Earnings Transcript for RBL.AX - Q4 Fiscal Year 2021

Operator: Thank you for standing by, and welcome to the Redbubble Limited Group FY Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Ms. Louise Lambeth, Head of IR. Please go ahead.

Louise Lambeth: Thank you. Good morning, everyone here in Australia, and good afternoon for our US investors. This is Louise Lambeth, Head of Investor Relations for Redbubble Group. Welcome to this investor call following the release of Redbubble’s FY 2021 full year results and reports earlier today. With me on the line, I have Redbubble CEO; Mike Ilczynski; and CFO, Emma Clark. As well as the full year results 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 been subject to audit, the company’s strategic and operational metrics are from internal management reports and have not been subject to audit. Mike and Emma will now speak, and then we will open up the lines for questions. Please note that 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 release. That safe harbor statement also applies to this investor call. Now I will pass on to Mike.

Mike Ilczynski: Thank you, Louise. Hello, everyone, and welcome to Redbubble’s financial year 2021 full year results. I’m really delighted to be here with Emma presenting our results, which have produced a record year for the company and have demonstrated the power of the business when it is operating at scale. In summary, at the group level, gross transaction value across the platforms was $701 million for the year, up 48% versus PCP and up 60% on a constant currency basis. Marketplace Revenue was $553 million, up 58% year-on-year and 71% on a constant currency basis. And we’re very proud of the $104 million in Artist Revenue that was earned by artists on the platform. This is an incredibly important milestone as it took Redbubble 11 years to achieve more than $100 million in total cumulative artist earnings. Whereas over the course of the financial year, this was achieved in just under 12 months, a testament to the strong growth experienced by the business and the artists that we serve. These record top line results translated into equally strong growth in gross profit, EBITDA and cash flow, and Emma will go into more detail on the financial income in a few moments. I’d like to take a moment to step back, reinforce and elaborate on our medium-term aspirations and strategy, which we articulated in April in our letter to shareholders. I’ll then go through a review of our FY ‘21 operational performance against our key strategic themes before passing to Emma, who will speak to the financial results in more detail and discuss the business outlook. So moving to slide 4, for those of you following along. FY ‘21 showed that we are well and truly on our way to creating the world’s largest marketplace for independent artists. This remains our mission. It drives our ambition, and we are passionately committed to it. On slide 5, to continue towards this mission, our medium-term aspiration is to drive top line growth to enable a step change in our business scale and artist impact. As many of you will be familiar with, Redbubble operates a unique three-sided marketplace with genuine flywheel effects where improving one side creates a positive reinforcing impact on the other side. In simple terms, the content that artists sell attracts customers. And as more customers purchase that enables the fulfillment network to scale, lowering costs and thus attracting additional customers. And this increasing customers further creates more Artist Revenue, encouraging new artists to the platform. They add more content, thus attracting more customers and the cycle continues. Given the centrality of customer sales to this process, you’ll see a focus on driving customer growth and loyalty in our medium-term aspirations and strategy. Slide 6, as we pursue these aspirations, the key high-level outcome metrics by which we’ll measure our progress, our gross transaction value, artist revenue and marketplace revenue. Our medium-term aspiration is to grow GTV to more than $1.5 billion per annum to grow Artist Revenue to $250 million per annum and to produce Marketplace Revenue of $1.25 billion per annum. It’s through these metrics that we hope to demonstrate our success in delivering a step change in artist impact in directing consumers to the marketplace, enabling them to purchase, turning them into loyal customers and in continuing to grow and scale the third-party fulfillment network. On slide 7, we really do believe that Redbubble is uniquely positioned to capitalize on this opportunity and emerge a significant winner in what are very large addressable markets. Not only are we uniquely positioned within markets that are growing towards hand in excess of $400 billion, we are also continuing to benefit from ongoing structural shifts in some key macro trends that will continue to be in our favor for the foreseeable future. On slide 8, our willingness to openly set and share these aspirations and our confidence in our ability to achieve these in the years ahead is also reinforced by the group’s track record of top line growth. From FY ‘17 to FY ‘21, Marketplace Revenue grew from $141 million to $553 million, a cumulative average annual growth rate or CAGR of more than 40% per annum over that period. If we take our FY ‘21 underlying Marketplace Revenue of $497 million, which excludes mask sales in FY ‘21, the CAGR is still 37%. This track record enables us to look ahead with confidence as we aspire towards a CAGR of 20% to 30% over the next four to five years in order to achieve our top line aspirations. On slide 9. To achieve this aspiration, we’ve shared our high-level plans in April of making investments that will be phased and evolved over the years ahead. These investments can be directly mapped for the four strategic themes which we have outlined on several occasions now, and which continue to underpin the foundational work the business has been progressing through the year. We’ve provided this slide to give you a visual representation of key areas of focus against these strategic themes and how they will evolve and develop over time. In the interest of time, I’m not going to go through every detail of this chart, but I will highlight how this strategy demonstrates the number of growth levers that we have and how our focus and investment will change over time. For example, this shows the OpEx investments that we’re making right now in the coming year, particularly in our product and engineering teams is to improve the digital experience for both artists and customers. It shows how we expect it to be another year or so before we will see an increase in brand marketing and the growth that that will drive and how geographic expansion also forms a core part of our growth strategy, but that’s likely to be a few years away from now. I’ll now run through a review of what the business achieved operationally during FY ‘21. So, on slide 11, many of you who have been following us over the last 12 months will be familiar with this page. As I mentioned earlier, these four strategic themes embody the foundational work that we’re undertaking to enable continued growth. And we’ve made some exciting progress against each of these themes, which I’ll run through on the following pages. So, starting with the theme of artist activation and engagement on slide 12. From an outcome perspective, FY ‘21 saw a record $104 million earned by 728,000 artists across the RB Group marketplaces. As I said earlier, this was the highest annual amount earned by the artist community, incredible milestone for the business. In addition to the total dollars earned, we’re also very pleased to see such strong growth in the number of selling artists during the period. On slide 13, this is a really important chart for us as a business as it demonstrates the ongoing compounding value of artists cohorts each year. The chart shows our marketplace revenue is not only generated from new artists, but also primarily from existing artists on an ongoing basis, which demonstrates the long-term value that artists and their content bring to the marketplace. Operationally, our group level artist function was established in the second half of the year, and this group will take a more proactive and segmented approach to artist acquisition and engagement across both the Redbubble and TeePublic marketplaces