Dear ladies and gentlemen, welcome to the Mister Spex Q3 2022 Conference Call. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions via the telephone lines. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Dirk Graber, Founder and Co-CEO of Mister Spex, who will lead you through this conference. Please go ahead. Thank you all, thank you for participating in this Q3 2022 results call of Mister Spex. I will do this call jointly together with my colleague, Mirko Caspar, who will also start with the first part of the presentation and lead you through an executive summary, but also strategic updates on our Lean 4 Leverage program. I will run you through the Q3 numbers and also followed by the Q&A. Over to Mirko. All right. Thank you, Dirk. Welcome everyone to the Q3 results. What do we have? We have a strong set of results in a very challenging environment with consumers more and more coming under pressure. Let's look at the numbers. What we told you in Q2, we observed to some extent in Q3, and that is the postponed prescription glasses purchasing that came back to us in Q3. 16% growth in prescription glasses and a strong growth in sunglasses of 36% growth led to an overall resilient growth of 18% in the third quarter. Very good results in a challenging environment there. The other thing I wanna highlight is we told you last quarter that we announced our Lean 4 Leverage, and the first impacts of the programs can already be seen, especially the ones from the measures that are more market-facing and can have an immediate effect, and we'll get to that in a second. The third thing I want to highlight is the high accessible liquidity of EUR 144 million. That is not only a great cushion strategically, but also through our active liquidity management is a measure to actually reap positive results from interest rates. Very positive results in the quarter. However, headwinds are getting stronger. We already see a more challenging environment in Q4, and one has to probably say an even more challenging environment in Q4, with inflation reaching record highs and consumer confidence reaching record lows, which is putting pressure on consumer buying intent. On the positive side, and you see that in the numbers and throughout the presentation, the combination of the data-driven recommendation that we offer, the differentiated premium and boutique assortment, and the wholehearted omnichannel approach is clearly the most resilient and future-proof model in the industry, and you will see the benefits from those strategic success factors really come to life also in 2023. Let's look at our Lean 4 Leverage program. As we told you in August, we have adopted a proactive approach with selective and careful adjustments to drive profitability and growth. The efficiency program is fully on track, and it's starting to bear fruits. Remind you the three pillars are to concentrate on the core, to optimize price, mix, and product margins for greater gross profit, and thirdly, to increase our operational leverage through structural measures. Let's look at them one by one. Concentrate on the core. What do we mean? The first thing is concentrate on the countries. Give me one second. Concentrate on the countries where we have the strongest brand equity that we can use as leverage, right? Concentrate on the territories where we can play out our strengths. The other thing is that we wanna focus on the core capabilities where we can reap the benefits already. Let's look at the area and the country initiatives. The first thing is that you will notice if you also look into the numbers is that we shifted marketing significantly into the DACH region, and you see eight percentage points less marketing spend in international, and you see a significant absolute marketing spend in Germany and also the DACH region as a total. That leads to significantly higher growth in DE than in international, but with a better profitability profile in total. The other thing I wanna highlight is the productivity increases in retail. If you have lower demand and also shift in demand within a quarter, it's very important to balance the staffing according to the demand curves and develop new tooling. As the tooling is learning, we are significantly better able to staff to demand. The other thing is that, if you have low demand season, minimum staffing levels are actually becoming critical to manage. I mean, you need to have one optician in the store, need to have one on the floor. Now you have six days a week. Now that's already probably three people that you need. Long story short, what we've done is we clustered local areas where we have predefined staffing mechanisms to be able to decrease minimum staffing levels on individual store level. The benefit of the shift in focus into the high profitability countries on the one hand side and the other is the ability to shift resources in retail significantly more productively are the most important levers on the left. The other thing is the core capabilities that we significantly focused on was the data-driven customer experience. Now, leveraging this vast consumer data that we have, mind you, we have the largest pool of digital consumers in Europe, we were able to match with the trial technology and roll out a new recommendation algorithm. We rolled that out to roughly a little over 25% of existing customers to test it, and what we saw is the following. The first thing is that conversion rate went up 20%. People were able to find glasses that obviously looked like they would fit better. The question is, did they actually fit better? That is when we look at the home trial. When people then start ordering four frames for their home, it's very important for us that they find one that really perfectly fits. There we also see a significant improvement in the home trial follow-up orders. Long story short, we really saw that improvement through core metrics through our new technology, which is a significant step forward. All right. Let's look at the second pillar of our Lean 4 Leverage. That is basically improving the margin side of the business, it's composed of A, higher marketing spend effectiveness, B, our focus on the most value-creating assortment and segments in our offering, and third, well, I would call it simply smart pricing. Let's