the back half for that segment as well. James Sidoti And historically, Q4 is even better than Q3. The fact that you're going to, I guess, do some catch up in Q3 this year, do you think that those two quarters will be a little more leveled off? Michael Benstock They'd be a little bit more balanced, Jim, to your point. Yes. James Sidoti And then in terms of hiring sales people for branded products, are you finding that to be any easier or is that still a challenge for you? Michael Benstock It's never easy to wedge somebody away who's comfortable in their current environment. We've had more success in the last quarter than we've had in prior quarters, but we're satisfied that we're getting return for our efforts and looking at a lot of other ways as well to grow sales other than hiring additional sales people, we can create some operational efficiency that will make the sales force we have even more efficient. We're in the process of rolling some things out internally, somewhat using some AI technology as well to do so that will help our current sales force achieve what we believe are better results for us as well. James Sidoti All right. And then last one for me. The one area where you have made a lot of progress is your gross margin, up significantly from 2022 and 2023. Do you think that these levels are sustainable? Michael Benstock We would expect Jim to maintain a margins where we've been. If you look back historically just the last year, you really started to see our margin rate go up in the third quarter of last year and we've continued that trend. I'd say we've have margins in the back half more consistent with last year only because we start lapping the stronger margins that we started to accrue in the third quarter. James Sidoti Okay. But it sounds like you are thinking the high 30s? That's a pretty sustainable number? This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Benstock for any closing remark. Michael Benstock Yes, thank you operator. I want to thank everyone for joining the call, for the great questions as well. We are excited about our company growth prospect and everyone here at SGC is focused on strong execution. We look forward to updating you again on our next call. And please don't hesitate to reach out if you have any further questions before then. Enjoy the rest of your summer. Thanks again for being with us today, and as always thank you for your interest in SGC. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

comScore, Inc. (SCOR) Q2 2024 Earnings Call Transcript

John Tinker - Head of Investor Relations Jon Carpenter - Chief Executive Officer Mary Margaret - Chief Financial Officer Good day, and thank you for standing by. Welcome to the Comscore Second Quarter 2024 Financial Results Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to John Tinker, Head of Investor Relations. Please go ahead. John Tinker Thank you, operator. Before we begin our prepared remarks, I'd like to remind all of you that the following discussion contains forward-looking statements. These forward-looking statements include comments about our plans, expectations and prospects and are based on our view as of today, August 6, 2024. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties. These risks and uncertainties include those outlined in our 10-K, 10-Q and other filings with the SEC, which you can find on our website or at www.sec.gov. We disclaim any duty or obligation to update our forward-looking statements to reflect new information after today's call. We will be discussing non-GAAP measures during this call, for which we have provided reconciliations in today's press release and on our website. Please note that we will be referring to slides on this call, which are also available on our website, www.comscore.com under Investor Relations, Events and Presentations. I'll now turn the call over to Comscore's Chief Executive Officer, Jon Carpenter. Jon? Jon Carpenter Thanks, everyone, for joining us this evening. Look, there's no way to get around the fact that 2024 has not played out as we had expected, and certainly fluctuating for our stakeholders, especially our employees who bought their humps every day to deliver and that certainly weighs heavily on me. And as I know it does the rest of the leadership team. Despite that frustration and the financial print here in the quarter, we are making progress with the turnaround of this company. The path we're on is one that will take us from being a company that was heavily reliant on syndicated revenue from products focused on legacy markets, undergoing tremendous disruption to a company that drives growth via transactional model tied to solving the rapidly growing problems that will define the future of media measurement. It's fair to say that the pace of that turnaround isn't what we expected it would be at this point in the year. However, given what we're seeing in the market, we're convinced that we're moving in the right direction as we execute our playbook. The pressure that we've seen on our clients and what I'd refer to as the legacy media segments with our syndicated digital and TV products being down in the first half, certainly helps point to the rough first half we've had, but it also highlights why the turnaround we're executing is the right one. While much of the industry is obsessing over yesterday's problems, Comscore is unapologetically focused on the emerging areas that will enable the future of media and advertising measurement, areas where Comscore has a unique set of assets and capabilities to deliver durable value within a rapidly changing media environment. We're seeing encouraging strength in our cross-platform offerings, specifically our Proximic business, and in terms of our cross-platform ad campaign measurement product, CCR. The pace of that is -- of adoption isn't accelerating as quickly as we had hoped or as quickly as we needed it to, to offset some of the weakness we see in certain parts of our traditional business. But while we fully expect CCR to ramp up, as we move through the back half of the year, it's clear that the time line for that ramp is going to look a bit more similar to the activation business when we integrate a new platform than what we had originally anticipated. To give you an example of what I mean by that, we launched our Predictive Audience segment as part of Proximic in a major programmatic platform in May of 2023. Our first month with the product in that platform, we saw a relatively small revenue bump, which remains the case for several months before it started to scale meaningfully. Today, the monthly revenue from Predictive Audiences as part of Proximic in that platform is more than 100 times those early months, and we're now closing in on nearly $1 million per month in that one platform alone. I bring that up as an example because there are some significant parallels to CCR being integrated into these same platforms. In both cases, we're integrating value-added differentiated products into some of the most important channels within the programmatic ad ecosystem. I'll have more to come. But with that, let me just turn it over to Mary Margaret here to speak about the second quarter results. Mary Margaret Thank you, Jon. Total revenue for the second quarter was $85.8 million, down 8.4% from $93.7 million the same quarter a year ago. Content and ad measurement revenue of $72.2 million was down 6.7% from 2023, primarily due to lower revenue from our syndicated audience offering. As Jon mentioned earlier, the pressure that our legacy media clients are under has created headwinds for our syndicated offering, and the impacts have been felt most notably in our national TV and syndicated digital products. Our movies business remained solid in the second quarter with revenue growth of 5% over the prior year. Cross-platform revenue did decline in the second quarter, primarily driven by a decline in CCR revenue due to a pause in usage with a large enterprise client, while we work to integrate across their ad platform. The CCR decline was predominantly offset by growth in Proximic revenue, which also came in slightly lower than we expected. Proximic is integrated inside Oracle's ad platform, and we benefit from the campaign flowing through there, which significantly reduced in number during Q2 when Oracle announced they're shutting down their ad business. As Jon will highlight later, we view this as a short-term setback that bigger picture should be another revenue catalyst for Proximic. Research and Insight Solutions revenue of $13.6 million was down 16.5% from 2023, primarily due to lower deliverables of custom digital solutions and less products as a result of the pullback that we've been seeing on discretionary ad spend from certain clients. Adjusted EBITDA for the second quarter was $6.9 million, down 22.8% from the prior year quarter, resulting in an adjusted EBITDA margin of 8.1%. Our disciplined cost execution, fueled by the restructuring efforts we've made over the past couple of years, allowed us to maintain a reasonable adjusted EBITDA margin for the quarter, even though revenue came in lower than we expected. Our core operating expenses in the second quarter were down 6.1% over the prior year. As we continue to focus on operational efficiency, we're also investing in new products and capabilities, including enhancements to existing products, upgrading our tech stack and providing faster data delivery as well as some promising new areas, which Jon will speak to shortly. Although we're optimistic about where we're headed, the reality is that 2024 hasn't lived up to our expectations. Given the roughly $13 million of revenue decline we saw in the first half of 2024, coupled with what we expect to be continued pressure on our syndicated audience offerings in the back half of the year, along with our expectation that we'll see further softness in revenue from our more bespoke custom offerings in the coming months, it is necessary for us to reset expectations for the remainder of 2024. Based on our current expectations, we are revising our full year revenue and adjusted EBITDA guidance. We now expect full year revenue for 2024 to be between $350 million and $360 million, which is a decline of 3% to 6% over 2023. As John mentioned earlier, the slower-than-expected pace of CCR scaling is one driver of this change, which has delayed some of the revenue growth needed to offset the impact of the weakness we've seen from our traditional media clients. As such, we expect revenue for the third quarter of 2024 to be down 4% to 6% over 2023. However, we do expect the revenue decline to moderate