Hostelworld Group (LSE:HSW) — Introduction to Hostelworld

0:01 Good afternoon, ladies and gentlemen, and welcome to the introduction to HOSTELWORLD GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send.

0:22 The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all of the questions submitted today and publish responses where it is appropriate to do so. These will be available via your investor meet company dashboard, and we will notify you by email when these are ready for your review. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Gary Morrison. Good afternoon, sir. Thank you very much for the introduction, and welcome, everyone. It's wonderful to have the opportunity to be able to talk about our exciting company for the next twenty, twenty five minutes, and look forward to taking your questions. So if we start with a little bit about who's presenting to today. So, obviously, I'm Gary Morrison, chief executive officer of HOSTELWORLD GROUP. I joined in late twenty eighteen, and I'm joined by Caroline Sherry, our chief financial officer.

1:21 So I thought I'd start just, you know, talking a little bit about who we are and what we do at a very basic level of detail. So we are a online travel agent focused on the HOSTELWORLD category. And the business was launched about twenty two years ago. And in that time, we've built up 13,700,000 reviews from other hostel travelers at a very loyal customer base that we'll talk a little bit about. We have about 17,000 hospitals on our platform across a 180 countries as you can see on the right hand side. And we serve those a 180 countries, and we serve our customers across a combination of three platforms, a website, an iOS native app, and an Android app, and all three of those are available in 19 languages.

2:16 And just to give you a better data point about how big we were in 2019, our gross merchandising value or gross marketplace value in 2019 was about 546,000,000, and that was across about two and a half million unique customers in 2019. Today, we have about 230 employees, mostly located in Dublin, some in London, some in Porto, some in Australia, some in Shanghai. And now to talk a little bit about what we do. So we essentially are a two sided marketplace focused on the hustling industry. So we provide a platform for HOSTELWORLD to list their inventory, their dorms, their private rooms with either flexible rate plans, nonrefundable rate plans, promotional configurations.

3:11 And on the demand side, we provide hostelers with a trusted platform, very important, to book hostels and and crucially, to find people to hang out with while traveling. And we'll talk a little bit about that as part of our growth strategy. But in terms of the trust, it's good to note that our trust pilot score is 4.7 out of five, which should be rated as excellent. We have incredibly high app store and play store ratings for our mobile app. And the way that we make money is we charge hospitals a commission when consumers book on our platform, and we collect that commission directly from consumers in the form of a booking deposit. So that's essentially our business model.

3:59 And now, I'll talk to you a little bit about our growth strategy and how this is really, really differentiated. And indeed, it really focuses on what are the unique needs of the hosteling category relative to the rest of the online travel aspect. So if you sort of look at it in terms of three distinct differences versus mainstream OTAs. So the first one is, you know, what's the primary or prevalent customer need?

4:31 So if you look at mainstream OTA, generally, the need is help me find and book a hotel, which is really a convenient place to stay while I'm traveling. That's very different from hosteling as a category when people are looking to find and book a hospital as a means to meet other people. And that's really crucial when you think about 60% of our travelers are traveling solo. Not because they, you know, they're anti social people, but the expectation is that you will meet people by traveling and by staying in a hospital. That's the primary means by which you do so. And in terms of our strategy and how we seek to capitalize on that point, we built a series of differentiated features in our app that help hustlers find people to hang out with.

5:22 The next big difference between mainstream OTA and hustling is really the booking patterns. And if you look at mainstream OTA, and I would know this having run the Expedia branded businesses for seven years in my prior life before I joined HOSTELWORLD, the majority of customers there go on a single destination trip and about 8085% of those would book once a year or less frequently. Now this is very differently very different from the hustling category where we see our customers go on multiple destination trips. So I might start and leave from London, go to Bangkok, go to several destinations around Asia, and then come home. And then I will come back as gap year or mid year semester or post gap year travel.

