elumeo SE

XETRA:ELB

Earnings Call Analysis

Elumeo faces challenges but executes cost-saving strategies and confirms 2024 revenue outlook.

In Q3 2024, Elumeo reported stable revenues at EUR 33 million but faced a 4.5% decline in Q3 due to decreased consumer sentiment and rising gold and silver prices. Adjusted EBITDA remained positive at EUR 436,000 for the first nine months. The company successfully implemented cost-saving measures, reducing SG&A expenses by 6.2% year-over-year. Looking ahead, Elumeo confirmed an outlook of -4% to -1% revenue growth, with gross profit margins between 47% and 49%. The anticipated adjusted EBITDA for 2024 ranges from EUR 0.5 million to EUR 1.5 million, while international expansion efforts are gaining momentum.

Current Business Climate and Challenges

Elumeo has navigated a tough economic landscape in Q3 2024, with revenues falling 4.5% year-over-year to EUR 10.5 million, down from EUR 11 million in Q3 2023. This decline is largely attributed to a significant downturn in consumer sentiment, evidenced by the Gesellschaft für Konsumforschung (GfK) index, which saw the income prospects drop from 19.7 points to just 3.5 points, marking the steepest decline in two years. Additionally, rising precious metal prices—gold was up 34% year-on-year—contributed to higher costs that affected profit margins.

Cost Management and Operational Efficiency

In response to these challenges, Elumeo has made noteworthy progress in cost management, successfully cutting selling and administrative expenses (SG&A) by 6.2% over the first nine months of 2024, from EUR 18.6 million to EUR 17.4 million. In Q3 alone, SG&A expenses decreased by 13% year-over-year, from EUR 6.1 million to EUR 5.4 million. This rigorous cost-saving program is projected to bear fruit in Q4, aiming for further reductions in expenses and enhancing operational efficiency.

Adjusted Profitability and Future Expectations

Despite the revenue downturn, Elumeo managed to maintain a positive adjusted EBITDA of EUR 436,000 for the first nine months and EUR 110,000 in Q3. The company has committed to an adjusted EBITDA guidance of EUR 0.5 million to EUR 1.5 million for the full year. Furthermore, they forecast continuing gross profit margins between 47% and 49% moving forward, indicating a controlled focus on profitability amidst challenging revenue conditions.

International Expansion Efforts

Elumeo's strategic initiative, dubbed 'Internationalization 2.0,' aims to broaden its market reach. This program has shown promising results, with revenues from new broadcasting channels increasing by 116% from July to September 2024. The company plans to expand its TV audience from 56 million to 80 million households by the end of 2025, and initial customer feedback suggests that the adaptation of shows into local languages through AI has been met positively. This international push is expected to significantly bolster growth as part of their #Juwelo100 program, targeting EUR 100 million revenue by 2030.

Web Business Performance

On the digital front, Elumeo's web business reported revenue growth of 4%, reaching EUR 10.6 million. This growth is a result of optimized online marketing strategies that successfully reduced spending by 22%, all while increasing the average basket size by 9%. The focus has shifted from the quantity of customers to the profitability of existing ones, which has led to a 16% increase in revenue per customer. These metrics indicate a maturing strategy that emphasizes customer lifetime value over sheer volume.

Market Outlook and Closing Thoughts

Looking ahead, the outlook remains cautious but optimistic. With the holiday shopping season approaching, and Black Friday ahead, Elumeo is navigating a landscape fraught with economic uncertainties yet focused on controllable factors such as cost management and improving operational efficiency. While overall consumer sentiment may remain subdued, there are hopeful signs of recovery projected for November. The company's forward-looking guidance highlights a continued focus on profitability while adjusting to market conditions.

Earnings Call Transcript 2024-Q3

[Florian Spatz, executive]

Okay. Good morning, ladies and gentlemen. As always, this call will be recorded and after the call and uploaded to our website. Can you hear me? Okay. Perfect. Okay.



