Hostelworld Group (LSE:HSW) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the HOSTELWORLD PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and if you could give that to your kind attention, I'm sure the company would be most grateful. And now I'd to

0:31 hand over to Gary Morrison, CEO. Good morning. Good morning, everyone. Thank you for joining us. I'm joined here by Caroline Sherry, our CFO. I'm Gary Gary Morrison, the CEO. And it gives us great pleasure to talk about our first half results this year. You know, absolutely fantastic growth, lots of interesting things around our social features, and we'll talk a little bit about some of our future aspirations. So with that said, I will take the usual disclaimers as read and go straight into our highlights. So from a financials perspective, we had record breaking first half GMV of 340,000,000 this first half year, and also generated revenue, which is 51,500,000.

1:21 The 45.8 is the revenue that we record in our p and l. Some of that revenue, we defer because we have a free cancellation product. Caroline will walk you through. But just from a sheer generated revenue, net GMV, we've had the biggest half year on record. So obviously, immensely proud. That revenue was generated across 3,400,000 net bookings, which is up 64% half year over half year. If you look at the net ABB, how we generated the revenue, it's actually down 4% half year over half year. That sounds like a bad thing. In fact, it's a very high class problem. The reason why it is down is we've seen such enormous growth from the lower cost destinations in the world, places like South Asia, Central America, and so on, that it is actually a geographic mix effect.

2:19 There is a very slight, you know, changes in our profile, which I'll talk about, but the net ABB is really driven by mix. Then we come to net bed nights. Net bed nights are up 12.3 million. That's 53% half year over half year. Not as quite as fast as the net bookings. And there's really, you know, a couple of things that are driving that here. One is the change in our customer mix. In pre COVID era, about 60% of our bookings were made by solo travelers. This half year, it's actually 66%. So as you might imagine, if you have one person staying for three nights, that's three bed nights. If you have two people staying, of course, that's six. So that's most of the change. There's been a very slight contraction in length of stay, but nothing of any material nature.

3:15 That great growth has been generated at the low end of our guidance range. You might remember in capital marking at Capital Markets Day and also in our preliminary results, we had given a guidance for the year between 5055%. Pleased to report that we're at the low end of that guidance range at 51%. Obviously, much more revenue at the low end of guidance that's generated an awful lot of margin. That margin in terms of our OpEx base on a like for like basis, our OpEx is slightly lower this half year than it was last year. So the business is generating unbelievable operating leverage. We generates our EBITDA.

4:01 A chunk of that EBITDA, of course, is revenue that is parked on the balance sheet because of the deferred revenue revenue that we will recognize in second half. Again, Caroline will go into that detail. We also did a lot of operations on our balance sheet in the first half. We started out the year with about 19,000,000 cash on the balance sheet. We generated 8.4 in operating cash. We retired 34,000,000 of our legacy COVID debt, which was very expensive. We paid down some of it, and we refinanced refinanced the rest on a materially lower interest rate going forward. And that gives us closing cash 10.7, and our net debt position is 16.2.

4:52 So I'm now going to turn it out to Caroline, who will sort of talk about the geographic spread, go through all of the walks, net margin, EBITDA, cash, and so on. And then I'm going to come back and talk to you about some of the strategic process, some progress that we've made over the first half. So over to you, Caroline.

5:10 Actually, my bad. I want to just summarize some of the things before we do that. In terms of the strong financial delivery, we pretty much covered most of that on the prior page to note that we had robust bookings growth across all of the regions. But in particular, very strong growth in Central America, South Asia, and Southern Europe. And actually, what we're seeing is it's the lower cost destinations, you know, which have really had the high growth half year over half year. We talked about the marketing efficiency. That's really powered by the social strategy. The increased operating leverage come because we have so much more margin that's going on on OpEx base, which is actually slightly less like for like.

5:55 We capitalize very little, so most of that is now converting through into cash. We talked about the debt from refinancing, materially lower interest rates. In terms of how we think about the half year from strategically, the progress we've made from a product perspective and also into, you know, the rest of the the year and into the year going on, That growth that we talked about, that huge bed night growth, 53%, when you actually take out and divide it into how much was category and how much did HOSTELWORLD grow on top, We think the category growth was about 14% and our own growth was 34% on top. So we really get materially larger market share half year over half year.

6:44 And again, that's coming up at the lower end of our marketing as a percent of net revenue. So we are not buying that market share. Our product is winning in the market safe, something they're very proud about. And in terms of that product, you know, we're not standing still. We're continuing to invest in the our social platform, both from a messaging perspective, profiles. That was a social network that we launched in April last year. We built a new platform on top of that, which is called Linkups. We think that has tremendous potential for the future. We have a few slides on that, which I'll cover off. Broadly speaking, the business always has been and always will be very highly cash generative. You know, we've now taken significant steps to deleverage the balance sheet. We will continue to do so over the next six, twelve, eighteen months.

7:37 We're reiterating the earnings guidance that we gave sort of in I think it was early May time, so we were four months into the first half. We've moved the guidance up for the the rest of the year. At that point, we're a bit like a month and a bit into second half. So we're just seeing thing how things are going. But I can say we remain, you know, significantly ahead in bookings terms, ahead of where we were in 2022. So we're very excited for the future. And clearly, in terms of the guidance that we gave long term in Capital Markets Day over a three year basis, you know, I can report even after the first six months, we are very much firmly on track to meet those longer term targets. So, overall, we're super happy with where we are. And now I will pass it to Caroline.

8:29 Great. Thank you so much. Thanks, Gary. Lovely to be with you all this morning to talk you through our results. So I'm just gonna take a little bit of time to talk through the h one performance. As Gary has said, h one twenty twenty three was a significant milestone for the business, largest h one on record from both a GMV and a generated revenue perspective. So looking first to the left hand side of the slide, we can see that net GMV, which is the total value of the bookings processed through the platform, is up 57%, 340,000,000. Then in the middle block, we're looking at generated revenue. Generated revenue being gross revenue, less cancellations. That's flat to GMV, up 57% versus the prior year also, and that's very much we left our commission rates flat, so it has remained unchanged over the period at a very competitive 15%.

