Freightos Ltd Q3 FY2025 Earnings Call

Hello, and welcome to Freightos' Q3 2025 Earnings Conference Call. A press release with detailed financial results was released earlier today and is available on the Investor Relations section of our website, freightos.com/investors. My name is Anat Earon-Heilborn, and I'm joined today by Dr. Zvi Schreiber, the CEO of Freightos; and Pablo Pinillos, CFO. Following the prepared remarks, we'll open the call for questions. We are sharing slides during the call and using video, so we recommend using Zoom on a computer rather than dialing in by phone. The slides as well as a recording of this earnings call will be available on our website shortly after the call. Please be aware that today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors. Please refer to today's press release and our SEC filings for more information on risk factors and other factors, which could impact forward-looking statements. Copies of these reports are available online. In discussing the results of our operations, we'll be providing and referring to certain non-IFRS financial measures. You can find reconciliations to the most directly comparable IFRS financial measures along with additional information regarding those non-IFRS financial measures in the press release on our website at freightos.com/investors. The company undertakes no obligation to update any information discussed in this call at any time. Before we begin, I'd like to note our upcoming investor events. In December, Freightos will participate in the AGP Electric Vehicle and Transportation Conference and upcoming year-end investor conference. In February, the company will participate in the Oppenheimer Emerging Growth Conference. Links to webcast when applicable and other event updates can be found on our website. Today's earnings call will begin with an overview of Q3 performance and overall progress by Zvi. Next, Pablo will present the financial results and the guidance for Q4 and full year 2025. We'll conclude with Q&A. Questions can be submitted in writing during the call by using the Q&A feature in Zoom. Zvi, please go ahead.

Thanks, Anat, and welcome, everyone. Today, I'll cover 3 topics. I'll start with the quarter's highlights and what they mean. Next, I'll discuss the product and network progress that will power our next phase of growth. Lastly, I'll share how the digital transformation of ocean carriers is creating a significant midterm opportunity for Freightos, particularly as we expand our multimodal capabilities. First, let's start with the quarter. In Q3, we processed 429,000 transactions, up 27% year-on-year. It's our 23rd consecutive quarter of record transactions. Unique buyer users were about 20,600, and the number of carriers with more than 5 bookings from our platform during the quarter increased to 77%. Most major airlines are already connected to our platform. So new airline additions are often regional or niche airlines at this point. We're focused on expanding airline coverage in Asia and expect further global expansion as smaller carriers look to leverage our digital channel. These metrics tell a consistent story; more buyers and more sellers are using Freightos more frequently, driving short-term revenue growth and long-term scalability of our business. This gives us both breadth and depth on the platform, more opportunities to monetize transactions and deepen relationships with higher frequency users. Now, let's put this performance in the context of the market. During Q3, air cargo volumes increased 4% compared to Q3 2024, reflecting growth in many markets, even as transpacific e-commerce volumes faced headwinds from tariffs and changes to U.S. import regulations. According to our Freightos Index, FCX, average global air cargo rates decreased 6% compared to Q3 last year. The bigger picture in the freight market, given tariffs and macro uncertainty, is that of volatility and nervousness. Such conditions make speed, transparency, and automation in logistics more important. When customers need to move faster and make decisions with less friction, they turn to digital platforms. This is helpful to our Platform segment, but the market nervousness is unhelpful for selling solutions. Now, let's discuss product and network progress. We're excited to highlight our strategic partnership with Visa and Transcard, announced by Visa a couple of weeks ago. This collaboration enables us to provide freight forwarders and importers and exporters with access to modern financing solutions through our platform. The partnership integrates Visa's global commercial solution expertise with Transcard's payment orchestration technology, creating a more efficient payment experience for our users. The fact that a global leader like Visa has chosen to partner with Freightos demonstrates the significant potential they see in the $600 billion international freight markets and the role that we, Freightos, play in it. Next, we launched and commercially validated our new multimodal rate management and quoting SaaS product, WebCargo Rate & Quote Ocean. In Q3, we completed a rollout at our first multinational freight forwarder customer and proved that the workflow quoting air and ocean in one product works well in practice. Unifying air and ocean quoting allows freight forwarders to provide a superior service to their customers, the importers and exporters. But the real transition towards digital booking happens when that workflow is supported by bookable carrier inventory. For ocean, that bookable inventory depends on carriers digitalizing more meaningfully so we can connect them to our platform. I'll expand on that in a moment. A notable early adopter of this product, the new multimodal solution, is Nippon Express, a top 5 global freight forwarder. Nippon Express expanded its use of Freightos this quarter, moving from our own usage to a multimodal deployment across much of its global network. This expansion increased their annual commitment to Freightos significantly. Given that 90% of goods are transported by ocean, we expect to see many more upsells from air to ocean. Other successes in our Solutions segment this quarter included a number of renewals and targeted scope expansions. For example, we closed an upsell of our terminals rates benchmarking capabilities to a global mining company, expanded Procure tendering functionality with a top 5 pharma company, and extended our terminal data contracts with a major electronics customer. That said, we had anticipated even stronger solutions revenue growth than the 30% year-on-year we delivered this quarter. As we mentioned earlier in the year, due to tariffs and the current macro environment, enterprise SaaS deals have had longer sales cycles. So in the meantime, we're strengthening commercial execution. Michael recently joined Freightos as Chief Revenue Officer. Michael brings deep experience scaling digital logistics and enterprise sales, most recently as VP at Premion and previously as SVP of Sales for Intermodal at Project 44 and other B2B companies. He has a proven track record of building commercial relationships across carriers, forwarders, and shippers, which will help us further scale multimodal adoption and our enterprise deployments. Michael will ensure Freightos has world-class sales and customer success capabilities with value-based selling to both enterprises and small and medium-sized businesses worldwide, optimizing our LTV to CAC ratio. Now, we talked about our updated software solution for quoting ocean, but what about ocean booking transactions on our platform? This, of course, requires ocean carriers to make capacity pricing and booking available digitally, through APIs. We discussed One Ocean Carrier integration success on our last call. And in Q3, we made progress with 2 more integrations, which we expect to go live in the coming quarters. Each integration brings more capacity into our system in an automated form, helping forwarders better source and decide on shipping options in real time. We're now among the first platforms receiving rates from several major global ocean carriers. And our launch of a next-generation ocean rate management solution is, of course, synergistic with our platform finally making progress integrating with ocean liners. With ocean representing approximately 3x the GBV of air cargo, the potential is significant, but we do expect adoption to follow a measured pace, as the conservative industry works through its transformation. We anticipate meaningful revenue contribution in the midterm, not in the immediate future as this transition continues to unfold. Of course, platform growth is not limited to new carriers. Once a carrier is launched on Freightos, we can continue to grow in different geographies. We can add more advanced services, like expanding from general air cargo to temperature control services, expanding from spot bookings or one-offs to handling bookings against negotiated contracts. So these are the operational and commercial priorities that drove our Q3 progress. Pablo will now walk through the financials and explain how these milestones translate into revenue, margin, and cash. Pablo?