So once again, good morning, and welcome to our Q3 9M 2024 Financial Earnings Call of elumeo. And as always, I will start with a summary and then together with Riad and Wolfgang, guide you through the key developments of Q3 and the first 9 months of this year.



And I think that most of you will know that just a bit more than a month ago, we updated our outlook for the full year 2024 due to the challenging economic situation we have been confronted with in Q3. And together with a talk, we published a corporate news giving some context and updates on elumeo's key developments and today, we will show you this a little bit more in detail and also broaden the view on the 9 months to show where we stand so far in 2024 and what we expect from the future.



In the first 9 months of 2024, we have been able to keep the revenue stable at EUR 33 million. It decreased by 0.9% and outperformed once again the market. In Q3, our business suffered from an unexpected and severe setback in consumer sentiment and also from the strongly increased prices for gold and silver. And as a consequence, the revenue in Q3 decreased by 4.5% to EUR 10.5 million coming from EUR 11 million in Q3 2023.



And of course, we regret this reluctance to buy from the customers. But to be honest, we have relatively little influence on the general market situation. And therefore, our focus in the past months and also in the future lies on tasks that we have fully under our control. And this is, for example, the cost management. And I can say that we have very successfully executed our cost-saving and efficiency program that allowed us for the first 9 months in 2024 to reduce our selling and administrative expenses by 6.2% from EUR 18.6 million to EUR 17.4 million.



In Q3, the decrease of SG&A expenses accelerated to minus 13% year-over-year, bringing down the costs from EUR 6.1 million to EUR 5.4 million. And the biggest impact of our cost-saving program will take place in Q4 this year.



In order to visualize the volume and the full potential of our cost efficiency program, we added a slide in this presentation showing also pro forma cost savings for 9 months 2024, which amount to EUR 2.7 million year-over-year, and Riad is going to show you this more in detail later.



Thanks to our cost-saving program, our adjusted EBITDA remains positive, both for 9M with EUR 436,000 and for Q3 with EUR 110,000. Our web business contributed a significant part to the cost savings, while the revenue in the webshop has grown by 4% and we have been able to optimize our online marketing campaigns focusing on profitable customers and reducing the marketing spendings by 22% from EUR 2.9 million to EUR 2.2 million.



One of the most important projects of #Juwelo100 is our internationalization 2.0, which we launched in June, July. And I'm happy to report that our internationalization is scaling at a very fast pace, increasing revenues in Q3 from July to September by 116% to EUR 74,000 in September. We expect to get additional TV reach in December in Spain and in 2025 in several additional European countries with a target to increase TV households from EUR 56 million to EUR 80 million by end of next year.



As planned, Jooli has successfully launched a new platform called SALEOR that will improve marketing efficiency, lower customer acquisition cost, and thanks, for example, to its multicurrency technology, also for Juwelo allow faster scaling of Juwelo's internationalization 2.0.



And finally, we confirm the recently updated outlook for 2024. A return to profitability with a slight revenue decrease of minus 4% to minus 1%, gross profit margin between 47% and 49% and a positive adjusted EBITDA of EUR 0.5 million to EUR 1.5 million.



So let's jump directly to the key developments of the first 9 months end of Q3. Let us take a look at the market development in comparison to us. So on the left side in the gray charts, you see the market. On the right side in the golden charts, you can see the performance of Juwelo business split into our LIVE business and our Web business. And as you can see on the left side, with the Teleshopping market in Germany as reported by Bundesverband E-Commerce & Versandhandel, the German Teleshopping market went down by 5%. The Multichannel market decreased by 4% in the first 9 months. Only the online jewelry and watches market stabilized, but after a strong decline last year. And if you look at our online Web business, you can see that we have been able to grow by 4% from EUR 10.2 million to EUR 10.6 million. So, we continue to outperform the market even though it is on a slightly lower level compared to the previous quarters.