6:13 So from a strategy perspective, what we're able to do is to use our own data to be able to seek out, find, and recruit those high lifetime value customers in a very data science, data driven way. And once we bring those into our platform, we then switch them over to the app where they can then use those social features to help them to find people to hang out with. And I think the third piece which is remarkably different about mainstream OTA is in general, on the mainstream OTA side, if people are buying hotels, they may also be buying car rentals or flights or look for sightseeing trips. Whereas in the hustling context, again, it's very different. People are looking for other crucially group based experiences as a means to meet other people. So for example, you have opportunities to go volunteering together or to do short adventure tours or to find opportunities to be able to work in, let's say, a surfing resort where I can teach people to surf and I get my board lodging for free. So very different types of experiences.

7:27 So the last strand of our strategy, of course, is to wall broaden out the product portfolio, not just helping our hostlers with hostels, but also thinking about what are the other group based experiences that we can bring on to their platform that we can cross sell and therefore driving up revenue. So moving on, I talked about those social features, which is a big pillar of our strategy. And earlier this year, we launched what I would call the basic infrastructure to support the evolution of the social features as we go through this year and into next year. And it's really composed of four different components. The first is user profiles.

8:13 Today, we just basically have user profiles which look at how many countries you've been to, which properties you've been to, what nationality are you are. In the future, we will start building that out to say whether you're a solo traveler, what kind of interests you have across all of our experiences, whether it's HOSTELWORLD, indeed, link ups, which I'll talk about a second, and other group based travel, we'll be able to show you who else is going. So as you're researching your dates and trying to pick which is the right hostel for you, you'll be able to see who else is going to be staying there on your stay dates, which gives you a much better idea if this hostel is going to have people that you want to hang out with.

8:59 Once you've booked fourteen days before your travel date, we start offering you a range of what I call interest based chats at both the hostel level and the city level. And we do that to help you find people who've got common interest to you so you can start arranging to meet them. It might be for coffee. It might be for a pub crawl. It might be for whatever it is. We're going to extend that later on this quarter with a product called link ups, which essentially help you find an event. For example, if I am traveling around Amsterdam and I see that Joe's bar has got a great happy hour every Thursday, I might want to set up an event to tell other people who are going to be at Amsterdam no matter what hostel they're staying in, go to Joe's bar on Thursday at 07:00.

9:54 And again, you'll be able to see who else is going. So all of these social features were launched on iOS, I'm gonna say, early April. We just ramped up Android to a 100% in the last couple of days. These are very much version one type features that we will be iterating on. And again, with the sole goal of helping you to find people while you're traveling. So I'm gonna pass over to Caroline, and I think somebody may have their mic on. Hi. I it's me, Gary, in in readiness to take over. Thank you for that. My name is Caroline Cherry. I'm the CFO at HOSTELWORLD. I'm delighted to be here today to talk to you about our business.

10:43 I'm gonna cover off our business past year that was FY 2021 and also what we've seen in our trading performance year to date in financial year 2022. So we're gonna focus on our cost base initially. And as you can see, our cost rate base has greatly reduced 2021 versus where it was in 2019. And 2019 is a very important year for us because that's the comparable year of what we would call a normal trading environment. And we took out twelve seven million of cost from the business across all of our operating cost lines. A big part of that was actions we took on our wages and salaries. So as Gary mentioned, we're a team of about 230 people. That was 330, in March 2020 just at the start of the pandemic.