towards the end of the year as revenue from Proximic and CCR ramps. Given these lower revenue expectations, along with the need to make investments in areas of the business, where we feel we have the most opportunity for growth, we're now targeting a minimum adjusted EBITDA margin of 10%. Finally, before turning it back to John, I want to take a moment to give you an update on our progress, as we work to strengthen our balance sheet, where we've made significant progress in their last earnings call. In conjunction with the extension of our credit facility in May, we paid down $6 million of our outstanding balance, leaving $10 million on the balance sheet. We're currently evaluating alternative financing options for the company. We've also paid approximately $12 billion towards our restructuring plan efforts over the past couple of years. With that plan now largely complete, we do not expect any significant related cash obligations going forward. You may have also seen that we reached an agreement with our preferred shareholders in July to issue additional Series B preferred shares in exchange for the cancellation of the 2023 and 2024 accrued dividends, which totaled approximately $33 million, and we're accruing at a penalty rate of 9.5%. The balance was canceled an effective conversion price of $49.44, well above our current trading price and allowed us to return to our standard dividend rate of 7.5%. We also received a credit against the Series B special dividend threshold for this issuance, resulting in a current threshold of approximately $47 million. Finally, we've paid down nearly all of the contingent consideration related to our 2021 acquisition of Shareablee, which was due and payable over three years from the date of the acquisition. Our final payment will be due at the end of 2024. I'm pleased with the progress we've made here, but also know that there's plenty more to be done. With some of these cash obligations now out of the way, we plan to focus our cash flow on the things that will most effectively and efficiently drive growth. With that, I'll turn it back over to Jon to give his thoughts on our longer-term outlook. Jon Carpenter Thanks, Mary Margaret. Looking ahead, I'm confident in the direction we're taking the company as we target a return to growth in the coming quarters. We're focused on solving the biggest, fastest-growing problems facing the market, and we're already seeing tangible evidence that we're making real progress. The solutions that we're taking to market here require new ways to think about things, both for Comscore and for our clients. And that kind of change does take time. As we look to the second half of 2024, and as Mary Margaret mentioned, we expect that we'll see the rate of decline slow as we move deeper into the second half. And looking specifically at our cross-platform products in the second quarter, we did see a few important things to point out. First, we introduced a comprehensive cross-platform YouTube audience measurement that includes desktop, mobile and connected TV to a major milestone with an important client. Additionally, we've integrated CCR under the Trade Desk, putting our solution for cross-platform advertising measurement into one of the most important channels in the programmatic ecosystem. Finally, our Proximic business has made significant strides with major holding companies with multiple preferred partnerships in the works, and you'll see these announcements on this front in the very near future. We've got great momentum building behind this turnaround. It's possible that if we see this momentum continue and accelerate a bit that we could see a return to growth as early as the fourth quarter of 2024. To give you some more color around that momentum, we currently have 5 of the top 10 auto brands in the US, leaning in to onboard our cross-platform ad measurement product, where our one-of-a-kind market-by-market view of campaign delivery is incredibly impactful for national advertisers whose businesses depend on their campaigns driving actions at the local level. Oracle's announcement in the second quarter is surely having a negative impact on Proximic revenue in the short-term. However, big picture, it represents a significant opportunity for us. In the aftermath of that announcement, we've seen predictive audiences start to gain additional traction and we've also seen clients look to establish more direct relationships with us for our data, in some cases, moving Comscore from a wholesale relationship with our clients to direct relationships, which we fully expect will drive accelerated revenue. We'll have some other announcements about significant developments for Proximic in the near future as well, and I'm excited by the progress we continue to make in this part of the business. Moving forward, as we look at how we drive syndicated audience value, we're seeing that it's not by chasing problems in the past, but it's by leaning into Comscore only capabilities to solve the emerging problems that are facing media companies today. This will include a number of new products and services, which we expect to release over the next few quarters. They include things like a new offering that provides insights into consumers' expanding usage of AI tools and Comscore's ability to measure that. We also plan to release an omnichannel content measurement offering, which will help clients move their planning out of silos, take advantage of the holistic view of audiences and platforms that only Comscore can provide to clients. And finally, the Comscore watch report, which will provide both a national and market-by-market view of the consumption of ad-supported media spanning broadcast, cable and streaming. We know we've got a lot of work left to do, and our teams are innovating and delivering cross-platform solutions that meet our clients' most pressing needs. We're intent on moving quickly as we continue this turnaround and return the company to growth. With that, operator, we can open it up for questions. [Operator Instructions] Our first question comes from the line of Surinder Thind with Jefferies. Surinder Thind Thank you. Just a really big picture question here. Given all of the changes and the challenges in the legacy business, what really is the path forward here given that the newer products that you're focused on are much more part of the business at this point? Jon Carpenter Hi Surrender, thanks. I mean big picture, we're focused on areas of where comScore has got significant opportunity, and that's going to continue to be in our cross-platform capability and building out the solutions that our clients are asking us for, and that includes expanding CCR integrations. It includes our cross-platform, content planning product that I mentioned, and it includes continued investment in sales and product development inside Proximic, and that's where we're going to continue to focus the lion's share of our investment, because that's where we see the most significant growth going forward as we look out over the early the remainder of this year and certainly, they're a part 2025. Surinder Thind But I guess from a headwinds perspective, what's the risk that these headwinds remain material for a significant period of time and just asking the other parts of the business. I guess that's kind of what I was trying to get at. And are there maybe strategic alternatives or options that you can think about, for example, the movies business or anything else where it may be able to separate out some of the parts of the business? Jon Carpenter Yes. I understand the question. I'm not going to comment on maybe some of the strategic points that you mentioned if we've got an announcement to make. We'll certainly make that available. But I think when we look at the balance of this year, what we put out for our thinking on 2025 as it relates to the traditional businesses, outside of custom, which does get choppy. And in the guide, we've really stripped out any kind of try to account for any unknown in the custom business in the guide. But as it relates to the traditional products, TV, in digital, I think by the time we get to the end of this year, we'll have anniversaried a lot of the, I would say, churn that we've seen in the digital product, we'll have anniversaried some of the big major renewals that we have this year and that we had in parts of last year. So just in terms of the visibility to that side of the business as we exit, certainly the third quarter and the early parts of the fourth quarter, we've got pretty good line of sight into what that -- how that business kind of stabilizes itself. Surinder Thind Got it. And final question, just you kind of gave an example of the ramp in Proximic and then you kind of transition that to c0ommentary around CCR. How should we be thinking about that? Is that -- are we measuring that in quarters or how should we talk about where you want to be at a certain point in the target? Jon Carpenter Yes. I mean I think what we've learned here with CCR is that, we're integrating with some very big platforms. And much of the time line that we're talking about here is not always in our control in terms of the pace with which these things start to become visible inside those platforms. If anything, I think we can look back and learn from Proximic, and that was the example that I used, where it took some time. We're now 15 months into that integration. And as I mentioned on the call, we're doing over $1 million a month in one platform. And looking back on it, it took 3 to 6 months to really start to see meaningful momentum build. If you look at where we are with CCR, for example, the Trade Desk, which is one that we've talked about publicly, it really didn't get into the platform until the early part of July, and that was certainly delayed from when we had initially expected it to be. But that gives you a sense for CCR is still in the very early innings inside that platform specifically. And so, I think we're talking about months and quarters as these things start to get scale, we tried to account for that in terms of resetting our expectation for the growth that we can count on from that specifically in the balance of the second half. [Operator Instructions] I'm showing no further questions in queue at this time. I'd like to turn the call back to Jon Carpenter for closing remarks. Jon Carpenter Okay. Thanks, everybody for joining. I appreciate everyone dialing in to the call, and I'm sure we'll be talking to many of you shortly. Thanks. This concludes today's conference call. Thank you for participating. You may now disconnect.