9:27 When we look at net bookings, the growth is higher again. So up, see, 4%. And the reason the booking growth rate is higher than the revenue growth rate is really because we saw a small contraction in ABV, as Gary mentioned. So ABV half year on half year is negative 4%. So when we look at h one twenty two versus h one twenty three, ABV contracted 4%. This is something we had expected. We'd flagged a Capital Markets Day, but, actually, the component parts of that contraction is slightly different to what we were expecting. We had anticipated a level of bed pricing of deflation sorry, bed price deflation in 2023. Given bed prices were quite elevated last year and with cost of living increases, etcetera, we we thought perhaps the hostels would reduce their bread prices. In fact, bread prices have continued to grown grow, up 15% versus h one twenty twenty two.

10:24 And in fact, the contraction versus h one twenty twenty two was a resurgence of volume and demand in lower bed price destinations, predominantly Asia. We're now gonna look at how that growth has manifested at a regional level. So just taking a moment to describe this graph. The orange arrows represent, of course, pardon me, represent the, revenue, and the green arrows represent the bookings. So, again, we're looking at generated revenue, which is gross revenue less cancellations, and then the net booking equivalent, I e gross bookings less cancellations. So really very much the revenue that was generated off of these bookings. Looking at the middle block first, Europe. So Europe is our largest market from both a volume and value perspective.

11:16 Europe has recorded significant growth year on year and particularly in the southern European destinations. So key destinations for us, which are one of our our biggest destinations, Spain, Italy, Portugal, are all bigger now than they were in 2019. Northern Europe, key destinations such as Paris, Amsterdam, London saw significant that price inflation. And we feel actually that that did have an impact on demand, and that's why those regions have not gotten to the twenty nineteen or exceeded the 2019 levels. Looking outside of Europe and first looking over to The Americas and looking first at Central America, the rate of growth there versus last year is not as strong as the other regions.

12:05 But, actually, Central America this time last year had already exceeded twenty nineteen levels. And you may recall that in Central America, destinations such as Mexico, they had very relaxed travel restrictions and, in fact, had virtually none. So we saw a huge uplift in demand in Central America last year being that it was a destination that people could go to unencumbered about restrictions when traveling into the region. Very pleased to see that, actually, that region did not contract this year and, in fact, has continued to grow. Latin America, another key destination for us seeing strong growth. That prices are cheaper in in destinations such as Latin America and Asia. And we fact we actually think that that has really, really helped demand there. And in factual fact, if you look over to the right hand side of the map and you look at Asia, phenomenal growth. This time last year, Asia was beginning to reopen to international travel.

13:03 We had seen that actually, bookings were of circa 50% of where they were in 2019, so a real lag in last year's performance. And now it's a real tailwind to to this year's performance growing, particularly in the Southeast Asia destinations, materially ahead of where they were in 2019. So all in all, some fantastic growth across the different geographies. Now moving on, we're gonna look at how that growth in volume drove margin. So working left to right in the graph, we can see that huge volume uplift that we've talked about, driven very strong margin growth versus h one twenty twenty two. We've talked about the big uplift in GMV. We've talked about the regional growth from volume and a revenues perspective.

13:51 But another really key driver in the margin improvement is, of course, marketing efficiency. Marketing as a percentage of revenue reduced from 60% in h one twenty twenty two to 51% in h one twenty twenty three. And our social strategy is a key linchpin for that marketing efficiency. Gary will talk to social in a little bit more detail in terms of what are the features of the type social customer that we're seeing. The other element other, a negative, just 1,000,000, predominantly most of that is deferred revenue. So this is revenue relating to free cancellation products. A customer books free cancellation product. We take in the cash. We record the marketing cost associated with acquiring that customer if they came through paid channels, but we do not recognize the revenue until such time as the last day the customer has canceled has passed. I the cancellation window has to have passed before we can recognize the revenue on the p and l. That's an accounting treatment of revenue recognition.

14:55 Typically, in the h one p and l, deferred revenue is a negative number and then a positive number in h two. So that revenue that we generated from bookings we received in h one is sitting on a provision on the balance sheet, and will unwind as margin in h two. A small proportion typically about 10% cancel, but that is upside margin to come through in h two p and l. Now working our way down through the p and l, looking at our cost base. As Gary said, we have kept a very tight lid on cost. Maintaining a tight cost base is something that's very important to us. We want volume growth, the margin marketing efficiency that's driving growing margins to fall through to the bottom line and not be absorbed by an increased cost base. So we've worked hard on ensuring that we continue to show improvements in our operating leverage. And OpEx discipline is a key component of that.

15:56 Looking at the different blocks. So we have show h one nineteen, which was our operating cost base pre COVID, where we were last year, and where h 01/2023, where we are this year. On working bottom up, the orange block represents wages and salaries. Now these are operating costs. They don't include paid marketing spend. Wages and salaries account for circa 70% of our operating cost base. Naturally, like all businesses, we've seen an element of wage inflation. So we have managed our headcount carefully, making sure that we are growing in the right areas that are going to be revenue generating outputs. Year on year, costs have gone up. As I said, an element of wage inflation. But, also, in h 'one last year, we received 400,000 of a wage subsidy benefit from the Irish government COVID relief supports.

16:52 And so when we take that out, that closes the gap versus h one twenty twenty three. The pink block are contractors. Last year, we brought in a number of squads to help expedite the delivery of the social features in the app. Again, it's bringing the product to market in the quickest and most efficient way. And then when that product has been delivered and we're satisfied with this, that cost then comes out of the p and l. So contractors down year on year. The next piece, which is the yellow piece, is our in house tech investment, predominantly our Google Cloud costs. Very pleasingly, that cost is going down year on year despite the material increase in volume.

17:37 And these are unit volume costs. So we have worked very hard to make sure that our cloud consumption costs are as efficient as possible. So despite the fact that we have increased volume, the unit volume cost is actually reducing. Finally, all other costs, which include rent rates, training, recruitment, legal and professional costs, etcetera, have all reduced year on year and materially versus the pre COVID days of 2019. Again, we were very cognizant of coming into a year of of cost inflation and managing our cost base as tightly as possible. Now taking it all together, what has that delivered? Looking at our EBITDA performance, 5,100,000 of EBITDA positive profit in h one of this year versus the loss of 5.2 last year.

