HomeToGo SE

XETRA:HTG

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the conference of the Q1 2023 financial results and earnings call of HomeToGo. [Operator Instructions]I would now like to turn the conference over to Sebastian Grabert. Please go ahead.

[Sebastian Grabert, executive]

Thank you very much. Good afternoon, dear analysts and investors, and welcome to HomeToGo's first quarter 2023 earnings call. My name is Sebastian Grabert, Director of Investor Relations and Corporate Finance. With me today is our CFO, Steffen Schneider, who will present our highlights of the first quarter and then walk you through the financials.As always, this call is being recorded and will be made available later today on our Investor Relations website.With this, I would like to hand over to you, Steffen. Please go ahead, Steffen. The floor is yours.

[Steffen Schneider, executive]

Thanks, Sebastian, and welcome everyone, and thank you for joining our call today. After outstanding 2022, I have the pleasure of reporting an excellent first quarter of 2023 with accelerating momentum and high visibility for the financial year 2023. For Q1 '23, we experienced impressive growth in customer demand resulting in our highest ever quarterly booking revenues, leading to a record high booking revenues backlog. This is all against the backdrop of a challenging macroeconomic environment, which is again demonstrating the resilience of our business model.In more detail, booking revenues grew by 50% year-over-year to our best quarter ever of EUR 65.3 million, whereas at the end of Q1 '23, our booking revenues backlog stood at an exceptional EUR 69.5 million, 80% growth towards this time last year.Furthermore, our Q1 Onsite business performed remarkably well, growing its booking revenues by 44% year-over-year to EUR 32 million, alongside further increasing booking revenues Onsite share of 58%.In addition to the very positive top line numbers, we made further progress on our strategic pillars. First, our CPA Take Rate reached 10.6%, hitting the double-digit percentage range for the first time in the full quarter. Second, our Subscription & Services business showed a stellar performance advancing to its highest first quarter ever of EUR 5.9 million and IFRS revenues growing at 84% year-over-year. Third, our strategic focus on repeat booking revenues saw a strong increase across all markets, growing higher than overall booking revenues growth.In addition, we substantially improved marketing efficiency. This led to an enhanced profitability level, improving adjusted EBITDA margin by roughly 5 percentage points compared to the previous year period. Our efficiency improvements become even clearer when looking at sales and marketing expenses in relation to booking revenues, which we will show later in the presentation.All in all, we are continuing HomeToGo's growth story while improving our profitability. Based on this excellent start to 2023, plus our record booking revenues backlog, we reiterate our full confidence for the fiscal year '23 guidance to reach double-digit IFRS revenues growth of 13% to 19% year-over-year and adjusted EBITDA breakeven.Let's take a look at our core metrics on Slide 3, which again emphasize that Q1 was an exceptional start of the year. Booking revenues grew at a very strong rate of 50% year-over-year to EUR 65.3 million, driven by strong CPA bookings. Over a 2-year horizon, we more than doubled our Q1 booking revenues, demonstrating the robust customer demand for alternative accommodation.As a general reminder, most of the CPA booking revenues will be recognized as IFRS revenues later in 2023 when check-ins have happened.The organic growth rate for Q1 was 22%. Q1 '23 on-site booking revenues grew 44% year-over-year or tripled versus the first quarter of 2021, reflecting our substantial progress on shifting our marketplace business towards Onsite. This is also evident in a further increased booking revenue Onsite share to 58%, growing 3 percentage points compared to Q1 '22. In the DACH region, our most advanced, we substantially expanded our Onsite share to 85%, growing by 13 percentage points year-over-year.Due to the already mentioned traditional high share of early bookings in the beginning of the year, IFRS revenues grew robustly. However, not as strongly as booking revenues, increasing by 16% year-over-year to EUR 22 million. The main portion of the large CPA booking revenues backlog will be recognized as IFRS revenues during the upcoming summer travel high season month of July through September.The strong growth of booking revenues is also reflected when looking at our profitability. Absolute adjusted EBITDA amounted to minus EUR 25 million for the first quarter of '23, even EUR 2 million higher than in the first quarter of 2022. As you can see, we always have the Q1, Q3 seasonality.The CPA economics were very attractive in Q1, and therefore, we intentionally invested to