Our LIVE business, we recorded a revenue decline of 3% and a decrease in active customers of 4%. At the same time, we have optimized our LIVE shows, focusing on more profitable higher price points. So, decreasing airtime for very low-priced items and increasing the airtime share for our premium jewelry collections. And the positive effect also later on, we will see the cost effect. You can see in the 2 charts on the right side, we have been able to increase the average selling price by 6% and the average basket size by 3%.



Let's come to our Web business. Our web shops have increased revenue by 4% to EUR 10.6 million. And at the same time, we have been able to significantly optimize our marketing campaigns. We reduced the marketing spending by 22% from EUR 2.9 million to EUR 2.3 million. We increased the average basket size by 9% and we have been able to make customers more profitable by increasing their customer lifetime value.



You can see this in the right chart, the revenue per customer increased by 16%. So as announced already in our H1 2024 presentation, the general focus of the web business has become quality instead of quantity. So, less customers, less new customers, but much more profitable customers. And this allowed us to significantly improve the profitability of the Web business and of the web customer cohorts.



So, let us now take a closer look at Q3 2024 and the market circumstances in Q3, which led to a revenue decline of 4.5% and the update of our full year 2024 guidance. We see 2 main factors that influenced our business negatively, and one is presented on this slide. The first factor here was the unexpected setback in consumer sentiment. The Gesellschaft für Konsumforschung (GfK) originally forecasted a slow but very constant recovery of consumer sentiment throughout Q3. But for September, they had to revise their original forecast from -18.6 points to -22 points, as you can see here in the chart, after August, it clearly went down in September.



One main development here was the massive drop of income prospects of consumers, an important KPI of the Gesellschaft für Konsumforschung (GfK) consumer sentiment, which fell from 19.7 points to 3.5 points. And this decline was the heaviest decline of income prospects that the Gesellschaft für Konsumforschung (GfK) has recorded in the past 2 years.



Also, the propensity to buy of consumers decreased, while the propensity to save money increased. And both points, of course, were not extremely helpful for our business. For November, the consumer sentiment is projected to improve again, hopefully, a trend that will continue throughout the next months.



The second main factor that impacted our revenues and especially our margin was the strong increase of prices for gold and silver. As you probably know, nearly all of our jewelry is produced either in gold or silver. So of course, this had an impact on our COGS. If you compare, for example, the gold price of September 2023 with September 2024, the price has increased by 34%. The low consumer sentiment made it difficult for us to immediately pass on the increased prices to the customers. So in Q3, this impacted negatively our gross profit margin.



The result of the increased COGS due to increased silver and gold prices, together with the low consumer sentiment can be seen especially in the gross profit per TV airtime minute, so the PPM of our premieres of our new fresh product. In general, the gross profit per airtime minute is an important KPI for us to make sure that we use our limited amount of airtime in the best possible way. Normally, new product always has a very good performance in terms of gross profit per airtime minute. But for Q3 2024, if we compare the PPM performance of newly arrived product to the PPM performance of newly arrived product in Q3 2023, on the left side, we see a massive drop of 28% in the performance of new product.



However, contrary to the trend of the gold prices that we have seen on the previous slide, we have been able in the past months to adapt our merchandise and selling strategy and to increase the profit per airtime minute again in October and also in the first 12 days of November, this positive trend continued.



Let me now give you an update on #Juwelo100, our strategic program containing both cost and platform efficiency projects and revenue drivers. And the target is to reach EUR 100 million by 2030 through profitable growth. One of the most important projects is the Internationalization 2.0.



Internationalization 2.0 is based on our AI multi-language platform, which records the existing German live TV show and then translates it and adapts the show to basically all foreign languages that we define. Then the local language shows get distributed internationally via our game reward, so our system for automated shopping shows. And in general, this allows us to leverage our video shopping content and create international shopping shows at very low production cost. The cost of traditional local broadcasting that we would normally need to run, including running a TV studio are eliminated in the system.