18:30 The big swing factor of that plus 10,000,000 EBITDA performance is the volume in ABB that we've talked about. So huge resurgence in volume, huge recovery across all of the regions, very strong, that price inflation driving our ABV as well. Another huge upside has been the marketing efficiency. Getting that marketing as a percentage of revenue down to 51%, keeping it at the lower end of the guidance that we gave of 50 to 55%. Other being deferred revenue, again, that benefit will unwind as margin upside in h two, and then a slight increase in operating costs year over year. But again, stripping out the wage subsidy that we would have received last year, our costs have actually gone down year on year.

19:18 An EBITDA margin in the first half of 11% with $5,600,000 of revenue deferred to the H2 p and l. Next slide talks to the balance sheet. So as Gary has said, very pleased with our H1 performance, strong EBITDA generation, generating cash, allowing us to do significant work on the balance sheet. We had said at our Capital Markets Day presentation, key strategic priority for us this year was to repair the balance sheet, was to refinance the expensive debt that we drew down in 2021 in February at the height of the COVID pandemic. Very pleased to have made voluntary repayment of that of 10,000,000 on that in April, refinancing the full balance in May, totally taking that off the balance sheet, then replacing it then with the new a facility that we agreed with AIB, having run a competitive process with all of the main Irish peer banks and indeed international banks that have an Irish presence.

20:18 We agreed a three year 10,000,000 term loan with AIB, a 7,500,000 RCF, and a 2,500,000 overdraft, which remains undrawn. The 7,500,000 RCF has since reduced to 5,000,000. So, again, cash we're generating, putting it to work, deleveraging the balance sheet, reducing our interest costs. Our net debt to adjusted EBITDA is now such that the interest rate has re has pardon me, has reduced from an initial 3.75 down to 3.25 because our net debt to adjusted EBITDA is less than two times. And by end of year, we anticipate that the interest rate will have reduced to a further 2.65, again, the improvement in net debt to adjusted EBITDA being less than onetime.

21:06 We have a net debt position of 16,200,000, being our AIB facility and the payroll taxes that we owe Irish revenue of just over 9,000,000 on a cash balance of 10,700,000. So just to speak to the payroll taxes for a moment. So the payroll tax taxes were taxes that we warehoused in 2020 and 2021. They were occurring 0% interest. In May of this year, Irish government started to charge an interest rate of 3%, and they will start the collection of this liability in May 2024. We have spoken to Irish Revenue. We continue to engage with them on the topic. They have they have pardon me. They published guidance last December communicating that all businesses, sole traders, SMEs, large corporates, privates, PLCs would all be pushed out to May 2024, and they would begin the collection of this facility in May 2024.

22:06 And we hope by the end of this year that we will have come to an agreement with Revenue on the repayment of this facility. Standard repayment plan is typically an initial down payment of 15 to 25% of the outstanding liability with a monthly installments thereafter for a period of up to five years. So that is the balance sheet. A very, very strong cash conversion as we've talked about. Adjusted free cash flow of 9,300,000 and an EBITDA of of 5,100,000. Excluding the impact of deferred revenue, our cash conversion goes from a 183%. But, again, we have an element of deferred revenue. So when I strip that out, cash conversion of over 80%. The last topic I'm going to speak about this morning is with regard to ESG and sustainability. And it's just something that we wanted to take a moment to address because it's very, very important to us culturally, but also a lot of what, at the core of what the hosteling category stands for.

23:07 Hosteling is, by its nature, an extremely inclusive category. It is all about community. It's all about giving back. It is a low price point, so it is not exclusive. There is no barrier to entry from a price perspective. We've done an awful lot of work with the HOSTELWORLD GROUP category to help them find a way to surface up their sustainability credentials. HOSTELWORLD GROUP PLC far less carbon emissions than any other accommodation type. So, typically, 25% of the carbon that a hotel would produce on a per bed night basis. And this is work we did with Bureau Veritas to substantiate this, and it we published a report last year, which we are building on. Very pleased. We're working with the global sustainability tourism council on sustainability framework, which we're calling staircase to sustainability.

23:55 We will be launching it at our upcoming conferences in Hoboken and Copenhagen, and then it will go live start of next year. And this is really a way for the HOSTELWORLD to showcase their sustainability credentials in an accredited accredited way. The only way they have at the moment is surfacing up sustainability is by using a framework that has been developed for the hotel category, which is not for for purpose for the hostel community. The slide then deals with other things that we are doing within our own local communities, what we're doing culturally within hostel world, how we are an inclusive environment, and how our works work and efforts we've been doing have been recognized by others. Very, very pleased with all the work we're doing. I'm very happy to take questions on it because, again, it's something we feel very passionately about. We have a fantastic series running called sustainability stories that you can see on our website, which showcases some of the work that the HOSTELWORLD community are doing. With that, I am going to hand you back to Gary.

24:58 Thank you very much. So let's talk about strategy. What have we been building, and what do we think the future potential is? So I'm gonna start with the format of a slide that I used in Capital Markets Day. And you might remember, I said over the three year period, we would increase our bed nights by 1.6 times. And this, if you like, is the first half the first six months scorecard of how we are doing. So if I look at our total bed night growth, half year over half year, it's 53%. Now if I unpack that and say, how much of this is category growth? And then how much did HOSTELWORLD grow on top faster than the category? So using an awful lot of our internal data, external data that we scrape, we're able to build up a picture of how how much the category has grown in bed nights, the same as the hotel industry would talk about room nights, and it's about 14%.

25:59 So the 34% that we grew on top is pure market share gain. So let's deal with the category. So what we saw with the category, a lot of growth in South Asia. You've already seen that you've already seen that with what Caroline was talking about. Our growth was even faster. Also growth in Oceania, Middle East, Africa. Central America was well ahead of pre COVID levels last year. It still remains very much higher than pre COVID levels. And if I look at that 14%, roughly 50% of that growth is because there's increased capacity, new hospitals coming into the industry. And the other 50% is a slight rise in occupancy rates. And I expect those two trends just to continue as we go through this year and go into next year. Now turning to our growth, which is on top of that.

26:56 What we saw is incredible growth in Central America, South Asia, and Southern Europe. Central America already was higher than pre COVID levels last year. It's continuing to grow, but what we can also see is that South Asia and Southern Europe are all above pre COVID levels. So, you know, phenomenal growth in those lower cost destinations in the world. There was growth in Northern Europe and US and Canada, but not at the same levels. Now as I mentioned earlier, that social strategy, we believe, is what is driving those share gains. We have a much better product in the marketplace, which is winning out. And part of the reason why I say that is because that growth is coming at the low end of our marketing as a percent of net revenue. We are not buying that market share.