look at the first one. We not only shifted marketing into territories where we saw better return on investment, within those territories, we also made, well, I would call it significant shift in channel mix to reduce the cost per visit by 7% and in total reduce the marketing spend in the quarter by 230 basis points. The second thing is the focus on the most valuable segments on the assortment. There's the one thing we invested significantly in our own brand assortment, it's 200 new SKUs in the quarter, but I wanna highlight especially the boutique assortment. What we saw is a 61% growth in the segment in Q3, and that is, they really show the continued effort that we've been talking about for years now, really, to say, "This is where we can be differentiated. This is where we can really offer a special assortment in a way to purchase that is completely unique in Europe." And the third thing is the smart pricing. I mean, the first one is, you know, when demand drops, I mean, you are inclined to just, you know, counterbalance that with discounts. Obviously, we also did, but what we went significantly further in targeting those in Q3, and that means not putting like, bluntly speaking, not putting 20% off on the webpage, but rather, you know, supporting possibly stores locally, having different consumer segments that we target through our CRM newsletters to bring down the discount rate, which we did. The other thing that is very promising is that we continually increase prices. You see that in the AOV profiles that go up in all three product categories. Mind you, the continuous increase in prices in AOVs came with an 18% growth. Okay. Let's look at the last column of our Lean 4 Leverage program, which are the structural changes. They have all been implemented, and you will see the benefits of those measures coming in in Q4, but they will help us significantly to reduce cash burn in 2023 in the total view, and it's a major step on our path to free cash flow breakeven that we are pursuing with much more vividness, I would call it. Very well on our way in our Lean 4 Leverage program. I will now hand over to Dirk to run you through the numbers. Thank you, Mirko, for the overview on the strategic initiatives. Now let's get into the numbers. As you've seen, net revenue grew to EUR 58 million versus EUR 49 million Q3 last year. That's a very robust development on the revenue side, and it's also supported in terms of in our retail stores by a 5% increase in number of visitors quarter-over-quarter. It shows a good recovery in the retail space during Q3. Gross profit is up 110 basis points versus Q3 last year to 47.1%. Here we see a more favorable product mix that is also driven by an increasing share of our boutique segment. We confirm the guidance for 2022, and we see that in this very difficult market environment, we continue to win market share. Now let's look a little bit more into the details. Revenue overall grew by 18%. We all know that, but it's driven by all categories. All categories are growing over proportionally, contributing our sunglasses, which also includes prescription sunglasses like Mister Spex, and which is important for our business that the prescription glasses business accelerated again. It came from 2% growth in Q2, and now is up to 16% in Q3. If we look basically into the sunglasses category, as I said, it includes prescription sunglasses, where we saw a 40% increase in growth, so even over proportional growth within the sunglasses category. We also added 4 new stores in Q3 to end the quarter with 64 stores. If we look at the 9-month figures, it's now an 11% growth overall on top line, where we see because of the higher growth in Q3 now an increasing growth rate for prescription. But overall, the year basically is very strong in sunglasses as we already talked about. Now if you look at segment reporting, Mirko already spoke about Lean 4 Leverage, and we mentioned that we will focus, or we already did focus our marketing spend more on DACH region, and that's also reflected basically in our segments. We see a very strong performance in Germany with 22% growth, and that is coming basically from online, but also from our retail stores. We see that the prescription share in our German core business is now over 40% in Q3 and growing 17%. What you see is that the like-for-like panel of our retail stores, which includes core stores from 2016- 2020, is growing by 13% like-for-like. It's a very solid underlying fundamental here as well. International, we reduced marketing spend and therefore growth is at 9% in Q3. Now we also use the opportunity to illustrate a little bit more the operational leverage we talked about also in Q2. When you look by segment, we see Germany provides a gross margin of 49%, versus international of 44%. The German higher gross margin is also driven by a higher share prescription. We see then variable costs of 23% in the German business. I may remind you, or explain what variable costs include. It includes, in the Online segment, all the fulfillment costs in warehouse, customer service, payment especially. For our retail stores, we also include our HR staff because we consider them, at least in the mid-term, always variable, because we adjust to the demand levels. Therefore, also the variable cost in the German business today because of the higher number of stores is higher than international. If you then look into marketing, 10%, that is also reflected in our like-for-like Lean 4 Leverage strategy and focus to German business because you see we are more efficient in terms of marketing in the German business because the brand is already there at 70% brand awareness, including over 60 stores. Therefore, we see a higher contribution margin for overheads in our German business, and that's why we focus on that. That's a quite healthy margin, but we want to continue to increase this also in the future. International, as I said already, gross profit is slightly lower because of the product mix. Since the majority of the business is fully online, variable costs are slightly lower than that, but higher marketing costs, and therefore, contribution is at 13%, and is also step-by-step improving over time. Now if we return to the group level and we see that we increased our profit margin by 