And here, we can see that our internationalization is scaling at a really fast pace. The new broadcasting windows in Spain, Italy and France have increased revenue by 116% within Q3 2024 from 34,000 in July to 74,000 in September. The feedback from customers continues to be extremely positive. They like the entertaining jewelry shopping shows, and they do not seem to notice the AI translation. And we knew this already for Spain. And I think I've already spoken to you about this, but especially for our new channel in France, this was a great feedback for us that we received.



Looking at the performance of the first month, which is clearly above our expectations, we are really happy about the success, and we are looking forward to further scale this.



We are planning to continuously expand our footprint in Western Europe, increasing the amount of households reached from currently 56 million to 80 million by end of next year. And as I already said, our plan is to expand TV reach in Spain. We will start in December, so in just two weeks, and we are negotiating additional TV reach also other European countries for 2025.



In the medium-term, we expect the Internationalization 2.0 to contribute significantly to achieving our growth program, #Juwelo100. And as you can see in general on this slide, with a total of 259 million European households, the growth potential for us is really very high.

[Wolfgang Boyé, executive]

Good morning. I would like to also give you a short update on Jooli. Prior to giving you an update on what we have done throughout the last quarter, I would like to recap a little bit when we started Jooli and why we started Jooli. As you all know or might recall, we launched Jooli in the year 2001. And our world in 2001 was a very different world from the world we have around us at the moment.



With regards to Jooli...In 2001, when we launched Jooli, we had a world in which venture capital was abundant and new ventures were really heavily funded with very significant investments. And at the same time, Jooli itself made more than [indiscernible] in profits and therefore, had a very healthy cash flow in order to launch new projects. This is why we, at that time, decided to launch Jooli as a separate entity with a separate team and a separate platform so to be able to get external financing only for Jooli itself and then potentially see whether we would develop Jooli a little bit separately from elumeo.



If you can go to the next slide. Now fast forwarding to 2024, these two conditions have changed, and we have now to take into consideration the fact that external financing for Jooli will continue to be rather difficult and also the free cash flow of elumeo is not at the level that it was in 2021. We have, therefore, decided to harmonize the platforms of Jooli and Juwelo, in particular, the platform of Juwelo for the Internationalization 2.0, and there, in particular, the platform that we use for Internationalization 2.0 outside of euro currency Europe in order to gain more efficiency and also to develop everything from one platform.



The first major step in this has been completed when we move Jooli to a new back end, which is going to help Jooli in marketing because marketing efficiency is going to dramatically improve. We see that already at the moment. And also the customer retention is going to be higher because we will start to have automated retargeting campaigns, sending vouchers out to customers that have registered and informing them about additional offers that we can have so that we can bring them back into the app.



At the same time, the new platform has drastically reduced the operating cost of Jooli, both in Germany, but also in our Indian team because we can now do a lot of things automatically that prior have been done manually, and this has increased the speed of the platform and has helped us also through the optimization of marketing that I spoke about to lower the customer acquisition cost.



In the medium-term, Jooli will be harmonized with elumeo in order to have one firm, one strategy, one platform approach, which basically means that we will launch the entire app-based commerce that we have out of one platform and not out of 2 platforms anymore in order to cross benefit between both platforms from each other. And we will probably in the beginning of next year, give a very detailed update on how this is going to impact the profitability of elumeo in both aspects, increased revenues, but also a continued lower cost of operation.



As for the performance figures for the relaunch of Jooli on the new platform, we will start to see reliable figures in mid-December. This will take a little bit longer than we originally had anticipated, but we will really need to have a full month that we can have a look at prior to reporting full figures. And therefore, we will have to wait until mid-December on this.

[Riad Nourallah, executive]

Yes. Thank you, Florian. Thank you, Wolfgang. Let us take a look to the financials. So overall, revenues went down. So Florian described the factors, and it also resulted in a decline in the gross margin by 3.2 percentage. So overall, the gross profit went down by 7.1%, driven by inflationary environment and as well as increased COGS.



