Freightos Limited Ordinary shares (NASDAQ:CRGO) Q3 2023 Earnings Call Transcript

Freightos Limited Ordinary shares (NASDAQ:CRGO) Q3 2023 Earnings Call Transcript November 23, 2023

Anat Earon-Heilborn: Hello, everyone, and welcome to Freightos Q3 2023 Earnings Conference Call. A press release with detailed financial results for Q3 2023 was released earlier today and is available at freightos.com/investors. My name is Anat Earon-Heilborn, VP of Investor Relations, and I’m joined today by Zvi Schreiber, the CEO of Freightos; and Ran Shalev, Freightos’s CFO. Following the prepared remarks, we will open the call for questions. We are sharing slides during the call, so we recommend using Zoom instead of dialing in by phone. The slides as well as the recording of this call will be available on the Investor Relations section of 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, and the Company undertakes no obligation to update any information discussed in this call at any time. As I mentioned, we recommend using Zoom’s desktop or mobile application to submit questions during the course of the call.

If you’re using the Zoom client, questions can be submitted in writing during the call by using the Q&A feature in Zoom. Please note that our management will participate in the A.G.P. EV and Transportation Virtual Conference on December 5 and the Virtual Investor Summit on December 7. With that, let me hand over to Dr. Zvi Schreiber, the CEO of Freightos. Zvi, please go ahead.

Zvi Schreiber: Thank you, Anat, and thanks to everyone who joined. We’re pleased to report solid results for Q3 with continued strong growth in the number of transactions, growth in revenue year on year, and a reduction in expenses as a result of the efficiency measures we took at the beginning of the quarter. We’re pleased to show a modest increase in revenue even in a year where the industry is experiencing a strong cyclical downturn with most of our customers reporting revenue down by tens of percent. In our mission to digitalize the traditional international freight market, which is, as you know, a vast largely offline industry, our primary objective continues to be expanding the liquidity of our marketplace. As new sellers attract new buyers into the system and new buyers attract new sellers, the network effect reinforces our position as the leading booking and payment platform for international freight, leading with their cargo.

As such, we continue to view the number of transactions across our platform as the key performance indicator that tracks our path towards success. We’re very pleased to deliver the 15th consecutive quarter of record transactions. In Q3, transactions reached 269,000, up 40% year on year and more than 12% from Q2. This is the first time we exceeded a run rate of 1 million transactions per year, an exciting milestone. Transaction growth was once again driven by both increased usage by existing users and also by the addition of new users to illustrate the increased usage by existing freight forwarders considered the cohort who first booked with us in Q3 2021. Two years later, in Q3 of this year, the same cohort is making nearly seven times more monthly bookings on average.

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Q&A Session

This exceptional cohort retention and expansion rate is something we take great pride, in and it’s the dynamic we plan to continue until we become a big, profitable company. Of course, we’re adding new users too. We added approximately 870 unique buyer users during the third quarter, reaching approximately 17,300 individual users who placed bookings in Q3, and that reflects 16% year-on-year growth. These individual users work at thousands of freight forwarders and importers and exporters of different sizes. And as we just saw, we can expect those new users to place more and more bookings in coming quarters. To draw in new buyers and increase their platform activity, we’re actively expanding the supply side by adding more carriers and enhancing the offerings of the existing carriers.

In Q3, we added two new air cargo sellers, North Atlantic Airways; and also a new type of seller, aircraft charter company, Chapman Freeborn. North Atlantic Airways will open up real-time bookings on these flights to and from Europe to seven destinations in the US, and they already plan to expand their offering on the cargo by freighters later this year, opening up capacity to Barbados and Jamaica. Chapman Freeborn is an aircraft charter company that routinely organizes part charters, backloads, and other commercially innovative solutions for ad hoc peak season and project cargo. In making its capacity available on our WebCargo platform, the Company aims to gain deeper market penetration and enable its customers to benefit from faster, more flexible bookings.

And for us, it moves us even further towards being a true one-stop shop for all air cargo capacity. Talking about being a one-stop shop, in addition to adding more buyers and more sellers, we’re expanding our platform by adding new cargo products. For example, in Q3, we saw a nice increase in airlines who offer digital bookings for air cargo shipments of pharmaceutical products. Pharma products are more complex to bulk than general cargo. Now let me move on to discuss the market conditions. As you probably know, the freight industry is cyclical, and this year is definitely a down year for the industry. Let’s take a look at ocean and air volumes first. The chart on the left shows that US ocean import volumes increased through Q3 during the typical ocean peak season as we approach the holiday months, and they were 5% higher than last year.

However, volumes on major trade lanes like the Transpacific was still 9% lower than Q3 of last year. On the right side, IATA data for global air cargo volumes show that global demand increased gradually in Q3 growing 2% compared to Q2, but volumes are about flat compared to the same time in 2022 and still remain below 2019 levels. Moving on to air and ocean price levels, we can consult the indices that we ourselves publish on our own Freightos terminal. Starting with ocean, container shipping rates are tracked by our FPX. indices. Rates did manage to climb about 20% in mid Q3 due to the peak season demand ahead of the shopping holidays, but this is actually a feeble peak season rally and rates remain well below rates a year ago. Rates fell sharply in September and into October, which has already passed the peak season for initiating ocean shipments.

And the market continues to be affected by growing overcapacity fueled by the delivery of new vessels, especially on the Transpacific and Asia-Europe lanes. The overcapacity problem is actually more acute on Asia-Europe lanes since the largest vessels are often deployed there because the ports in Europe can typically handle bigger ships. The pressure on rates due to overcapacity from the delivery of new ships look set to continue to next year. The next chart shows the air cargo rates as tracked by our Freightos Air Index or FAX, and they’re also soft. And there, the increased capacity is not actually driven by the cargo business at the moment, but rather primarily by increased passenger travel. Q3 air cargo rates were mostly stable during the quarter and are still about 30% lower than last year.

We did see the start of a rate rebound in late September, which reflects an uptick in volumes out of China, and that has continued through early November. And presumably, again, this is a short time increase in preparation for the holiday shopping season since air cargo is quicker and it peaks closer to the actual holidays. Regardless of the cyclical downturn, digitalization continues apace. In October, we were proud to host our third FreighTech Conference for industry executives from around the world. The conference explores the latest trends and innovations in the industry, and it was held in Barcelona, near our office. Among the participants with senior executives from a wide array of airlines, ocean liners, freight forwarders, tech platforms, trade journalists, and stock analysts.

The topics that we all discussed include the pace of technology and innovation in the freight industry, macroeconomic trends, and supply chain efficiency. Many speakers discussed the need for digitalization and for [platformification], leaving us more committed than ever to our mission to digitalize one of the largest offline industries in the world. Before I hand over to our CFO, Ran, I would like to take a moment to address the situation in the Middle East. Our hearts are with those who have suffered losses and are enduring hardship. While our employees in the region are fortunately all safe, the effects of the current events have inevitably led to some interruptions to people’s daily lives. Despite these challenges, the resilience of our team is evident, and we have not seen a tangible impact on business results.

We certainly appreciate messages of support that our team has received from investors, customers, and our entire ecosystem, and we’re all hoping for more peaceful times. With that, let me now hand over to our CFO, Ran, to discuss our Q3 results and Q4 guidance. Thanks.