27:48 It's because our product is better and it's winning in the marketplace. In terms of our own hospital supply, we added at least a little bit over a thousand hospitals, you know, half year over half year. The rate at which we are adding them is approximately the same rate that the category is growing. In Capital Markets Day, I talked about the fact that we would want to grow a little bit faster than that. We will seek to accelerate that as we go through this year into next year. So overall, strong market share gains, but also strong category growth as well.

28:23 So thinking a little bit about our strategy, I'm just going to recap a little bit about why the strategy is like it is, and then I'll go on to some of the progress that we've made. So recapping, our mission, totally unchanged, help travelers find people to hang out with. 66% of our travelers 66% of our bookings are made by solo travelers, up from sixty percent in pre COVID times. And the reason why we have invested so heavily in social is really, you know, plays out as you think about the business model and the p and l. So this notion of helping travelers find others to hang out with, it's a highly prevalent need. It's a very powerful need. If you go onto places like Trustpilot or Twitter or Instagram, and you look at what people write about our company, it's all about the wonderful experiences that the social platform is now delivering.

29:24 And that generates its own word-of-mouth. And we are the only people in our category that are that are building these kinds of products. And what that means from a revenue perspective is we're seeing very strong new customer growth, stronger retention rates. We deliver those features through our app. So you can make a booking on any platform, but if you want to use the social features, which deliver on that mission, you have to use them in the app. As a consequence of having far more apps out in the marketplace, and I'm talking about iOS and Android, more of the bookings are naturally flowing through our app. So the app bookings are growing at a much faster rate than the bookings that we are getting from all other channels, including paid. And, of course, that reduces our customer acquisition cost, and it lowers marketing as a cost of the I'm sorry. Lowers marketing as a percent of net revenue.

30:25 We operate a marketplace. It's very, very scalable. As Caroline has said, our OpEx base is actually down on a like for like basis, half year over half year. So the combination of these three things, revenue growth, margin growth, and operating model that scales very well, that gives increased EBITDA growth. We capitalize very little, so therefore, increased free cash flow growth. So that's the essence of how the strategy translates into financial returns. So let's talk about those social members. I did want to give you another snapshot as an update to Capital Markets Day to continue to give everybody comfort that these people who are attracted to our mission, they want to find companies like ours that help them find people to hang out with.

31:19 Those kinds of customers that are out there in the category are super profitable.

31:24 And the reason we can say that is that when we look at the customers that we acquire over the last ninety one days, and we look at customers who joined the social platform versus those that do not, and it's a simple opt in when you make your booking, the vast majority of people make that decision on their first booking. What we can see is people who are social members who've opted in, they make twice the number of bookings over the first ninety one days. They're three times more likely to make the app, and they represent over half of our bookings. So even with that huge growth half year over half year, you know, 60% net bookings growth, we are continuing to grow both of those cohorts.

32:10 The social members and the non social. And, of course, the non social members are continuing to grow because the inventory that we have in the platform is more competitive than our competitors do. And the reason that we have managed to do that is we keep our commission rates very low. We don't give opportunities for our hospitals to buy their way up to the top of the sort order. The only way that they can get to the top of the sort order is if they give us more competitive inventory than they do other distributors. And if they have a better proposition than their local peer group in the destination. So the network is continuing to attract and retain those really high value customers.

32:56 And that plays out into some fantastic recurring revenue dynamics. So you may remember this chart from the Capital Markets Day. It's very slightly different because we're only looking at first half generated revenue. So for each of these years, the first half generated revenue let's take 2016 as an example. So the green bar at the top above the dotted line is the revenue that we generated from the customers that we acquired in 2016. And the green bars that you see in successive years are those customers, their contribution to the revenue in future years.

33:41 So it's your classic cohort chart.

33:44 So I'd like to draw your attention to three things, if I may. If you look at the revenue revenue that we generated from customers that we acquired in 2022, and that's the pink bar. Now look at that pink bar in 2023. So this is the revenue from those customers that we acquired in 2022. And if you look at the proportions, you can see there's a much greater proportion of that revenue showing up in 2023. And that proportion is far greater than any time in our history, which is another proof point that the product is more sticky. More people are coming back, and when they come back, they are spending more.

34:32 So you can see how that revenue is going to start to compound in the future because the gradient of the dotted line between 2022 and 2023 is now much greater. Second thing is just a bit of a comfort. If you look at 2019 revenue, the revenue on the blue bar, you can see that that blue bar is coming back in 2022 and 2023. So even though there has been, obviously, the COVID years where nobody was traveling, still those customers that we acquired in prior years are now continuing to show up as we go forward. The third point, if you look at 2023 and you look at the size of the gray bar, that's the revenue from customers that we acquired this year in the first half, that gray bar is bigger than at any time in our history.

35:32 So put differently, you could get your rulers and pencils out and almost predict what our first half recurring revenue in 2024 is going to look like. And when you look at this fact and you can see this strong revenue compounding, This is because we are choosing to continue to operate at 51% marketing as a percent of net revenue. We could bring this down, but the rate of revenue growth in the future would be less. And we think it's in the best interest of long term value creation to continue this very strong revenue growth over a lower OpEx space. So this, I

36:16 hope, will give you some real data that proves that the business model is also driving strong growth in recurring revenue year over year. So let's talk a little bit about the social features and what we've been doing over first half. So to put this in context, we now have three platforms. We have our core OTA platform. We had that pre COVID. We have it now. We've obviously been working hard to make the pages better, checkout better, the funnel better, the inventory is better. In April last year, we launched the social network platform on iOS in April, in Android in June, and this is really comprises three things. First, much richer profiles.

37:03 You know, if you look on the first graphic on the left hand side, look at Lucas, we're capturing his interests. We're starting to pull in some content from Instagram. You can message him directly. The second graphic in the middle, we've been spending a lot of time continuing to improve the messaging experience. It now is almost as good as you would see in WhatsApp. You can do send URLs. You can send photos. You can send videos. You can use emoticons. You can reply in line. And the third piece, which is not on the page, which is exactly the same as before, is the only people that you can see in the messaging platform are people who are going to be in the same destination when you're there. Overlapping stay dates.

