Freightos Limited Ordinary shares Q3 FY2025 earnings call

Quarter Highlights

• Q3 processed 429,000 transactions (+27% YOY), 20,600 unique buyer users, 77% of carriers with >5 bookings. Air cargo volumes up 4%, rates down 6% due to tariffs and macro uncertainty.

Product and Network Progress

• Partnership with Visa for financing solutions, integrating Visa's expertise with transcard's tech for better payment experience. Launched WebCargo Rate & Quote ocean, validated with Nippon Express. Solutions segment had renewals and scope expansions; Michael joined as CRO to scale sales.

Ocean Booking Context

• Requires carriers to digitalize; progress with integrations, but adoption measured, with midterm (2028) expected to be significant for revenue.

Platform revenue: Platform transaction volume and GBV growing faster than revenue due to business mix. WebCargo (fixed fee model) grows faster than Freightos.com (higher take rate), so aggregate platform revenue grows slower than transactions. Solutions revenue: 30% year-on-year growth in Q3. Included renewals and scope expansions. Notable partnerships like Visa and Nippon Express. Solutions currently majority of revenue, long-term target is Platform to outpace Solutions.

Q4 and Full-Year 2025

• Anticipate continued growth in transactions, GBV, and revenue. Adjusted EBITDA improved but impacted by FX. Target breakeven adjusted EBITDA by Q4 2026. Cash and equivalents expected to be ~$27M by end of 2025.

• Macro uncertainty, tariffs, and FX fluctuations impacting sales and profitability.

Q: When I look at the contribution margin, it's basically year-to-date, it doubled year-over-year, so clearly, you're seeing efficiency and the sales cycle. I think your OpEx, excluding sales and marketing, is up 9% against revenue up, I don't know, some 27% or 29%. And obviously, you called out the pressure of the FX. So you're doing everything you can do. I guess the question is, and you've now told us you're going to -- the plan is breakeven EBITDA by the end of next year. So I guess, is there anything you could do to grow faster organically or inorganically? And I guess, how much of the gating factor growth at this point is kind of the path to breakeven EBITDA and managing the cash balance? And then I have 1 quick follow-up.

A: Yes. Thanks, Jason. Well, that was a complicated question. So I'm thinking where to start from. The -- 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 the 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. And we'll -- we're finalizing a budget, which will allow us to grow as fast as we can without compromising the target of breakeven.

Q: I wondered if we could just talk about penetration. You mentioned a lot of the growth will come from -- at least on the air cargo side, from just growing your penetration with the carriers. Can we talk about where we stand in terms of penetration? Any sort of cohort type analysis that you could suggest?

A: Yes. If you look at -- it sort of -- it varies quite a bit by geography. Our penetration in the European market from a supply perspective is very high. We've got virtually every airline in Europe turned on to the platform, at least for a lot of the capacity, not always for all their capacity. But in Europe, we have a very significant penetration. We have a very nice proportion of the freight forwarders in Europe. I don't know have exact numbers to hand. I don't know exact numbers at all because there isn't a very reliable list, but very significant in the U.S., we're growing nicely, but it's still smaller penetration. And in Asia, we reckon we're still sort of -- whether you look at supply or demand, we're still in the single digits of penetration. That's still a huge amount to do there.

Q: I'm just curious how you're defining midterm growth relative to the ocean carriers.

A: Okay. Yes, very good. That's what I thought you said. So how do I define midterm? Let's say only meaningfully contributing to revenue in 2028. Next year, I don't think Pablo is even going to budget at all for -- there'll be some, but I don't think there's -- it will be even in the budget, 2027. It will start growing. I think it's only in 2028 that we get significant revenue from that aspect. But, of course, just to remind you, and we've discussed this before, George, but once you become the leading platform, that can be a -- that can hold for decades. So this is a very strong long-term opportunity.

Q: 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?

A: Pablo, you want to take that or do you want me to comment? Pablo: No, I can start. So we are finalizing the plan for next year. And of course, the -- 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 the Freightos.com, and within that mix, what are the fasting growth carriers that will drive that mix. Right now, we are in the middle of addressing all of that, and -- but for sure, the take rate will not decline year-on-year, and we are expecting that to grow.

Q: 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?

A: Let me take this, Zvi. So this, again, for us, is the slowdown in Q4 revenues is related to slower revenue -- solution revenues coming in that we have seen a slightly delayed in being able to close business. It's important to say as well that the -- most of our revenue in Solutions revenue is recurring with a small piece of nonrecurring revenue, and the decline of Q4 that we see is specifically related to a competition of one of development that finished in Q3 that when we did plan, we expected to -- that the Solutions revenue will overcome that decline. But so far, we are -- due to the delays, we are not able to foresee that in the future. And the second question is, if FX stays at the same level as Q4, it won't -- from our point of view, it doesn't mean that it will delay our breakeven in 2026. As a guiding principle, we're going to manage expenses as needed to breakeven in Q4 2026 even if the Solutions revenue, it doesn't accelerate in the future.

Q: You recently launched WebCargo Rate & Quote integrating Air and Ocean quoting into a single multi-model platform. What early traction have you seen with major forwarders? And how quickly do you expect Ocean to scale relative to Air in terms of transactions and platform revenue?

A: 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 1 by 1 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. And so 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 4,000 freight forwarders roughly using our solution for air using our software for air. And so 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 1 platform in a beautiful modern software. And so we expect that to be a major part of how we grow solutions revenue next year.

Q: If partners like Meg cap Aviation bring 13 carriers to Freightos platform, what would make a benefit from the partnership? Would get the revenue share from this partnership?

A: It's not -- yes, interesting question. It's not really a revenue share scenario because they are resellers of the carriers. They're a general sales agent or whatever arrangement they have. So from our perspective, they're 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. And then, 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. But as far as we're concerned, they're a carrier or a virtual carrier. They're the ones selling the capacity on our platform.

Q: Could you please say how much proportion is recurring and nonrecurring among the solutions revenue?

A: 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? Pablo: Nonrecurring, it doesn't get up to 5%. Zvi: Yes. We only mentioned it this quarter because there was a big part of the nonrecurring came to an end. And that's actually not -- it's not our business model to do nonrecurring. We do it sometimes because we have to help the customer -- if we need to help the customer with a project and help them adopt our software, we do it sometimes. And we had 1 big project, which just came to an end on the nonrecurring, but yes, as Pablo said, that's not our model. Our model is selling SaaS and data subscriptions, and it's almost all recurring.