in the years ahead. On slide 14, or to the second theme of user acquisition and transaction optimization. We had 9.5 million unique customers that made purchases on the Redbubble marketplace during FY ‘21, up 40% year-on-year. Across our various customer acquisition channels, organic was strong. It remains a key source of competitive advantage for the group. While we saw growth in Google Ads, affiliates and PR, and we continue to experiment with new channels to diversify our acquisition sources and find new areas of opportunity. On slide 15, the mobile experience continues to be increasingly important with 55%, so more than half of wholesales on the platform occurring via a mobile device. Within the mobile environment, our apps are an important part of our long-term strategy. So, as such, it was really great to see Marketplace Revenue on all apps grew 77% year-on-year during FY ‘21, outpacing the strong overall growth and now 14% of the Redbubble marketplace the sales are coming via its iOS and Android apps. We continue to see stronger engagement and retention from customers who use our apps. And as such, we will continue to invest in improving and attracting customers to these platforms. On slide 16, as I flagged in April, developing a culture and process of targeted experimentation across the business is a key aspect of enabling us to achieve our medium-term aspirations. And initial and certainly an ongoing area where we’ll be taking this approach is across the customer funnel. I’m happy to share some examples of our experimentation, which is starting to provide some insights into our future growth opportunities. We’ve been experimenting with new social channels in order to expand our audience reach as well as on improving audience targeting to drive ad efficiency. This includes trialing podcast ad that I highlighted earlier, which reached new audiences of over 3.5 million. We also trialed free or reduced shipping costs and delivery date experiments, which are showing the potential for conversion gains. For example, one of our free shipping experiments showed the results of up to 40% gain in conversion. However, this does need to be balanced against the decrease in margin from reduced shipping revenue. So, more work is needed here on the best way to take these findings forward. And finally, we recently launched our second Buy Now Pay Later provider experiment, and the early signs show up to a 50% increase in average order value for customers using the Buy Now Pay Later option in one of the experiment variations. So, we’ll continue with these particular experiments as well as more importantly, this overall philosophy of targeted experimentation to drive improvement. Finally, I also want to reinforce that this view of the customer funnel has very much evolved beyond being a single transaction view to also include driving repeat rates as we improve customer loyalty, which I’ll touch on in the next section. And as we’ve talked before, will be an ongoing focus in the years ahead. So, on to slide 17 and customer understanding, loyalty and brand building, it was really pleasing to see that even with the record number of customers and reconciles results, purchases by repeating customers made up 42% of Marketplace Revenue, with the growth rate of revenue from customers making a repeat purchase outpacing that of first-time purchases. In particular, I wanted to highlight that the large number of new customers who came to the site in the first half of FY ‘21. So this was the COVID holiday period, the real surge that came at that period of time. Those customers are demonstrating the same repeat rate, which is a key loyalty metric as the equivalent but much smaller cohort from the prior year pre-COVID. So, specifically in the first half of ‘21, the new customer cohort was 62% larger than the same cohort in the first half of ‘20, yet it’s showing the same rate of repeat purchase behavior after three and six months. This is important as it shows that those customers who are arguably forced to do their shopping online during the shutdowns last year have stayed with us at the same rate as those who acquired pre-COVID. Moving to slide 18. As we discussed in April, one of the critical pieces of work that we’ve been investing in is our new customer data platform. This lays the foundations for deeper understanding and engagement with customers as well as enabling us to gain insights into the lifetime value and acquisition costs of customers acquired through different channels at different times. For example, the cohort repeat data that I mentioned on the previous slide was generated through this platform. So, it’s still early days in our implementation of the CDP and building our internal capability, but we wanted to share some initial examples of the opportunities that this will bring. So, for example, in a recent Facebook experiment comparing audiences Cred through the CDP to a pixel-based free marketing audience. We saw a 33% increase in the click-through rate and a 17% uptick in return on ad spend. In addition, using the CDP, both the Redbubble and TeePublic marketplaces are investing to create and structure more first-party data to ensure continuity in our marketing effectiveness is AT&T, which is Apple’s app tracking transparency program and other privacy changes that are particularly impacting the effectiveness and attribution of marketing on third-party platforms. So, it’s helping us to maintain our marketing effectiveness despite these changes. On to slide 19, we’ve flagged an increasing brand marketing to drive awareness engagement will be a large part of the next phase of investments in growth, likely a year plus away from now. However, our Redbubble and TeePublic marketing teams are already making progress with early experiments on our brand positioning, and these are resonating with media and target audiences. This includes a 31% increase in click-through rate for our recent Redbubble brand commercials relative to other video campaigns. The focus on growing our PR channels has started about 18 months ago is going really well, and we’re very much encouraged by these early results, which indicate that we’re laying the right foundations for launching future successful brand campaigns. And then finally, on slide 20, let me turn to the third-party fulfillment network and improving our physical product range. This is an area where the business has made significant investments previously to diversify the network, to build in redundancies and reduce the time it would take to add new fulfillers on new products to the marketplace. It is here that the value of prior year investment into the network which really demonstrated as the business was able to respond to the increased demand due to COVID and deliver the largest holiday season in the company’s history. During FY ‘21, there were 11.6 million packages share, up 47% year-on-year. The third-party fulfillment network model enabled to maintain continuity of operations and supply in the face of surging demand, record volumes and constrained shipping conditions due to COVID. I’m really proud of what was achieved without compromising the customer experience. On slide 21, Redbubble added new products, including jigsaw puzzles, aprons and magnets. We’ve also started to have a particular focus on improving and refreshing existing product ranges, and we saw this deliver acquisition and conversion gains along with the quality uplift to improve repeat purchasing. So, this is something that will remain an ongoing focus now alongside selectively adding completely new products. So, for example, there was a 30% increase in Marketplace Revenue from tri-blend tees by adding four new colors. We’re also undertaking work to improve the physical product experience with experiments running right now, looking at the impact of changes to blank quality, the packaging inserts and delivery base changes. And on to 22 -- slide 22, finally, I’m really excited to share with you that Redbubble has become the first at-scale print-on-demand marketplace to launch caps. These are now available from local facilities in the US market. So, for those of you who are in the US, would love you to order some and tell us what you think. We’ve launched two types of apps, the structured baseball cap and the softer unstructured dad or polo cap. And now, I’ll hand over to Redbubble Group CFO, Emma Clark. Emma?