Grand Canyon Education, Inc. (LOPE) Q2 2024 Earnings Call Transcript

Brian Mueller - Chief Executive Officer, President and Director Daniel Bachus - Chief Financial Officer Good day, and thank you for standing by. Welcome to the Q2 2024 Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dan Bachus, Chief Financial Officer. Please go ahead. Daniel Bachus Hello. Joining me on today's call is our Chairman and CEO, Brian Mueller. Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in GCE. Good afternoon, and thank you for joining Grand Canyon Education's second quarter 2024 conference call. GCE had another strong quarter, producing online enrollment growth of 7.5% and hybrid growth of 12.1% and also continuing to produce strong retention rates, exceeding revenue guidance estimates at midpoint by $4.5 million, producing a $0.17 beat in adjusted diluted earnings per share to consensus while continuing to invest heavily in initiatives for our university partners. Grand Canyon Education and its largest partner, Grand Canyon University as well as GCE's 21 other partners continue to grow enrollments in the midst of declining enrollments at many universities across the country. I want to start by reviewing the reasons that this is happening. There is a vast amount of untapped potential in the American labor force today. The lack of created delivery models by universities is the reason for the untapped potential. The best examples are the huge shortages that exist in nursing, teaching, technology, engineering and cyber security, just to name a few. Expecting every student who has potential in these areas to attend an on-campus setting seriously reduces the size of the potential market. Our success is the result of understanding that people across the lifespan, have unique living situations and the nature of what it is they need to learn varies by academic area. The combination of creative delivery models and relevant programs is driving the interest in what we are doing. We currently deliver 340-plus academic programs, emphases and certificates across five creative delivery platforms. Number one, GCU's traditional ground campus is designed around the needs of 18-year-old high school graduates, who are able to spend three or four years on a college campus, preparing for life and work as adults. Their learning is primarily in physical brick-and-mortar classrooms, in other on-campus venues and in internships in organizations throughout the Greater Phoenix area. Second, GCU's online campus is designed for working adult students who enter the academic programs whose content can be learned totally in an online environment. Third. The third platform is for students who also can't spend three or four years on a college campus, but what they are studying can't be learned totally online. The 80 hybrid locations we are building across the country are for students entering programs where some of the content can be learned online, while a significant part must be learned in a brick-and-mortar laboratory setting. Currently, it is health care programs, specifically nursing and occupational therapy that are offered in those settings, but eventually, we will add additional programs that fit the hybrid technology -- methodology. Our total investment in these settings will exceed $240 million and allow us to teach approximately 50,000 students. The fourth platform is for students who want access to the rapidly expanding trade professions. These are shorter programs in a physical brick-and-mortar setting that combine the real-world work experience with classroom learning. These students after gaining employment can finish their bachelor's degree online. We are developing a fifth platform for students who are 18-year-old high school graduates who want a three or four year college experience, but want to do it in a distance. The reality is higher education needs to move way past the simple dichotomy of either learning on a campus or doing it online. There are vast shortages in areas like teaching and nursing because we lack creative models of delivery, that take into account the student's life situation and the nature of what it is they need to learn. However, to teach these programs at scale and in certain cases at a distance, take significant investment in facilities, technology and personnel. Investments we have made and will continue to make. With that, I'd like to review the results of the four current delivery platforms at Grand Canyon Education. First, the online campus at Grand Canyon University. New starts were up again in the second quarter of 2024, and total enrollment growth continues to be higher than our long-term objectives, up 7.5% over the prior year. The new start growth rate in the low single-digits in the second quarter was an expected deceleration from previous quarters as the year-over-year comp was tough and June had one less undergraduate start than the year prior. Although we expect June enrollments to come in slightly higher than they did. We expected June enrollments to come in slightly higher. July new enrollments were in line with our higher expectations. We still anticipate starts for the third and fourth quarters to be up in the mid- to high single-digits even with the challenging comps. There are many reasons for this strong performance, but I want to highlight four. One, we have stayed hyper focused on opportunities that exist in today's labor market. And since the beginning of the pandemic, GCU has rolled out 148 new programs, emphases and certificates across the 10 colleges. These programs are tied directly to labor market opportunities for students. One of the responses of universities to declining enrollments is to reduce the number of programs they offer. Two, we continue to work with employers directly to address their workforce shortages. This effort is focused on the industries of education, health care, technology, public safety and the military. In the second quarter, new starts from this work increased in the low teens year-over-year. Three, the retention of students in the second quarter went up 50 basis points, which we believe continues to improve because of the relevancy of the programs that students are entering and they're direct tied to the student's career aspirations. Four, GCU has resisted responding to the slower growth during the pandemic by raising tuition significantly, which many institutions have done. Our online net tuition increases since 2018 have averaged approximately 1% per year. Second, the GCU ground campus for traditional students. We currently anticipate new and total traditional campus enrollments to be close to flat year-over-year, in line with the low end of our original expectations. Although this would be a disappointing result given the significant increase year-over-year in Discover GCU visits, this will be much better than what is occurring nationwide. The Department of Education's FAFSA issues in which processing problems in glitches caused major delays in universities receiving the FAFSA data from eligible students. And once they did, millions of forms were found to have errors and needed to be reprocessed, forced almost all universities to push back deadlines. As a result of these delays, the number of FAFSA completions among high school seniors is down significantly, including at GCU. Many are predicting that this will cause overall new enrollment at universities to be down as much as 10% year-over-year. As of today, GCU is up year-over-year as was expected in applications and registrations with students that did not complete a FAFSA, but is down in applications and registrations with students that completed the FAFSA. We continue to register students for the Fall semester, but we anticipate new and total enrollments to be close to flat year-over-year. I want to add some additional color to the traditional campus results. There is a significant change taking place in the attitude of Americans regarding higher education, especially spending four to six years on a college campus. Increasing costs, high debt levels, outdated degree programs and the extreme political unrest on college campuses are all contributing factors. We believe American's value learning and preparing for prosperous careers more than they ever have. Enrollment on campus will be close to flat year-over-year, but total enrollments across all platforms are up. We are doing well and will continue to do well because we are adjusting to the flexibility students will continue to demand from universities. The flexibility we provide through our five platforms will cause total enrollment to continue to rise. Ground campus enrollments have been impacted this year by the FAFSA site problems affecting lower class students and inflationary pressures faced by middle-class students. We anticipate the FAFSA site issues will be resolved for next year's students and are hopeful that inflation will come down. Those two changes, combined with the other marketplace advantages we have, such as the very low price point, very low average debt levels, percent of students completed in less than four years. the relevancy of GCU's expanding academic programs and a $2 billion investment in creating one of the top campus in the country will reaccelerate our growth towards 50,000 students. The new enrollment goal for the ground campus will be up over 15% over new enrollments this year. Third, Grand Canyon Education's hybrid campus had an increase in enrollment year-over-year of 12.1% in the second quarter. New summer enrollments were up approximately 30% year-over-year. The new student growth rate in the Fall for the hybrid pillar will be moderate to high single-digit, excluding closed locations. This is due to much more difficult comps as Fall 2023 is when we started to see significant acceleration of new start growth and due to some of the GCU locations already being at capacity. No growth year-over-year is possible at those locations where significant growth at these locations occurred in previous quarters. There are two main