Earnings Transcript for BRDS - Q4 Fiscal Year 2022

Operator: Greetings. Welcome to the Bird Global Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Tan, Director of Investor Relations. Thank you, Ms. Tan. You may now begin. Ms. Tan, you may now begin.

Karen Tan: Good morning, everyone, and welcome to Bird's fourth quarter and full year 2022 earnings conference call. On this call is, Shane Torchiana, Bird's CEO; and Michael Washinushi, Bird's CFO. Before we begin, I need to remind you that all statements made on this call that do not relate to matters of historical fact to be considered forward-looking statements under the U.S. Federal Securities Laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees and are subject to risks and uncertainties that could cause actual results to differ materially from the historical experience or present expectations. A description of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in the Risk Factors section of our Form 10-K for the year ended December 31, 2022 and in our other filings with the SEC. On this call, management will also reference non-GAAP measures, including adjusted EBITDA, adjusted operating expenses, ride profit before vehicle depreciation and free cash flow, which we view as important in assessing the performance of our business. A reconciliation of each non-GAAP measure to the most directly-comparable GAAP measure is available in our earnings release on the company's Investor Relations page at, ir.bird.com. The growth percentages that follow are in comparison to the same-period in the prior year, except as otherwise specified. I will now turn the conference call over to Shane Torchiana.

Shane Torchiana: Thank you, Karen, and thank you all for joining us today for our fourth quarter and full fiscal year 2022 earnings conference call. We reported a record $245 million in total revenues in fiscal 2022 versus $231 million in sharing revenues, representing 34% growth year-over-year, along with a 28% sharing gross margin and 55% ride profit margin before the vehicle depreciation. Riders continue to adopt micromobility and look to our vehicles at an attractive mode of eco-friendly transportation across hundreds of cities that we serve around the world. Over the last six months, we've been laser-focused on becoming a self-sustaining company which generate profits and cash flow, all while maintaining our long-standing focus on our missions to provide clean equitable transportation alternatives for the consumers, communities and cities we serve. To recap this substantial progress we made in 2022

Michael Washinushi: Thank you, Shane. I'm excited to be part of Bird's transformation era. For months, I have been working alongside the Bird Canada team performing due diligence on Bird Global's operations and financials. I have been impressed with the prospects for Bird to be a cash generating profitable company. Now, I want to recap a few key technical highlights on the fiscal 2022 year of the business. First, the cash margin in our core sharing business is encouraging and we have confidence that it will continue to expand through our focus on asset efficiencies and other operational initiatives. Second, we continue to demonstrate significant progress in trimming down our centralized cost structure and have identified many of the cuts we need to make to get below our $100 million operating expense target. Third, we have made great strides in turning around free cash flow generation of the business, calling back over $75 million in operating tax losses and reducing our capital expenditures by nearly $126 million. There is still a lot of work to do, but significant progress has been made. Now on to our fourth quarter results. In the fourth quarter, we completed our detailed analysis of preloaded wallet balances against historical redemption patterns. Upon completion, we recorded breakage revenue of $28.8 million in the quarter of unredeemed preloaded walled balances from prior periods, which is in line with what we had anticipated. For the quarter, we reported revenues of $70 million, which included the $28.8 million revenue number mentioned above. It is important to remind everyone that we have exited a number of unprofitable markets, which will have a future impact on overall revenue. But we expect to see continued growth in our core markets. In Q4, the $70 million in reported revenue represents 71% increase in sharing revenue, an $88.4 million decrease in product sales year-over-year. Our Q4 rides declined 14% year-over-year compared to our deployed vehicle growth of 12%. Adverse weather in the Midwest contributed to the weakness in the quarter. And as Shane noted, we increased our vehicle orders and deployment for the 2022 season without providing optimal data driven deployment support to our Fleet Managers partners. As we plan for 20 23 and retire our older fleet, we look to rebalance our existing fleet based on demand across our cities. And have rolled out our new demand based vehicle drop model. Q4 consolidated gross margin reached 42% up from 7% last year, benefiting from higher revenues, offset by higher accelerated depreciation from year-end inventory true ups. Q4 profit margin before vehicle depreciation reached 72%, up from 53% last year, primarily driven by higher revenues inclusive of the $28.8 million of breakage revenue. Q4 adjusted operating expenses decreased 29% year-over-year to $42 million below our recent peak of $56 million in quarter two. As a percentage of revenue, Q4 adjusted operating expenses were 61% compared to 120% a year ago. Q4 adjusted operating expenses include nearly $9 million of expenses we do not expect to repeat in Q1 of 2023, including over $4 million spare parts true up and over $3 million of fees associated with our Bird Canada transaction. We expect further operating expense savings through 2023, resulting in adjusted operating expenses below $100 million. Our Q4 net loss improved $11 million year-over-year to a loss of $36 million and adjusted EBITDA was $6.1 million compared to a loss of $24 million in the prior period. We ended the year with total cash of $39 million, including $33 million of unrestricted cash. Additionally, seasonality has a strong impact on cash flow and we expect to return to positive free -- positive cash flow in Q2. To supplement our balance sheet, we also have 48.5 million shares of equity financing available through our standby equity purchase agreement with Yorkville, which we did not utilize in the fourth quarter. Looking ahead, our guidance reflects our confidence in the transformation of Bird Global as a profitable and self-sustainable business. Many of the changes that we have made in the second half of the year had a nominal effect on our results in Q4, but will have a much greater impact on the bottom line in 2023. For fiscal 2023, we are expecting positive adjusted EBITDA in the range of $15 million to $20 million on a full year basis and our first year of positive free cash flow in the range of $5 million to $10 million, with operating expenses below $100 million. We expect to generate positive free cash flow starting in the second quarter of 2023, given the seasonality of our business. Lastly, our quarter to date performance in February is tracking in line with our 2023 expectations. And we are tightly controlling our cash burn, giving us confidence in our full year 2023 guidance. And with that, I will turn it over to our operator to take questions.