Emma Clark: Thanks, Mike, and hello to everyone. I will now cover our financial performance in more detail and provide our near-term outlook. Please be aware that unless otherwise stated, the financial results discussed are on a delivered basis as per our statutory requirements and all have been subject to audit. As Mike covered at the start of the call, Redbubble delivered a record year of results in financial year 2021. When looking at the year, it is pleasing to see that all of our financial metrics experienced exceptional growth. In particular, I would like to call out the $553 million in Marketplace Revenue, up 58% and 71% on a constant currency basis. Customer demand has been sustained throughout the entire year, even as offline retail has started to reemerge from COVID impacted trading. From the start of the fourth quarter, the business began to cycle very strong prior year comparatives. Global macro conditions, particularly in the US, which is our largest market, have changed noticeably. The situation is still evolving. However, in most of our geographies, people are able to move around more freely, dine out and travel. And as such, we are seeing a return to more normalized seasonal patterns. We are very satisfied with the fourth quarter’s performance, where if one adjusts out mask volumes from both years, we grew 1.8% year-on-year on a floating basis. As the prior year is such an unusual period, it is useful to measure the growth of Redbubble over a longer period of time. For example, if we look at the growth rate over a two-year period for the fourth quarter, underlying performance is a compound annual growth rate of 32% since financial year 2019 on a constant currency basis. This demonstrates that the business has kept the majority of its pandemic-driven gains. Moving down this year’s profit and loss, we maintained and improved unit economics. Gross profit margins were higher in the financial year, primarily due to the strong contribution of higher-margin products such as face masks. This resulted in gross profits of $223 million, up 66% and 79% on a constant currency basis, outpacing what were already impressive revenue growth rates. We are pleased with the fourth quarter margins, which stabilized at 40.2% and provide a solid foundation for both continued experimentation and optimization. Redbubble’s full year EBITDA was $53 million, up $48 million from the prior year. The ramp-up has been significantly accelerated due to the record revenue growth with most of the uplift dropping directly to EBITDA. Financial year 2021 certainly demonstrated the powerful effects of our marketplace model and how quickly profitability can scale with additional revenue. It is worth pointing out that FX continue to have a notable impact on the year-on-year comparable as the AUD USD pair was a headwind in the second half of last financial year. We provide growth rates on a constant currency basis to take out the noise that can occur in our quarterly results. As these three charts show, when viewed over the medium term, strong growth has been consistent and is continuing to underpin key profit and loss lines. The business was able to pivot and respond to macro events to achieve record financial results during the last year. However, leading into this period, this was already a business delivering long-term year-on-year growth as demonstrated by our five-year historical compound annual growth rate of more than 40% across Marketplace Revenue, gross profit and gross profit after paid acquisition. Even if one adjusted out last year’s mask sales, the growth rates would still all be in the high 30s. It is certainly a strong long-term track record, and we are confident in our ability to drive continued growth into the future. Although ASX listed, Redbubble is a truly global business, and our multiregional footprint is a key strength, with growth continuing across all of the core geographies. There is a combined population of almost 1 billion consumers in those key markets, and you heard Mike earlier talk about the large total addressable market that we have set our sights on. And as such, there is no risk that we will hit a hard constraint on the number of customers available to us in those geographies in the medium term. There are a diverse range of physical product offerings available on the marketplaces, and each category has grown during the last year. We have added data showing transactional volumes to each of the categories over all years, and this was done to highlight the fact that absolute dollar growth has occurred across each and every product category over multiple years. Homewares and artwork, including wall art were popular categories during the pandemic, and T-shirts and other apparel also saw good growth over the last 12 months. Even stationary and stickers managed to grow 11% year-on-year despite most students being confined to remote learning. Finally, facemasks unsurprisingly were a significant contributor during the year, boosting accessories growth to 119% year-on-year. I will go into more detail on this in the next slide. As we start to cycle the COVID comparatives, it is pleasing to see categories that had more muted growth rates during the last financial year, such as apparel and stickers start to accelerate again. In total, masks contributed $57 million to financial year 2021 Marketplace Revenue. If we take this out, the underlying Marketplace Revenue was therefore $497 million. Underlying Marketplace Revenue growth was still strong at 47% and represent substantial growth over the prior year Marketplace Revenue of $350 million. As we have shared over the last 12 months, the benefit of masks were seen predominantly in the first half, during which