Earnings Transcript for RBL.AX - Q2 Fiscal Year 2022

Louise Lambeth: Good morning, everyone here in Australia and good afternoon, evening for our US investors. This is Louise Lambeth, Head of Investor Relations for Redbubble Group. Welcome to this investor call following the release of our FY 2022 first half results and reports provided earlier today. With me on the line, I have Redbubble CEO; Michael Ilczynski; and CFO, Emma Clark. As well as the half year results and reports, the key information for today’s update is contained in the ASX Announcement and Investor Presentation also released to the market this morning. Please note that unless stated otherwise, the financial results have now been subject to audit review. Strategic and operational metrics are from internal management reports and have not been subject to audit review. Mike and Emma will speak shortly and we will then open up the lines for questions. This session is also being recorded. Before we start, I would like to call your attention to the safe harbor statement regarding forward-looking information in our ASX announcement. That safe harbor statement also applies to this investor call. I will now pass on to Mike.

Michael Ilczynski: Thank you, Louise. Hello, everyone. Thank you for joining us today, where we'll go through the Redbubble Group first half FY 2022 results. Issued a preview of these numbers in our January update and we can now confirm that they have not changed post audit review. We are proud of the $54 million that was earned by a record number of selling artists during the half and we ended the half with a significant cash balance, which gives us the ability and confidence to invest for future growth. As we've mentioned, COVID was an awful time for many people around the globe but it was a tremendous boon for Redbubble. And while we've come off those highs, when the group is viewed over a two, three, or four-year basis, it is clear to see that the group is substantially larger and significantly better placed than it was pre-COVID. On Slide 3, over the last six months as we have cycled the prior – the peak of the prior period comparables combined with ongoing shifts in many elements of the external environment, wherein no doubt that it has been a challenging period for the business. None of that however changes the incredible opportunity that lies ahead of us. And I remain highly confident that Redbubble Group is a great business that can deliver long-term value to all stakeholders. I'd like to take a few moments to run through the Redbubble Group investment opportunities and why I'm so excited about what we're building. I'll then discuss our first half operational achievements across two of the four strategic themes before passing to Emma, who will speak to the remaining two as well as our financial performance and outlook. On Slide 4, I believe Redbubble Group offers a compelling investment opportunity. We are the owner and operator of the world's largest marketplaces for independent artists. The platforms utilize on-demand technology, which is more efficient and scalable than traditional retail and drive strong unit economics. As we saw during the pandemic, the business model can drive exceptional returns at scale and profit maximizing. We play in massive addressable markets which means there's no foreseeable cuts on a potential upside. Within the business, there are multiple high potential growth levers that can enable us to achieve a meaningful step-up in scale. The team and I are energized and our sights firmly focused on driving sustainable growth. Let me go through each of these in a bit more detail. Slide 5 is the core business model on page. Redbubble and TeePublic are large-scale difficult-to-replicate three-sided marketplaces. They offer a simple, no upfront cost selling model for artists, which is uniquely positioned in the way we serve the creator economy, helping artists to monetize their creativity and sell to millions of customers globally at very little risk to them. The Marketplace has connected artists and creators to a third-party on-demand fulfillment network that enables neither artists or the marketplaces to need to carry inventory or warehousing costs and risks as well as being highly scalable and capital light for the group. These millions of artists provide a large-scale and highly dynamic source of content and they create a massive constantly evolving catalog of content and product listings. Redbubble Group's core role is to aggregate and enable this consumer demand for artists by utilizing its enormous product content library across organic and paid channels. When the artist sells an item to a customer it is fulfilled and shipped on demand directly from the third-party network. This model enables infinite product listings with positive unit economics for the marketplaces. The artists in their content their customers and the third pay fulfillment network on three-sided marketplaces with flywheel effects that drive improvements and efficiencies as they each scale. So on slide 6 breaking it down a bit more. The marketplaces are powered by one of the largest online communities that depends on us. At the core of the marketplaces are the artists and their content that they bring to the platforms. As more artists continue to join and sell on Redbubble and TeePublic more content is created and added to the platform. This is not only highly scalable. It is extremely dynamic and constantly evolving as artists react to memes, trends and cultural changes. There is no upfront cost for artists and relatively little cost to the marketplaces. The vast array of unique content is then combined with a variety of physical products that artists can choose to sell featuring their designs. With more content and more products, its growing variety of listings increases the potential appeal to a wider and wider audience attracting more customers to the marketplaces. And the more customers the more stable benefits accrue in the fulfillment network enabling customers to be serviced more efficiently. Nearly all customers are now receiving their orders from facilities in the same broad geographic region as them. This means faster delivery times, better shipping economics and a lower carbon footprint all of which helps improve the overall customer experience. As you can see from the metrics on this page all aspects of the marketplaces have shown increases in improvements over the medium-term demonstrating these flowable effects can and do positively impact the marketplace. On slide 7 our dedication to our mission of bringing more creativity to the world that's helped us to successfully build an incredible community that uniquely positions us in this growing creator economy. As I said the model offers a simple, low-risk, no upfront cost ways for them to sell to the across the globe and the strength of this position means our acquisition is very low cost for the group. The number of selling artists on the platform has been growing at a CAGR of 37% over the past five years with a record 634,000 artists selling an item in the first half. The success of current artists encourages new artists to join and existing artists to continue adding new works. The total library currently encompasses some 60 million different designs across the two marketplaces, a significant portion of which can be considered ever green and has long-lasting recurring value. This library constitutes a large and growing asset with competitive advantages and strong defensive attributes given how difficult it would be to try to replicate this at this level of scale. On slide 8 each artist's design can then be made available for purchase on up to 126 different physical products. This tremendous leverage is highly valuable for each artist and also for the marketplaces as it means there's now some 5.7 billion listings across the two businesses. As a result, the group has hosted one of the largest catalogs of content and product listings on the Ethernet that can continue to grow as new content is uploaded by artists and as new products are made available through the fulfillment network for them to