HomeToGo SE

XETRA:HTG

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the conference of Q3 2023 financial results and earnings call of HomeToGo. [Operator Instructions]I would now like to turn the conference over to Mr. Sebastian Grabert. Please go ahead.

[Sebastian Grabert, executive]

Good morning, dear analysts and investors, and welcome to our HomeToGo's Third Quarter 2023 Earnings Call. My name is Sebastian Grabert, Director of Investor Relations and Corporate Finance. With me today is our co-founder and CEO, Dr. Patrick Andrae; and CFO, Steffen Schneider, who will present our financial highlights of the third quarter of 2023. 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 it over to you, Patrick. Please go ahead. The floor is yours.

[Patrick Andrae, executive]

Thank you, Sebastian. Welcome, everyone, and thank you for joining our call today. As I'm sure you have already seen, we revised our financial year '23 guidance for IFRS Revenues, Booking Revenues and Onsite Share as well as confirming our adjusted EBITDA breakeven in the midpoint. As you will see in the presentation, our quarter 3 results set new records in term of Q3 Booking Revenues, IFRS Revenues, adjusted EBITDA, and have reached the highest year-to-date profitability in terms of adjusted EBITDA ever.Nevertheless, as already indicated on our Q2 earnings call on August 15, we have seen softness in the market, in particular in July and August, leading to less revenues in Q3 '23 than originally anticipated. September and now October have seen a significant improvement in demand and robust bookings. However, this improvement was not sufficient to close the gap as the majority of the Booking Revenues are for check-in in 2024 and therefore, will not be realized as IFRS Revenues in financial year '23. Therefore, these Booking Revenues would mainly lead cost in financial year '23 and IFRS Revenues in financial year '24.Given our #1 priority of achieving adjusted EBITDA breakeven for the full financial year '23, we are limited in advertising spending, leading to less Booking Revenues and therefore, less IFRS Revenues in financial year '23 and therefore, again, the need for the revised guidance. We will talk more about the revised guidance further on in the presentation in the part of Steffen.Looking at quarter 3 '23, after a strong growth during the first half of '23, we have reached several new all-time high financial results during the third quarter and first 9 months of the year. Despite the aforementioned softness in demand during the summer months, we have achieved numerous financial records. Firstly, we have already reached positive adjusted EBITDA after 9 months of 2023. This milestone gives us full confidence in reaching our full year financial adjusted EBITDA target, which was and is our top priority for the entire financial year.Secondly, we have delivered a new record third quarter performance in Booking Revenues and new all-time highs in terms of IFRS Revenues, but also for sure adjusted EBITDA. This is based on our team's continued efforts around improving marketing efficiency and that equally -- and we are equally pleased to see our CPA Take Rate reaching a new all-time high yet again. And thirdly, our Subscription & Services business continued to experience excellent development, achieving its highest quarterly IFRS Revenues ever and now amounting to 19%, almost [indiscernible] of the HomeToGo Group's total IFRS Revenues. And lastly, our record end of Q3 Booking Revenues Backlog provides high visibility over the remaining course of 2023.And with that, I would hand over to Steffen who can give you more details for sure, especially on the financial but also in parts of the operation business.

[Steffen Schneider, executive]