facemasks were contributing as much as 27% at their peak. We have provided the split of mask contribution by half, which highlights that of the $57 million of Marketplace Revenue that came from facemasks, $47 million of this occurred in the first half of financial year 2021. This exacerbated our normal seasonal split with 64% of Marketplace Revenue occurring in the first half versus 36% in the second half. The more normalized seasonal split is closer to 58%, 42%. Last year’s record financial results from a profitability perspective have also provided many other benefits, not the least of which is a substantial cash balance that the business is now holding. For the first time in our history, we can sustainably invest into our future growth. If, for example, one of our experiment shows promising early results, we can use our own cash reserves to rapidly accelerate the experiment to generate the most material impact upon both revenue and ultimately more profit in future periods. It also gives management and the board considerable strategic flexibility around a range of capital management strategies from M&A at one end of the spectrum to share buybacks at the other end. All of these options are under active consideration by the board. Redbubble currently operates with no debt facilities and due to its positive working capital dynamic has only accessed equity funding once in 2018 for the purchase of TeePublic. There are also a couple of other balance sheet-related items that are worth mentioning. As some of you would be aware, we have $37 million of off-balance sheet tax losses. As the business becomes profitable from a taxation perspective, these losses are available to be utilized to offset tax payable at that time. And as we discussed at some length in our last full year results call, 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 30th of June 2021, this was $8.7 million. Let me now explain our near-term outlook for financial year 2022 and provide our views on the medium-term financial parameters. As you are aware, we don’t normally provide any form of guidance, but given the ongoing uncertainties in the macro environment, this can result in those modeling the business generating widely varying outcomes. We would like our shareholders to be as aligned as possible with our own current internal views on near-term performance, which take into account business performance for the current year-to-date in July and August. The last 12 months saw phenomenal growth across the business. This means that in the near term, Redbubble will cycle strong prior year period comparatives. As we have flagged, masks were a significant contributor, adding $57 million to last year’s Marketplace Revenue. And as you saw in the previous slide, the underlying financial year 2021 Marketplace Revenue was $497 million. Looking forward, Redbubble expects financial year 2022 Marketplace Revenue to be slightly above financial year 2021 underlying Marketplace Revenue. This will still represent solid growth on the $350 million achieved in financial year 2020. The first half of financial year 2022 Marketplace Revenue growth will likely be negative year-on-year as the business cycle is a particularly strong prior period due to both COVID lockdowns and including masks. From the second half, we expect a steady return to year-on-year growth rates consistent with meeting our medium-term aspirations. Targeted investments will continue to be made and will affect gross margin, marketing and OpEx lines. Investments in financial year 2022 will focus on key aspects of the customer experience, both digital and physical. These are aimed at driving cumulative increases in users, order rate, average order value and repeat rate. As noted in the April release, EBITDA margin as a percent of Marketplace Revenue is expected to be in the mid-single-digit range for financial year 2022, with EBITDA margin expected to expand over the medium-term with top line growth. Looking into the near to medium term, I’d like to reiterate the potential for Redbubble to build margin and bottom line improvement as the business scales. As we shared in April, our medium-term aspirations are to continue growing the business to $1.5 billion in gross transaction value, Artist Revenue of $250 million and Marketplace Revenue of $1.25 billion in calendar year ‘24 plus. We shared this slide in April and most of these numbers will be familiar to you. One of the nuances have been a long-term high-growth business rather than a stable low-growth business is that there will continue to be volatility in margins from year-to-year. Long-term above system revenue growth requires investment, and as such, the EBITDA margin in any given year will depend both on the overall scale of the business at that time combined with whether we are in an investment phase as we are currently versus a consolidation phase. We’ve expressed all major profit and loss lines with a range to attempt to illustrate this dynamic, but had left OpEx as a single data point, which in hindsight is not the best representation. Accordingly, we have updated this to a range of 12% to 15%. The flow on affected the EBITDA level is at the range has increased from 10% to 15% to 13% to 18%. This change better illustrates the economic potential of the business when it is operating at scale and its ability to generate EBITDA and cash flows at that point. Like all great marketplaces, we operate with discipline and maintain an agile and appropriate balance between revenue growth and margin generation. We are focused on building towards our midterm aspirations and looking at our historical performance, continue to believe that this is an achievable goal. I will now pass back to Mike.