Operator: Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is from the line of Tom White with D.A. Davidson. Please proceed with your questions.

Wyatt Swanson: Hey, this is Wyatt Swanson on for Tom. I got a couple of questions here. Just starting with your recent Bird Canada transaction, can you just elaborate on what this means for Bird Global?

Shane Torchiana: Yes, thanks for the question. This is Shane. So a few things, of course, we're excited to announce the transaction at the end of the year, Bird Canada for a couple of years now has had EBITDA plus or EBITDA positive operations, which they achieved just in their first few years of operation. As we integrate them into our North American operations through the course of Q1, we see vast upside from taking some of their learnings and applying them to our broader business. And we believe it will be an accelerant to our own path to becoming EBITDA positive in 2023. Slightly more specifically, we brought in Stuart Lyons, who is the CEO of Bird Canada to lead our North American operations, as I mentioned previously. And also Michael Washinushi, who is here on the call with me, who had a very deep record of cash management and financial planning to bolster our finance team. In addition to that, the $30 million of new capital that came in through that transaction gives Bird Global the cash it needs to get through the winter trough of 2023 and heading into Q2 of 2023, as the weather warms up, we expect to become cash generative and hit the free cash flow guidance that we mentioned through the course of the year this year.

Wyatt Swanson: Great. Thank you. And then, could you just kind of walk us through the drivers of the now $15 million to $20 million EBITDA outlook following a loss of $62 million in 2022, which is a major swing in expected results. What’s fundamentally changing to drive that large delta?

Michael Washinushi: Yeah. Good morning. It's Michael Washinushi speaking. Look, a lot of the activities we did or the company did in the second half of 2022, the actions made set the foundations for into 2023 outlook. The actions that we took in terms of exiting non-core markets -- exiting our consumer product business, exiting some non-core markets, cost efficiencies that we put in place in the second half to trim costs. And we're going to be realizing that in the fiscal 2023 year. And then for 2023, our viewpoint starts with a conservative and achievable 2023 revenue forecast. And then with that, we take further steps to reduce costs. And I'm happy to say that February year to date, we're tracking to our expectations. So we're going to continue on monitoring, closely monitoring and looking at reducing OpEx through 2023, which will be no more than $100 million for the full year. And we expect to be below $100 million run rate by year end.

Wyatt Swanson: Awesome. Okay. And then just one final question here. Related to deployment, can you give a little more color on the focus for this year? Is the goal to just optimize your unit economics in the existing markets? Or are you trying to enter some cities where you believe you could maintain or drive up some healthy unit economics? And then related to that, what's the regulatory environment looking like for micromobility? Has it become increasingly more challenging? And what's your outlook related to that?