Thank you, Zvi, and good morning, everyone. I will now go through how the quarter's operating progress translated to the P&L, cover cash and liquidity, and then walk through our near-term outlook and priorities. Revenue for the quarter was $7.7 million, up 24% year-over-year. Platform revenue was $2.6 million, up 15% year-on-year, and Solutions revenue was $5.1 million, up 30% year-on-year. As Zvi said, Solutions and Platforms support each other. The way solutions drive bookings is practical and proven. Our mission-critical SaaS solutions become embedded in a customer's day-to-day operations. Our customers centralize pricing and workflow on Freightos and make it far easier for them to go and convert those quotes into bookings. Our data supports that dynamic; forwarders that adopt our tools tend to grow transaction volume materially over time. Looking to our cohort data, we see 3 to 4 times growth in transaction volumes for cohorts over their initial 2 years using our platform. To put it simply, solutions create the stickiness that enables more frequent platform bookings because we're still early in the industry's transition to platform model, and today, solutions represent the majority of our revenue. Over the long term, we target Platform revenue to scale faster and ultimately outpace Solutions revenue. Now, let's take a closer look at Platform revenue. You will notice that platform transaction volume and GBV are growing faster than our platform revenue. This is purely due to our business mix. Take rates are not going down in any segment. Our WebCargo platform, which connects freight forwarders with carriers, consistently grows at a faster rate than Freightos.com, which serves importers and exporters. WebCargo operates mainly on a fixed fee model with a lower implied take rate compared to Freightos.com's higher take rate structure. As the fastest-growing WebCargo continues to outpace Freightos.com, the aggregate revenue platform naturally grows more slowly than transaction volume. Our carrier cohort analysis reinforced this; carriers run quickly after integration, producing strong booking growth, but much of that early volume is under relatively low fixed fees. So it doesn't translate into proportional transaction revenue immediately. Gross margins were strong this quarter. On an IFRS basis, gross margin improved from 65% a year ago to 69.1% in Q3 this year. Our non-IFRS gross margin rose from 72.7% to 74.8%. That improvement reflects the inherent operating leverage in our model as we continue scaling. We are seeing benefits from automation efforts in customer services, which allow us to handle more transactions with our proportional increases in personnel or infrastructure costs. Looking ahead, restructuring our hosting agreements and infrastructure improvements represent our next significant opportunity to enhance margins. While we have made good progress optimizing our infrastructure costs, there are still more efficiencies to capture. Adjusted EBITDA improved to negative $2.6 million in Q3 2025 versus negative $2.8 million in Q3 last year. That improvement reflects revenue growth, a stronger gross margin, and disciplined cost management. Those operational gains were, however, partially offset by continued currency impact; a stronger euro on cycle versus the U.S. dollar reduced the gain in adjusted EBITDA compared to our operating performance. Our hedging program limited the impact on cash, so the translation effect shows in the P&L more than in the cash balance. We closed the quarter with $30.6 million in cash and short-term bank deposits, a position that supports our continued measured investments in product and commercial execution while we scale the business to breakeven. Looking ahead, we remain focused on the levers that will narrow losses and drive durable profitability. The overall plan remains the same: keep growing revenue and margins while keeping OpEx close to constant. Our new CRO is already laser-focused on cost-efficient growth. With these concrete actions, we continue to plan to reach adjusted EBITDA breakeven in Q4 2026. For the fourth quarter of 2025, we anticipate continued year-on-year growth across transactions, GBV, and revenue. Adjusted EBITDA will likely continue to be impacted by foreign exchange headwinds. This means that for the full year, we now expect a more modest year-on-year improvement in adjusted EBITDA than what we had projected at the beginning of the year. Despite successfully reducing our total cost by almost 5% this quarter and 3% year-to-date compared to our budget in constant currency, exchange rate fluctuations have created an unfavorable impact that has significantly reduced these cost savings. A secondary factor relates to our revenue composition; while we remain on track to meet our revenue guidance despite a challenging year in the logistics industry, the mix between our revenue streams differs from our initial expectations. We are finishing the year with a slightly better performance of platform revenue relative to solutions revenue than what we had planned, which we attribute to the longer sales cycles Zvi mentioned earlier. Since solutions typically generate higher margins, this shift in mix has modestly impacted our overall profitability. Nevertheless, we are pleased that our cash spend remains on track throughout the year. We expect to end the year with cash and equivalents of approximately $27 million, reflecting a cash burn of about $10 million for 2025 compared with $15 million in 2024. We remain focused on the fundamentals: growing revenue while maintaining disciplined cost management and operational efficiency. Based on these fundamentals, we continue to expect reaching breakeven adjusted EBITDA by Q4 2026.