Mike Ilczynski: Thanks, Emma. Just before we open up to questions, I’d really like just to reinforce how optimistic we feel about the future for Redbubble. It’s a business with some truly unique assets in a competitive position with compelling opportunities and many growth levers. I’m just over six months into the role myself, and I feel more confident about the opportunity than when I started. I’d also like to publicly thank all of the team across Redbubble and TeePublic for their efforts during the year for their dedication and their ability to adapt to these trying times. We believe a continued and consistent focus on investing in order to scale and grow the marketplace is the optimal part for the business right now and the best way to generate maximum long-term shareholder value. And I’d like to thank all of our shareholders for your continued support on this part. I’ll now open up the lines to questions.

Operator: Thank you. [Operator Instructions] Your first question comes from Anthony Porto from Morgans Financial. Please go ahead.

Anthony Porto: Hi, guys. Thanks for taking the questions. I guess the first one, just with cycling, the COVID tailwinds. Emma, you mentioned in the second half, you think revenue growth is going to be peaking up there. I guess, yeah, what we had all seen kind of the next couple of quarters were the hardest one to cycle, but I know Etsy came out the other a couple of weeks ago and just spoke about the impact of US stimulus and how the first quarter and next calendar year would be the hardest for them to cycle. So, you just maybe provide a commentary on that and just your ability to cycle that kind of US stimulus, I do know you grew less than that in that quarter. I guess the second question, just on the Brandy Melville case. I can’t see anywhere in the – anywhere in the numbers at all where you’ve provisioned for that. I assume that’s because it happened after the financial year. But just the $520,000 in damages, I guess if you can provide how many other cases have you got in litigation? There seemed to be a number in the California District Court. And I guess reading through the announcement there, it was more the kind of repeated refusal to take off the infringing products there that really got your court and contribute to negligence there? And just some commentary around that. I know it was before your time, but just some commentary around that. And then I guess, going forward, how much kind of non-authentic is how it used to be referred kind of content is still on the site? And then just lastly, around marketing efficiency going forward. I guess, numerous e-commerce players talking about the impact of Apple’s either changes and on marketing efficiency. Have you guys seen any impact there? And then just general cost escalation in digital advertising. How do you think you pay your payback kind of holds into the next couple of years? And just not really putting that much more above the line marketing seems at odds with a lot of the other e-commerce players in the market. So there are three reasonably in-depth questions.

Emma Clark: Yeah, Anthony, I think you just won an award for managing to jam the most pieces of information into a single question ever. I’ll start and answer some components of it and then I’ll hand over to Mike for some others. And if we miss a piece, just remind us, okay. In terms of the commentary that you made regarding Etsy stimulus and what’s happening in the US and the near-term comparative. We certainly would see similar dynamics to that particular business in terms of how those prior year comparatives are either the hardest or the easiest at certain points in time. So, as I discussed in the call earlier, primarily, we see the difficult comparatives through the first half of the year. And certainly, within that, the first quarter is the hardest – the first quarter is the hardest comparative period for us to cycle. And then as we also said, we would then start to see a normalized return to the growth rate. So, we really need to see in order to be able to achieve our midterm aspirations. So I would concur with the statements made by that. We can certainly...

Anthony Porto: So, Emma, that’s kind of at odds with it. Etsy statement is the third quarter is the hardest to cycle given the US stimulus in that kind of March period.

Emma Clark: Yeah. So, okay. So, apologies for any confusing cause, they obviously deal with calendar quarters instead of financial quarters as we do. So for us, it’s the first quarter of the financial year, which is the July to September period. After that, the comparatives do start to get easier because for us and based on what we’re seeing at the moment, the difficulty in the comparative is actually primarily caused by the impact that masks had on the marketplace at certain times because obviously, they moved quite quickly peaked quite high and then fell off. And so, as we go through that cycle, which for us is in the July to September period primarily that received our most difficult comparators if you’re just looking at a headline year-on-year basis, and then they start to get a bit easier for us. So that’s the answer on comparatives. On the Brandy Melville in terms of provisioning, we do have it provisioned. I’ll let Mike talk in more detail more generally about the cases, but there was a change in the damages awarded that happened soon after year-end reducing it to $220,000. We do have that amount provisioned in our accounts, but we also have an offsetting receivable because we do have insurance that covers situations like this, and there is an insurance receivable that effectively matches and offsets that though they appear in two different places in the balance sheet. So, the net P&L impact is not there, but they are recorded in the balance sheet. And then the third piece, I’ll quickly pick up in, I think, in your third question about marketing spend before I hand to Mike is in terms of digital channels, I mean, as we said last quarter, we’ve definitely seen a return to more normalized competitive conditions in the online marketing space. Most players are back. They’re bidding for inventory the same as us. And you can see in the fourth quarter, our marketing as a percentage of sales was 13.2%, which is probably a little higher than what we would ideally like to see but is driven by those market dynamics and the competitors that are out there at the moment. We would consider that to be -- I mean, obviously, looking at marketing quarter-to-quarter is tricky because there are times when we will actively invest in more marketing. So, for example, around now for back-to-school and obviously, in the traditional holiday period, so it can bounce around a little bit. But I think underlying our view would be that where we’re sitting at the moment, we don’t see any shifts at the moment in that landscape that would mean that we would drastically have to change the amount that we’re spending in paid marketing as a percentage. So, I think what you’re seeing at the moment in our financials is what you could reasonably expect to continue to see in the near to midterm. And so, I think that’s mainly the financial ones. I’ll hand over for Mike for some of the other elements of some of your questions.