sell. This large variety means increasing diversity and relevance to a growing pool of potential customers. On slide 9 is long tail of content and product listings provide significant advantages for attracting customers. On a last click basis organic channels remain the source of the majority of marketplace revenue at 60% in the first half. The marketplaces are aggregated of demand and have helped artists to sell mil -- to millions of customers with 5.3 million unique customers in the first half of the year. Looking ahead, there is a real opportunity to turn first-time customers, particularly those acquired by highly specific long-tail searches into loyal customers who keep coming back to the marketplaces. On slide 10, now moving to the third side of the marketplace. Redbubble Group provides artists access to a global network of third-party fulfillment and logistics partners who help them service their customers once an order is placed. This on-demand model is exceptionally efficient when compared to the traditional retail supply chain process. It offers no lead time on content, no inventory risk, less waste and no direct warehousing costs to the marketplace or artists. The third-party nature of the fulfillment network means minimal capital investments are required by the Redbubble Group to scale and expand the network. The network currently has some 44 fulfillment locations around the world and enabling 98% of orders to be shipped from the same broad geographic region as the customer or intended recipient. On slide 11, from a financial perspective, the marketplaces have demonstrated their ability to generate strong unit economics and deliver attractive returns at scale. These numbers represent the average across the group over the last two years. Cash from customers is received upfront and on hand for at least four weeks on average and then gradually distributed to various parties. For every $100 of marketplace revenue, artists on average earned $19, while the Redbubble Group earns on average $26 as gross profit after paid acquisition, which is effectively the Group's contribution margin that is then offset against fixed costs. These positive unit economics is why we are so focused on investing for scale and growth in order to get our GPAPA or total contribution margin consistently well above our underlying ongoing cost base. On slide 12, when we look at the markets we operate in, we know that market size is no barrier to the growth of the business. Given the broad range of physical products available to consumers via the marketplace, these markets, these total addressable markets are estimated to grow to over 1 trillion globally by 2024 with at least 35% to 40% of all customers seeking something unique or meaningful. On slide 13, the Redbubble Group continues to be positioned at the intersection of a number of positive macroeconomic tailwinds and we've spoken about these at length before. These have driven continued and sustained growth and we believe that will continue to benefit the business moving forward. This gives us confidence that the growth opportunity into the longer term remains highly intact and is therefore firmly our job to deliver on this potential. On slide 14, to that end, we've shared a clear overview of our medium-term strategic plan based upon our high potential growth levers. These initiatives will be phased over the next three to five years and have been ordered to give us the best chance of maximizing our returns on this investment. As I spoke to you in January, there is more platform work that we need to uptake in order to unlock future value. So during calendar year 2022, we will continue to build on the foundational work for the next phase, as well as commencing some of the investments required to deliver ongoing earned growth. On slide 15, in terms of these opportunities for earned growth, two of the areas we've spoken about have been the opportunity to improve our brand awareness and increase customer loyalty and purchase frequency. As shown by these graphs, when compared to our peers, there is plenty of headroom in both areas. And for us, we're excited about this very real opportunity that this presents. Loyalty or repeat purchase along with brand awareness, are both important -- are important areas for both businesses that will require sustained disciplined investment over the near term. These are just two examples of many high-potential growth levers that we have in the group. The more and more I get to know the business, the more excited I am about the opportunity that lies ahead of us and the levers that we have to grow, while also being very realistic about the work that we need to do to go after them. On Slide 16, across both Redbubble and TeePublic, our success is entirely dependent on the quality and energy of our people. I'm just over 12 months into my time here. And given the very ambitious medium-term aspirations we've set, I'm really pleased by the team and I'm now surrounded by. We've been able to bring in some really experienced senior leaders over the past 12 months to build and complement the executive teams and existing people. And together, we are energized, focused and excited about the future of building this group into something really special. I'm going to turn now to a review of the first half performance. On Slide 18, we're continuing to execute against our four key strategic themes. For those of you who have been following us for some time, you will recognize these as the foundational pillars upon which we can build and scale to our next phase of growth. So first on 19, our artist activation engagement, we continue to see more artists join the platform and existing artists sell more work. This is a really important chart for us as a business as it demonstrates the ongoing compounding value of artist cohorts each year. In calendar year 2021 in the calendar year, 60% of marketplace revenue was generated by artists who have been on the platform for over a year. This metric has been pretty steady and demonstrates the long-term value -- recurring value that artists and their content earn and bring to the marketplace. Operationally, our group level artist function has been taking a more proactive and segmented approach to artist acquisition and engagement, primarily within the TeePublic marketplace and that will increase for the Redbubble business over the coming 12 months. On Slide 20, we've spoken quite a bit about the strong increase we have seen in content uploaded over the past couple of years. As such, to ensure marketplace integrity, a care of investment for us has been into content operations. We have scaled a number of people in this area by six times in the past few years, which has enabled a 15x increase in the number of works reviewed. To enable us to efficiently scale moving forward, right now we have a significant investment occurring in automating and improving our systems and processes across this very important area. On Slide 21 developing a culture and process of targeted experimentation across the business continues to be a key aspect of enabling us to achieve our longer-term potential. As we played out in August, an initial and certainly ongoing area where we are taking this approach is across the customer transaction funnel as well as in the areas of loyalty and repeat purchasing. We are just getting started in this area and some examples of these experiments are included here whether they be expanding audience reach or increasing purchase rate of basket size, we are testing across a variety of methods to attract more customers to the marketplace and increase their transaction value. As this, have been areas of interest by a number of stakeholders the rollout of Afterpay across the Redbubble site has been a positive one. We saw by our buy now pay later customers averaging a significantly higher average order value relative to other customers. We still have a lot of work and a lot of opportunity right through the transaction funnel and the teams will be continuing to experiment and improve moving forward. I'll now pass over to Redbubble Group CFO, Emma Clark. Emma?