11:32 So the pandemic made us react in in ways, across all of our operating cost lines, to be incredibly prudent and to conserve our cash as much as possible. We went through, reorg, an organizational redesign, which allowed us to recut the teams into autonomous growth teams, that have cross functional representation from our marketing product and development teams as well as our AI teams. And these autonomous teams are the teams that now run our growth channels. And in doing so, it's allowed us to greatly reduce our wages and salaries, taking out 20% versus what the cost should have been the previous year. We have reinstated some of those costs back into the business. We have reinvested in key areas of critical tech product projects, such as platform modernization

12:21 and a full migration to cloud based services. So we are in the process of this project, which will fully replace our legacy back end platform, and this in turn will allow for much faster execution and for far more sustainable hosting with Google Cloud. We've cost discretionary spend across all of our lines. We we renegotiated all of our contract services, and these helped to deliver the 7,000,000 cost saving. Now going forward into the next slide, looking at our balance sheet, conserving cash was obviously a key theme for us throughout 2020 and 2021, And the net result of the actions that we took on the previous slide resulted in a full year '21 average monthly operating cash burn of about 1,300,000.

13:11 And that's an FY twenty one number. Obviously, our cash position has changed in f y twenty twenty two off the back of improving trading performance, which I'll cover on in cover off in the next couple of slides. So focusing again maybe on f y twenty one, we entered the year with a strong cash balance, and we were debt free at the time, save for a 1,200,000 short term invoice financing facility that we had drawn down with AIB, an Irish bank. And in reaction to the COVID crisis and its continuation into financial year f y twenty one, we raised 30,000,000 of debt in February. And this is really necessary necessary liquidity to supplement the business through what we knew was going to be another prolonged period of depressed demand with successive waves of COVID, continuous outbreaks, and the reintroduction of travel restrictions.

14:06 Again, last year, a lot of countries were just dealing with mass vaccination programs, and we really didn't see the benefit of all of that hard work until the middle of last year. But back to the balance sheet, the debt that we raised combined with our conservative cash management meant that we closed the year with a cash balance of 25,300,000 and a net debt position of 2.9, which is the sum of the 28,200,000 debt that we raised during the year and the 25,300,000 cash balance. All of the debt interest in the first year that we drew down in f y twenty one was capitalized, and this month just gone, May 2022 was the first time that we had a cash outlay associated with the debt. So now looking at our actual trading performance.

14:54 So if we look at our net revenue, bookings, and margin performance week by week. So this slide shows the weekly performance. From the very left, week one is the first week of January in 2021 right through to week 18, which is week eighteen of twenty twenty two, and that brings us to the first week of May. To note, we as I said earlier, we look at the weekly performance as compared to the equivalent week in 2019 as this is a pre COVID comparable and a true trading performance environment. So as you can see from the graph, we saw consistent growth in revenue and the net bookings throughout 2021 with an acceleration of this recovery in 2022. And it's evident from the profile of the recovery that there is significant pent up demand for travel and that this demand is being released and consumer con consumer confidence levels are rising.

15:48 Net bookings and net revenue recovery trajectory have closely followed each other. Net revenue recovery has outpaced that of bookings and particularly so from the second half of twenty twenty one onwards, and that really is driven by three main factors. One is geo mix where we have a higher proportion of bookings coming from geographies with higher average bed prices, such as North America and Europe versus 2019. The pent up consumer demand means that customers are booking longer length trips. So in 2021, 36% of bookings were for greater than five nights, and that compares to 28% back in 2019. So what we're seeing is when consumers can't travel, they're traveling for longer. And also with the stabilization of travel, hostels are now able to normalize their bread prices.

16:40 So in the very depths of COVID, hostels were having to greatly reduce their bread prices to be able to attract customers. Now we're seeing that actually hostels can raise their prices back to more normalized levels. And in most geographies, these bread prices have actually surpassed the average bread price for their area back in 2019. As you can see from the graph, we did see a decline in bookings in the last six weeks of 2021, and this was really the impact of the fourth wave of COVID in Europe and the emergence of the emergence of the Omicron variant. And as you can recall, the Omicron variant resulted in the reintroduction of restrictions and really just impacted booking demand, and we also had an increase in cancellations given that customers now were either unable to travel or restrictions meant they were going to have to quarantine for longer.

