Release Date: February 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross revenue increased by 30% to $49.2 million compared to Half 1 FY '23.
- Sales in the U.S. market grew by 102% over the prior corresponding period.
- Underlying gross margin improved by 300 basis points to 38%.
- Operating expense to net revenue ratio improved to 53% from 78% in Half 1 FY '23.
- BUBS Australia Ltd (ASX:BUB, Financial) expects to be EBITDA positive and cash flow positive in FY '25.
Negative Points
- Net loss after tax was $7.7 million for Half 1 FY '24.
- One-off costs included $2.7 million for FDA regulatory costs and $1.9 million for litigation costs.
- China net revenue decreased by 30.3% compared to the prior corresponding period.
- Operating expenses, although reduced, still resulted in an underlying EBITDA loss of $6.2 million.
- Supply chain shortages impacted potential higher sales in the U.S. market.
Q & A Highlights
Q: Can you provide more details on the significant growth in the U.S. market?
A: (Reg Weine, CEO) Our U.S. market sales increased by 102% over the prior corresponding period, driven by broad distribution across almost all brick-and-mortar retailers and strong performance on the Amazon platform. We are now stocked in approximately 5,800 outlets across the U.S., and our weekly scan sales have reached USD 700,000 in December and January.
Q: What are the key drivers behind the improved gross margin?
A: (Reg Weine, CEO) The 300 basis point improvement in our gross margin to 38% was driven by stronger inventory management, geographic and channel optimization, and a favorable product mix. We anticipate further improvements with our portfolio optimization strategy and new product launches in Q4.
Q: How is the company progressing with the FDA approval for permanent access to the U.S. market?
A: (Reg Weine, CEO) We are making meaningful progress with 160 infants enrolled in our growth study. We have incurred approximately 63% of the forecast total regulatory costs and remain on track for permanent access to the U.S. market in 2025.
Q: Can you elaborate on the China market performance and outlook?
A: (Reg Weine, CEO) Despite a 30.3% decline in Half 1 net revenue to $7.1 million due to stock overhang from a former distributor, we expect full-year growth in FY '24 with new product launches in Q4. We anticipate a significantly improved performance in the second half of the year.
Q: What steps are being taken to optimize the product portfolio?
A: (Reg Weine, CEO) We have addressed gaps in our portfolio by enhancing formulations and refreshing packaging. New look labels and smaller 20-ounce tins for the U.S. market will launch in Q4. These changes aim to increase the premium look, enhance shelf appeal, and improve product attribute callouts.
Q: How is the company managing its working capital and cost discipline?
A: (Reg Weine, CEO) We are tracking in line with our objective of reducing cash burn to $2 million per month from Q2 FY '24 onwards. Excluding one-off costs, our normalized cash burn was $1 million per month. We expect to be cash flow positive with positive trading EBITDA in FY '25.
Q: What are the strategic priorities for the second half of the year?
A: (Reg Weine, CEO) We will focus on accelerating sales revenue, investing for growth in the U.S., building momentum in Australia, and continuing the China reset. We aim to transition to a cash flow and EBITDA positive business in FY '25.
Q: What makes Bubs a strong investment proposition?
A: (Reg Weine, CEO) Key investment highlights include a large and growing addressable market, significant operating leverage, Australian provenance, a differentiated portfolio, FDA approval for U.S. market access expected in 2025, and strong growth in the U.S. market with a long runway for sustained growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