Emma Clark: Thanks Mike, and hello, everyone. I will continue with the first half operational highlights and we're in the strategic theme of customer understanding loyalty and brand building. I just want to remind everyone that we're on Slide 22. The knowledge of the mobile experience is increasingly important given more than half of sales on the platform now occur on a mobile device. We have spoken consistently about our apps and they continue to be an important element in our long-term strategy, being both the user acquisition and a loyalty play. As such it was great to have 15% of the Redbubble Marketplace sales now coming by its iOS and Android apps. The iOS app has a very high rating of 4.8 stars out of a possible 5 and we continue to see stronger engagement and retention from customers who use our apps. Redbubble's membership base is substantial and there are 8.1 million active members on Redbubble, in the six months that made up the first half. This is down 12% versus the first half of the prior year however, up 53% versus the first half of financial year 2020. At the present time being a member, simply means that the customer has a Redbubble account and uses this to log in, browse and ultimately purchase on the Marketplace. There is also a one-off incentive to join. We define a subsection of these as active members, who are unique vendors who visit either the web or app platform while logged in at least once during the period. Of the 8.1 million active members in the half 14% went on to make a purchase during that period. Once a member does purchase they are much more likely to make subsequent purchases than non-members and this increased frequency leads to a higher annual average order value. There is ample opportunity for us to build a more comprehensive membership program over time, which will result in more users becoming active members, more active member purchasing, as well as, continued increases in member purchase frequency. As we disclosed in January, purchases by repeat customers made up 45% of Marketplace revenue in the first half. This is up from 42% of the full year results and up from 40% in the prior corresponding period. This is an area where we will continue to mature our level of detail in reporting. We have broken down the repeat purchases into existing and reactivated customers. Existing customers contributed $90 million to the half's revenue. These are customers who made a previous purchase within the prior 12-month period. Reactivated customers contributed $40 million of revenue and basic are customers who made a previous purchase not more than 12 months ago who came back to then purchase again during the half. When we spoke in January, we have said that the increased competition we experienced impacted organic demand, which is primarily the acquisition of new customers through unpaid channels. And this can be seen by the contraction of new customers on this chart, with revenue contribution from this group of $158 million for the half down from $211 million in the prior period. This chart does demonstrate that we have been able to fall on to most of the existing and reactivated customers from the prior period. The growth rate of revenue from customers making a repeat purchase is outpacing that of first-time purchases. It's a strong validation that our focus on better customer understanding and loyalty is applied potential. We started to experiment in this area in the past year, and will continue to do so in this calendar year. Next I will talk about the product range and third-party fulfillment network. Thus far, we have been able to remain relatively insulated against the well-publicized global supply chain pressures that escalated during the half. As we said previously, the team was able to extend last order by dates for the US, the group's largest region, by an average of four to six days during the 2021 holidays compared to the 2020 holiday period. There were over 21 million units fulfilled and shipped in the first half of the financial year. This was down 18% from COVID peaks in the prior year, yet still up 32% versus two years ago. The group also continued its focus on localizing products at existing locations during the half, particularly in the key public marketplace where 18 products were localized into existing third-party Australian and Canadian fulfillment sites. As Mike mentioned earlier, increased localization has multiple benefits from reduced shipping costs to customers and lower transit times as well as strengthening the resilience of the entire network by adding optionality and redundancy. Our teams also worked hard to deliver new product launches, line extensions and visual merchandising improvements. These drove tangible commercial outcomes including incremental sales and conversion gains. New products outperformed expectations and had run rate of contributing 2.2% to marketplace revenue in November and December. This is meaningful given that they are still ramping up to steady state. Product line extensions on iPhone cases and hoodies added a further 1.4% to Marketplace Revenue in November and December so the combined impact in this area was 3.6%. Finally, I'm very excited to share our plans to launch a new pet’s category in this calendar year. This will help the group gain access to new addressable markets by expanding the existing product portfolio into new areas of rising consumer demand. I will now speak to the financial performance and our outlook. Please be aware that unless otherwise stated, the financial results discussed are on a delivered basis and has been subject to audit review. On slide 29 the key call out here is that we are confirming the first half financial metrics that were provided at