generate more booking revenues. We are fully confident to sequentially improve profitability over the course of the year to reach adjusted EBITDA breakeven in 2023.And to emphasize, as a reminder, while full costs associated with the record booking revenues backlog have already been accounted for, the associated IFRS revenues will be recognized later in the year. On a relative basis, we have already improved the adjusted EBITDA margin by 5 percentage points compared to the previous year period. And notably, we improved marketing efficiency and had strong contributions from our Subscription & Services business, where we saw organic growth year-over-year of almost 50%.Let's take a closer look on Slide 4 at the breakdown of our booking and IFRS revenues on a quarterly basis. In general, we are very satisfied with the performance of both of these distinct revenue streams. I want to again emphasize our Subscription & Services business, which has developed excellently in recent years and was the main IFRS revenues contributor in the first quarter of 2023.In terms of booking revenues, the Subscription & Services business more than tripled within 1 year. On top of that, we have seen nice growth of our marketplace model on a yearly comparison, both in terms of booking revenues as well as IFRS revenues. The CPA business, both Onsite and Offsite, performed strongly during the last quarter, thanks to both a strong Onsite and a U.S. Offsite business.Slide 5 highlights the exceptional growth of CPA bookings, leading to record-high booking revenues backlog of EUR 69.5 million. This already proven strong demand is an important profitability building block to reach adjusted EBITDA breakeven in 2023. These booking revenues in the backlog will translate to IFRS revenues during the remainder of 2023.Here is a helpful view of the seasonal distribution of our booking revenue backlog and the pattern of revenue recognition over the course of the year. As you can see, the majority of our booking revenues backlog will be recognized as IFRS revenues during Q3 from July to September when most travelers will be on holiday. You can see that despite the growth in our business, the share of Q3 IFRS recognition has been quite stable over the recent years and stands at approximately 60% of the overall backlog.On the next slide, we see an ongoing favorable trend in Onsite booking revenues and the corresponding Onsite share. As a reminder, the Onsite share is the part of the overall booking revenues on the marketplace, which stem from bookings directly taking place on our platform and, therefore, offers higher take rates to our group.In addition, Onsite is also important for repeat business, i.e., travelers booking for the second or third time at significantly lower cost. It's worth highlighting the tremendous increase in the Onsite share throughout the last 2 years with an exceptionally high Onsite share in our DACH market, rising significantly by 13 percentage points year-over-year.Taking a closer look at our Onsite business. On the bottom of the slide, you'll find the geographical breakdown of the Onsite booking revenues and the Onsite share on a quarterly basis. In addition to the exceptional 85% Onsite share in DACH, as of Q1 '23, our European Onsite business in general shows the continuous improvement in both metrics. While the absolute amount of Onsite booking revenues has increased by 36%, the relative share has dropped due to very high growth in our U.S. Offsite business.Moving on to our Take Rate on Page 9. The CPA Take Rate increased from 9.4% in Q1 '22 to 10.6% in Q1 '23, an increase of 1.2 percentage points year-over-year, and therefore, reaching double-digit percentage rate for the first time in HomeToGo's history in the full quarter. Basket size has increased, mainly driven by a higher share of U.S. business with its traditional higher basket sizes driven by higher ADRs. Length of stay has been relatively stable throughout the regions.You'll recall our emphasis on repeat businesses at our Capital Markets Day as well as during our financial year 2023 outlook and the importance for profitability. As a reminder, they have substantially lower marketing costs, roughly 87% less required from existing customers compared to new users.On Page 10, on the left-hand side, we illustrate how the repeat booking revenues continue to grow tremendously with the CAGR of 84% over the last 3 years. By increasing the amount of repeat booking revenues, we directly benefit from a higher margin.When looking at the marketing and sales costs to booking revenues ratio, we showed significant improvement in our marketing efficiency. We've intentionally added this additional view of booking revenues instead of IFRS revenues, giving marketing and sales costs directly correlate to when we are driving booking revenues.As you can see, this ratio also fluctuates. However, the long-term trend is showing continued improvement in