110 basis points. You see that personnel costs goes up by 240, and at the same time, the marketing spend goes up at 230 basis points. Why is personnel cost going up? Because we opened 20 retail stores versus Q3 2021. At the same time, because of the higher number of retail stores, we also have been able to optimize the marketing spend, not only because we spent significantly less for retail stores, but also because we optimized and shifted to the German segment, where we see a higher marketing efficiency. Other operating expenses are down by 4.7%. In Q3 2021, there was still a number of IPO-related fees in the other operating expense. Therefore, we are now at 16.9% of total sales, getting to an EBITDA of -3.2 and an adjusted EBITDA of -1% in Q3. A very similar trend you see for the nine-month figures there. Now let's go to our guidance. We confirm, as I already mentioned, our guidance with 7%-12% revenue growth in 2022 for the full year, and an adjusted EBITDA margin of -6% to -3%. Before we go to Q&A, let me point out again that I think these Q3 results really show that we have a very strong position in the market, especially when you look at our omnichannel business model that really offers customers a number of ways to get in touch with us, but also to purchase Mister Spex. I think that has been the winning model over the last years where we've seen different, I would say, external effects in the market. We continue to outgrow the market and gain market share even in these difficult times. At the same time, we realized we need to manage our costs more carefully and focus the business. We initiated our Lean 4 Leverage program, and we see first encouraging results. We also know that we need to take further steps, and we are doing so in the next months. We are very confident in our strategy. It's right on spot, what we think is right in this situation, but also for us as a company and to create value for our shareholders, not only in the short term but really in the long term. Having said that, let's move to Q&A, and over to you. Thank you. We will now begin our question- and- answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question comes from Graham Rennick at Berenberg. Hello. Good morning, everyone. Thanks for taking my questions. I have three. Just firstly on current trading, obviously some great momentum in Q3. I just wondered how sales growth has developed through October and November so far, and also sort of comparing sunglasses versus optical. I know that some of your peers, Fielmann and Essilor, both called out weaker optical trends into Q4. Just wondering what you're seeing there. Second question, just given your focus on profitability, minimizing cash burn, how should we think about sales growth over the next few years? You know, is it a case that we should no longer necessarily expect 20%+ growth in the next few years? You know, maybe it could be more, you know, 10% growth, and actually the emphasis is more on getting the business to sustainable profitability before you start to accelerate again. Just trying to think about how we should think about the next few years. Lastly, you've talked about the Lean 4 Leverage plan. You know, that's gonna significantly reduce your cash burn in 2023. When do you aim to get to free cash flow breakeven? Thank you. Sure. Thank you, Graham. On current trading, I think we also see, I would say a very challenging market environment, continuing, especially when you look at, I would say, GfK data, - 10% in July and August. I assume that's gonna continue also for the rest of the year for the German optical market. Therefore, I would say we are also cautious in terms of outlook, for the rest of the year. We, I think, see all these trends and therefore it's, I would say in this volatile environment, also hard to basically predict full- year trading numbers. Therefore it's quite a I would say wide range so far and will we need to observe basically the next weeks and months in more and also do very diligent work on them right? Again also in Q4 you know for our business model Black Friday and all sales campaigns around it play a quite significant role and that's just ahead of us. It's too early to I would say comment on trading for Q4 right? Yes, I think the overall market sentiment we are also exposed to that. Maybe on sales growth for next years, I think, as we also pointed out in the Q2 presentation, we see that the market environment overall, and especially consumer sentiment is still further deteriorating, at least if we look at the GfK numbers. Therefore, at the moment we are focusing more on profitability and free cash flow, and in the short term also may sacrifice basically growth for that, because at the moment it is in our, I would say, experience, not very efficient from a profitability and cash flow perspective to try to outspend the market at the moment on the marketing side if consumers are not buying, anyway. Therefore, we are, I would say, at least for 2023, have a more cautious outlook. We in terms of growth also said that we are, I would say pushing for more growth if we see that the consumer sentiment and the overall market is turning to a-- I would say, significantly better overall shape, right? At the same time, we're using the time to, basically, get all processes and cost structures in place, to be more efficient. That also leads basically to the last question you answered, or you asked, Graham Rennick, on free cash flow breakeven. I think I mentioned in the last call that in our initial model, it was out in 2026, and we want to get this or see that moment significantly earlier. We are at the moment in final budget discussions for 2023 first. I think we do expect a significant reduction in negative free cash flow next year and to continue that also in the outer years to, I would say in an ambitious case, get to free cash flow positivity during 2024. Okay. Thank you. That's great. Just on the free cash flow being potentially positive by EUR 24, is that before leases or post leases? That should include leases. Okay. Fantastic. Thanks a lot. You're welcome. The next questions come from Cédric Rossi at Bryan, Garnier & Co. Yes. Good morning everyone. I have two questions. The first one is just a follow-up on Graham Rennick's questions regarding the current