reasons for this strong performance: one, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees haven't accumulated a great deal of debt and are very interested in nursing careers, but didn't have an efficient way to earn the prerequisite science course work. GCU created the science courses and some other Gen Ed courses, they could be delivered online in eight weeks. Students can access those courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable, are taught by experienced faculty, class sizes are low, and there's a tremendous amount of academic support, including an artificial intelligence project that went live in October 2023, which provides students 24/7 access to tutoring. Since implementing these courses, we have already enrolled approximately 9,689 students. We have a waterfall report that allows us to know how students are progressing through their prerequisite courses and when they will be eligible to start at one of our ABSN sites. The success rate of students who successfully entered the ABSN programs is above 90% and the first-time pass rate on the NCLEX exam is approximately 90%. We now have an extremely efficient way to get students academically eligible and prepared to enter the program. The positive results we saw in the fall, spring and summer semesters, we anticipate will continue. There has never been greater interest among potential students for entering the health care professions and specifically nursing. Because of the lower employment rate, the interest has shifted to these younger students who haven't accumulated a great deal of debt completing the Bachelor's degree in another area and are underemployed. Nearly all of our partners have responded positively to the changes needed to serve the advanced standing students. Our goal is still to have 80 locations with our partners with 40 of the locations being GCU locations. Fourth, the Center for Workplace Development at Grand Canyon University. In the 2022-'23 school year, we started 80 students in GCU's electricians pre-apprenticeship program in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates. The program consists of four full credit courses and it runs one semester. 74 students successfully completed the program in the first year. This past school year, we started 233 students in the program, 123 students completed this program in the fall and 82 in the spring of 2024. GCU also has plans to begin offering this program at one of our locations outside of Arizona in the fall of 2024. This past fall, GCU also started 19 students in manufacturing certificate program. GCU is running a small parts manufacturing business on campus that is doing work for some of the major companies in Arizona. These students are attending school for 20 hours a week and then working in the facility as a paid employee for 20 hours. At the end of the semester, they received a manufacturing certificate and became eligible for employment in Arizona's fast-growing manufacturing industry. GCU's growing college of engineering also has students assisting with this project. Once this concept has been successfully proved out, we expect to work with GCU to scale the program and then add others. I started out talking about the relevant programs and creative delivery models that GCE has implemented with its 24 -- 21 partner institutions. In the six years since GCE has become a service provider, it has helped its partners accomplish the following: in that time, GCE has helped Grand Canyon University graduate 169,521 students. 46,251 in education, including 22,465 first-time teachers at a time when teacher shortages have created a national crisis. 46,209 in nursing and health care professions including 2,443 pre-licensure nurses at a time when there is a huge shortage of nurses. 33,689 in the college of humanities and social sciences, including thousands in counseling and social work, where there are also huge shortages. The College of Business has become one of the largest business schools in America, and has produced 29,493 graduates. The College of Science, Engineering and Technology has grown by 225% and provided 6,880 graduates. The Doctoral College, Honors College and College of Theology also continued to grow. In addition, GCE has helped its other partners graduate 17,443 pre-licensure nurses and occupational therapists assistance. The numbers that I have cited all have happened in the past six years since the GCU, GCE transaction and since GCE has become an education services provider. Service revenue was $227.5 million for the second quarter of 2024, an increase of $16.9 million or 8% as compared to the $210.6 million for the second quarter of 2023. The increase year-over-year in service revenue was primarily due to an increase in GCU enrollments of 7%, an increase in university partner enrollments at our off-campus classroom and laboratory sites of 12.1% and an increase in revenue per student year-over-year. Operating income for the three months ended June 30, 2024, was $42.7 million, an increase of $7.3 million as compared to $35.4 million for the same period in 2023. The operating margin for the three months ended June 30, 2024 was 18.8% compared to 16.8% for the three months ended June 30, 2023. Net income increased 20.4% to $34.9 million for the second quarter of 2024 compared to $29 million for the same period in 2023. GAAP diluted income per share for the three months ended June 30, 2024, is $1.19. As adjusted, non-GAAP diluted income per share for the three months ended June 30th is $1.27. With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2024 second quarter, talk about changes in the income statements, balance sheet, and other items as well as to discuss the updated 2024 guidance. Daniel Bachus Thanks, Brian. Included in our Form 8-K filed with the SEC, we have included non-GAAP net income and non-GAAP diluted income per share for the three months ended June 30, 2024, and 2023. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the second quarters of both 2024 and 2023. The tax-affected amount of the losses on fixed asset disposals of $0.1 million for the six months ended June 30, 2023, and the tax-affected amount of $1.1 million in severance costs recorded in the quarter related to Dan Briggs' departure. We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company's performance over time. As adjusted, non-GAAP diluted income per share for the three months ended June 30, 2024, and 2023 is $1.27 and $1.01, respectively. Service revenue was higher than our expectations in the second quarter of 2024, primarily due to higher-than-expected revenue per student. Revenue per student continues to grow on a year-over-year basis, primarily due to the service revenue impact of the increased room board and other ancillary revenues at the GCU traditional campus enrollments between years. Service revenue per student is also positively impacted by the growth in hybrid ABSN students as these students generate a significantly higher revenue per student than we earn on the other students as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates and the majority of their students take more credits on average per semester as they are in accelerated programs. The increase in revenue per student was less and somewhat by the timing of the spring semester for the ground traditional campus. The spring semester started one day earlier in 2024 than in 2023, which had the effect of shifting $2.1 million in service revenue from the second quarter of 2024 to the first quarter of 2024 as compared to the prior year. In addition, contract modifications for some of our university partners in which the revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs and the termination of one university partner contract at the end of the Spring 2024 semester had the effect of reducing revenue per student. Our operating margin in the second quarter of 2024 was higher than our expectations primarily due to the higher revenue per student and lower-than-expected headcount. We continue to invest heavily to meet our clients' growth goals. These investments have included headcount increases, travel primarily related to discover, increased clinical costs at off-campus classroom and laboratory sites due to the nursing shortage, technology services, both in headcount and license fees as a result of new technology requests by our partners and costs related to the new hybrid locations as we opened five sites in the year ended December 31, 2023. Four sites in the six months ended June 30, 2024, and more will open later in 2024. The second quarter operating margin was positively impacted on a year-over-year basis due to the contract modifications and negatively impacted on a year-over-year basis by the timing difference between years and the start of the spring semester for GCU's ground traditional campus. And the $1.1 million in severance costs recorded in the quarter related to Dan Briggs' resignation effective June 30, 2024. Our effective tax rate for the second quarter of 2024 was 25.5% and compared to 23.8% in the second quarter of 2023 and our guidance of 24.9%. The effective tax rate increased year-over-year due to higher state income taxes. We repurchased 281,014 shares of our common stock in the second quarter of 2024 at a cost of approximately $38.7 million, and another 94,520 shares we repurchased since June 30, 2024. We have $189.8 million remaining available as of today under our share repurchase authorization. The Board and the company intend to continue using a significant portion of its cash flows from operations to repurchase shares. Turning to the balance sheet and cash flows. Total unrestricted cash and short-term investments as of June 30, 2024, were $341.8 million. GCE CapEx in the second quarter of 2024, including CapEx for new off-campus classroom and laboratory sites was approximately $9 million or 3.9% of service revenue. We still anticipate CapEx for 2024 to be between $30 million and $40 million. Last, I would like to provide color on the guidance we have provided in our 8-K