efficiency. The key message to take away from this slide is that both higher repeat booking revenues from existing customers as well as an improved marketing efficiency contribute directly to a higher profitability, which you will see during the course of the year.Let's take a closer look at this progress and profitability on the next slide. Taking a look at the development in our cost ratios that drove group level profitability in relation to IFRS revenues, we observe that gross profit margin improved by almost 2 percentage points, now standing at more than 95%. The main savings were driven by reduced server [ hosting ] cost.Please note that, as always, the cost positions are adjusted so that the resulting figure is the adjusted EBITDA. Most notably is the substantial improvement in sales and marketing cost ratio by 15.3 percentage points year-over-year. Please note that we here, as always, adjusted costs for expenses for share-based compensation, depreciation and amortization as well as one-off items in order to arrive at the adjusted EBITDA. The message from this slide and the previous slide stays the same, a favorable development on our marketing efficiency is leading to a higher profitability.With respect to our product and development cost margin, the deterioration is explained by an increase in personnel costs, mainly due to the expanded consolidation scope through the acquisition of our subsidiaries, SECRA and e-domizil], which are now fully consolidated in Q1 '23 compared to Q1 '22.Furthermore, expenses for licenses and personnel costs have gone up due to the general business expansion of the HomeToGo Group. On the administrative cost position, we see a similar development as in the product development and operation functions for personnel expenses, leading to a slight decline of the corresponding cost ratio. Overall profitability in terms of adjusted EBITDA margin improved by almost 5 percentage points compared to the previous year level, which underlines our full confidence to reach adjusted EBITDA breakeven in 2023.Looking at our cash position on Slide 12. We continue to have a very strong balance sheet with a gross cash of EUR 140 million, of which EUR 0.8 million are restricted. This brings the liquidity to EUR 139.2 million, including the investment of EUR 50 million into money market fund. Deducting interest-bearing debt of EUR 7.4 million brings the net cash position as per end of March 2023 to EUR 132 million. Our very solid liquidity position is a key differentiator in an increasingly challenging environment for growth companies characterized by higher interest rates.In terms of cash flow during the fourth quarter -- excuse me, first quarter -- the overall cash burn during Q1 was mainly driven by operating cash outflow of EUR 19 million from seasonal-related increased marketing expenditures and another EUR 1 million for invested cash flow. The financing cash flow had a minor outflow of EUR 1 million driven by repayment of borrowings.To conclude, based on an exceptional start to 2023, we are fully on track to achieve adjusted EBITDA breakeven in 2023.We are pleased to reiterate our '23 guidance. And to briefly recap, we expect booking revenues to increase by 13% to 25% to EUR 185 million to EUR 205 million, looking more at the upper end at this point in time. We guide IFRS revenues to grow in the range between 13% and 19% year-over-year to EUR 165 million to EUR 175 million. We target for an improvement of the Onsite booking revenue share by 2 percentage points to 56% to 61%. With this, we are fully confident to reach adjusted EBITDA breakeven in 2023.As always, to give you more visibility on what lies ahead, looking into the current trading year-to-date, Slide 15 shows the intact growth momentum in terms of monthly booking revenues being on a substantially higher level than previous year's period. We have benefited from a very strong start to the year in terms of monthly booking revenues due to the traditional early bookers in DACH and the Netherlands as well as the U.S. This trend has continued in April. Our booking revenues backlog as of the end of April was even higher with more than EUR 75 million.Looking at Q2 '23 IFRS revenue, we expect a similar year-on-year growth rate as in Q1 2023 and an improved adjusted EBITDA margin compared to Q2 2022.To summarize the performance of the first quarter 2023, we experienced an exceptional first quarter with highest ever booking revenues, a record booking revenues backlog, stellar year-over-year growth in Subscription & Services and the first time double-digit quarter CPA Take Rate. Our substantially improved marketing efficiency, alongside with our continuously growing repeat booking revenues led to an overall improved profitability. We reiterate with full confidence our guidance to achieve adjusted EBITDA breakeven in 2023.With that, I thank you for your attention, and we'll happily take any questions you may have.