37:50 Nobody else has this capability. So if I'm booking Joe's hostel in Barcelona, when I look at the Joe's hostel channel, it'll be all the other customers who were staying in Joe's hostel on my stay dates. And then if I look at the Barcelona channels, it'll be all the other customers

38:08 that we have who are staying in Barcelona. And we give separate segments, separate channels, people who are interested in drinks and dancing, or walking tours, or cooking, or dinner tonight, you know, a whole range of interests. The combination in this second platform of these features means that the monthly message sent volume, people actually using it, is growing very, very fast. And without giving you absolute numbers, if you look at the volume of messages that were sent over the network in January and index that to one, and you look at the volume in July 23, it's now 2.6 times the volume, which obviously is much greater than our bookings growth or much greater than our customer growth.

38:58 So we can see that people are using this platform more and more and more. Now if I turn to the next platform, so we now have three, the third platform. At Capital Markets Day, we did say that we wanted to build a platform to give people opportunities to meet people while traveling in the destination. And this platform that we built that we call Linkups is like an event management platform, and we built this really in response to our hostel partners. Before we go any further, it's interesting to note how hostels make money. How do what's what's their margin profile? They sell beds at pretty low gross margin. What they're trying to do is to get as many people in the hostel as they can.

39:49 That generates a good atmosphere. It also gives you the captive customer base, people who are going to consume drinks at the bar, people who will go to events, people who will go to excursions, and they make a lot more gross margin off those than they do over the sale of the beds. So the platform that we built allows a hostel to load all of their event catalog, whether it's excursions, events, or events in the hostel, and load that onto our platform. What we then do is broadcast. We publish that to everybody who is going to be in the city. And before this platform, if you, as a hostel, wanted to tell your customers, you basically had a blackboard behind the the check-in counter.

40:36 And as people were checking in, you would say, hey. This is what's going on today. What we are now able to do is to take that blackboard, put it online, and show it to everybody in Barcelona. And you as a customer, when you look at Saint Christopher's and you're shopping on our site, you can see what link ups, what events they're showing on the dates that you're shopping on. Once you've booked, if you join one of those link ups, you would see the second graph, the second little graphic. Saint Christopher's are having a walking tour. They call it less meat in Barcelona. You can see the date, the time, where it is, whether it's a free, whether it's paid. Crucially, you can see who else is going. So remembering 66 of our bookings and growing are made by solo travelers.

41:26 So it's not just the event that they are interested in. It's crucially who else is going. Are they looking like people like me? Are these the people I'd like to hang out with? People who I'm going to meet and hang out with while traveling. In terms of the inventory, how big is the inventory? If you look at January and February, we rolled out this platform in London and Lisbon. We added on a few more cities in March and April. In May and June, we extended it to a few more cities in Asia. All the while, we're refining the product. We're taking our feedback from our hostel partners. We're looking at how our customers are using it, and we went global in July 23. What does the 54% mean?

42:13 So about 56% of our bookings are made by social members. If you look at those bookings, in July, half of them every single customer, half of them can see already at least one thing to do on their stay dates. If I were to add August month to date, that's now 75%. So we're seeing a huge take up from our hospital partners in terms of loading their inventory. And in many destinations, people who are going for a long weekend can see 20 or 30 things to do, which is a new high class problem to solve. Because what we need to be able to do is to show our customers, I'm going for a long weekend. Out of the 20 or 30 things that I could do, which are the ones that I should do?

43:08 So for the balance of this year, we're gonna spend our time and think about how do we add a review system, how do we add themes, how do we add filters, how do we allow people to sort by the number of people who are going, or sort by solo travelers? All of these things that would help people navigate that choice and make sure it surfaces the events that are right for you. As we go into next year, there are two things that we're thinking about. Obviously, when you look at the inventory, some of it is free and some of it is paid. Hostels are generating value from this product. So we're going to start thinking about how could we monetize it in a sensible way.

43:54 Does it make more sense to take a commission from the paid events? Does it make more sense to just charge a platform fee, like a sub SaaS fee or a subscription? But we do feel that there is a significant monetization potential that we will realize in second half next year through monetizing the HOSTELWORLD inventory. And I would add one very, very crucial thing. The customers who are using this, we have already bought through our OTA platform. So any revenue that we generate from this product falls all the way to EBITDA. So it is a very rich product from that perspective. And I think one of the other things we will do is we will start thinking about what other third party inventory types could we add to this platform, to this captive network?

44:48 And maybe a good way of thinking about that is if you look at Amsterdam. Amsterdam in low season, we have several 100 people every single day. In high season, we have several thousand people every single day. So we have more than enough density in, let's say, the top 500 cities of the world to be able to talk to a nightclub or a festival promoter or some other local business that has some quirky event or excursion to give our customers more choice, and of course, for our company, more revenue potential. So we're very, very excited. It's very early days with this product. First order of business, build out the HOSTELWORLD GROUP HOSTELWORLD HOSTELWORLD HOSTELWORLD HOSTELWORLD HOSTELWORLD HOSTELWORLD HOSTELWORLD you know, third party inventory types that we could add to the platform. PLC, But we do expect it to generate some revenue in second half next year.

45:54 So moving on. Just to reiterate the guidance. So as I said earlier, in May last year oh, sorry, May last year. May in the first half, we changed our guidance and we moved it up to 16 to 17 range. We're now a month and a half into second half. It's looking very good. We're still materially ahead of where we were in 2022. You know, we'd like to wait a little bit longer to get through the rest of summer and so on. So for now, the guidance has remained unchanged from what we said earlier, 30% growth across net bookings, net GMV, net revenue. Marketing as a percent of net revenue, the guidance was 50 to 55. First half, it was 51. You know, it's going to be in the fifty one, fifty two ish range, you know, on a full year basis, and that leads you to the EBITDA of 60 and a half to 70.

46:48 So summarizing what we've heard today, I do think we're super well positioned. You know, the social strategy is uniquely positioned to win in this category. It's a very powerful need. It's a very prevalent need. And we can already see in the first six months of execution that is gaining market share, but it is doing that at the low end of marketing as a percent of net revenue. The team has done a fantastic job addressing the legacy COVID debt, repairing the the balance sheet. We did that ahead of schedule. We thought it was gonna be around summer. We managed to get it away by April. It's materially lower amount and also materially lower interest cost.