filed today. As a reminder, the guidance we have provided in the outlook section of our 8-K filed today is GAAP net income and diluted income per share with the components to adjust the GAAP amounts to non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share. I want to just mention very quickly before I go through the rest of the guidance in a press release that went out earlier today, announcing our results, full year guidance for the non-GAAP and as adjusted diluted income per share did not include the tax affected severance costs recorded in the second quarter. The 8-K was correct and the press release has been amended. We have made a few changes to our second half 2024 guidance due to current trends or items that recently occurred, so I'll start with a high-level perspective and then drill into the detail. We have updated full year 2024 guidance to include the second quarter revenue and earnings beats. We have narrowed the revenue ranges for the third and fourth quarters and lowered total revenue at midpoint by $8 million. $1million in the third quarter and $7 million in the fourth. As you recall, the large spread between our initial high and low estimates in the second half was primarily due to our uncertainty around GCU's ground traditional fall semester enrollments due to the items Brian mentioned earlier. As Brian discussed, it is likely that we will be near the bottom of that initial range. And thus, we have narrowed the range considerably and lowered our expectations at midpoint for this pillar by $8.5 million in the second half, $2.5 million in the third quarter and $6 million in the fourth quarter. We have also lowered revenue at midpoint by $4 million in the second half, $1.5 million in the third quarter and $2.5 million in the fourth due to the contractual changes recently agreed to with three more university partners in which we will no longer reimburse those partners for their faculty pay in exchange for a lower revenue share percentage. These modifications have no material impact to the income we generate on the contract, but reduces revenue and technology and academic services expenses. We have raised our assumptions for online and hybrid revenues due to the positive current trends by $4.5 million, $3 million in the third quarter and $1.5 million in the fourth. We have increased operating expenses in the third quarter as we made the contributions in lieu of state income taxes to tuition organizations of $4.5 million in July. This is an increase from what has been contributed in prior years due to higher state income tax. These contributions have the effect of increasing general and administrative expenses in the third quarter by this amount and lowering income tax expense by the same amount roughly, three quarters in the third quarter and one quarter in the fourth quarter. So neither of these most -- these changes have an impact on net income for the second half, but does decrease income slightly in the third quarter and increases it slightly in the fourth quarter. We have lowered our operating expense assumptions in both the third quarter and the fourth quarter due to our current staffing levels, but it is important that we get fully staffed in the fourth quarter so that we can meet our university partners 2025 enrollment goals. On a more detailed level, we continue to anticipate the new online enrollments will be up year-over-year in the mid- to high single digits in each of the final two quarters of 2024 and that total online will continue to grow year-over-year above our long-term objectives. As Brian has discussed, the online enrollment results were outstanding in 2023. Lead trends remain strong, but as a reminder, not only did -- new enrollment grow at a much higher rate than we expected. And then in the second half of 2023, these growth rates were coming off very difficult year-over-year comps, but also retention rates significantly improved over the prior year, which has resulted in the decline year-over-year in reentries, students returning to school after break and a significant year-over-year increase in graduates. These factors will continue to impact the total enrollment growth rate in the second half of 2024. As has been previously discussed, with the new student growth rate in the hybrid pillar will moderate to high single-digit growth year-over-year in the fall start excluding closed locations, due to much more difficult comps as fall 2023 is when we start to see significant acceleration in new start growth. And due to some of the GCU locations already being at capacity and thus, no growth year-over-year as possible at those locations, whereas significant growth at those locations occurred in previous quarters. As I just discussed, the revenue growth rate for the hybrid pillar as a result of the enrollment growth continues to be partially offset by changes made to the contracts for the university partners that are no longer being reimbursed for faculty costs and the site closings discussed in last quarter's call, but these changes have had the effect of increasing margins. On the expense side, as you will recall, we made significant investments in the past few years, primarily in headcount and travel expenses to meet the growth goals of our partners. Our headcount growth has slowed significantly so far in 2024, which is one of the reasons that margins were so much higher than we expected in the first half of 2024. But there are still expense categories that we continue to see year-over-year increases greater than revenue growth including those that I discussed earlier and on last quarter's earnings call, and we do plan to reaccelerate headcount growth in the second half of 2024 in anticipation of our clients' growth expectations in 2025. We anticipate the hybrid pillar will continue to lose money during the remainder of 2024, given that a number of mature sites remain significantly below pre-COVID student count. The newer sites are generally back to historical margin profiles as they are back to growing at rates more similar to what we experienced pre-COVID. But to get back to profitability, the mature sites need to get back to pre-COVID enrollment levels. Those that are now admitting advanced standing students are generally back to growth. Those that have not generally continue to see enrollment challenges. In estimating interest income for 2024, we continue to assume similar cash balances to 2023 and a similar interest rate environment until September, but with three interest rate cuts now expected in the second half of 2024 with the first anticipated occurring in September, we are anticipating lower returns on our excess cash and investments in most of the second half of 2024. We have reduced the effective tax rate for the last two quarters of 2024 to 20.8% and 21.7%, respectively, due to the contributions in lieu of state income taxes mentioned earlier. Excluding the contributions in lieu of state income taxes, the effective tax rates for the third and fourth quarters of 2024 remain consistent with prior guidance. Our weighted average shares guidance assumes that we purchased most of the remaining amount authorized by our Board over the rest of the year. Although given the rise in the stock price, we anticipate purchasing less stock in 2024 than in 2023. The Board continues to authorize the repurchase of shares as it believes the stock remains undervalued based on the metrics it uses to evaluate, including the ratio of enterprise value to adjusted EBITDA and the free cash flow yield rather than the multiples of other education companies as although we can be viewed as being in the same sector, there are a few, if any, appropriate comps. I will now turn the call over to the moderator so that we can answer questions. Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Steven Pawlak from Baird. Please go ahead. Steven Pawlak I would like to start with the June online new enrollment. You said it was softer there. Just any color around what that was? And then it sounds like things were back on track in July. So just any sort of commentary around the outlook as well? Thanks. Brian Mueller No, not really. We continue to do better than expected with online enrollments. Lead flow is good. The outside activity is just -- continues to go very, very well. It's becoming an increasing bigger percentage of our starts on a monthly basis. And that work is not as totally predictable as the work that gets done inside with people responding to lead. So no, July is good, and we expect to have two good quarters in the third and fourth quarter. Steven Pawlak And then I'm sorry, you said June was softer in the prepared remarks. Any commentary there? June was a little softer. It's -- it was predicted. I mean, we knew that there was 1 less Monday start, which is our undergraduate start, which is growing faster than the graduate start during this quarter as compared to last year. And so we knew the second quarter -- the other thing is the second quarter is by far our slowest start quarter of the year. And so we're not talking significant enrollment numbers. And that's, as Brian said, we're generally on our target. Steven Pawlak Okay. And then on the FAFSA delays, I hear you there as far as the things needed to be sort of resubmitted even after the delays sort of got corrected. But you had talked last quarter about sort of actions you were taking to sort of be more proactive with students that were interested. So I just how did -- I guess, some of the actions there maybe contribute to FAFSA not being as that is otherwise? Brian Mueller Well, we had to -- there were a tremendous amount of overtime that needed to be worked. There was a lot of manual work that had to be done that typically didn't have to be done. And so in addition to the delays that we experienced in the first part of the process, the second part of the process, involve delays as well because the information wasn't accurate and we had to do a lot of manual calculations in order to get the work done. And so that just kept pushing back dates. And when you are in a low-income family or even a lower middle-income family, the uncertainty of what I was going to get and -- or what I was not going to get created a lot of anxiety and people just decided to stay home, attended junior college and make a new decision in the next year. And so that impacted people all over the country. For us, to be nearly where we were last year is a huge gain, because if you look at the marketplace at a 40,000 foot view, there are fewer high school graduates, and there are -- there's a smaller percentage of those graduates going to college. And for us to maintain our -- where we -- were this year is a big win. Now as we look forward to next year, we've already established a goal that's over 15% higher than where we were this year, because we expect the FAFSA site to be fixed. We expect to be -- there's some -- be some moderation of inflation. But you have to -- it's the FAFSA, but it's also inflation. You have to understand that for middle-class families $1,000 or $2,000 can impact their decision one way or the other. But we think both of those things will be -- the first one will get fixed, the second one will be moderated, and we'll be in a very, very strong position and expect a big year next year. We have reached the end of our second quarter conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions, please contact myself, Dan Bachus. Thank you very much. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Stride, Inc. (LRN) Q4 2024 Earnings Call Transcript

Timothy Casey - Vice President of Investor Relations James Rhyu - Chief Executive Officer Donna Blackman - Chief Financial Officer Good afternoon, and welcome to the Stride Fourth Quarter Fiscal 2024 Earnings Call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Timothy Casey, Vice President of Investor Relations. You may begin your conference. Timothy Casey Thank you, and good afternoon. Welcome to Stride's fourth quarter and year-end earnings call for fiscal 2024. With me on today's call are James Rhyu, Chief Executive Officer; and Donna Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the Stride Investor Relations website. Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website. In addition to historical information, this call may also involve forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to several important factors as described in the company's latest SEC filings. These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them and the company assumes no obligation to update any forward-looking statements made during this call. Following our prepared remarks, we will answer any questions you may have. I will now turn this call over to James. James? James Rhyu Thanks, Tim, and good afternoon, everyone. I started this year by talking about my belief that Stride can change the future of education. I outlined some of the macro trends in our country precipitating the need for change. Throughout the year, we've continued to see these trends play out. High parent dissatisfaction and surveys showing over 70% of families considering changing schools over the past 12 months. And we continue to see students reconsidering the traditional college pathway in favor of a more skills-based education. I think that the results we posted for this year demonstrate and validate the longevity of our model. We are delivering tomorrow's education today. Students and families are looking for something different and finding it at Stride. We're providing real choice for families, choice that is affordable and accessible to anyone, anywhere, and at any time. Our offerings are personalized, career-forward and tech-driven. And that translated into another record year. We crossed $2 billion in revenue for the first time. We had record profitability and free cash flow. Earnings per share increased 58% year-over-year and has now grown almost 700% since 2020. We achieved our highest gross margin in over five years. We had our highest in-year enrollment ever, pushing us to the highest enrollment level in the company's history, even larger than during the pandemic highs. And we finished the year with more enrollments than we started for the second straight year. As I mentioned last year, even with our strong results, including multiple years of near or above double-digit revenue growth, continued margin expansion, and an attractive future growth profile, our valuation multiples still lag the market. In addition, the market continues to recognize our superior product and service offerings. Stride was named the EdTech Breakthrough Remote Learning Solution Provider of the Year. Our MedCerts programs won a bronze medal for Best Use of AI in HealthTech from the Merit Awards. Our game-based learning offerings won almost too many awards to list, including the prestigious Royal Society of Chemistry Horizon Prize for our periodic rescue game in Minecraft, a Gold Stevie for our Minecraft Education Worlds game; two bronze Stevies, one each for MathBee and ELL/World Language Games, and our professional development offerings won two gold Stevies. We also continue to see early traction with our other new product offerings, including our tutoring solution, which gained formal acceptance across a number of states. Now I understand everybody wants some color on our fall enrollment season. Please remember that it is still early and we have a long way to go to close out the season strong. Having said that, early indicators look positive. Demand, as I have said before we define as application volumes, continue to be strong and are pacing ahead of last year, consistent with the pacing we have seen for much of the prior year. So I feel confident that we will grow our enrollments for this fall, and we remain on track for our long-term goals. All of this demonstrates what I started my comments with, that Stride is offering tomorrow's education today. Thanks, James, and good evening, everyone. We finished fiscal year 2024 with revenue up $2.04 billion, an increase of 11% over the prior fiscal year. Adjusted operating income for the year was $293.9 million, up 46% from last year, and adjusted operating income margin improved 350 basis points. Our results for the year further demonstrate the sustained demand for full-time online options in the U.S. K-12 market. Throughout the year, we saw continued strength in in-year enrollment coupled with strong retention. This led to us once again exceeding our revenue and AOI guidance, and it also means we remain firmly on track for achieving our fiscal year 2028 targets. Returning to our full-year results in more detail. Career Learning middle and high school revenues totaled $651.2 million, up 11%, with full-year enrollments of 72,700, up more than 10% from last year. General Education revenue came in at $1.289 billion, up 14%. Enrollments in Gen Ed for the year totaled 121,600, up more than 8%. Total revenue per enrollment for both lines of business was $9,623, up 5.4% from last year. Throughout the year, we saw a divergence in Career Learning and General Education revenue per enrollment. General Education finished up 8% while Career Learning was up just 1%. As we've said all year, Career Learning was up against a hard comp from last year when we finished the year up 16.3%. Overall, funding environment for both Career and General Education throughout the year. But as with any year, revenue per enrollment was impacted by a number of things, including enrollment mix, yields, and timing impacts from prior year catch-ups. For next year, we still see a largely positive environment from a funding perspective at the state level, though not as strong as we've seen in the past couple of years. States also are grappling with the loss of federal ESSER funding in the coming school year, which will create a headwind in revenue per enrollment growth. Given these competing dynamics, as of right now and it's still early in the year, we expect full-year FY2025 revenue per enrollment growth to be flattish to FY2024. Adult Learning revenue declined 16% for the year to $99.7 million on continued softness in our IT offerings. The upside is that our Allied Health business continues to see strong growth, finishing the year with revenues up more than 20%. Going forward, this means that the struggling IT side of Adult Learning will continue to be a smaller part of the overall business. Gross margin for the year was 37.4%, up 220 basis points from FY2023. As the business has continued to grow, we've seen benefits from our scale and the payoff from the efficiency efforts we've rolled out over the past couple of years. The teams have done an incredible job improving the leverage we get out of the business, and I will continue to challenge us to improve this going forward. Selling, general and administrative expenses were $514 million, up 7% from last year, driven by investments in our technology and higher stock-based compensation. As I mentioned during our Investor Day in November, we will continue to keep our SG&A spending in check, and we expect to see strong leverage out of the business going forward. SG&A as a percent of revenue has declined 500 basis points since FY2020. And we believe we can continue to improve this metric as the company grows. Stock-based compensation for the year was $31.5 million, up $11.2 million from last year due to the timing of some stock grants. Adjusted operating income came in at $293.9 million, up $92.9 million or 46% from last year. Adjusted EBITDA was $390.7 million, up $94.6 million or 32% from the prior year. Diluted earnings per share totaled $4.69, up 58% from last year. Improvements in our profitability metrics were driven by our topline growth, coupled with our continued efficiency efforts and operating leverage. Our effective tax rate for the year was 24%. Capital expenditures were $61.6 million for the year. Free cash flow, which we define as cash from operations less CapEx, was $217.2 million, up $80.6 million from last year. We finished the year with cash, cash equivalents, and marketable securities of $714.2 million. Our cash position gives us flexibility to continue to invest in our business, be opportunistic when the right M&A deal presents itself at the right price, and consider returning capital to shareholders at the right time. Fiscal 2024 was another record year for Stride with continued strong revenue and profitability growth. We saw enrollments exceed our pandemic high from FY2021 and, once again, finished the year with more enrollments than we started. This puts us in a strong position to see further growth in enrollments, revenue, and profitability in FY2025. However, as James said, it's still early in our enrollment season. Historically, August and September are our busiest months so we've got a lot of work ahead of us. Because of this, as we do every year, we'll wait until our Q1 earnings report in October to provide formal guidance. A couple of quick notes. Seasonality for next year should be in line with FY2024. Though we're still unsure if the in-year enrollment trends we've seen in FY2023 and 2024 will continue, we expect to see continued gross margin improvement at a slightly lower rate of improvement than we've seen this year. We expect to see continued gross margin improvement at a slightly lower rate of improvement than we saw this year. SG&A expense as a percent of revenue should decrease marginally. CapEx as a percent of revenue will be flattish. Interest expense, tax rate, and stock-based compensation should be in line with FY2024. With our FY2024 results and current trends we are seeing for FY2025, we remain on track to achieving the FY2028 targets we outlined last November of total revenue CAGR of 10% and AOI CAGR of 20%, both at the midpoint. Thanks so much for your time today, and I'll pass the call back to the operator for your questions. Operator? Thank you. We will now open the line for questions. [Operator Instructions] Our first question comes from Gregory Parrish with Morgan Stanley. Please go ahead. Gregory Parrish Congrats on the quarter and strong year, and thank you for the color you guys are giving here in the summer. So I want to ask, any incremental color on what you're seeing in the enrollment trends, of course. It sounds like the commentary is the same as last quarter, right? You're trending up year-over-year. You're in a strong position to grow enrollments. But I mean, has anything changed over the last three months, anything incremental that you're seeing maybe here in August so far? James Rhyu Hey. Yes. I think I guess what I would say is that in the intervening three months since the last quarter, I think as Donna mentioned, we still have a long way to go. We've got, I think by our estimate, more than 50% of the season to go in terms of enrollment volumes, so still a lot can happen. But I would say I'm more confident today about our ability to grow into the fall than I was three months ago. Gregory Parrish Okay. That's helpful. And then on funding, also I appreciate the color, Donna, you gave on expectation for flat, or maybe that was revenue per enrollment for flat. So do you see a scenario where funding could go backwards next year and perhaps the ESSER headwinds are a little bit greater than you think? Is that a possibility? Donna Blackman From what we're seeing, from looking at just the normal state funding, that funding trend looks favorable from the early funding trends that we're seeing. And from an ESSER standpoint, just given the amount of ESSER funding that we have seen, we'll see some offset to that. And so we think that will sort of offset each other. Now where we could see some - the variability that we can't quite quantify yet, will be the mix, right? If we happen to grow in states that pay a lower PPR, then the PPR could be lower. If we grow at a state that pays a higher PPR, the PPR would be higher, which is why we are projecting that our PPR will be relatively flat next year, year-over-year. Gregory Parrish Okay. Maybe I'll ask one more odd one and pass it. But the SG&A, historically, fourth quarter has been a little bit higher seasonally. I think you ramped up your marketing. I guess walk us through the SG&A line. It's down sequentially, down year-over-year. Maybe that's just all the efficiencies that you're getting. On the marketing side, I assume that's not down year-over-year, but I just wanted to confirm that point? Donna Blackman Yes. We have been more efficient. So the marketing spend actually is down. We've been doing some automation in our enrollment center, and so that is down. We've also reduced some cost in our coding business to be in line with the decrease in the revenue for that business, and we had slightly lower claims in our medical expenses. But yes, we have been more efficient in our spending for marketing as well, as I said, the automation associated with our enrollment trends. Our next question comes from Jeff Silber with BMO Capital Markets. Please go ahead. Jeffrey Silber Thanks so much. Wanted to go back to the funding environment not necessarily from your perspective but from a competitive perspective. We've been reading about some states cutting back on their own virtual schools as funding has kind of slowed. Are you seeing any of that in the states that you compete or potential new states? And do you think that might give you an advantage from a competitive perspective? James Rhyu Yes. I mean I think what we see in the states where we're operating is, and I think by and large, absent something very unusual, I think the fall sort of school season is upon us and therefore, for states to make a change at this point going forward, it would be very unusual, so we don't really see a lot of risk for this fall. I do think that there are a couple of states out there where there's some political pressure to either cut funding, but we just haven't seen that for this fall. And we feel pretty good about where we are heading into the season. I think that the state political landscape for us, as you know, which is very important, I think since the pandemic has become just a little bit more bipartisan. The need to have educational choices for consumers is real. And just like in any other sector of the economy, I don't think that's exactly a partisan issue. Just customer choice is not really a partisan thing, so we're hopeful that education continues to migrate in that direction. But just the way the politics unfortunately play in the education landscape, there is a little bit, probably a couple of states, that did worry us earlier in the season, and I think sort of we've settled into a nice place for the fall. Jeffrey Silber All right. That's good to hear. I'm apologizing in advance for this next question, but you talked about being comfortable with your longer-term goals of 10% topline compounded growth in revenues and 20% compounded growth in adjusted operating income. I think that's off your base from fiscal 2023. You did better than that in 2024. Does that imply growth slows from current levels even though you still would be on track to hit those targets? James Rhyu That does not imply that we think growth will slow. We think we have a good trajectory to continue momentum for the foreseeable future. Jeffrey Silber Okay. I appreciate that. I know you're not providing any forward-looking guidance beyond, I guess, what you gave us so far. And just I wanted to clarify one thing. You talked about revenue per enrollment, expecting that to be flat in fiscal 2025. Are we talking just for the General Education segment or for the total company? [Operator Instructions] Our next question comes from Stephen Sheldon with William Blair. Please go ahead. Patrick McIlwee Hi, team. You have Pat McIlwee on today. Thank you for taking my questions. So my first question, it sounds like early indications of application volumes and conversion are looking strong. So I just wanted to ask, how much of those enrollment trends would you attribute to the kind of refreshed marketing strategy versus better retention or anything else we should be thinking about? James Rhyu Yes. I don't think - or actually, I wouldn't exactly say our marketing strategy has changed dramatically over the past year, from last year to this year. I think our execution has improved. And I think I mentioned we brought in a new person last spring. She was able to implement a number of things during the course of last season, but we didn't really have a full season of it. We now are seeing the full season effect of some of the things that she's implemented, and I think they're paying dividends. So I think right now, we're in, I'd say, sort of a pure execution game, and I think we're putting points on the board. Patrick McIlwee Okay. Understood. And then my second question is on the tutoring front. It sounds like there's been some solid early acceptance with that offering. And you have more than enough teachers that are looking for supplemental income. So I just wanted to ask if you could provide an update on the monetization potential you see there and what the timing of that could potentially look like? James Rhyu Yes, it's still early. I think that there's a lot of opportunity out there. There's a lot of opportunity both with district contracts as well as with direct-to-consumer offerings. I think we're in a unique position in that market where we actually can offer a very competitive platform, I think, and you'll see this year with increasing functionality, that is going to start separating us from the marketplace. And it's a real convenience to be able to do it online. I think there's greater acceptance to doing it online. I don't think we would expect this year for it to materially impact our financials, just sort of given such a low starting base and the fact that we're over $2 billion of revenue now. But yes, I could see us being a serious player in the next couple of years in the tutoring marketplace. And I think that can add a couple of points of growth over the next few years. There are no further questions at this time. With that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect.

