Earnings Call Transcript - MCOM Q3 2022

Operator, Operator

Thank you for standing by, and welcome to the Helbiz Third Quarter and Nine Months 2022 Earnings Conference Call. Currently, all participants are in listen-only mode. As a reminder, today's program will be recorded. If anyone objects, please disconnect now. I'd like to introduce your host for today's call, Gary Dvorchak, Managing Director of The Blueshirt Group. Mr. Dvorchak, please go ahead.

Gary Dvorchak, Managing Director

So, thank you, operator, and hello, everyone. Welcome to Helbiz third quarter and nine months 2022 results conference call. We issued our financial results press release today after the market close. It's available via newswires and on our website at investor.helbiz.com. A replay of this conference call will be available later today on the Investor Relations page of our website. With us today are Founder and Chief Executive Officer, Salvatore Palella, Chief Financial Officer, Giulio Profumo; and Chief Operating Officer, Jonathan Hannestad. The team will first discuss results. Then, we will answer some top questions submitted to us via the Robinhood app. Please note that our press release and this conference call contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only predictions and may differ materially from actual future events or results due to variation factors. Helbiz can give no assurance that these statements will prove to be correct. We have no obligation to update these statements. I will now turn the call over to Salvatore to begin. Salvatore?

Salvatore Palella, CEO

Thank you, Gary, and good day, everyone. Thank you for joining us to review our business performance and financial results for the third quarter and first nine months of 2022. I will first update you with the exciting quarterly progress in our business. Then, Jonathan will elaborate more on cost optimization. Lastly, Giulio will give us the financial perspective. In the third quarter, we made significant progress in improving cost efficiency and margins. Therefore, we started in earnest in the second quarter. We trimmed unnecessary costs in operation, administration, headcount, and marketing. For example, we started to work with a third-party staffing company instead of hiring directly. All these efforts are starting to drive us towards profitability. Cost reductions are positively impacting cost revenue in our core mobility business. While Jonathan will elaborate more on this, I want to call out that our operating efficiency in micromobility is improving; cross-functional operations are going smoother, and we increased fleet productivity. Additionally, externalizing some of our European operations contributes to better mobility cost of revenue. We anticipate even higher operating efficiency in mobility after we close the acquisition of Wheels. Before we take a deeper review of mobility, I would like to highlight our year-to-date revenue growth of 30%. In this difficult time, I'm proud that our team achieved this remarkable performance. In mobility, we expanded our operating area in the US. We extended operation in my limited county and added our newest e-bike model to the local fleet. In Europe, we expanded beyond Italy to cover Spain by launching our first e-scooter fleet there. With our commitment to providing modern and sustainable transportation solutions, we will continue expanding into more cities, allowing more people to benefit from our micro-mobility products and services. Our third quarter and nine-month mobility revenues declined due to economic challenges. With most of our mobility revenue coming from Europe, the depreciation of the euro against the US dollar caused lower revenue. Additionally, delays in deployment affected our mobility revenue. The ongoing licensing renewal process means longer-than-expected ending times, so operations are holding the deployment of the vehicles and waiting for approvals. We expect the situation to improve in the upcoming quarter and we anticipate redeployment of our vehicles, especially e-mopeds. Mobility cost of revenue was significantly reduced as a buffer against lower revenue to some extent. Now let's discuss our new taxi service. Last quarter, we announced our on-demand taxi service available for our app users. Following that, last week, we announced a partnership with WeTaxi, a leading taxi operator in Italy, enabling users to book taxi rides, whether individual or shared, directly from our app. A key feature is the ability to show the maximum price that could be charged before the ride. We made meaningful progress on the Wheels acquisition during the quarter. After producing the Wheels jets a couple of weeks ago, we signed a merger agreement. We are working on closing the deal as we speak. We expect to see synergies in operations and finances after the closing. This should boost our near-term top line and margin while driving toward eventually achieving bottom line profitability. The increase in our nine-month top line was primarily attributable to higher media revenue. However, recall that we launched the media business last August, so the highlighted growth rate in media on a year-over-year comparison basis is less meaningful. Additionally, due to the potential costs of revenue associated with media, we achieved high media revenue by suppressing our margin potential. Therefore, we are rethinking how we will operate our media business. Our main focus needs to be on our core micro-mobility business. We extended our partner ecosystem with notable progress in mobility and live media. We partnered with OneFootball to bring Serie BKT to Italy and the US by cooperating with more international entertainment companies. Serie B is now available in more countries in Asia and Africa. In mobility, we extended our cooperation with Moovit and started a partnership with a targeted analytics platform to improve user trips by offering faster and easier access to vehicles while pursuing a more sustainable lifestyle. Now, I want to hand it off to Jonathan to talk about our cost optimization. Jonathan?