our market update on the 18th of January. Nothing has changed subsequent to audit review. As you can see across all metrics we are now substantially a larger business than we were two years ago. On slide 30, this is a business that needs to be assessed over the longer term. As whilst there has been volatility quarter-to-quarter the longer term growth rate since the business commenced in 2007 have been consistently high. Marketplace Revenue has grown at a CAGR of 30% since first half financial year 2018 with a corresponding CAGR of 32% at the gross profit line and a CAGR of 25% for gross profit after paid acquisition. Focusing specifically on the first half TeePublic results. When we spoke in January, we've detailed how one of the factors impacting the results was increased competition that impacted organic largely unpaid demand. We responded to these changes in the landscape by increasing total paid acquisition spend. These actions across both marketplaces positively impacted our revenue results but at a lower contribution margin. This in combination with our decision to absorb increased shipping costs over the holiday period, negatively impacted both gross profit and GPAPA margins on a short-term basis. As Mike highlighted earlier, increasing scale will help to drive further gross profit and GPAPA improvement. During COVID, we have already shown the ability to deliver exceptional returns when the business changes its scale and we are not in an active investment phase. Redbubble is a truly global business and our multiregional footprint is a key strength. North America continues to be our largest region at 69% of total platform sales and on a two-year basis this is growing 64%. Australia and New Zealand provided a source of positive year-on-year growth in the half as lockdowns continue to occur intermittently. There's a combined population of almost one billion consumers in these core regions and you heard Mike speak earlier about the large travel addressable market that we have set our sights on. As such the upside is untapped given the enormous number of customers available to us in those geographies in the medium-term. On slide 32, there are a diverse range of physical products available on the marketplaces and this broad mix of lifestyle categories have enabled artists to maximize their selling opportunities as consumer needs and preferences have continuously shifted over the last two years. During the pandemic, categories such as accessories, which incorporated facemasks and wall art performed exceptionally well, however has faced a stronger year-on-year decline as they cycle the COVID size. During the first half, we were pleased to see other apparel and T-shirts, which is the group's largest product category contribute positive year-on-year growth. On slide 33, given the quantum of mask contributions and delivery date adjustments recorded in the prior corresponding period, we have been transparently bridging the reported figures to the underlying numbers. The delivery date adjustment added $10 million in the prior half and masks also contributed $46 million of marketplace revenue. In the current half, the delivery date adjustment went the other way and took $3 million off the reported numbers and masks contributed $8 million. Adjusting for these two factors, the first half financial 2022 underlying marketplace revenue growth was down 5% year-on-year and also 5% on a constant currency basis. Looking over the longer-term first half financial year 2022 marketplace revenue was 60% higher than first half financial year 2020. As we shared in January, the business has accumulated a substantial cash balance which was at an all-time peak of $133 million at the end of the first half. Some of that was due to the seasonality of cash flows associated with peak holiday sales and cash as at the 31st of January 2022 was $106 million having now made these payments to the other marketplace participants. This still provides us the flexibility to invest into our future business growth. It also continues to give management and the Board considerable strategic flexibility around a range of capital management options and all of these remain under active consideration by the Board. There are also a couple of other balance sheet-related items that are worth mentioning. As some of you would be aware we have $41 million of off-balance sheet tax losses. These losses are available to offset future taxes payable. And as we have discussed, Redbubble is required to recognize revenue upon delivery of goods rather than when the customer has paid for the order. This results in revenue being deferred to the balance sheet. As at the 31st of December 2021, this was $17 million. On slide 35, Redbubble provided updated outlook statements in its market announcement on the 18th of January 2022. To reiterate these statements, Redbubble now expects financial year 2022 marketplace revenue to be slightly below financial year 2021 underlying marketplace revenue of $497 million. This will still represent solid growth on the $350 million achieved in financial year 2020. We remain committed to our mid-term aspirations and the investments that will be required to deliver upon our growth objectives. We are confident and excited about the medium to longer-term opportunity to grow strongly and extend Redbubble's global market leadership. As such, in the second half, we will be continuing to invest into the business, which will increase our operating expense run rate. We will be funding these investments out of our existing cash reserves. Financial year 2022, EBITDA margin as a percentage of marketplace revenue is now expected to be negative low single-digits. And with that, I will now hand back to Mike.