17:30 But looking forward and looking over the past

17:32 eighteen weeks of 2022, we can see a very, very strong recovery in all of our trading metrics and the strongest performance that we've seen since the very start of the pandemic. And the pattern this pattern of consistent weekly recovery is continuing. We continue to see strong ABV. Their prices are holding up. Cancellations are reduced. Favorable geo mix and length of stay are all trends that we're continuing to see in 2022. In particular, we've seen direct margin rebound in 2022 and now follow the same trajectory as that of bookings and revenue. And, really, this is the benefit of travel restrictions easing, consumer confidence returning, and an increase in conversion as travel patterns normalize. And overall, what we would say is that our investment philosophy will remain unchanged.

18:19 And this investment philosophy is to maximize new customer growth rates at acceptable levels of new customer profits, and this would see us probably operating with marketing as a percentage of revenue at around 55%.

18:34 So now I'm gonna look at this recovery profile on a regional basis. So what we say here really is that net booking growth mirrors changes in individual markets based on restrictions. So restrictions opening, we see the demand bounce back, and that pent up demand really coming to a fore. So for travel restrictions ease, demand recovers quickly. In '22 and '21, we start we started to see strong recovery in Central America with pockets of recovery in US domestic demand. And as we progress throughout the summer season, we could see that EU demand was returning, and this is off the back of the introduction of the EU digital COVID surge. So, again, reopening of borders meant that we saw a pickup in demand and particularly in Southern European countries.

19:21 And some of these destinations have now far surpassed their 2019 levels, particularly in 2022 so far this year.

19:30 The second half of last year, we saw the continuation of the recovery of Europe and then Central America stormed ahead. So Central America was actually double what it had been in 2019.

19:41 And that momentum was continuing at pace again until the last six weeks of the year where the Omicron variant came to a fore. And outside of these main drug freeze, Asia and Oceania, where restrictions were still very much in place, demand was muted. Again, moving into 2022, we see big uptick in across many drug freeze, particularly in Europe, which is a key area for us. So Europe was our largest destination in 2019, and this now has almost fully recovered back to 2019 levels, again, with some key destinations well ahead of their 2019 mark. And as I said, Central America has just continued to storm ahead, and at some point, it will surpass that 200% mark. Finally, just one more cut off of our customer cohorts just looking at the profile of recovery across domestic short haul and long haul. And just as a reminder, a domestic trip is where a traveler is located in the same country at the destination of the booking.

20:41 Short haul is when a traveler is in the same region as the destination of the booking, but not the same country.

20:47 And then long haul is a booking whereby the traveler is in a different region. So as you can see, the recovery in f y twenty one starts domestically driven by The US and Australia with some long haul into Central America. Then as we move through the summer months of 2021, Southern Europe started to rebound with the opening of borders. They experienced fairly good summer months, and that was a stimulus for recovery in the short haul travel sector.

21:15 And then as borders continue to open up in the latter part of '21 and into '22, we are seeing resumption of all travel types. And most importantly for us, long haul bookings, whilst the slowest to recover initially, has now surpassed that of domestic. And at week 18, very pleasingly for us, long haul has reached 70% of 2019 volumes with trips from The US and Canada into Europe, a key demographic for us now having fully recovered to 2019 levels. And with that, I'll hand you back to Gary. Thanks, Caroline. So we've we've talked about three things, over the last ten, fifteen minutes. One is I started talking a little bit about the business model and what was really highly differentiated about the growth strategy.

22:00 And then Caroline talked to you a little bit about the tight cost control and where the balance sheet is. And also give you a bit of a flavor of how the travel is recovering. So what I want you to do is just to give you a little bit of flavor about what

22:14 the shape of the p and l is looking like and what the trajectory of it is looking like versus f 01/2019. So from a GMV perspective, clearly, as Caroline said, we have net bed prices are on the rise. They're pretty good inflation in many destinations. But also from a business model perspective, we are actively targeting those high lifetime value customers. Those customers who are going on the longer multiple destination trips and who, in a very statistical manner, we believe will come back year after year.