Jonathan Hannestad, COO

Thanks, Salvatore. Let me elaborate on software as it relates to our cost optimization and ability to grow. First, we strive to find improvements and efficiencies in the way we build our software. This means creating technology that allows for more efficient allocation of resources, whether they be digital or hardware. This also means having our team on the ground run more efficient routes, prioritize tasks, deploy inventory in areas more likely to see ridership, be alerted earlier to vehicles needing maintenance, and generally be more responsive to needs before they can cause problems. With all this work, we're on track for nearly completely automated operations by next year that will manage all tasks, drivers, and operational teams. The advantages we have gained from automation to date are already resulting in lower mobility operation costs. Second, we're building mobility software solutions that set the standard for the industry in terms of safety and compliance. We are able to exceed the regulatory requests and needs of the cities we operate in. With our focus on AI and computer vision, we launched features such as our technology that certifies parking compliance in real-time and helmet selfie verification AI technology that is flexible to meet the needs of each city, and we're able to quickly adapt to changes in regulatory requests. Cities are moving away from pilot programs and now want to lock in long-term providers, becoming more specific in what they seek from operators. Since our approach is software-based and relies on the existing deployed hardware, it's much quicker and cheaper to deploy solutions custom-built for each location we operate in. This flexibility and innovation have allowed us to build a track record of success that makes us an attractive operator to city officials. This is why we have won licenses over larger competitors and why our licenses remain active while others expire. We are confident that this will continue to be a differentiator for us. The time and energy we put into building our technology platform upfront is what gives us a competitive advantage. Creating a flexible system that is adaptable to each city, along with investment in R&D, will pay off in the future as we are able to respond quickly and tailor our approach to each city without needing to acquire new hardware. Lastly, we're looking at software solutions to extend what mobility means to the average user. As we grow in communities, we're able to create solutions that solve many transportation-related needs, thus encouraging users to call on us more often. Whether it is connecting to taxis, local transit, or insurance, our platform is built to connect easily with third parties to extend our offerings. This low-cost way of expanding our services keeps the margins down but allows us to raise the utility of our offerings. Now, let me turn the call over to our CFO, Giulio Profumo, to discuss our financial performance. Giulio?

Giulio Profumo, CFO

Thank you, Jonathan. Our detailed financials can be found in our earnings release and 10-Q filing. So, we will concentrate on discussing the drivers of our financial performance. Keep in mind that all figures given are for the third quarter or nine months of 2022, and all comparisons are made on a year-on-year basis unless I note otherwise. We achieved solid top-line growth year-to-date through September 30, 2022. Revenue was impacted by headwinds in mobility, primarily due to the unfavorable FX impact. However, we continued driving towards bottom-line profitability. Net loss at the company level narrowed by 13%, primarily due to lower mobility cost of revenue. First, I want to review the top line. Mobility revenue declined because of fewer trips and the euro-US dollar exchange rate impact. Nevertheless, in Q3 2022, it still contributed 67% of total revenue, a decline of 37%. Revenue was still dominated by pay-per-ride, but subscriptions gained traction. Overall, the strengthening of the US dollar had an unfavorable impact on revenue. In constant currency, mobility revenue would have been 12% higher in Q3 2022 than what we reported. Looking ahead, we expect that our acquisition of Wheels will create more synergies down the road and improve the operating efficiencies of our fleet and customer management. In Q3 2022, we continued to reduce mobility cost of revenue, which was down by 20% thanks to better operating efficiency and the externalization of a portion of our European operation. That helped reduce the overall cost of revenue by 15% in the past quarter, in line with our strategic focus on profitability. Wheels are expected to further improve efficiency and achieve greater cost optimization. Moving to media, the media segment recorded a 42% top-line increase during Q3 2022, which was a driver of our total revenue growth. Now that we started the media business in the middle of Q3 2021, the comparison is a rough number. What is more meaningful is to look at the margin generated by media. When breaking down our total cost of revenue, you will see it accounted for 32% during Q3 and 46% during the first nine months, both higher than the value of revenue generated during the same period. As Salvatore mentioned, considering the relatively fixed and substantial costs associated with media, we're rethinking our approach to this business. Helbiz Kitchen revenue significantly increased during the third quarter and first nine months, but it is still a minor contributor to improvement. We are actively dialoguing with potential partners. Now, turning to the other costs and expenses, I want to reiterate that our priority remains to hit profitability as quickly as possible. We will continue to improve operating efficiency while cautiously investing in growth in the context of the current economic environment. Indeed, we made meaningful progress on cost reductions in Q3. Please note that operating expenses were up sequentially due to an impairment of fair value of mobility assets caused by the economic slowdown. The impairment accounted for 39% of our total operating expenses. The impairment was primarily due to the decline in our market capitalization that impacted operating metrics and the current adverse macroeconomic environment. Beginning with operating expenses for the quarter, we made significant cuts in sales and marketing expenses, demonstrating our commitment to reducing costs while building a higher-quality business. We incurred approximately $800,000 in non-cash equity-based compensation expenses, which accounted for almost 3% of the total operating expenses. Turning to our balance sheet and liquidity, at the end of Q3, cash and equivalents were $3.3 million. Cash investments during the first nine months were primarily related to fleet expansion to support further growth and our acquisition of Wheels. Finally, we recently entered into an equity line of credit that provides us with the option, but not the obligation, to issue and sell up to $13.9 million in common equity at the time of our choosing during the term of the agreement. Looking ahead, we expect the fourth quarter to show growth quarter-by-quarter and full year revenue to increase year-over-year as we benefit from a balanced system established last April that can weather the uncertainties and economic headwinds everyone is facing. We're also excited about further expanding our mobility offerings into more locations and launching the new insurance business. We look forward to discussing the progress we have made over the coming quarters. We are now going to take questions from shareholders that Gary will moderate. Gary?