Michael Ilczynski: Thanks, Emma. Just to finish up on slide 36 and 37. Our aspirations of helping artists earned $250 million per year and reaching $1.5 billion plus in gross transaction value in the medium-term will deliver a step change in the scale of the business. Since we shared these, we have been clear that it will be over the next three to five years that we're targeting and so that would be calendar year 2024 plus with the plus being important part. Clearly from where we are achieving the shorter end of this time range will be challenging. However, that does not take away from this scale being our ambition and opportunity over the medium-term and what we continue to be focused on achieving. And then on 37 to reiterate, when we achieve this level of scale, we remain confident that this level of profitability is also achievable. Our aspirations for the group appears to be 2.5 times larger from the GTV and marketplace revenue perspective than we are today. And at that scale, we are confident in the operating leverage achievable and that this will enable us to reduce EBITDA margins in the range previously put forward. And with that, I'd really like to thank you for listening and we will open up the lines for questions.

Operator: Thank you. [Operator Instructions] Today's first question comes from Sophie Carran with Goldman Sachs. Please go ahead.

Sophie Carran: Hi Mike and Emma. Thanks for taking my question. Just a couple for me. Maybe first on category expansion. You've mentioned that you will be launching into the pet category this calendar year. I mean, how material do you see this as a category going forward? And maybe, if you can talk to your category expansion pipeline going forward and just thinking about the growth that you expect to come from new versus existing categories.

Michael Ilczynski: Yes, sure. I'll talk about the high level. Pet is a really exciting one, particularly for the Redbubble business, given that Redbubble a core Redbubble audience is very much that family unit with teenagers sort of gender -- teenagers and Gen X parents. So, we think that we know that the spend of those family units on their pets is quite significant. It's been an area where we've had both artists and customers inbound into our [Indiscernible] whether items like that are going to be available. So it's an area that we're that we're excited about launching that we'll be committed to starting with a relatively small product range and then expanding that over time. As we've seen though with all of our product, with all the products on both marketplaces, they do tend to take a while to ramp up to full scale. Part of that is because getting all of -- a significant number of artists to customize their works, their designs to those particular products does take some time. And given that we've been broad with our timing when we've just talked about calendar year '22, we don't want to go further than that and detail a particular materiality. It's too early for us to do that. But we do see if you look at the spend on pets particularly in the US, particularly on family units, it's a significant category that we're excited about entering.

Emma Clark: I would just simply add Sophie on your broader question about other product expansion, we did -- I can't remember specifically which release presentation it was, but I think about 1.5 years ago, we did actually have a slide that showed in our existing categories we're really only in some products within those categories. So there's not just going into new categories. There's also continuing to build out the existing categories that we have with further products and that we did actually detail a bunch of different options in that particular slide.

Sophie Carran: That's great. Thank you. And then, maybe another one, just looking at the consumer behavior trends and that increase in repeat rates looks quite encouraging. Can you talk about some of the things that you're doing to drive repeat purchasing higher? And then, I guess looking at slide 15, what do you need to do to start to move the frequency of purchases up towards what the other large creator marketplaces are seeing?

Michael Ilczynski: Yes. Thanks, Sophie. And those two things are pretty related in terms of increasing repeat rate period-on-period, as well as increasing transaction frequency within a period. And so for us, these are areas that we've been clear with our numbers. We see a big opportunity to improve. But we've also been clear when we've been talking about these areas over -- at least over the last 12 months since I've been here, there's no one silver bullet that's dramatically going to emit these overnight. This is very much an area where there's multiple levers and we really need to experiment and grind out those improvements. And that's what both of the teams across both businesses have been doing, looking firstly at how do we start to increase knowledge of customers in terms of understanding the value proposition on the marketplace. So we do have – we have a number of customers who will come through and purchase and not really be aware of the breadth of designs and products that are available on the site. So they might have bought a T-shirt themselves, did not realize that, there's an opportunity to buy a throw cushion for their parent, because they're not exposed to those products or design. But any part through their journey at land indeed, they transact, and they're added in. So building a customer's understanding of the value proposition and the breadth and depth on the side is a key opportunity. There's a number of levers you can imagine across marketing and remarketing, as well as on-site experience to improve that. And then the other two big levers that we see here is one is building our overall brand awareness. We've talked about that being an area that we'll be starting to experiment into this financial year, and really looking at that in financial year 2023 as an area that we're looking to ramp-up across, hopefully, across both brands. So we do see that building our brand awareness will be a key aspect building loyalty and repeat rate. And then thirdly, an area that we're increasingly focused on is just making sure that that final lived experience of the customer, so when the customer receives that final goods that, they get the goods that they're expecting, they get it on time, or ahead of time and really the un-boxing experience is great. And they love the quality of the – physical quality of the product they get relative to the price they pay and their expectations, that we're meeting and exceeding that expectation every time. I think that, we've been clear that while overall our customer satisfaction is quite high, there are some areas that we can really work on to make sure that moving away from the average every – every experience is at the quality that a customer would expect. So that is the broad answer, because there are opportunities for us to work on the experience on site, knowledge and understanding of our brands and then making sure that the quality of the received product is consistently where we wanted.