22:54 From a net revenue perspective, our commission rate actually is slightly down on 2019 levels. It was about 16.6% on average. Now it's about 15%. It's probably market leading commission rates in the sector. Obviously, provides our HOSTELWORLD partners with even more reason to, you know, provide us the most compelling and competitive inventory on our platform. In terms of direct marketing, our business model strategy is we simply, in a very statistical targeted manner, look for those highest lifetime value customers, then we optimize what we pay from a customer acquisition customer acquisition cost perspective to maximize new customer growth.

23:41 So that's how we really try and drive the paid marketing spend in a very data driven manner. But of course, then that's partially offset by the growing

23:51 app install base because we are meeting an unmet need which is helping me find people to hang out with. So overall, if you take net revenue and you subtract your direct marketing and you get to direct margin, we still expect expect with that overall business model to drive, you know, very strong direct margin growth at the future quarters. Karen has talked about the fact that we've reduced our OpEx by about 25%

24:20 versus 2019. So obviously, that gives us more operating leverage in a world where direct margin growth is growing. You know, that then feeds down to, you know, EBITDA. And historically, in going forward, this has always been a business that has very, high cash conversion. So that sort of gives you a bit of a feel for what the direction of travel for the p and l will look like as we look at the quarters to come.

24:50 So what are we focused on for the balance of this year? Well, we're continuing to invest in our core business in terms of the marketing capabilities that allow us to be able to drive that very data driven marketing allocation, optimizing new customer growth, predictive customer lifetime value, customer acquisition cost, always looking at user experience enhancements to make our website go faster, make it easier to shop and book with us,

25:21 growing inventory competitiveness, and also the platform modernization given that the the original platform is more than twenty two years old. We're gonna continue on iterating on those social features. You know, we have the base level infrastructure in place. You know, we will continue to experiment with what kind of profiles to show people what kind of information to be able to make, see who else is going the most rich and valuable for people. Continue to invest in those interest based chats to encourage people to ask questions to meet up and then, of course, the link ups which we will expand from consumer events to allowing our hostel partners to be able to load their own events and eventually thinking about third party events that we might want to run-in a city.

26:12 In tandem, we're also looking at broadening out that group experience travel catalog. We launched Romy's, which is a very long term relationship with GN Ventures back in December 21.

26:26 That fuses together the hustling accommodation type with group adventure travel during the day. We sell that on our own site. G adventure sells it on its site, but they also sell it through a network of 60,000 offline travel agents. So the first departure dates were in May. It won't be a material contributor given that's a fairly narrow product portfolio for this year. It wouldn't be a material contributor this year, but we do expect it to to have a contribution as we grow the product portfolio and really start marketing that product as we get into 2023.

27:05 And finally, as you might imagine, as a, you know, as a business that's dealing with 80% of our customers at 18 to 35, sustainability is very much uppermost on their minds.

27:19 We have been working in partnership with the South Pole towards climate neutral accreditation. We've already paid for offsets that offset all of our carbon emissions for us a company from last year. And I think as we go forward, we'll be exploring different ways to be able to show to our hosteling customers which hostels are more green and how they are green relative to others. So just to sort of close a little bit, you know, we have over twenty two years, we've built up an incredible brand recognition across our HOSTELWORLD GROUP You know, the business is very asset light and historically, and it will continue to be highly cash generative.

28:00 We have a highly differentiated growth strategy in place, which really focuses and capitalizes on the unique needs of our category, the HOSTELWORLD category. We believe that's gonna help grow revenues and margins. And certainly, if you look at the first eighteen weeks of the year, now the travel restrictions are starting to ease. You can see there's a, you know, a very nice pattern of acceleration there. So as I said, very encouraging start to 2022. Obviously, we are continue to be highly geared towards the travel recovery.

28:35 And as I said, we started the journey of working with third parties around sustainability. You you should expect to see more of us, more about our sustainability plans as we get into 2023.