trading. I assume that you cannot really give us any color on current trading, but how do you see the gross margin evolving in Q4 considering that you're gonna have a challenging comparison base in sunglasses and contact lenses this year. I assume that the prescription should probably grow a bit faster than the two other categories. In other words, a favorable category mix in Q4. My second question is regarding the current sort of pricing architecture. Mirko Caspar, you mentioned some price increases this year. Are you satisfied with the current pricing architecture, or do you plan any additional price increases next year, considering that Fielmann is trying to maintain stable prices? My third question is regarding the AOV. Still a good increase in Q3. Could you give the breakdown between prescriptions and sunglasses and also the contribution of the boutique share? Do you think that it was a main driver of the growth in AOV? Thank you. Thank you, Cédric. I may let Mirko first comment on the pricing strategy, and the price increases we talked about this year, but also potential further actions in 2023. I might comment on gross margin, but also to the AOV level. We are happy with the progress so far. Dirk's gonna give you the numbers on the AOVs in a second. We will continue to push carefully. That's what we're working on, to push AOV and gross margin a little further. If you compare that to the overall pricing level in the market, the combined offer of frame and lens packages that we have in the market currently is significantly better than that of the major competition. We do believe that we can reduce that a little bit, still have a fantastically attractive offer, and be the preferred offer in the market. We think that we can squeeze it a bit more, and we'll continue to do so in Q4, hopefully that resulting in a better gross margin in those categories. We see that actually in the end of Q3, we go out of Q3 with stronger gross margin across all three product categories than we entered in Q3, partly as a result of the Lean 4 Leverage. Yes, we continue. Now let's look at the AOVs, Cédric. The overall AOV, I think that's in the document on the website, increased by 2%. I think more importantly is the split in the categories. Prescription glasses continued to increase in AOV by 2% to around EUR 150. Sunglasses also increased in AOV by 1% to around EUR 100. That's always net. Obviously, consumers need to pay VAT on top of that. That also, I think in multifocal share, we see basically a steady constant increase in our numbers over the years. Obviously that's one driver is the further retail expansion and the higher share of multifocal, but the overall increase in share even in the online segment step-by-step. It's a gradual process. The third question, the first question coming back to that one was gross margin in Q4. Mirko already explained to you we are working in our Lean 4 Leverage with slightly increased prices but also reduced discounts, right? That leads to higher gross margins and but we need to balance that, I would say, wisely, basically, to not kill growth too much. It's a balance that we need to manage. I would say as of now, we see slightly increased gross margins in Q4 versus last year. Okay, very good. Many thanks. Again, the reminder, if you have a question for our speakers, please press zero one to enter the queue now. The next question is coming from Alexander Thiel at Jefferies. Hi. Good morning, Dirk Graber and Mirko Caspar. A couple of points left from my side. The first one is on your omnichannel business model. Could you shed some light on how much revenue is contributed from the online side versus brick-and-mortar stores and the difference you see in the growth rates there? Thank you. What we shared in the presentation was that our retail stores on a like-for-like basis increased 30% in like-for-like growth in Q3. The retail share overall is slightly increasing versus last year, but we don't disclose the split in more detail yet. Okay. My second one is on your profitability guidance for full year 2022. You currently track to the low end of your guidance after the first nine months. How should we think about your mindset going into Q4 as the market is already giving you kind of a free pass to increase marketing spending? On the positive effects that we have seen in Q3, are there any changes expected for Q4 on the adjusted EBITDA side? As I explained, we continue basically our strategy and also execute build on the Lean 4 Leverage. I also explained that we need to balance basically very diligently the increase in profitability versus the growth path that we're on. So far I would say we see an environment which is not that easy. In terms of the guidance itself, at the moment we would say that on the EBITDA side, we're probably in the middle of the range for the full year. Okay, perfect. My last one would be on current trading. Usually, Q4 is the highest share of prescription contribution in the sales mix. Is this something that you already see now in Q4 in the first couple of weeks? Thank you. It is actually very hard to say. I mean, what we saw in October is what other players in the market have already communicated. October was muted in terms of demand. But we do see a slight shift in the first days of November, and that might be that people have been holding off in October knowing that in November, Black Friday is gonna come at one point in time, which would be sensible to do so if you go into a hard winter. Actually starts and slow picking up in November. It's almost impossible to say if we see a significant change in the next eight weeks. Roughly, you know, we go into another challenging quarter that is not fundamentally different than the difficulties that we have seen. Maybe a little bit more difficult, but long story short, it's really hard to tell. Understood. Thank you. There are no further questions waiting at the moment. For closing remarks, right back to Dirk Graber. Thank you everybody to take the time to attend this call, and thank you also for the questions. Happy to stay in contact. If you have any further questions, please reach out to Rina, who is there for your availability and then talk to you during the next presentation. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.