When I review the contribution margin, it has effectively doubled year-over-year year-to-date, indicating improved efficiency and a shorter sales cycle. Your operating expenses, not including sales and marketing, increased by 9%, while revenue grew by around 27% to 29%. You've mentioned the impact of foreign exchange rates, and it’s clear you're making every effort possible. I'm curious if there's any potential for you to accelerate organic or inorganic growth. Additionally, how much is the path to breakeven EBITDA and managing cash balance affecting your current growth? I have one more quick question after this.

Yes. Thanks, Jason. Well, that was a complicated question. So I'm thinking where to start from. Look, it's a constant balance. I mean, even now as we finalize our budget for next year, it's a constant balance between growth and breakeven. And we very much want to grow and break even by the end of next year. And so, it's a balance between them. For sure, yes, we're doing what we can. Thank you for calling out. We have done a lot of work on efficiency. In fact, if you look back a bit, we've grown in the last 2 years; I think revenue has grown 40-something percent, and the team hasn't grown at all. So we're certainly becoming more productive the whole time. And beyond that, we are, of course, now with AI, there may be further opportunities for efficiency. So we've been doing that the sort of the hard way, and now, there may be other ways to become more efficient. And Pablo mentioned, we're already seeing some improvements in customer support using AI. So we're going to continue pushing on that side as well. And then, it's just the balance between how much do you want to spend in sales and marketing to grow but also to break even. We'll be finalizing a budget that will allow us to grow as fast as we can without compromising the target of breakeven.