Thank you, Patrick, and good morning from my side. So first, let's take a closer look at the aforementioned volatility booking behavior during the first 9 months or even 10 months of 2023. Effectively, we have 3 phases. In the first 4 months, we saw very strong growth, to some extent, supported by remaining consolidation effects as mentioned in our Q1 call in mid-May.In the second 4 months, that's the period May to August, we saw the aforementioned softness in demand, in particular during the June through August period, as previously addressed during our Q2 earnings call in mid-August. In the third phase, starting September, however, year-on-year growth returned as the '24 booking season gained momentum.You know the graph on the right-hand side, which I usually show at the end of presentation. This quarter, we show it already earlier to illustrate the comparison of the current trading to the prior years. Although the demand has been strong in September and October compared to prior years, the share of Booking Revenues for the 2023 check-in is not efficient to compensate for the softness from the summer.Let's now take a closer look at the key highlights of the third quarter on Slide 4. First and foremost, we increased our revenues while simultaneously improving our margins. At the same time, we increased the CPA Take Rate to a new all-time high of 11.6%. This increase largely stems from our favorable developing CPA Business. Furthermore our profitable Subscription & Services business reached yet another quarterly IFRS Revenues record of EUR 12 million by growing 42% year-over-year. This business priority becomes increasingly important for us and accounts for almost 1/5 of the HomeToGo's group total IFRS Revenues after the first 9 months of the year.Another key pillar of improving profitability is the continued advancement of our marketing efficiencies, clearly visible in the further decreasing marketing and sales costs to Booking Revenues ratio. In the third quarter, we improved our marketing efficiency by roughly 10 percentage points year-over-year to reach 69%, significant improvement to the prior years. Finally, we reached positive adjusted EBITDA after 9 months into the year, achieving a new quarterly all-time high figure of EUR 28 million adjusted EBITDA. This corresponds to a margin of an impressive 38%.Looking at the backlog, we can see end of Q3 a new record high for our third quarter with a Booking Revenues Backlog of EUR 12.4 million, which -- with a check-in in Q4 '23. This is a year-on-year growth of 29%. The majority of the total Booking Revenues Backlog will be recognized in '24 or beyond and therefore, provides already a solid foundation for us to build on in the new year. Patrick mentioned it and I can confirm it, our #1 priority for this year is and was reaching adjusted EBITDA breakeven.Slide 7 illustrates our third quarter core metrics and again emphasizes our strong focus on profitability throughout 2023. Booking Revenues in Q3 grew 7% year-over-year to EUR 45.3 million, representing a new all-time high for our third quarter. The primary driver of this favorable development was our strong CPA Business, which also positively contributed to our Onsite performance. Q3 '23 Onsite Booking Revenues came in 11% higher versus previous year period, amounting to EUR 18.2 million.IFRS Revenues grew robustly by 6% year-over-year to a new absolute high on a quarterly basis of EUR 73.9 million. This was predominantly driven by strong growth in the CPA Offsite business and the Subscription & Services business, both growing by 51% and 22% year-over-year respectively. In terms of profitability on a quarterly basis, we reached a new all-time high adjusted EBITDA of EUR 28 million, an improvement of almost EUR 4 million or 16% year-over-year.Let's take a closer look on Slide 8 at the breakdown of our booking and IFRS Revenues after the first 9 months of the year. Booking Revenues in the first 9 months increased by 23% compared to the previous year period and IFRS Revenues are up 10% year-over-year. Both absolute figures represent new all-time highs in HomeToGo's history. You can also clearly see the excellent development of our Subscription & Services business over the recent years. Our CPA Offsite business performed especially well with growth rates of 53% for Booking Revenues and 50% for IFRS Revenues respectively, while CPC declined compared to last year.Now some more context on our Onsite business and regional Booking Revenues distribution. Over the last 4 years, we have seen a steady increase in our Onsite Share. In 2022, we crossed the 50% threshold. And in the first 9 months of 2023, we produced an all-time high Onsite Booking Revenues figure of EUR 71 million, an increase of 16% year-over-year. The DACH region, our most advanced market, now has an Onsite Share of 82% with the rest of Europe catching up as we increase the rest of Europe Onsite Share by 8 percentage points year-over-year.The regional Booking Revenue split demonstrates the growth momentum of our North American business. The relative Booking Revenue shares, excluding Subscription & Services, attributed to the North American market increased by a remarkable 8 percentage points year-over-year, now amounting to more than 1/4 of the HomeToGo group's total Booking Revenues.Let's have a closer look at our Onsite business on a quarterly basis. Overall, Booking Revenue Onsite Share for the group increased by 6 percentage points compared to the previous year period, standing at 51% at the end of the third quarter. The European Onsite Share increased by an impressive 11 percentage points to 67% compared to Q3 2022, whereas the North American Onsite business slightly decreased by 1 percentage point year-over-year. This increase was intentionally driven as we continued to opportunistically steer our business in the most profitable way.Commenting on our