47:34 In terms of the business model, it's always going to be extremely highly cash generative. We're going to continue to deleverage that balance sheet as we go into the future. In terms of, you know, where we are in the year, definitely on track for the full year, and I hope you've gained a lot of comfort that we're absolutely firmly on track to meet our midterm ambitions that we outlined in the Capital Markets Day. So thank you for listening to Caroline and I. I hope you're as excited about our prospects as we are. And with that, we'll throw it open questions. David? That's great. Thank you very much. And thanks very much indeed. David, we we do have a video to play, which I thought might be useful to do just before we go into the q and a session. So if I may, I'll just load that up now and bring that up for investors to watch.

48:24 Thank you. Live your best life. I absolutely love Thank you very much indeed. I will now

53:21 bring up your cameras. And if I may, David, I'll hand back to you, if I may, to moderate the Q and A, and I'll collect from you at the end. Thank you. Yes. Hi. Good morning, everybody, and thanks, Mark. Excuse me. Thank you thank you, everybody, for your questions. We'll try and get through as many as we can now. And any questions that we don't get through, we'll we'll post a response on the platform after this. But let's get through as many as we can now. We've had a lot of comments and feedback regarding the contribution of our social strategy towards the results that we're presenting today, so that's probably the best place to start. Gary, you might share some thoughts around, you know, how much of this you think is revenge travel and how much of it is actually the strategy and action, which is delivering the growth that we're seeing year on year here?

54:10 Maybe then looking specifically at our revenue cohort side, it looks like the 2022 cohort that returned this year is returning at a rate which is significantly above the historic average. What do you think is driving this? And what do you think it means for future years? And then finally, how is all of this affecting our CAC and LTV equation and impacting our customer acquisition bidding strategies? Okay. So we'll do the first one first, the revenge travel. From my perspective, the easiest way to think about that is the revenge travel would show up in category growth. You know, there's no particular reason to presume that it would be materially greater than that.

54:57 So, you know, we, you know, we have a certain market share of the category. So the category growth incorporates, you know, all parts of revenge travel, if if I may. The fact that we've increased our share within it so significantly is due to having a better product in the marketplace because that growth has come with marketing as a percent of net revenue at the low end of the guidance range. So, you know, I don't think that our results are exceptional because of revenge travel. I think 14% is category, and the other 40 or 34% above us is really us. In terms of the retention ratio, there's really two things that revenue retention. There's really two things that you you generally see there. One is the number of customers that come back, you know, year over year. And then when you look at those customers, their purchase frequency over defined period of time.

55:56 What we are seeing is that more customers are coming back, number one, compared to prior years, and we're also seeing more of those bookings. So the simplest way of looking at that is, obviously, as we are growing in the category, we are growing by acquiring customers that have a certain propensity to travel, multi destination travelers who are looking for people to hang out with. So we are naturally more attractive to customers who are looking for that, who generally travel more frequently, and also make multiple trips over multiple years. So that's the driver for the increased retention rate. As a consequence, I feel very comfortable with the expectation that that would continue. So those increased revenue retention rates, we are seeing not just across 2023 versus 2022, but all of the prior years before that.

56:59 If you look at each of those lines, which are the cohorts from prior years, they are also slightly proportionately larger. So we would expect, you know, a higher retention rate from the customers that we acquired this year to come back next year, and for the other customers that we've acquired in prior years, again, to show up more frequently. So it is a consequence of the business model. And, obviously, operating the business around, you know, the fifties marketing as a percent of net revenue does create that enormous revenue growth. In terms of CAC to LTV, in interims, I think last year, we started to give people a bit of a a sense of what that looks like.

57:46 What I would say is that across a very wide customer base, in other words, thinking about some of the customers we see once and we never see again, other customers are with us for years and years and years and book multiple times on every single trip. So there is a very, very wide dispersion. But if you collapse that all and you take it to an average, in general, we recover the cost of every customer that we acquire. If we check all of our marketing costs and divide by the number of customers, somewhere between twenty eight days and ninety one days of their life. And in general, across that huge wide dispersion, we we see that 50% of the value is normally in twenty eight day time frame.

58:39 So I think I covered your three questions, Edo. Yep. Thanks, Gary. We might stay on social with the the next question because there's quite a few questions around the messaging in LinkUp's platform. And you might, Gary, help people understand how you measure user engagement and longevity on those platforms. And in your view, the main KPIs that you follow for measuring the performance of our social strategy that other stakeholders can keep an eye on then as well? So there's two sets of KPIs. If you looked at the second platform, the social network, you know, we look at a whole range of things, like how many people open the app, you know, did they send a message, did they look at a profile, did they you know, all of the subcomponents, we would track every day, every seven days, you know, and we use that to inform how we improve the product.

59:33 The data point that I gave you today was just an indicative data point to say, look, the volume of messages, if you just look at the social platform, which is just one feature, you know, is growing very substantially as a way of communicating that people are using these features more and more. I think when you look at the social strategy holistically, though, I would say that's too that's too detailed way to look at it. And I think the best way of looking at is what does the retention rate look like in terms of those revenue cohorts for a certain level of marketing spend? And then the two other data points are, if you look at the first ninety one days, how many bookings do they make relative to nonmembers? What proportion are on the app? And what proportion of the total bookings are being made by social members? So we will continue to report that.

1:00:31 But, basically, the power of the social strategy ultimately gives you really strong revenue growth at 50% marketing as a percent of net revenue. And as that revenue growth continues to accelerate, that is coming on a business model, which is very scalable, so more of that drops down to EBITDA. So that's probably the best way of thinking about it, and those would be the KPIs that we would continue to report on. Thanks, Gary. Caroline, I might turn to you for the the next set of questions. We've had quite a few comments that have picked up on the combination of trading performance, the operating leverage that's come through, the cash conversion that's come through and how the refinancing with that has meant that the business has been able to deleverage significantly, and there's a pathway emerging to zero net debt position. You might talk then a little bit about the balance sheet priorities for you over the next six to twelve months and your thoughts then on capital allocation optionality, be that M and A, reinvestment in the business, dividends and buybacks.