And then just to follow up. I mean, where do you feel like we are with kind of the tariffs volatility? Like are we at a point where now you feel like you're seeing kind of normal shipping volumes? And I don't say normal, like the volatility has slowed down. Are there patterns now that make sense? Or does it still feel like the ecosystem is still working through the kind of week-to-week changes around certain products and certain tariffs, etc.? And I don't know if you want to call out China specifically, but any color on how it's impacting your kind of thinking, your forecasting of the business.

Yes, it's a mix of both. While there is less uncertainty compared to earlier this year, there are still developments, such as President Trump canceling certain tariffs on food, that introduce some unpredictability. Additionally, even in a more stable environment, higher tariffs contribute to challenges for imports into the United States. The global trade data I shared indicates that overall trade has increased this year, but trade with the U.S. has seen a slight decline, highlighting ongoing issues. The uncertainty remains a factor, and the tariffs continue to create obstacles, though the situation is not as severe as it was before, and people are starting to adjust to this new normal. As mentioned, the impact on us is significant, but for the platform, it can be both beneficial and detrimental. Uncertainty often leads to a greater demand for marketplaces and alternative shipping solutions. Even though conditions have stabilized somewhat, freight forwarders, importers, and exporters are still more hesitant than they used to be when it comes to making large financial commitments. We are currently engaging with customers about their plans for the next year and assessing the potential for a return to normalcy. Securing large contracts has indeed been more challenging this year, although we managed to finalize several deals, it was more difficult than anticipated.

Next question from the line of George Sutton.

I would like to discuss our penetration. You mentioned that much of the growth, particularly in air cargo, will come from increasing our presence with the carriers. Can we review our current status regarding penetration? Are there any cohort analyses you could recommend?

Yes. The level of penetration varies significantly by geography. In Europe, our supply penetration is very high. Virtually every airline in Europe has adopted our platform for a substantial portion of their capacity, although not always for all of it. We also have a strong presence among freight forwarders in Europe. I don’t have exact numbers available, as there isn't a very reliable list, but it's noteworthy that in the U.S., while we are growing, our penetration remains smaller. In Asia, we estimate that we are still in the single-digit range in terms of penetration, indicating a lot of potential for growth there.

So I wondered if you could explain the Visa link and how that might impact your opportunity? And just give us a sense of how it was occurring prior to that or separate from that.

George, you said Visa? Yes. Good. So one of our initiatives with airlines, both to add more value and to monetize more to get a better take rate with the airlines is handling payments. That's still a minority of the transactions, the vast majority of transactions on our platform are with airlines. In most cases, the freight forwarder books on our platform and then pays through an offline system. But we have a growing platform value add, where we handle the payments. Up to now, we've been doing that with other financial partners or through our own sort of bank accounts in certain cases, depending on each country's regulation, etc. Now, with Visa, obviously, we have a partner who's a worldwide name and who has credit lines and other sort of financial technology that we just don't have. So we definitely think that this will enhance our payment solution a lot, and we hope to see payments growing. And over time, really bringing up our average take rates with the airlines, which as you know is one of the issues is we have this fantastic amount of airline revenue being generated from our system. The monetization is still modest. Payments is definitely a way we can increase that, and the partnership with Visa is a key way that we make our payments more attractive.

Last question for Ocean growth opportunity, but maybe how you define midterm?

George, you were interrupted, but I believe I understood your question. To define midterm, I would say it means making a meaningful contribution to revenue by 2028. I don’t expect Pablo to allocate any budget for next year; there may be some revenue, but it won’t be included in the budget. Growth should begin in 2027, with significant revenue anticipated in 2028. However, just to reiterate what we’ve discussed previously, once you establish yourself as the leading platform, that position can be maintained for decades. This represents a robust long-term opportunity.

Yes, to double down on what you just said, and we will provide guidance for 2026 whenever we provide, but we probably won't assume revenue for ocean bookings in 2026 at all, and really, really, really probably a small 2027. Any significant will come in 2028, as you said.

On the solutions side, we have started to see a positive impact from deals like the one with Nippon Express and a few others. We expect a substantial contribution from solutions to ocean operations by 2026.

Okay. I'm going to read a question from the chat. So as you've stated earlier that platform revenue will be driving the revenue in the future, what target do you have for the take rate by the end of 2026?