Gary Dvorchak, Managing Director

Thanks Giulio. So, Helbiz received questions from our shareholders on the Robinhood app, thanks to the Say Technology Shareholder Q&A platform. The selection of the top up-voted questions will be addressed now. We'll continue this platform and extend it to others so that we can continue to address shareholder questions in the future. I'm passing the questions one by one for the Helbiz management team to answer. So, the first question is, knowing your company can only trade under $1 for six months, are you aware of possibly being delisted in the near future? And are you planning to do a reverse split?

Giulio Profumo, CFO

Thank you for your question. We're currently monitoring the situation and intend to pursue a request for an extension of the grace period with NASDAQ to cure the stock price deficiency and return to compliance with the continued listing standard. We intend to consider available alternatives, including, but not limited to, a reverse stock split, subject to stockholder approval, if necessary, to cure the stock pricing compliance.

Gary Dvorchak, Managing Director

Okay. Can you describe how recent partnerships will positively impact the business and bottom line?

Jonathan Hannestad, COO

Thank you. That is a very good question. The goal with our partnerships is to extend our user base, reach customers in new ways, and to rely on the expertise of our partners. To point to some examples across our business, WeTaxi, as we talked about today, allows our mobility offerings to expand and relies on deep market penetration in Italy. OneFootball provides a new platform for fans to subscribe to Helbiz Live, and Deliveroo greatly expanded our user base of customers ordering from Helbiz Kitchen. These impact our revenue positively while requiring less overhead on our end.

Gary Dvorchak, Managing Director

Okay. But the new taxi service, is Helbiz trying to compete with Lyft and Uber?

Salvatore Palella, CEO

Thank you. Our goal has always been to listen to our customers and be the source for people looking to commute around their communities. WeTaxi established a wider mobility ecosystem, integrating various services into one app, including our own. That means we are constantly developing and offering our user value-added services and more transportation alternatives. So, we see this as an addition to our core business of micro-mobility.

Gary Dvorchak, Managing Director

Great. Thanks. How does the current macroeconomic environment affect Helbiz?

Salvatore Palella, CEO

So, we're not immune to the realities of inflation and a slowing economy. However, we are confident in our ability to continue navigating macroeconomic headwinds and deliver stronger long-term business results.

Gary Dvorchak, Managing Director

Great. Thanks. So, the final question, what's the most important initiative for Helbiz looking into 2023?

Salvatore Palella, CEO

There will be multiple initiatives and the goal will be the growth of offerings that we start this year. The realization of this will be post the closing of the Wheels merger. Working with their personnel and expanding the B2B and monthly subscription offerings, which have seen success in New York City already. As well, we will continue to grow the partner offerings around mobility such as taxi and insurance.

Gary Dvorchak, Managing Director

Great. Thanks. Okay. And with that, we're going to turn the call back to Salvatore for closing remarks. Salvatore?

Salvatore Palella, CEO

Thank you, Gary. While the overall macroeconomic environment remains uncertain, we are confident and motivated in driving towards financial and operational profitability. We intend to scale micromobility and offer new innovative services to drive top line growth. Meanwhile, ongoing cost optimization and the addition of Wheels are expected to bring our operating efficiency to the next level. We are grateful to our team's dedication and to our shareholders' support. We are excited about the future and look forward to sharing more on our progress in multiple phases of our business. Thank you all for joining the call.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for your participation and you may now disconnect.