The RealReal, Inc. (REAL) Q2 2024 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the RealReal Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Caitlin Howe, Senior Vice President of Finance. Thank you, Operator. Joining me today to discuss our results for the period ended June 30, 2024, are Chief Executive Officer John Koryl; President and Chief Operating Officer Rati Levesque; and Chief Financial Officer Ajay Gopal. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties, and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, from which historical financial measures we have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a shareholder letter earlier today, both of which are available on our investor relations website. I would now like to turn the call over to John Koryl, Chief Executive Officer of The RealReal. John Koryl Thanks, Caitlin, and welcome to our earnings call. Today we reported financial results for Q2 and the first half of 2024. We delivered another strong quarter with accelerated year-over-year GMV growth and double-digit revenue growth. Our focus on the consignment business resulted in a 17% year-over-year increase in consignment revenue in the second quarter. Active buyers on a trailing three-month basis grew 9% compared to the same period in 2023. In addition to growth, we significantly improved our bottom-line results. In the second quarter, adjusted EBITDA was negative $1.8 million, an improvement of $21 million, and the 11th consecutive quarter of year-over-year improvement in adjusted EBITDA. In 2024, we returned to top-line growth and the incremental revenue dollars flowed to our bottom line at a high rate. In the first half of 2024, we grew revenue by $16 million and improved adjusted EBITDA by $46 million compared to the prior year. We believe this demonstrates the success of our strategic initiatives, highlights the resilience of our business model, and positions us to capitalize on the expanding market for luxury resale. As I look ahead, we are focused on delivering sustained growth and expanding our margins. We believe sales, marketing, and stores are the engine powering the next chapter of our profitable growth. When these three areas work together, our sellers encounter a frictionless multi-channel experience. We will continue to refine our approach and identify attractive markets for new stores. We also see opportunities to drive incremental growth from new supply channels. In addition to growth, we are realizing operational efficiencies to drive profitability. We can leverage recent advancements in AI thanks to a 13 years' worth of data on 40 million luxury items. Our approach to continuous improvement and measured investments is paying off. Today, we provided Q3 2024 guidance and updated our full-year guidance. We increased the midpoint of our full-year adjusted EBITDA range, and we are now guiding to positive adjusted EBITDA for full year 2024. I am truly excited about the momentum in our business. As the leading marketplace for authenticated luxury goods, we are playing to our strengths. We remain focused on core business growth, operational excellence, and exceptional service to drive profitability. Thank you. [Operator Instructions] Our first question today is from Rick Patel from Raymond James. Your line is open. Unidentified Analyst This is Josh Reese [ph] filling in for Rick. Thanks for taking my question. I was hoping to get just a bit more color on the guidance. I understand that quarter over quarter, we're looking at a bit of a decline on GMV, but bottom line's improving, so I was hoping to just get a bit more clarity on the moving pieces there. Ajay Gopal Thanks for the question. This is Ajay. There are a couple of things worth highlighting as additional context behind our guidance. First, let's talk about GMV. We expect our GMV growth in the second half to accelerate versus our first half, and this is as we head into the seasonal peak of our business volume in Q4. To your question, I would characterize our outlook on the second half as being prudent about a potential slowdown in consumer spending. To be clear, we're only seeing modest pressure today. We saw some compression in prices driven by a preference towards more discounted products. This started late in Q2 and has continued into July. In Q2, our ASP, average selling price, was down 3%. This was offset by a comparable increase in items per order, which resulted in AOE being flat versus prior year. So, our guidance for the rest of the year reflects a balanced view on how this dynamic is going to play out in the second half of 2024. Moving to the bottom line, your question on adjusted EBITDA, I would say our guidance reflects an increased confidence in our ability to deliver a year with positive adjusted EBITDA, so that EBITDA above break-even in 2024. This confidence stems from our strong performance in the first half. It also stems from the resilience of our business model and its ability to mitigate small shifts in consumer spending. It's worth spending some - expanding on this theme of resilience. I call out three factors that contribute to this strength. Firstly, our consignment model. So, this means that we don't share any upside or downside in - sorry, this means we share any upside or downside in prices with our sellers. Unlike a retailer, we do not feel the full impact of a change in price. So, that gives us more confidence in the bottom line. The second thing I would point to is our take-rate architecture. This gives us a built-in buffer when prices go down. It really helps cover any costs that are independent of price and helps protect our margins. And finally, I would highlight how we are a full-category luxury marketplace. And in doing that, we serve a more resilient customer, and we offer them a full assortment of products that span a wide range of prices, categories, and brands. This breadth helps us meet any shifts in consumer demand. So, hopefully that gives you context for what's behind our guidance in the second half of the year. Unidentified Analyst Yeah, I really appreciate the color. Best of luck in the second half. Thank you. Our next call is from Ashley Owens from KeyBank Capital Markets. Your line is open. Chandana Madaka Thanks for taking the question. It's Chandana Madaka on for Ashley today. So, my question was just about luxury landscape. There's just a lot of chatter around maybe open space. I was curious maybe what trends you're noting. I know you mentioned your thoughts about the customer, maybe a little bit spending slowdown, but maybe any more thoughts around the aspirational customer, like what's emerging and working on the platform. Thank you. So, a couple of different things. And I mentioned this last quarter as well, saw a little bit more price sensitivity with our consumer or the health of our consumer. But I will say that we were able to make up for it in volume. So, what I mean by that is we're a supply-constrained business. We brought in more supply. And we're able to sell through that supply. So, again, able to make up for it in volume. I will also say that our buyers are up 9% year-over-year active buyers. Fine jewelry is one of our top growing categories in Q2. And I look at year-over-year driven out higher value consumers. So, there's a lot of optimism there as well, even when we're seeing kind of this price sensitivity. And like Ajay mentioned we don't squeeze our margin. So, we can kind of look at our ASP price to sell. And we share that with the seller in most ways. So, again, feeling mostly okay there and healthy when we look at the consumer because of these kind of green shoots that we're seeing. We're really pushing the value play of our business. Making sure people understand that what they're getting and how much it is priced in the primary market. So, educating them on what the value is and what the price was in the primary market. So, we'll continue to do that. And really continuing to focus on supply and make sure that that is available for our consumer. Thank you. Our next question comes from Marvin Fong with BTIG. Your line is open. Just maybe to start with on the guidance. Obviously, we can draw inference on what the implied fourth quarter GNV guidance is. And it looks like you're guiding at the midpoint to something around 17% up quarter over quarter. If I just kind of look at the past couple of years it wasn't as large of a sequential increase. But certainly, if you go back further in time, you were able to deliver that kind of sequential growth. So, could you just clue us in on your thought as you constructed your fourth quarter guidance as well? Do you expect it to be a normal seasonal pattern? Or are you baking in any incremental weakness of the consumer? Thanks for the question, Martin. Let me start and then I'll invite to Rati in with what she's saying. So, we are expecting the usual seasonal pattern of our business going into Q4. Q3 to Q4, we do see a significant increase. If you look at our growth rate, the midpoint of our guidance would imply that we expect Q4 to grow 9% year on year. We see that as good acceleration versus where we are today and versus where we expect to be in Q3. I'd invite Rati to add more color to what gives us confidence. Rati Levesque To double down on that, like you mentioned, Ajay, we do see the same seasonal trends in the summer. We saw it last year and then we saw Q4 pick up. Our Q4 story or H2 hat back half of the story in many ways and then like many other retailers. What gives us confidence and somewhat more confidence is the amount of supply that has been coming in that top of the funnel. And when we look at that by price point, by consignor growth, by category, we're seeing that quite healthy. So, we're in a good place to win in the back half of the year. Marvin Fong Got it. Great. And on direct revenue, pretty nice step up quarter over quarter. Is this kind of the right level to expect in the coming quarters or should we expect it to fall back more to where it was in the first quarter? Thanks. Rati Levesque I can take that question. So, our direct revenue we see that staying within the 9% to 10% of total revenue on a go-forward basis. Q2 was at the high end of that, but still within the range that we would expect it to be. The point I would make there is we've been through a period where we were defocusing on that revenue stream. We think now it's in a healthy place and it's where you would expect it to be. I would also draw your attention to the margins, which were a notable improvement versus what we've seen in the past. The margin rate on a go-forward basis, we would expect it to be in the mid-teens. We think Q2 was a good starting point for us and really gives us the right foundation for how this business revenue stream is going to perform going forward. Thank you. We are showing no further questions at this time. So, I would like to turn it back to John Koryl for closing remarks. John Koryl Thank you for joining us today. Before closing the call, I want to give a sincere thank you to all of our employees for their exceptional execution in 2024 so far. We also want to thank our more than 37 million members as they join us on our mission to extend the life of luxury and make fashion more sustainable. Thank you, everyone, for participating in today's conference. This does conclude the program and you may now disconnect.