take rate on Slide 11. The CPA Take Rate increased year-over-year from 9.7% in Q3 '22 to 11.6% in Q3 '23, a substantial increase of 1.9 percentage points, resulting in a new all-time high in HomeToGo's history. The increase in take rate was fueled by a higher -- by higher take rates of new partners as well as increased take rates of existing partners, underlining the competition between partners for traffic and bookings.The overall basket size has slightly decreased by 5% in Q3 2023 compared to the previous year period. This decrease was driven by North America. While the ADR in North America increased, the length of stay was significantly shorter than in the prior year. In Europe, the basket size increased in the same period due to higher ADRs, while the length of stay stayed almost the same as last year.We now look at the development in our cost ratios that drove group level profitability in relation to IFRS Revenues. Gross profit margin slightly improved by 0.6 percentage points year-over-year, now standing at 98.6%. The reason for the improvement are economies of scale and our investments into cost reductions for further server hosting infrastructure. Most notably is the substantial improvement in the marketing and sales cost ratio by 6.5 percentage points year-over-year, largely benefiting from continued improvement in our marketing efficiency alongside ongoing growth in repeat demand. The favorable development of our marketing efficiency was the leading contributor in achieving adjusted EBITDA breakeven after the first 9 months of 2023.With respect to our product and development cost margin, the increase by 2.5 percentage points is due to higher personnel expenses on HomeToGo's product development team as well as higher license fees resulting from the growing underlying business. The decrease in general and administrative expenses ratio by 1.1 percentage points year-over-year can be attributed to lower consulting expenses during the third quarter of '23. Overall, profitability in terms of adjusted EBITDA margin improved by 3.3 percentage points on a quarterly level compared to the previous year and by 7 percentage points on a year-to-date basis. As always, we adjust the cost for expenses for share-based compensation, depreciation, amortization and other one-off items in order to carve out the operational performance of our business and arrive at the adjusted EBITDA.Looking at our cash position on Slide 13. We continue to have a very strong balance sheet with gross cash of EUR 136 million. This includes the investment of EUR 51 million into a money market fund as well as roughly EUR 40 million that is continuously invested in interest-bearing fixed deposits. Deducting interest-bearing debt of EUR 5.5 million and restricted cash of EUR 0.5 million brings our net cash position at the end of September to EUR 129.6 million. Overall, our cash position decreased by EUR 9.6 million during the third quarter of 2023. The negative operating cash flow is the result of the overcompensating effect of the payout of traveler advanced payments to host in the amount of EUR 23.6 million, resulting from collection services for the respective hosts.Additionally, trade receivables increased by EUR 7.5 million year-over-year and now stands at EUR 34.5 million. The majority of this amount will be converted into cash in the fourth quarter of 2023. Cash flow from investing activities amounted to minus EUR 1.7 million. The cash flow from financing activities amounted to EUR 1.3 million and includes repayment of borrowings.As mentioned by Patrick at the beginning of our call, the significant demand rebound in September and October was not sufficient to close the gap as the majority of the Booking Revenues are for check-in in 2024 and therefore, will not be realized as IFRS Revenues in 2023. Therefore, these and future Q4 Booking Revenues would mainly lead to costs in financial year '23 and IFRS Revenues in financial year 2024. Given our #1 priority of achieving adjusted EBITDA breakeven for the full year 2023, we are limited in advertising spending leading to less Booking Revenues and therefore, less IFRS Revenues in 2023. Therefore, we revised our Booking Revenues guidance from previously EUR 185 million to EUR 205 million to now between EUR 180 million and EUR 190 million.Our Onsite Share will now -- is now expected to be between 52% and 56% versus previously 56% and 61%. The IFRS revenue guidance was revised to EUR 158 million to EUR 162 million from previously EUR 165 million to EUR 175 million, with the most recent sell-side consensus already at the lower end of the previous guidance. We continue to be fully on track to achieve adjusted EBITDA breakeven this year and are therefore, narrowing our guidance from the previous range of minus EUR 2.5 million to positive EUR 2.5 million and now to minus EUR 1 million to plus EUR 1 million.To summarize HomeToGo's performance for the third quarter and first 9 months of 2023, we achieved positive adjusted EBITDA in 9 months '23 and a record Q3 adjusted EBITDA of EUR 28 million, plus 16% year-over-year, reflecting a 38% EBITDA margin. Overall, we experienced robust third quarter performance in Booking Revenues and a new all-time high CPA Take Rate.Secondly, Subscription & Services continued its excellent development and achieved highest quarterly IFRS Revenues ever increasing 42% year-over-year. Lastly, we revise our IFRS Revenues guidance and confirm adjusted EBITDA breakeven as guidance midpoint for 2023 due to conscious cost discipline and continuously improving marketing efficiency.To conclude, I would like to share a reminder that HomeToGo will virtually host our Capital Markets Day 2023 on December 12. You're all invited. Please save the date and stay tuned for the full log-in details.And with that, I thank you for your attention today. We will now open the floor to your questions.