Mike Ilczynski: Yeah. Thanks very much. Just on Anthony, definitely, there in different times of cost escalation in different marketing channels and some of that has absolutely been impacted by ATT. It just makes it a lot harder to see conversion on different channels that we use. But we – our marketing spend, our paid acquisition spend, as we talked about, is really spread across a lot of our channels a lot of different channels. Our team is pretty nimble. So, they’ve got an ability to monitor what’s being effective, what is it and ship spend across channels, which is why we’re sort of confident in the total spend that absolutely it moves around, and things are moving around quite a dynamic environment at the moment. Just on the litigation, it’s really, really challenging for us to comment on individual cases. What I would point out within the public domain is that the Brandy Melville damages were reduced by more than 60% straight off the mark by the judge in some refining, and we continue to file motions and we continue to disagree with the premise of the findings by the jury in that case. And I disagree with the premise that there was any repeated refusal to take down in printing concept. That’s just not an accurate statement. We take the right of rights holders very, very seriously. Whenever anything is raised, there is an instant – like an incident 24-hour or less turnaround by our team on looking into any potential rate infringement. And if there’s any infringing content, it’s removed. And then we continue to monitor for infringing content on an ongoing basis. The challenges is any technology or human-based system is not full proof. It’s not full-proof. Image detection is not full-proof, tagging detection is not full-proof. And sometimes, unfortunately, bad actors content gets through by bad actors every single site that deals with UGC has to deal with these issues. We take it very seriously. And as soon as we’re made aware of infringing content, it’s taken down. So, I just want to know that concept that there’s repeated review to take down is just not accurate at all. And we feel really strongly about that. And then finally, on the comps. It is important to point out, if you look back on last year, there are a few things going on as well as mask sales. This kind of COVID surge that happened that was driven by, firstly, an inability to shop offline because of lockdowns or shutdown of retail coupled with stimulus that happened at the same time, really did increase overall demand in the marketplace. And that hit during really three quarters of last year, but particularly for us in the first half, were a little bit into late Q3. And what’s really encouraging for us is, we look at where the business is now, and I can’t emphasize enough that in the US and the UK, from a consumer spend perspective, we’re in a post-COVID world. Every single offline retail outlet is open. Every single bar and restaurant is open. The US is traveling domestically and internationally. So, we might be hearing a lot about the delta variant. But from a consumer spend perspective, in the US and in the UK, it is back to – we’re in a post-COVID world. And in that post-COVID world, we’re seeing our demand hold up. Even in Q4, if you just got mask will look flat, but we’re really encouraged by it because that means that we’re holding those COVID surge numbers almost completely, which was the big question is how much would we hold. And that means we’re 50% up from where we were two years ago. So we’re really encouraged by the position we’re in.

Anthony Porto: Got it. Thanks for that guys.

Operator: Thank you. The next question is from Martin Tran [ph] of Private Investor. Please go ahead.

Analyst: Hi, guys. Thanks for taking my questions. First question I had was around artist. Some artists have said that they post their work on multiple print-on-demand side to increase their profit pool. Where do you guys see Redbubble’s competitive advantage given that consumers can access the same line on multiple websites?

Mike Ilczynski: Thanks, Martin [ph]. I think primarily for us is what we hear from our artists is even those that do multi post effectively, the great thing about Redbubble is that it’s the one that generate by far the majority of their sales. And so, we are the go-to place. And what we see with our artists is when they come on, they’re very, very rarely leak. We have very -- we have almost no issue at all with data secretion or with content going off the site. But what we know from an artist perspective is the number one thing that they want is they want to generate sales, they want to generate sales. And so that’s why our job, the job of the platform is to bring that demand to their content, to their product and generate and help them generate sales. And that’s our big competitive advantage. There’s no other site. There’s no other marketplace in the world that has the scale of consumer interest that we do. And that really is a self-reinforcing as we get more artists, our SEO gets better, our marketing gets better. And particularly, while we’ve talked a lot about our paid marketing, it’s really important to remember the huge driver that SEO and organic traffic is for Redbubble. It’s one of our core competitive advantages, and it really does generate its own little flywheel. So the number one proposition we have for artists is that you will generate more sales at a lower cost than any other platform out there for you, particularly even compared to doing it themselves, but they’ve got to spend all of their own money on marketing. They don’t need to put a single dollar down to operate on Redbubble. And that’s a huge advantage. It’s completely free for the artist unless they make sales. There’s absolutely no risk, and we’re very, very confident that for almost every artists, they’ll make more sales on our platform than they will in every other. So that’s our core competitive advantage.