Sophie Carran: Great. Thanks, Mike. And then maybe one more for me. Just – thinking about the digital marketing environment, at the previous update you mentioned that you're starting to see that improve. Just wondering, if you had any further updates at least a little bit at better through the second half and what you’re seeing there?

Emma Clark: Thanks, Sophie. You’ve noticed that we didn’t provide any trading update for the current quarter, within the set of results and that being deliberate, because we have guidance out, and we obviously updated that guidance in January that was based on what we were seeing to that point in January. The fact that, we come out today, and reiterated that same guidance in January, is all we're going to say about the current trading performance at the moment, because of all encapsulated within that guidance.

Sophie Carran: Excellent. Thank you, both. That's all for me.

Operator: And our next question today comes from Aryan Norozi with Barrenjoey. Please go ahead.

Aryan Norozi: Hi. Thank you, all. I think previously you mentioned your outlook or target table the mid-single-digit EBITDA margin range for the range for the short-term. Now, we obviously removed that comment now on FY 2022 will be negative. But do we take that as you -- you've got sort of less confidence around that mid-single 2023, 2024 – FY 2023, 2024 because that short term is not just 2022. I suspect it was 2023 as well.

Emma Clark: Yeah. Thanks for the question, Aryan. We only have provided guidance for the FY 2022 year. So even when we had prior guidance in place, it was for the FY 2022 year. And then obviously, we have the mid-term aspiration, which are in the deck as well. So the ownership in the guidance, we do not have guidance out in the market for FY 2023 and beyond, and we're not intending on providing that at this point in time.

Aryan Norozi: Perfect. That's great. And just in terms of customer acquisition costs, obviously, it's well aware – it's a sort of well-known fact across the industry up materially. I mean, the next sort of phase or change in the industry is people moving there quickly from 2023. I mean, how do you guys think about or when you're planning from a business perspective how are you thinking about marketing channels for the next 12 to 18 months the outlook for customer acquisition cost, just given the fact that your churn rates a bit higher than some of the other mine retailers please?

Michael Ilczynski: Yeah. Hi, absolutely. Well one of course we -- firstly last year with iOS and IDFA changes everyone knows that the cookie deprecation coming at some point in the future. And yeah, that will -- I think our expectation is those changes we will continue to see ongoing volatility across the digital marketing landscape. I think what we've seen in the past six months is particularly the IDFA changes that made it harder to attribute on channels on some of the social channels. And so we saw a low spend push into the search channel. Search is good for us, but that's where -- particularly where we saw caps go up. I think our expectation is we continue to see similar. It's even at cookie deprecate searching intent won't change. For us and our response is really multiple one of course we're aware. Firstly we talked a bit about how we continue to build our brand. We haven't invested in any of our brands previously. So building that broader brand awareness so that we start to become less reliant purely on intent-based searches we think is important because we expect those caps probably over time to continue to flow float up. And then more broadly, the way that we address it is by working on those areas that we spoke of before, around working on how do we increase our loyalty and repeat rates how do we make sure that customers that come to the site are aware of the broader propositions. How do we build things like our membership approach? How do we get more people onto our -- onto the apps in the Redbubble business because we do see the better retention and better engagement going forward, so it really has to be a multi-pronged strategy for us where we continue to build all those channels, those acquisition channels that we think will be less affected by those changes moving forward. We continue to build on our brand. We continue to work on our loyalty and repeat rates and our transaction funnel. So when someone does land on our site we really start to move those conversion rates. And then when they convert once then we put them back in. So I know it's a very long answer. But there's no one proposition. It will – undoubtedly, we are very much expecting there to be continued volatility over the next 24 months in particular in that landscape.

Aryan Norozi: That's great. And last one for me please. Can you give us an idea around unit economics business for this half? I mean, very simplistically how much does it cost to acquire customers and what's the -- what's the gross profit return on that customer in the hub? Just trying to get a sense of what your economics is you've got that to fall back on given you're obviously investing in the brand.

Emma Clark: Yeah. So we've obviously in the appendix to the investor deck got the full breakdown of P&L. There's obviously the appendix for unit. We do not provide tax errors. So we're not -- I'm not going to disclose them on the call. Unit economics need to be derived from the set of financial statements that we provided.

Michael Ilczynski: Yeah. We deliberately -- we've been asked a bit about it. It is -- when -- the challenge that we've been clear about is that when you look at our GPAPA, it does depend on the mix between organic and paid. And then within paid it depends on what do the tax look like within paid. So there's a reasonable degree of complexity that flows through that number. But hopefully what you can see by breaking down you've got the half results. And you can see by the numbers, you can see what the average looks like across the business as we bring those channels forward. And then even on tax, as we've talked about it does depend on your attribution beliefs. As we talked about last click basis however, some of those customers who on a last click basis will be considered organic has been exposed to various market messages -- various marketing messages prior to coming in through another channel.

Aryan Norozi: Sorry if I can just squeeze one very quick one candid one. Just turning to the receivable balance. I think it's about quadrupled during the half year-on-year. What's driving that please?

Emma Clark: So, it's still quite a low number in overall scheme of things. But it's largely driven by certain legal receivables for some insurances that we have in place. So, nothing necessarily to do with the operational results of the business. And obviously, that has almost a certain level of recoverability given the accounting standards that get applied to that balance.