Pablo, you want to take that or do you want me to comment?

No, I can start. So we are finalizing the plan for next year. And of course, we will be driving plan to increase the take rate. It will all depend, as we've been saying about the mix, the business mix and how the growth in the WebCargo platform versus Freightos.com, and within that mix, what are the fastest growth carriers that will drive that mix. Right now, we are in the middle of addressing all of that, but for sure, the take rate will not decline year-on-year, and we are expecting that to grow.

Next question is why is revenue growth slowing down in Q4 despite the addition of carriers and forwarders? How much do you expect FX headwind to affect the revenue? And if the FX stays at the same level as Q4, would it delay the timing of breakeven point?

The slowdown in Q4 revenues is due to a delay in closing business for our solution revenues. It's worth noting that most of our solution revenue is recurring, with only a small amount coming from nonrecurring sources. The decline we observed in Q4 is tied to the completion of a development project that finished in Q3, and we originally anticipated that solution revenue would compensate for this decline. However, we do not foresee that happening in the near future. Regarding the second question, if foreign exchange rates remain the same as in Q4, it won't necessarily delay our breakeven point in 2026. We are committed to managing our expenses appropriately to achieve breakeven by Q4 2026, even if there isn't an acceleration in our solution revenue.

And I think Pablo, the FX is mainly affecting us on the expense side, right? Our revenue is mostly dollars and less affected by FX.

Yes. But if the FX maintains the same in a 12-month cycle, everything at the end compensates.

Yes. Because we'll budget for next year based on the exchange rates that we know now. Just to emphasize a point that Pablo made, our solutions revenue is mostly recurring. Recurring revenue for solutions will be up, we believe, in Q4, not by as much as we hope for the reasons we discussed, but it will be up. If you see a dip, it will be just, as Pablo said, because of a nonrecurring project that has recently come to an end.

Okay. The next question involves the recent launch of WebCargo Rate & Quote, which integrates air and ocean quoting into a single multimodal platform. What early traction have you noticed with major forwarders? Additionally, how quickly do you anticipate ocean transactions will scale compared to air in terms of platform revenue? I believe we addressed the second part regarding scaling, but perhaps we can discuss the traction with forwarders?

Yes. So I want to separate when it comes to Ocean, which is obviously a major part of how we grow in the next few years. I want to separate Platform and Solutions. Platform, as we said, we are connecting one by one to some very big ocean carriers, which is exciting progress, but we're not yet at critical mass. We're not expecting for at least a few months to see real volume on the platform side. But Solutions, we mentioned Nippon Express; we mentioned a couple of others. I can also mention that we've just started selling ocean to some of our small forwarders. We expect to see good traction on the Solutions side. With Ocean, we have the great thing is it's existing customers. So we have roughly 4,000 freight forwarders using our solution for air. It’s just going back to the same freight forwarders and saying now we've got a modern solution to ocean, you can do air and ocean in one platform in a beautiful modern software. We expect that to be a major part of how we grow solutions revenue next year.

Okay. Our next question is about revenue share with partners. If partners like Megacap Aviation bring 13 carriers to Freightos platform, what would be the benefit from the partnership? Would they get the revenue share from this partnership?

It's not really a revenue share scenario because they are resellers of the carriers. They are a general sales agent or whatever arrangement they have. From our perspective, they are a carrier. They may be a virtual carrier, but we treat them as a carrier. They pay us a fee for bringing them a booking. What's between them and the airline is between them and the airlines. So they're not a channel in that respect. They may be a reseller of the airline. However, as far as we're concerned, they are a carrier or a virtual carrier. They're the ones selling the capacity on our platform.

Okay. Our last question, I believe. Could you please say how much proportion is recurring and nonrecurring among the solutions revenue?

I don't think we give numbers, but Pablo, I think it's fair to say that a very big majority is recurring of our solutions revenue, right?

Nonrecurring doesn't get up to 5%.

Yes. We mentioned it this quarter because a significant portion of the nonrecurring revenue has concluded. It's not our business model to focus on nonrecurring revenue; we occasionally do it to assist customers with projects and to help them adopt our software. We recently completed one major nonrecurring project, but, as Pablo pointed out, this is not our primary approach. Our core model revolves around selling SaaS and data subscriptions, which are nearly all recurring.

Okay. That was the end of the questions. Thanks, everyone, for joining. Have a good day.

Thanks.

Thank you.