1:01:34 Great. Okay. Thanks, David. Yeah. And, you know, a very popular question that has that has come up whilst on our roadshow. Look. We're delighted. We, we were able to complete the debt in a time frame that was much earlier than we had expected. We we fly to Capital Markets Day. This is a strategic priority. We initially thought it would be something we would complete late summer, early early q three. There was a lot of interest from Irish peer banks. We ran a competitive process, and our performance was such over q four end of last year, start of q one and in into q one of this year that we were able to complete the transaction earlier than we had expected. We one thing that was very important to us actually with whoever was going to be the bank that we refinanced with, we wanted flexibility.

1:02:23 So we we knew that we were signing up to a term loan that was gonna be, you know, two to three years typically, standards, commercial debt terms, very much reflective of the strong performance of the business where it was, strong recovery, strong cash generation generation characteristics of the business. But only thing we really wanted to make sure is with the flexibility that if we wanted to repay early, that there was not going to be an early repayment penalty, which can be quite punitive and adds up. So very pleased to that. What we agreed with AIB allow is allowing us that flexibility. So whilst the 10,000,000 term loan is over a three year period, we would see that we would get to a net debt, zero position quicker than that.

1:03:09 The other piece that's out there as well is obviously the revenue liabilities. Again, they've been very they're they're very, I would say, slow and flexible on the repayment of the debt. Again, that's that's not reflective of our position and where we're at. It's very much trying to accommodate the wide cohort of companies that owe liabilities to revenue outstanding since the COVID period. So I think if I are to kind of, you know, stack rank in order of importance, first of all, it will be continuing to deleverage the debt that we've reached with AIB. The interest rate there is very competitive, but it is more expensive than the interest rate that is occurring with the government liability. So we will prioritize that first. We'll deal with the government liability.

1:03:56 Then second, ideally, we agree a bespoke plan with them. We can expedite expedite that and get that off the balance sheet. And then after that then, as I say, David, there are options open to us, and it could be reinvesting in the business. There are so many things we would like to do. We know that there's a massive upside potential to link ups, monetization opportunities, but building out beyond that. And so important to invest in the business as well. And when we say invest in the business, it's having people on the ground to build the features and expand the product portfolio. That is our CapEx. It's the development labor associated with these projects. So I think there's an element of that right fine balance between making sure we're investing in the business for growth, but also shareholder returns. And so what is going to represent the best shareholder value?

1:04:43 Is it a share buyback, as you say? Is it is it the resumption of a dividend? Those are things we're going to have to assess when the time is appropriate. But I think back to the original question of kind of the nearer term, six to twelve months, it's continuing to deleverage. Thanks, Caroline. We might just I might might stick with you for the the next question just relates to our financial performance and the EBITDA result for H1 twenty three. Yeah. Clearly, very strong. But you you might help walk people through the performance drivers, not just in that result versus h one twenty two, but maybe bridge people from where we were in h one nineteen as well. And then your path pathway in your view back to EBITDA levels on a full year basis in line with pre COVID time frame 2019?

1:05:34 Okay. Well, margin or sorry, EBITDA walk versus h one last year, we we covered off in the presentation. The key headline items are huge resurgence in volume, bit price inflation also helping drive revenue growth, but materially volume recovery. We saw over 6% growth versus h one last year. Marketing efficiency being at 51. Costs broadly flat. An element of drag from deferred revenue, which we'll unwind in the second half of the year, is is the walk from a a loss of 5,200,000 in h one to to a profit of 5,100,000 in in h one of this year. Then if we look at that versus 2019, in in h one twenty nineteen, we've made a profit of just under 9,000,000 versus a profit in h one of this year of 5,100,000.

1:06:26 And and what are the constituent parts of that? So we, as we mentioned, have a flat commission rate of 15%. That's actually down 1.6% versus 2019. So the blended average commission rate in 2019 was 16,600,000. So that's tailwind or sorry, a headwind, I should say, for us in this half of the year. So we have a lower commission rate. We also changed the cancellation window. So while we had free cancellation product in 2019, the cancellation window was much longer. So you could only see it was seven days. So you could only see the free cancellation option and could cancel seven days out. Whereas now with the free cancellation product, you can cancel with whatever is the cancellation window of the hostel. So it could be twenty four hours. It could be forty eight hours. I am traveling in two days time, and I can cancel up until twenty four hours before my stay date. Whereas back in 2019, you could cancel seven days before your stay date. So that meant that there was less optionality, so the cancellation rate was lower in 2019.

1:07:32 That the benefit of having a an a a closer window of cancellation rate is that there's a far greater free cancellation volume in twenty two three than there than there would have been in 2019. But that is a drag, the cancellation rate. We've seen huge volume in APV uplift again when we first 2019. That that's then driving the the performance back to to h one of this year. Marketing costs are up versus h '1 2019. But, again, I think there's some important points to make on that. We talked about the commission rate. So we had a higher commission rate. So we're making more revenue, I suppose, on on that booking from a commission rate perspective than we are this year with it being a 15%. But we also had brand marketing spend in 2019. So if we look at a lot of marketing as a percentage of revenue, we're talking purely paid marketing.

1:08:25 So that marketing percentage looks higher, h 01/23 versus h '1 2019, but that excludes the broad marketing spend that we're we were we were incurring in 2019. So I suppose operating costs then are the other tailwind. So if we think headwinds are commission rates, change in the cancellation window, defer deferred revenue because we're seeing more free cancellation product, and the marketing costs. They're all adverse versus 2019, but then the headwinds are volume, ABV, and then operating leverage. So operating cost being down materially versus where they were in 2019. I'm sorry. I think the last part of the question was where do we see the full year results, David? Or Yeah. The the pathway back to a on a full year full year basis 2019 levels.

1:09:15 Sure. So it's just from an EBITDA perspective. We've our guidance for the full year is 16 and a half to 17,000,000. We will have a margin percent an EBITDA margin percentage that is in the high teens close to 20%. So very, very close to where we were in 2019. And I think we what we can see from the business is we've improved our operating leverage. So getting back to that EBITDA margin of 20% plus is is something we're very, very close to. Thanks, Caroline. Gary, I might turn to you with our our next question. We've had quite a few comments around market share. So actually, maybe just as a as a bit of a refresh for for people, and you might have some new new people to the story. You might just remind people how we define and measure our market share and just some brief comments on the competitive landscape within it. And then just to maybe underscore how much of our top line performance has been the market, how much has been a hostile world and the impact of that price inflation on that.