Aryan Norozi: Thanks a lot.

Operator: Thank you. And our next question today comes from Chami Ratnapala with RBC. Please go ahead.

Chami Ratnapala: Thanks for taking my question Michael and Emma. So, the growth in Artist look pleasing. And I was just keen to understand with that Artist activation-related work that you commenced just CY 2021 just on the recruitment and account management side have you seen any incremental benefit so far? Any early signs you can talk to? Thank you.

Michael Ilczynski: Yes thanks. It's a really good question. We don't see -- we don't do a lot of breakdowns between TeePublic and the Redbubble business. So, I was talking a little more anecdotally. What the Artist acquisition team helps us do is really work on as new artists come in not only helping them onboard, but also helping to assess effectively the opportunities for those artists. And so that then creates a real focus in both businesses on making sure that new artists and new works are getting promoted and getting the chance to be seen by customers. As you can imagine if you have a -- a lot of our business is driven by search. And if you search results are completely focused on what has sold previously it makes it very hard for new artists and new works to break in. So, having a view on the way in about what artists and giving new artists and giving new works an opportunity to be seen by customers potential customers and be purchased is really important. So, one of the key internal metrics that we focus on is new artist works sold as a percent of new works uploaded. And we're definitely seeing that percentage particularly in TeePublic business are growing well where this work will be more focused. And that's -- and it's also an ongoing area of focus for the Redbubble team on how we take those signals from new artists to make sure that they're getting promoted. So, I think when we see the difference in results internally across the two businesses, it gives us confidence it is absolutely the right strategy. And it's as much around surface making sure that new artist works are being surfaced and being exposed as it is on making sure they're being brought in.

Chami Ratnapala: Thanks for that. And maybe if I could squeeze in one more question. Just on average order values have you seen what sort of movement have you seen over the first half just on PCP? Thank you.

Emma Clark: Yes. So, thanks for the question Chami. Average order value is up slightly versus the same half in the prior year. Also squeezing the conversion rate is up slightly as well. So, the decline is user-driven not conversional AOB.

Chami Ratnapala: Thanks for that Emma.

Operator: And our next question today comes from Perez [ph] Wilson, a Private Investor. Please go ahead.

Unidentified Analyst: Thank you. Thank you very much for your presentation. In your presentation, you emphasize issues like customer loyalty and repeat sales from your -- from the information it appears that you actually do have a very high cost on the loyalty and high repeat sales. But on the other hand, the vast majority of potential customers in Europe and possibly elsewhere have never heard of Redbubble. Can you elaborate a little bit about exactly what is Redbubble doing to make these people aware of the company?

Michael Ilczynski: Yes. Thank you very much for the question, really, really appreciated. A couple of things to unpack in there. So yes it depends, yes repeat sales as a percent of our overall revenue has been going in the right direction and represents as we said 45%. I think where we see it's still such a great opportunity is when we look at the percent of customers that purchase more than once in a period or the percent of customers that come back from one period to the next. Those numbers we think there is significant room for improvement when we look at other companies with similar customer bases or selling similar products. So we do think there is a significant opportunity. In terms of your question about lack of awareness? Yes, we completely agree. You can see in the presentation we shared a view about brand awareness. Both -- and those brand awareness metrics were actually only in North America. So if you were to repeat those studies in areas like Europe you would see even lower numbers. So yes that's absolutely correct. We've talked before that there hasn't been any real investment in what you would consider absolute top-of-funnel brand awareness. That's something that we're looking to rectify over the coming 12, 18, 24 months. We've been clear that we really wouldn't be starting that brand investment until at least the next financial year so at least until financial year '23. We'll have more of an update on that in August with our full year results. And they won't really be kicking off any earlier than that. But yes, you're absolutely right. And you can see from our -- from the data that we showed regionally that while we have a good-sized business in Europe that is primarily in three countries in Germany, France and Spain where we've localized language, localized payment opportunities, localized our customer service in local language. But even in those markets our sales as a percent of GDP or sales as a percent of consumer spending whatever metric you use is well below what we'd see in our major markets in North America indicating that there's an opportunity to increase penetration in those markets. And if we can do that successfully then we believe that opens up a real opportunity for us to move further into Europe. But the starting point is exactly the point you've made around we've got to increase our brand awareness. That does take investment. That's why we've been signaling. We're in an investment phase over this short to medium-term period. But we think that that's absolutely the right investment to make.

Unidentified Analyst: If I understand you correctly this will not happen this year but next financial year say in August?

Michael Ilczynski: Yes. So what we're looking at is any sort of significant investment into brands not until the next financial year, remembering our financial year starts from July. And given that the US is our largest market by far, it's likely that our initial investments will focus on the US. That's where our team is. That's where our strongest position is. That's where our strongest starting point is, focus there and then take our learnings and expand it into our other markets of Europe, UK and Australia New Zealand.

Unidentified Analyst: Yes. So in next financial year roughly how much of the marketing budget how much -- how many percent of the marketing budget will be allocated to branding campaigns?