28:49 So with that, I did want to advise you some key upcoming dates. So the next trading update we will give on July 12, which will be a trading update in the form of an RNS for our first half. We then have interim results will be on August 10, and we plan on having Capital Markets Day, Investor Day in q four of this year.

29:18 So with that, we have some financial information, which I don't think we're going to go through. I think we're just going to allow people to look at the presentation, which will also be loaded up on our website. And I will now pass it back to the investor lead company. Gary, Caroline, perfect. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen.

29:48 But just while the team take a few moments to review those questions submitted already, I would like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Caroline, Gary, as you can see, we have received a number of both presubmitted questions that were submitted ahead of today's event as well as a number of questions that have come in throughout today's presentation itself. Firstly, can I thank all the investors for submitting their questions? And, David, if I could please just hand back to you to run through that q and a tab and where appropriate to do so, if you could just

30:19 please read out the questions and give your response, and then I'll pick up from you at the end. Thank you. Thank you. David?

30:28 Thank you, and good afternoon, ladies and gentlemen. I'm David Brady. I'm the head of commercial finance with responsibility for investor relations at HOSTELWORLD. Thank you very much for your questions. We'll take the opportunity now to push those questions to Gary and Caroline. Guys, the first question is around selling experiences. And it's a question around city walking tours, culinary experiences, etcetera. How do we selling experiences like that to HOSTELWORLD

30:59 GROUP PLC seems like an easy cross sell win in a way to take more traveler wallet share over time given the ticket time value for this versus dorm beds. Is this something that we have planned for twenty twenty two, twenty three? If so, are we concerned that our hospital partners might see this as competition to their aspirations to secure a wallet share from their guests. How do we think about this in terms of its threat to the core franchise if we were to pursue this? So great question. Thank you, Jake. And the answer goes something as follows. So in the presentation, I talked about link ups. So link ups is the first event based product where I, as a user, as a traveler, can set up an event which would be visible not only to the hostlers who were staying at a hostel, but also to all of the hostelers in the city, in Amsterdam, in Seville, in Berlin, wherever you happen to be.

31:57 The next iteration of that product which is

31:59 planned, we should execute before the end of the year is to open up that platform back to our hostel partners. Many hostels use events as a means of generating ancillary revenues. Typically, a hostel makes very little money off the sales of beds and they make far more money off the sale of food, beverage, and crucially events. So in that context, historically, we've always done a fantastic job of providing customers who really understand the hosteling experience and to consume the food and beverage and events. So providing the most profitable cost customers to our hustle partners. And what we'd like to do now is to open up that link ups product to allow hospitals themselves to be able to load up their events, not only for people in the hospital, but indeed for all of the people in the city.

32:56 I think the third iteration of that product will be to say, is there a market for us to work with third parties to set up, I'm going to say a monthly concert over somewhere in Amsterdam. We have several thousand people a day on average in Amsterdam, three sixty five days a year in 2019. So we've more than enough volume to be able to support a catalog of events over and above what HOSTELWORLD GROUP would offer themselves. But certainly, the first iteration after the user generated events will be to open that platform up to our HOSTELWORLD partners, therefore, driving even more revenue and business for them. That's back to David.

33:41 Yeah. Thank you, Gary. The next question is around capital structure. And question is along the lines of the expectation that we will turn a free cash flow positive in the second half of this year. And can we give a sense around what we believe to be the correct capital structure for the group moving forward given the business was traditionally wrong with little to no debt and that finds itself with debt levels to HBS loan and the Irish tax authority as well, approximated to two times of of of our historical cash flow. Is a refinancing of the loan something that we might look at in in the coming years?

34:28 I I can take this one. Thanks, David. So there's a couple of things mentioned in in that question. It's a great question. In terms of being cash flow positive, look. What I'll say is that the things that we mentioned in the presentation around, we have significantly increased our operating leverage. So we have reduced our cost base, which took 7,000,000 cost out. There's some big numbers in terms of percentage reduction. That obvious that helps. Also, in terms of our investment strategy and the type of strategic bidding we're doing, which means we attract very valuable customers, helps with our trading margin. So we've taken, you know, data science bidding models that help attract a very valuable customer, helps with their margin, reduced operating leverage, helps with helps with their cash position.