[Operator]

[Operator Instructions] The first question is from the line of Silvia Cuneo with Deutsche Bank.

[Silvia Cuneo, analyst]

A few questions from my side. The first one is about the Booking Revenues Backlog and your early thoughts on 2024. In Slide 5, you saw the proportion of Booking Revenues Backlog with check-in dates in 2024 and beyond. That looks higher year-on-year. And I just wanted to ask if you could please share some thoughts about how this makes you think about travel demand for 2024?Then the second question is about the performance by geography. It looks like North America has taken [ serve ] from DACH and rest of the Europe. And I wanted to ask if that's driven by your investment in North America or would you call out different macro trends impacting travel demand more in Europe than in North America perhaps?And then just a final question. If you could comment on trending your user base. Just wondering if you have any update in terms of rebooking trends from existing customers in Q3.

[Steffen Schneider, executive]

So on your first question on the Booking Revenue Backlog and what we expect for 2024. So you're right. When we compare where we stand this year compared to last year, we are in a better position. So that is good. And given the kind of momentum we see with the bookings and the kind of net contribution we get on the current bookings, we also look optimistically into the future. But as we have seen, this year has been quite a roller coaster. So when we look into 2024, we, of course, want to again go for at least an adjusted EBITDA breakeven. We want to grow higher than we did this year and we will basically invest the profitability we get next year for growing even higher. And that, of course, also means that by the end of '24, we would start investing into the 2025 backlog. But all in all, given the recent 2 months, I'm again looking very positively into the next year.With regards to your second question on the North American growth, this to some extent, based on the investment into our North American market. So there, we see good traction with Onsite partners. As you can see, the share went down a little bit, but absolutely it grew. And the other thing was that we already -- as mentioned in the Q2 report, but that continued in Q3 as well, we saw a very good net contribution with North American bookings and therefore, gave more traffic to North America as this had a better net contribution.

[Patrick Andrae, executive]

And to your third question, Silvia. So obviously, we see that, as Steffen also mentioned, that retention year-over-year is much better than last year. And we would like to also tell you on the details there, yes. So the best thing is if we look into like the Capital Markets Day because there we will have a deep dive on this topic as well as we had last year. So it's better to explain it in detail there.

[Operator]

The next question is from the line of Volker Bosse with Baader Bank.

[Volker Bosse, analyst]

I have also 3 questions. First, I would start on your Page 3. And the question is related to the current trading, the -- on the right-hand side, the Booking Revenue trend. How does it -- did it develop in November for the first days? Do we see a turnaround of the trend [ TSOs ] that we see a rise of the chart shown on part -- chart 3, please? So current trading related question for November.Second is on M&A opportunities. In previous calls, you mentioned the fragmentation of the overall market and the opportunity. Given that situation, how do you look at M&A opportunities at this point of time? And what kind of businesses you're looking for if you would search in the market for a potential target?And then last question would be on, yes, '24. Of course, it's too early to give you a guidance and thank you for the invitation to the Capital Markets Day. However, at the Capital Markets Day last year, you guided for a growth of, on a CAGR basis, 30% to 35% and also guided for 5% EBITDA margin. So both targets from today's point of view looks quite ambitious. So my question would be, if you have to prioritize, would you go for faster top line growth or for better margins if you have to decide given the limited resources, of course?

[Steffen Schneider, executive]

So let me answer your first and your third question, and then Patrick will answer your M&A question. So on what we see at the moment in November that positive trend we have seen in September and October also continued into November. And that was one of the reasons why we were still hoping the -- that we could close the gap from the softness of the summer. However, the kind of revenues with a check-in '23 is going steeply down. So what we see now in November is to the very large extent, we are talking like 80%-plus is for 2024.And the unfortunate situation is that we are -- as I tried to explain, given that we have only limited maneuvering space from our EBITDA that we cannot make full use of that opportunity. So therefore, we have to be a little bit careful on the spending, which is very unfortunate because at the moment, we could get bookings at a margin which we haven't seen since the early days after the COVID come back. So that gives us a lot of confidence on the one hand. But on the other hand, it was not sufficient to close the gap on -- from the summer.With regards to 2024, as already mentioned to Silvia's question, so we are looking at having the -- at least the same profitability level as we have this year, but that we would use the additional profitability we are seeing for next year to go for growth and to really drive the growth of the business. To what extent we have to see. That again, is also depending on the overall macro environment. If it continues like it is at the moment, I would be more positive. If it would be like we had it during the summer, I would be a little bit more cautious. And on a day when we -- after yesterday's guidance revision, I prefer to be rather cautious. But all in all, as of now, I look very optimistically into 2024.