Our focus in 2024 concerning costs was a clear decrease in order to react. And we managed it to decrease the SG&A expenses by 6.2%. And nevertheless, despite the inflationary environment and the increase in COGS, our adjusted EBITDA was positive, resulted in EUR 436,000. Our clear focus was the delivery in cost efficiency. And so more focus on quality than on quantity. We changed our products we offered, focus on cost savings, and this resulted in improved profitability.



Overall, on the one hand, of course, we have the effective cost, but we also want to give like a view on the potential of the cost described as pro forma costs. And there we can see that the overall potential of costs, it's rather like a view as the costs were implemented on the full year run amount to EUR 2.7 billion. We can say so that clearly, the major cost saving impact will come in Q4 2024. Let us take a look so.



We made a bridge for the first 9 months 2023 to 2024. So overall, in 2023, we had in the first 9 months cost of EUR 18.6 million. Of course, so there we had like 2 impacts. It was the employee share program as well as short time allowance. So pro forma costs shall be in the first 9 months in 2023 at EUR 18.9 million.



We had concerning like the pro forma costs in the amount to EUR 2.7 million. And so this should result in pro forma costs in the first 9 months of 2024, resulting in EUR 16.1 million. The executed costs are at EUR 1.3 million. So our reported costs in the first 9 months 2024 are EUR 17.4 million. I think we can clearly see it in the ratio we have. So the ratio clearly decreased from 57% to 49%.



Let us take a look at Q3. So in Q3, we faced major headwind by increased gold and silver prices, which led to the revenue and margin decrease. Revenue went down by 4.5% gross profit margin went down by 4 percentage points and gross profit went down by 12%, resulted in nearly EUR 5 million.



So we had driven by our cost efficiency program, decrease the expenses. We decreased in Q3, the expenses by nearly 13%. At pro forma costs, they are, of course, even higher at nearly 20%. And nevertheless, we achieved a positive adjusted EBITDA resulted in EUR 10,000.



Outlook. A few weeks ago, we adapted our outlook. And so right now, we confirm our adapted outlook, resulting in revenue growth at -4% to -1 percentage at the gross profit margin between 47% and 49% and a positive adjusted EBITDA between EUR 0.5 million to EUR 1.5 million.

[Florian Spatz, executive]

Okay. Many thanks… and this was the presentation of our Q3 2024 and 9M 2024 financial earnings call.



I would now like to open the Q&A session.



And the first question comes from Mr. Frey. Good morning Mr. Frey.

[Joerg Frey, analyst]

Can you hear me now?

[Florian Spatz, executive]

Now we can hear you.

[Joerg Frey, analyst]

So probably I would first start with the internationalization. You mentioned the number of households that you are going to add by end of 2025. And now this EUR 26 million looks rather small in terms of increase if you compare it with the EUR 56 million. But I guess the more important number is what - how much have you actually increased your reach so far this year? So I guess, then we get to a multiple of the speed.

[Florian Spatz, executive]

I think what is important to know that the EUR 56 million it includes our normal business. So it's mainly based on the German live TV business, which exactly, which accounts for a very high million euro revenue. So I think this probably seems low, but getting the number of households will definitely result in a very clearly increased revenue in our internationalization.

[Joerg Frey, analyst]

So would it be fair to say, you've probably increased your actual household coverage by EUR 56 million, which is the base for this EUR 80,000 in additional revenue? And by the end of 2025, we are probably then at a run rate, which is 5x larger than that. Would that be ballpark a right point of view?

[Florian Spatz, executive]

Yes, it could be even slightly more than this, but I think we are more or less near the number of households. There's always the question of number of households, of course, but then there's also the question of visibility. So we can have 2 million of households with a great visibility or 10 million of households with lower visibility. It's always really a question of negotiation also with the TV distribution.

[Joerg Frey, analyst]

Would you say that's a big difference regarding visibility of what you still plan to add compared to what you have so far added?