Analyst: Thanks for that. And just another question that I had. What are you guys doing around improving the existing product quality and price around that as well? Like how do you guys think about that?

Mike Ilczynski: Are you getting physical product quality one?

Analyst: Yes. Yes. product quality.

Mike Ilczynski: Yes, absolutely. So physical product quality is really important. And I think we’ve been open to saying that there are mix levels. Some of our physical products, we are extremely proud of. They’re high-quality products, they’re high-quality blanks that produce a great image that’s printed on them, and they’re fantastic, and they get wonderful views for the consumer. We do have some of our other products, which we’re looking at refreshing. That’s why I spoke very specifically about refreshing some of our existing product ranges. And what that means is looking firstly at the quality of the blank, the underlying product and can that be improved? And then secondly, looking at the way that we print on it because sometimes we can have a really nice image, but that image doesn’t fit on the product properly. It’s not the right resolution or it’s not the right shape and it ends up in a poor outcome for the customer. So there’s a number of ways that we can tackle physical – improving physical product. It’s right on our list of one of the core improvement initiatives across both product and supply chain because it takes the combination of both. And we’re really – we’re doing a number of different investments to improve that. We track our NPS, we track our cost of quality, a number of customer tickets. We wing that back to a particular product in a particular fulfill up and it’s an important area of ongoing improvement for us.

Analyst: Yeah. Excellent. Thanks so much.

Mike Ilczynski: Thanks.

Operator: Thank you. The next question is from Owen Humphries from Canaccord. Please go ahead.

Owen Humphries: Hey, guys. And well done for managing the scale or the growth in the last 12 months. Lots of moving parts. So just a couple of questions. I might just start off with -- you talked about the caps. Obviously, category expansion is a large opportunity for you guys. Can you just talk through what some of the initiatives are for the next 12 months? Or is that competitive in nature?

Mike Ilczynski: Yes. So sorry, sorry,. But yes, we don’t want to signal early on new products. As we talked about that new prices, but it remains important. We’ve got some focused areas that we want to add over the next 12 months, but it’s probably equally weighted with the number of range refreshes and improvements that we want to do to existing categories.

Owen Humphries: Okay. Got it. And I just noticed the word capital management initiatives in your -- one of your slide decks there. Can you just talk through what your look-through cash balance is what you consider yours? And what do you mean by capital management initiatives...

Emma Clark: So it’s a great question, Owen. So in a business like ours, as you’re aware, as long as we continue to generate growth, and it doesn’t have to be month-to-month, but certainly if you think about an annual basis, generating growth. We actually continue to generate more cash than obviously what we have to pay out for the expenses for the period prior. So in terms of how much cash we actually need to hold as like our own that we need to keep in reserve for working capital requirements, it’s actually relatively small. So we could choose to be quite aggressive on what that cash balance that we really need to hold in reserve actually is. Obviously, the cash balance has been something that has been a hot topic for people over the last 9 months as it’s built up. As I said in the call, the Board and management are actively discussing what to do with that cash balance. I mean, certainly, we very much fans of having the strategic flexibility to have that firepower to do things with it. There’s effectively sort of three main options. One is inorganic M&A. Second one is accelerate our own internal investment. Third one is potentially return some back to shareholders as part of the share buyback. We’ve specifically said we’re not doing dividends and we maintain that position. All of those options are on the table being actively discussed by Board. I think it’s fair to say that as a growing business, we do have a preference to be able to use our cash reserves to be able to invest in further growth, whether it be organic or inorganic. And so there’s obviously lots of opportunities out there at the moment. So we’re looking at those.

Owen Humphries: Good one. And maybe just lastly, obviously, the world went online in the last 12 months. A lot of money has been raised and going to the space. Can you just talk about where you see the change in competitive dynamics? What’s happening in the marketplace or how it’s changed in the last kind of 6, 12 months?

Mike Ilczynski: Yes. Yes. Owen and Amy, you should jump in. I think what’s interesting is we feel great about where our business is positioned at the moment, and we’re particularly -- we particularly feel great about, as I’ve mentioned before, to Anthony, that even though in our core markets in the US and UK and Europe, it is actually -- if you’re in Australia and lockdown like we are, it’s kind of how to understand how different life is if you’re in the US right now. In terms of, yes, people are wearing masks and yes, they’re worried about delta. But they are out shopping, they are out going to restaurants. They are out going to night clubs. They are traveling, et cetera. And so the fact that we’re in this postcode world now in those markets, and we’re holding where we are feels really good to us. The competitive market for us, where we see that show up the most really is our marketing channels because you still do have all of those off-line players that were forced on lines by COVID, they may have pulled back a little bit, but they still see now online is a key growth area for them. So they’re in there. Obviously, a number of individuals that slopped online during lockdown. To be honest, a lot of that tied away. That was always going to happen because there’s just some scale, and they can’t compete against platforms. So the competition for us is probably more in individual marketing channels as we see different players move in and out of those channels. But in our core business, we feel really solid about the really unique place and the unique scale that rubble is in right now.