[Patrick Andrae, executive]

Yes. So like yes, and we definitely believe that we will grow more than this year next year, yes. To your M&A question, I think like we talked about this in other calls in the past already, right? So like in general, we have a very clear target scheme for M&A, yes, which is profitable companies, yes. That's the first major point, as you know.And secondly, obviously, supporting in general our strategic goals as a company, right? And so like we keep looking for companies where we think on one hand we can like enlarge our Subscription & Service offering and on the other side for sure other companies that might be interesting complementing other parts of the business as well, right? So obviously, we cannot always go in the details there, but we can be sure that as we also have a good overview over the market as the largest aggregator in this space that we know most of the companies in the market. And so like we are also screening and looking for interesting opportunities that we could do M&A over the course of the next months, years and so on, yes? So I think this is for us a very, very important topic like we mentioned it before. So M&A also saw our hiring we did with [indiscernible], is obviously the sign that we will intensify this topic as well.

[Operator]

The next question is from the line of Bharath Nagaraj with Cantor Fitzgerald.

[Bharath Nagaraj, analyst]

I have 2 questions, please. In your DACH region, which has been profitable for a while, correct me if I'm wrong there, how far behind are you, however, in the U.S. with regards to your maturity, with regards to number of years compared to the DACH region? That's the first question.The second question, what has been the main positive feedbacks? And if there are any negative feedbacks from your Onsite partners in the U.S. as you look to ramp up Onsite Bookings there in the future?

[Steffen Schneider, executive]

So with regards to DACH and North America profitability, so yes, you're correct. Our DACH business in total is -- or was already profitable last year. It is -- continues to be profitable this year. In the North American business, we are -- let's say, the guidance to the local team was to be on a, let's say, net contribution basis, neutral. So we are not yet profitable there. We could also, let's say, grow faster, develop the Onsite partners faster if we would invest more. However, due to overall #1 target to achieve adjusted EBITDA breakeven, we were limiting our investments and therefore, pretty close to profitability there.

[Patrick Andrae, executive]

Yes. And to your question on the Onsite business in North America, as Steffen pointed out, right, like so you saw that in our presentation that relative share was a bit lower of Onsite business, but the absolute amount of Onsite was higher due to the fact that North America as a market, as you have seen, was growing faster than the other markets. So -- and this obviously means more bookings for our Onsite partners, and that obviously makes them happy. And obviously, from the fairs and conventions that we, like, were attending in the U.S., we got very positive feedback, not only from the partners that are already on Onsite, but especially also from some of the partners that haven't been switched to Onsite that are now like considering that. But we will update on this maybe already on the CMD, let's see, but we see very, very positive kind of feedback there because the partners not on Onsite also see the performance of the Onsite partners as the market speaks, obviously.

[Bharath Nagaraj, analyst]

That's very useful. If I may just ask a quick follow-up question. Has there been any, like, difference in terms of your experience in ramping up Onsite Bookings in the U.S. in the DACH region?

[Patrick Andrae, executive]

Yes. Thank you for the question. Obviously, this is a nice question that I can elaborate now for an hour on because it's one of the reasons why we founded HomeToGo, yes? So like basically, every -- so every market in vacation rent as you see globally like the DACH market, like the European market or like even take just Germany or France or the U.S. is in itself more fragmented than the global hotel or flight market, yes? So that was one of the reasons why we initially founded HomeToGo in the first place to solve this fragmentation problem to a certain extent. And so like, obviously, this also includes that all of these markets are not necessarily completely the same, right?So the European market, interestingly, in the classic vacation rental space is more, you could say, like from a professional property manager view, more developed than the U.S., where you had a lot of smaller property managers that simply take also longer to onboard via third-party intermediaries like channel manager, software and so on to a platform like HomeToGo, whereas in the Europe, you have also more bigger and midsized property managers that might be capable from a tech perspective themselves to onboard themselves to HomeToGo and so on. That makes it a little bit different. And obviously, this also means that it takes some time to have all these lanes prepared to get people on board. But as you can see, we're making progress there. And in general, it's what we always have seen.So if you look at the DACH region and compare it to the Europe, for instance, see that Europe is where the DACH region was some years ago, whereas also North America is where Europe was -- or rest of Europe was some years ago. And so like we see basically this kind of strategy playbook, if you want to call it like this, playing out, yes. But obviously, the markets are not 100% the same. So there are always some specifics around a market that you need to cater for.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I hand back to Sebastian Grabert for closing comments. Thank you.

[Sebastian Grabert, executive]

Dear analysts and investors, thank you so much for your interest in our today's call. As usual, we are at your disposal for any further questions. Once again, thank you very much, and goodbye.

[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.