Shane Torchiana: Yes, sure. I'll take those, I think, two questions in two parts. So, on the unit economic front, the primary driver we see there falls under the asset efficiency pillar I was referring to. That is mostly about getting more out of the vehicles we have in the cities that we're in. There will be a few new cities that we add to the portfolio, but the focus in 2023 or the [indiscernible] 2023 is about optimizing our footprints primarily in the city that we're in to make sure that we are on a total co-basis free cash flow generative. And there are sort of three sub points to that. Number one is the demand model that we discussed, so making sure at a very, very local level, the three corner level we have in a data driven way, the right number of vehicles in the right place at the right time where folks want to ride them. That's an area where we see huge opportunity as Michael said just in January, February this year, based on real world rollouts, we're seeing quite a bit of upside by evolving that strategy to make it more data driven. So that's the biggest piece. Secondarily, there's improving our repair rate, which we do have some learnings from the Bird Canada folks that I mentioned as we've integrated the team so that we repair our vehicles faster and thus improve the rate of deployment onto the street instead of having them in the warehouse. And then number three, we've seen a lot of progress in our end of life rate and that has to do with the depreciation that you'll see blowing through in our gross margin. It's a non cash item, but that will impact the amount of CapEx that we need to do at the end of the year, which of course has a free cash flow index as well. So from a unit economic perspective, those are the three major drivers or at least the top three drivers. And then from a regulatory perspective, the second part of your question. Interestingly, this is -- it's early days, micromobility, of course, is still a young category, but broadly that's been favorable. So it’s the healthiest that it's been and the trend that we see specifically starting in the U.S. and now bleeding somewhat into EMEA is city's trends toward favoring two to three operators. They tend to start with a pilot or sometimes even just with many operators in an unregulated fashion and then realize that a few folks are able to follow through on their promises better than others. And they will go to an RFP and generally select those folks. To give you a few examples, just in the last few months, Dallas, Baltimore, Doha, Abu Dhabi, Seattle, just to name -- I keep going, but just to name a few, we've all gone through that process with them and we won permits in those markets. And that for us is a massive tailwind, because once you're in and you build trust with cities as we've discussed, you tend to stay. So what we've seen in the United States, which we think is a couple of years ahead of the rest of the world, is two players [indiscernible] one other have over 70% market share, the vast majority of which has a protected license. That's sticky. And we think EMEA is going to head in the same direction. So for us that is medium term, long term focus and we find and once we go through those regulatory changes that our merchant tends to approve in a city. So that's, as I mentioned, a tailwind as we look ahead.

Wyatt Swanson: Great. Thank you very much.

Operator: Thank you. [Operator Instructions] And our next question is from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.

Eric Sheridan: Thanks so much for taking the question. Maybe twofold, if I can. Coming back to Bird Canada, can you give us a better sense of how to think about the contribution of Bird Canada run rate growth, incremental margin dynamics so we can better understand unpacking the contribution of Bird Canada both from an exit velocity for 2022 and what's embedded in sort of the 2023 guide from that asset? And then maybe following up a little bit on why it's topics just better understanding the bridge of contribution from various forms of revenue and different pockets of the operation the Canada and the non-Canada operations in terms of bridging again to the variability on that EBITDA guide for 2023? And then maybe I'll just squeeze one more follow-up in if I can after that. Thank you.

Shane Torchiana: That's a handful, but -- and we probably appreciate, we don't separately report out Bird Canada results. We don't plan on reporting Bird Canada results. But I can give you directionally. I mean, it's meaningful in terms of the revenue contribution that Bird Canada will contribute to Bird Global for the 2023 year. And it's accretive from an EBITDA and free cash flow -- it will be accretive from a free cash flow point of view. And in terms of growth trajectory, it's -- Bird Canada has seen some healthy growth for both from the existing markets and growth markets within Canada. And I think the opportunity we see is leveraging some of the best practices that Bird Canada has deployed in 2022 into Bird Global 2023, similar items in terms of just deployed rates, RPD rates as well as cash management. So all of these things we're trying to bring in into Bird Global.

Eric Sheridan: Okay. Maybe I'll just ask a follow-up then. I know we're not talking about a revenue guide for 2023, but can you talk us through how we should be thinking about some of the variables at play that could push elements of the revenue curve up or down as you think about what the probabilistic outcomes are for revenue in 2023? Thank you.

Shane Torchiana: Yes. So two parts to that. As you mentioned, we're not guiding on revenue. And the reason is, because what we're focused on as a management team is free cash flow generation. But to answer your question, the biggest driver that we're going to see in there is revenue per vehicle per day as we're not materially changing the size of our fleet in 2023. And if I tie it back to the first part of your question, part of the reason we were excited about the Bird Canada acquisition is, they were doing three trips per vehicle per day in very similar market, into the markets that we were operating in in North America. So we see quite a bit of operational upside. I've already mentioned to the tune of 10% to 20% conservatively for this year as we roll out similar operating strategies, but we do see quite a bit of room on that asset efficiency front, which longer term we think can be a material revenue driver without significantly increasing the size of the fleet.

Eric Sheridan: Great. Thank you.

Operator: Thank you. There are no further questions at this time and I would like to turn floor back over to Mr. Torchiana for closing comments.

Shane Torchiana: Thank you very much. So as a management team, we've made great progress in identifying the areas of the business where we can improve efficiency as we've discussed and importantly create value for our stockholders. And I can speak for the entire senior leadership team that we're more energized right now about the future of Bird than we've ever been and the mission that we serve. So thank you all for the time and we look forward to talking to you next quarter.

Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.