Michael Ilczynski: That's not something that we've talked about openly yet. That's something that -- one we're both working through and so that that will be part of next year but we haven't given any guidance around next year's financials yet.

Emma Clark: What I will add is that when we do undertake material brand investment we will actually break that out in the financials as a separate line. So everyone will be able to clearly see how much we're spending on performance marketing versus how much we're spending on brands.

Unidentified Analyst: Which methods do expect to use for these branding campaigns? I guess it's not the newspaper advertising I suppose but something else. What -- can you elaborate on that please?

Michael Ilczynski: Sure. I thank you. I appreciate the interest. One that's still being still being worked through. The team is very much still in planning phases. But I can -- what I will say is it will absolutely be very digitally focused. We do see from other organizations that we look to and we've taken inspiration from the ability to build brand is in digital using the various digital channels from OTT and video et cetera is where our focus will be. That allows us to be more targeted. Our focus will be very much on our core audiences. So I won't be broad-based. I'm not going to say it's doing Super Bowl ad or anything like that. It will be primarily digital and will be very much focused on hitting our target audiences rather than to a broad audience. Thank you very much.

Unidentified Analyst: How much of it would be social -- media?

Operator: [Operator Instructions] Our next question comes from Tim Piper with UBS. Please go ahead.

Tim Piper: Good morning, Team. I’ll just stick to two questions. I just want to understand the growth in the content which has been quite strong and how that relates to the artist growth on the platform over the past couple of years. Is it possible to give us a bit of a sense in those numbers of content growth how much of that is growth from sort of older cohorts of artists and how much of it's been driven by new artists? And if we kind of look at 1H 2022 for example the proportion of new content compared to new artist growth has stepped up significantly. Is that sort of something specific to newer cohorts and artists or around strategy or anything like that?

Michael Ilczynski: Thanks Tim. I don't have those numbers right at hand so I probably need to get back to you. And I understand the question. In general there's not a huge change. One of the things that has been something over the past four or five years is you do have what you call content bulk uploaders who will look to upload a lot of designs that are more text based and that can contribute to those numbers. That's to be frank that's an area that our marketplace integrity team is focused on because some of that adds value to the marketplace and some of it doesn't. But in terms of a real separation or a good change I would need to get back to you on that one.

Emma Clark: I would just add Tim that we do try and encourage artists to upload more content. Obviously, if they come onboard an artist initially and they get a signal where something sells relatively quickly for me that acts as a reinforcement to upload more content. And we do know that there is -- from what we can see in our artist cohorts that simply having one piece of content uploaded on the platform is not optimal from an artist's perspective. So most artists particularly ones that are more commercial understand that and will continue to upload and add new content to Redbubble over time. And once again to Mike's earlier point in the speaking notes capturing more of those meaning and trending things that are happening now in the world at any point in time.

Tim Piper: Okay. Got it. And just a second one around in a follow-on on the repeat. You've provided a bit more detail in your repeat revenue share with reactivated customers there for that cohort of revenue the reactivated ones can you just talk about the channels that you're targeting to reactivate those customers? Are they sort of reacquired customers you're primarily paying for those customers again, or you worked a lot around some direct marketing et cetera that you're getting a lot of those customers back for free?

Michael Ilczynski: Yeah. I wouldn't say it's free. But there's different cost channels. So obviously, working e-mail, providing different incentives to specific customers, if they had been absent for a while and giving them incentive to come back obviously a slight cost in both direct mail actually which has got a bit of a cost to it, but it's relatively cheap, relatively of course has actually been -- you saw that we put out -- is one of the experiments. That's one of the experiments that both businesses have been working on quite well. And it actually -- given who our target audience is particularly that family unit has worked quite well. So it's a variety of remarketing campaigns both digital and physical. They can have a different cost to the pure and new customer acquisition. It's not free, but it tends to be lower cost.

Tim Piper: Yeah. Got it. Sorry and just one more really quickly on conversion rate. What's the kind of differential you see in conversion rate for desktop versus mobile web?

Michael Ilczynski: It's actually quite -- it is quite different. It's not order of magnitude, but there is a significant difference between desktop, mobile web and then app. And it goes in that order getting better. Desktop I think for a lot of customers is an area that one is decreasing as a percent of share, but conversion is an area that's most challenged. So there's quite -- there is a significant difference between desktop to mobile web to apps in terms of conversion rate.

Emma Clark: So as we continue to have customers use more mobile platforms which obviously be disclosed in the report and apps that is helpful to the conversion rate.

Tim Piper: Sorry. So desktop conversion is lower than mobile web conversions, is that what you said?

Michael Ilczynski: Yes.

Emma Clark: Yes, yes.

Michael Ilczynski: Yeah correct. Desktops go from worst to better desktop then mobile web then apps.

Emma Clark: Yes.

Tim Piper: Okay. Got it. Great. Thanks for taking the questions.

Emma Clark: Thanks, Tim.

Operator: And there are no further questions at this time. I'll now hand back to Mr. Ilczynski for closing remarks.

Michael Ilczynski: Thank you all. We really appreciate the time and your interest today and we look forward to speaking to many of you over the coming days. Thanks again.