[Florian Spatz, executive]

No, we try to have always the best visibility. I think we had a good start so far, and we are planning to continue on this basis.

[Joerg Frey, analyst]

Okay, so we should be confident that this is rapidly scaling to a significant amount of international revenues. I'm looking more for something like EUR 23 million for next year.

[Florian Spatz, executive]

Exactly, so one of the biggest projects of #Juwelo100, this is also what we are aiming at.

[Joerg Frey, analyst]

Great, then jumping a bit around regarding Jooli and the app migration integration. It sounds at first pretty straightforward, lower cost. You mentioned marketing efficiency. Well, what is actually the downside? What are you sacrificing? And why haven't you done it that way in the first instance already?

[Florian Spatz, executive]

Well, that's fairly straightforward also. What we're sacrificing at the moment is the ability to get external financing for Jooli only, because we're now integrating this totally into our platform. Just as we cannot get external financing for our Spanish or Italian business alone, we will not be able to get external financing for Jooli easily after this integration. But at the same time, we are entrepreneurs, this is not a wound concept. So obviously, we launched Jooli in different circumstances. We have to accept the fact that the world around us has changed, and we have to adapt to it. And this is why we have changed it in a way that we can run it at a very much reduced operating cost run rate so that we can develop it with the means that we have and also with the financial funds that we have available for Jooli in a more long-term approach.

[Joerg Frey, analyst]

Right, that pretty much sounds like a very acceptable downside to me.

[Florian Spatz, executive]

We came to the same conclusion. It doesn't make sense to go on a white goose chase for external financing that at the moment, not only we don't get, but also everybody else doesn't get.

[Joerg Frey, analyst]

Yeah, So technically, does a customer recognize in any way this change of platform? Or is it completely in the background?

[Florian Spatz, executive]

It's a completely background change. The biggest impact that the customer sees is the fact that we now have a basket in the app, which prior we didn't have. Prior, we had one product, one checkout, so you could purchase one product, you went to the checkout and you had it and now you have a basket. But a customer wouldn't necessarily confuse this with a change in the back end platform, customer would think of this as an additional benefit for him.

[Joerg Frey, analyst]

Lastly, while everything is that volatile right now, how has current trading evolved so far in Q4? Well, a number of companies now complain about business deteriorating in Q4 even further. Your slide about improved profitability sounds good, but I guess that also means that top line momentum must have stabilized somewhat.

[Florian Spatz, executive]

Well, of course, so it's too early to say something about Q4, mainly for two reasons. One reason is that the Black Friday and Black Friday week is still ahead of us, and this has a massive impact on Q4, not only for the Web business, but also for our LIVE business. Secondly, the actual Christmas season always takes place in December. There are two very important potential revenue drivers ahead of us. So currently, it's difficult to predict Q4. What we definitely can say that the general market circumstances remain challenging. So, it's not that after September, everything is now great again and everyone is spending like in the years of COVID '20 and '21. So definitely, it remains challenging. At the same time, we try to find our way. We try to optimize what we can. We continue to optimize the cost. And as Riad has said, the biggest cost improvement is expected for Q4 because in the end, what happens with the market, does not lie in my hand, unfortunately. There are some things that might have a positive effect like, I don't know, a new government in Germany. There might be other things that have a negative effect. This is really difficult to predict. So we focus on what we have under our control. So then let's keep fingers crossed and all the best for the remainder of the year. Okay, I don't see any further questions. There's one question from Mr. Kindermann.

[Unknown Analyst]

I just wanted to ask if you can share any information regarding the strategic investor who participated in the capital increase?

[Riad Nourallah, executive]

Currently, we cannot yet share that information just because kind of it's not up to us to speak about our investors. But I assume that the investor will give a voting rights notification fairly soon, and then you will know.

[Florian Spatz, executive]

Okay, there are no further questions. So many thanks for your time for joining the call. Thanks for your continued trust. Have a nice day. Take care, speak to you soon, and bye-bye.