1:10:19 Okay. So just thinking about market share. We look at the entire hosteling category, all of the hostels. You know, we have most of them, and we scrape we we make a a core assumption. If you are a hostel, you are distributing either through HOSTELWORLD, through booking.com, or both. So we form a picture by scraping booking.com every single week of all of the hospitals that they have. We have all of the hospitals that we have, and the hospitals that we have together. When you look at the total category sales, because we know how much demand is that is going into each hospital that we have, we could also make a very good assumption about how many how much demand is going into hospitals that we don't have because they are in locations where we have other hospitals, we're able to build up a picture of the total category bed nights.

1:11:18 That was the underpin or the dataset that we used that said that the category has grown by 14%. We can also see that our market share has grown because we have grown another 34% on top of that. Now if I look at the total number of beds that we sold compared to the total number of beds that we estimate that were sold in the category, that would be about 10% in first half. Normally, about 50% of the hosteling category sales come through OTOs, online travel agents like us. So if you just take that 50% portion, our market share of that portion is 20%.

1:12:06 And clearly, it's grown materially half year over half year. We haven't actually reflected that as a a GMV share or a revenue share because it's a little bit more difficult to be specific on what bed prices or or what the prices are of hospitals that we're not selling. So we can be very certain around the volume estimates, slightly less precise on the revenue. So I can't give you how much of our revenue growth was driven by market share on an accurate basis. But at least from a volume perspective, you know, I'm pretty comfortable. Category grew 14%. We grew 34% on top of that. I also might return a little bit to the question that was asked around 2019 and, you know, the p and l shape was different to what it is now.

1:12:57 We have made an enormous amount of change to this business, improving the core EOTA, launching our social network, and now launching link ups. And essentially, the proposition for our hospital partners is a lot better. We're giving them even more customers that they want that could do excursions. They, you know, increase bar sales, and we're doing that at a lower distribution cost of 15%. So it's a much better proposition for our HOSTELWORLD partners. It's also a much better proposition for our customers. We have built features that help them find people to hang out with, an incredibly powerful and prevalent need. By running the business at this marketing as a percent of net revenue, we can get much higher revenue growth rates going forward than the business ever enjoyed in the past.

1:13:51 So it's important to place all of these things in context. Frankly, in 2019, you know, and earlier years, the business wasn't spending enough in the right way to be able to keep chopping up the funnel. And if you look at the revenue retention chart, you can see that. You know, we have a much better proposition for our hospital partners, much better proposition for our customers. We're operating the business now at a very tight OpEx base, and we're investing in marketing to get that huge revenue growth with a much better product. So I just think it's important to to frame all of those decisions. So the shape of the p and l is different, but it's gonna grow a lot faster. Thanks, Gary. I think we've reached our our final question now. Thanks, everybody, for your your contributions. And unless any other question comes in, in the next moment or so, I'll probably, after this question, hand back, Gary, to you to close things out as well. Gary, the last question then is around supply and maybe your comments on how the overall category has been performing from a supply perspective and how our coverage has moved with that.

1:14:55 And then specifically at Capital Markets Day, you talked about Brazil and Poland as opportunity areas for us that you're going to target over the over the coming over the coming period. You might talk a little bit about how that's been progressing. So so start off by talking about what our market coverage is. So if you look at the total category and you say that let's say, this half year, it was a 100 bed nights. You know, obviously, it's a lot more than that. Runs into the millions, but you say a 100. If you look at all of the hospitals on our platform, what they sold, not just by us, but every channel that they have, what they sold was about 75%, 75 bed nights.

1:15:43 We estimate that the hospitals that are on booking.com platform is very slightly greater than that, maybe, you know, 78, you know, 77, 78, something like that. But what that means is we have a lot of hospitals that they don't have. They have a lot of hospitals that we don't have, and we have a huge overlap between the two. So if I look at how much our coverage, that 75% has changed relative to first half, it's actually flat. It's 75%. Even though we added another thousand hospitals to our platform throughout the first half. So the way to think about that is as the category has grown and more hospitals have come on board, we've added hospitals at the same rate that the total category has grown.

1:16:35 Now in relation to the Capital Markets Day comment, you're absolutely right. The three kind of regions of the world where I felt that we you know, the data says that we have opportunities to grow our HOSTELWORLD PLC were Central America, Eastern Europe, and North Asia. And then if you wanted examples underneath, you're absolutely right, Brazil, Poland, Japan. Throughout the year, we have done a couple of things. So first, we've hired some contractors, some local agents in Japan to be able to start building the inventory there. I'm also delighted that we're having our first post COVID hospital conference in Bogota next month. You know, gives us a great opportunity to spend a lot of quality time with all of our schools in that region. You know, in part, these are the kinds of things that we do to stimulate more demand and sign on more hospitals in that region.

1:17:30 Also, we're having another hospital conference in Copenhagen in the latter part of September, and that gives us an opportunity again to reach some more of the hospitals, you know, who come in and visit us from Eastern Europe. So there's a whole variety of techniques, whether it's hostel conferences, in market visits because hostel associations call us, or whether it's webinars or outreach, you know, a whole sort of strategy around building that market coverage. And we'll be able to give you some more precise data about how each sub region is performing at your end. David, I think Yeah. I'll conclude. Yeah. So I hope I hope you've enjoyed spending this time with us today. It's always a privilege for Caroline and I to present what is actually the incredibly hard work of the rest of the team we have, those 240 people that make up HOSTELWORLD.

1:18:25 I'm hoping that the first half growth rates, you know, the increase in market share, the incredible cost discipline, you know, marketing as a percent of net revenue at the low end of guidance range, The the exciting things that we're doing over the social strategy gives you the comfort that we have a tremendous opportunity ahead of us. We're certainly, you know, well ahead of where we wanted to be from Capital Markets Day projections. And I think on that note, very much look forward to seeing you all again at our full year presentation, which should be sometime in February, March. That's great, Gary. Thank you very much, Gary, Caroline, David, for updating investor this morning. Thank you once again for your time. Ladies and please don't close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can really better understand your views and expectations.

1:19:14 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of HOSTELWORLD PLC, we'd like to thank you for attending today's presentation. I wish you all a very pleasant afternoon. Thank you. Thank you.