[Operator]

[Operator Instructions] And the first question comes from Silvia Cuneo from Deutsche Bank.

[Silvia Cuneo, analyst]

First, on the revenue growth, that seems to have partly benefited from a lower cancellation rate in the quarter. Can you please remind us of typical cancellation rates before the pandemic and whether the Q1 rate at 15% is indicative for the rest of the year? And second question on current trading and typical seasonality. Thanks for sharing the incremental data on Slide 15 and the commentary around the Q2 growth. Just wanted to ask, based on the current booking revenue backlog growth, that seemed to be ahead of revenue. Could that be the case that revenue growth can accelerate from Q3?And then final question on the CPA Take Rate that reached a new record and double-digit levels in Q1. Can you comment about your ability to further raise the Take Rate? How much of the growth so far came from higher Onsite share versus perhaps higher prices to existing partners?

[Steffen Schneider, executive]

So to answer your first question on the cancellation rate, the cancellation rate continues to go down, and we are almost at the pre-pandemic levels. The exact comparison is a little bit difficult to compare, and the reason for that being that some of the, let's say, cancellation risk sharing has changed. So the kind of comparison is not like-for-like, but we are almost, I would say, on the level in terms of cancellation. And basically COVID is over. It's no longer a major driver. So we have the usual business going forward.On the second question, the backlog, the -- What we have to keep in mind is that when -- last year, when we had the acquisition of e-domizil, we started consolidating it as of 1st of April. And with that came also an order book. We have to depreciate that order book on a linear basis over 12 months. So we had now in the Q1 '23 the final depreciation of that order book. And therefore, if we take the backlog as of April '23 compared to April '22, which already included in the backlog from e-domizil, the year-over-year comparison was more like 30%.So we look very positively into the IFRS revenue guidance. But at this point in time, we don't want to change anything to the guidance, but rather see how the year progresses. But I'm very confident about that.With regards to the CPA Take Rate, so that has an improvement on higher Onsite share in general. We have our, let's say, usual economics improvement year-over-year. And what we have also seen this year is a rather attractive Offsite CPA Take Rate. And this higher Offsite CPA Take Rate was also one of the reasons why we had a relatively high CPA share and a rather lower CPC share as the CPA economics were just more attractive, and that also led to a higher booking revenues backlog.

[Operator]

And the next question comes from Volker Bosse from Baader Bank.

[Volker Bosse, analyst]

I would like to ask 3. And first is on booking revenues. The booking revenues increased by plus 50%. How much of acquisitions or inorganic growth has been included here? So would have been the growth excluding SECRA basically? Second question on -- the average booking value has increased by 11% year-over-year. Is it fair to assume that this is basically driven by higher price inflation? So price increases, which led to the higher average booking revenue?And last but not least, last final one would be on any changes in consumer booking behavior which you see? We are in uncertain times with macro uncertainties, et cetera. Do you see more nearshore location booking or do you see higher demand for cancellation options? We saw the [ acquisitions ] went down. But yes, any trends you might see which reflect a thing in regards to uncertainties which the consumers are currently facing?