Emma Clark: Yes. I would just simply say, even with the capital floating around and competitors doing different things, I think our competitive position is super strong at the moment. I mean, one of the questions that we’ve discussed on prior calls, particularly for the last nine months is really the big question around everyone’s mind was how much of the pandemic-driven games is the business is going to get hold once conditions -- trading conditions sort of turn to normal in the world. And as Mike’s saying, I can very large -- I mean, Australia is a bit of an outlier on this one, right? In all of our other geographies, normal is largely back. And so the answer is we’ve held on to most of it, which is it puts us in a really solid position, both competitively but just also just looking at our own business and what we can do with it in the future. So like Mike, I’m feeling super comfortable about where the business is from a competitive perspective at the moment.

Owen Humphries: Got it. Thanks.

Operator: Thank you. The next question is from Paul Mason from E&P. Please go ahead.

Paul Mason: Good morning. Just three for me. So the first one, I was just wondering if you could make some comments around what you think your non-COVID seasonality might look last from half to half. Second is maybe some commentary on sort of why you’re not just starting more brand advertising and brand building this year given your cash levels? And then thirdly, if you could just maybe give us some color on sort of the concentration of your artist revenues in, say, like your top 10% of artists or something like that. Just interested to get a feel for like how spread the revenue goes among your artist population or whether there’s like a category of much higher value artists that you might be able to invest in specifically to drive growth or something like that. But those are free for me.

Emma Clark: Great questions, Paul. I’ll talk about the non-COVID seasonality. I did actually sneak it in when I spoke earlier, but I’ll explicitly state it again. So normal seasonality for Redbubble, ex-COVID is 58% turnover in the first half, 42% in the second half. And as I said earlier on in the call, what we are seeing with the return to normalized conditions in most of our geographies is we’re starting to see those like what we would consider to be normal seasonal patterns play out. And so that’s more like the split that you would expect to see moving forward.

Mike Ilczynski: Thanks, Paul. Appreciate the question. Just on the brand because it’s a great question. To be honest, we continue to challenge ourselves internally about when the right time is. I think what we’ve been flagging is before we put the lever down on brand spend, we want to make sure a few things are lined up. And those things are lined up firstly, we’re really honing on what our value proposition is, the marketing messages that will effectively convey that brand positioning. And that’s when I talked about the experimenting and the marketing teams are already doing that bit of work. Secondly, we want to be really clear that our customer data platform is completely integrated and implemented and our internal capability really understand which of our cohorts, which of our channels is driving the best cohort. So when we put that brand spend in, we know exactly which channels to put it into. That’s work that I would have spoken about that that’s still ongoing. And then thirdly, we would like to see a bit more improvement in our customer funnel, our transaction funnel and our repeat rates. Again, as you know, that brand spend generates the awareness and brings people to the site. We want to make sure that we’re getting the right percentage of people who visit our site through that first transaction and then repeating. So hence, we want to get those DUCs really lined up so that when we put the spend in, we know that it’s going to hit the mark in terms of the creative, it’s going to bring people to the site because it’s going through the pipe channels. And then when they get to the site, they’re going to transact and repeat. And so we’re doing work on all three of those elements now in over this 12 months and some of these changes are pretty significant that we want to put in over these 12 months. And hence, why we’re saying we think the brand spend is more like next financial year rather than this one. Because we think if we go early, then there’s a risk that we don’t spend that money as effectively as we otherwise could. And then just on your third question on the spread. We haven’t given exact numbers, but probably like most platforms, the spread across artists is a pretty standard sort of (inaudible) sort of spread where there’s a nice – there’s a nice sort of curve. There’s kind of a 80-20 rule. That’s probably about as much detail as we go into. But when you’re talking hundreds of thousands for us, when we talk about our top-tier artists, we’re talking about tens of – still tens of thousands. There’s no artists that anywhere in the year like 1% of our revenue, it’s the points of – even our biggest artist would be points of 5%. And then in terms of content, it’s one of the real things that gets lost in Redbubble on one of our real strengths is that the content spread on our side is quite dramatic. And across a whole lot of topics, but in particular on what we talked about three big styles of content, there’s sort of evergreen artwork that sells just consistently through every year because it’s very much like hard if you – it’s very much like heart you put on the wall. Secondly, there’s sort of pop culture, cultural trend-driven art that tends to have like a medium-term shelf life, and these are around major pop culture trends and is they might have a sort of a selling time of sort of one to three years. And then there’s a very mean based sort of content and sort of a textual base or just in the moment and that can sell through a week to five, six, seven weeks. And all three of those things are really important because it demonstrates a spread of content, the evergreen and the pop culture kind of puts a floor underneath and the mean style content brings a new lot of audience to the site on a really ongoing basis, and they provide that really ongoing refresh to the content. So it’s three big different categories before we even get into trends like with the gaming, is it music. Is it whatever else?

Paul Mason: Okay, great. Thank you.

Operator: Thank you. That does conclude the question-and-answer session. I’ll now hand back to Michael for closing remarks.

Mike Ilczynski: Thanks very much. I’d just like to say thanks again for joining us today. We really look forward to connecting with many of you over the coming few days. Thank you again for your support, and we’ll now close the call.

Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.