[Steffen Schneider, executive]

Sure. So when we look at the organic business, then, like at the overall group level, so the booking revenues organic growth would have been 22%. When we look at the Subscription & Services basis, as you made the reference to SECRA, there the organic growth would have been 50%.The -- with regards to the price increases and the ADR, so the -- we basically -- in terms of length of stay, we don't see any major movement. So people all over the regions more or less stayed the same length of stay, like minus 1% in one region and plus 1% in another region. So basically, stable.When we look at the ADRs, they have basically increased all over the regions with the highest increase in North America. And as we know, the North American ADRs tend to be the highest anyway. That's why the North American basket sizes are always the highest one. And therefore, having a higher share of North America business is also leading to a higher overall basket size.In terms of consumer preferences, we -- what we see is that the actual consumer seems to spend the same amount of money per trip as they used to spend before, and that sounds a little bit counterintuitive to what I just said. But the kind of -- what we see is that consumers seem to have the same kind of budget and are just downgrading a little bit in terms of our hotel business. I make the comparison to use -- to book a 4-star hotel and now would go for 3-star hotel because prices have increased, but the budget has been staying more or less the same.In terms of cancellation, as already mentioned with regards to Silvia's question, cancellation and cancellation policies is really not much of a topic anymore. So the -- neither talking to the partners, nor talking with the travelers, cancellation policy is a big topic as it used to be like 2 years ago.

[Operator]

And the next question comes from Wolfgang Specht from Berenberg.

[Wolfgang Specht, analyst]

Sorry, I missed the first part of the call and did not get the part with repeat bookings. Steffen, you mentioned a share of the overall bookings coming from repeat bookings. Maybe you can elaborate a little bit on that one, profitability, fresh customer versus existing customers and how the rate of repeat bookings is developing? And then a second question on inventory. Can you give us an indication if the amount of inventory is still increasing? And if so, at what rate? Or are the current, let's say, growth figures largely based on a better utilization of the existing or historic inventory?

[Steffen Schneider, executive]

Sure. So on the repeat booking business, we have shown that -- I just forgot the slide, but I can mention that in effect. So the repeat booking revenues have also increased. We have shown that over the last 2 years, they have increased by 84%. And also this year, the growth of repeat booking revenues has increased faster than the overall increase. So we didn't go into detail in terms of what the respective share is, but it is basically the same story as before that we have the highest share of repeat booking business in our most advanced market, which is the DACH market. So that is all going into the right direction and the profitability level is also the same as before. So that 87% less, which we had before. You'll find the details on Slide 10 in the presentation.With regards to the inventory, as you know, inventory fluctuates up and down a little bit. So we have progressed. And I wouldn't make so much the point in the absolute amount of inventory, but actually the kind of inventory we have and there we have some attractive inventory in place. And some of that, I fortunately -- when I would have the opportunity to show you some pictures, you would immediately know that this kind of inventory gets booked the minute it's on the platform, and that, of course, makes it much easier. So I'd rather have like 10 new inventory on the platform which gets booked immediately than having 100 which may be less attractive.But all in all, it's going really well on the inventory front.

[Wolfgang Specht, analyst]

That sounds like a self-fueling market. If you can show a good utilization of the existing inventory, your sales people have an easier job to attract new inventory?

[Steffen Schneider, executive]

Of course. I mean that's exactly the kind of success stories which our salespeople are then using when meeting new potential partners to basically demonstrate them how working together with HomeToGo and how having inventory on our platform is actually significantly improving their utilization, which again is, for many of our partners, a good argument to get more customers on their product.

[Operator]

[Operator Instructions] It seems like there are no further questions at this time, and I hand back to Steffen Schneider for closing comments.

[Steffen Schneider, executive]

Thank you, everyone, for listening in and for your questions. In case you have any further questions, please feel free to reach out to Sebastian or myself. Very much looking forward to it. As always, the replay will become available on our Investor Relations website. And with that, thank you very much, and have a nice day.

[Sebastian Grabert, executive]

Many thanks. See you soon.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.