35:22 And as Barry has said at the at the end, we have always been a very cash generative business. So so they're all, I think, very positive lead indicators, and that operating model has not changed post COVID. What I will say about the debt piece and and the Irish tax authority has mentioned, for those that may not be aware, we have warehoused our payroll taxes with the Irish revenue, and this was a facility that the Irish revenue offered businesses that have been impacted by COVID. That liability is sitting on our balance sheet. It is a noncurrent liability. It doesn't fall due for payment, within the next twelve months. There's also zero interest being earned on it. From April 2023 onwards, interest will become will fall due on it at 3%. So it is a very, very low interest rate.

36:12 In terms of the HPS loan, yes, the the the the debt facility was of its time, and it was the right thing to do at a time when there was very little certainty in the marketplace in terms of when business could return, the level of bookings that we would see, and when would we see the recovery. So if the trial for recovery continues as we have seen it and as we can demonstrate it in the slides, when it recovers, it recovers very fast. The rebound is very, very strong. We feel very positive about the business. We will if that will give us options, we'll close out this year, and it will give us options as we look into next year. Our main overriding driver always has been and always will be what is the best interest of shareholder and how do we maximize shareholder value, and that will be at the focal point of any decisions we make around the bank sheet.

37:07 David? Yeah. Thank you, Caroline. Moving on, we've got a question here about our social chat features. And, really, the question is wondering that as as it's a as it's a feature which is in its infancy now, are we experiencing any, let's call it, tumbleweed problems where guests enter a relatively empty chat room with limited activity. Do we have any insight or stats that we can share at this stage and any plans that we have to to develop the product to boost this activity over time? Okay. Another really great question. So first off, you know, as I mentioned earlier, the platform the social platform is very much in its infancy.

37:53 And a v 0.1. So a couple of things. One, we are we only launched the platform on iOS in early April, and then we launched the platform on Android actually a a couple of days ago, sort of ramping it from zero to 25 to a 100%. What is very, very evident is even only having the platform on iOS, which as you might remember, if you got 50% of customers using IOS in a city like Amsterdam and 50% using Android, that means only 50% can see it. So by adding Android onto it, we're creating a lot lot more network density. And what we are already seeing with a very basic set of features is that the as soon as the density rises, the volume of chats are growing disproportionately.

38:46 So we're seeing that network effect. I think the other thing that we're seeing, which is really interesting, is all the people who book very frequently on our platform, let's call them power users, are using the features. Now what I can't say yet is the features are creating new power users. But as we start introducing richer profiles, nudge, your feedback loops, patches, all of the things that you would see on some of the social networks like either a Foursquare or so on and so forth. We do expect the utility and the usage of that platform to start rising exponentially. That in turn will obviously give people a reason to come direct to us and to stay with us.

39:35 So that really enhances the business model that I spoke about earlier in the presentation and its effect on the p and l later in the presentation. So I'll hand it back to Dave. Thank you, Gary. We have a question here as well regarding the concept of loyalty and reward programs. Is this is this something that we would consider to drive try to drive stickiness and encourage repeat bookings and retention, or does the structure of our business with a lower average booking value mean that we we look at this a different way? Yep. So I have a lot of experience in this having run Expedia's rewards program way back when. So the first thing I would say is when you think about rewards program, you need to think about what are you trying to incentivize.

40:29 We actually have a rewards program, but we don't call it a rewards program, and it's called app only discounts. And put simply, we secure promotional rates from our hospital partners that are only available in our app. And that's exactly where we want them because obviously, app has a much lower direct marketing cost, virtually zero. It's only the cost of the incremental install if indeed we paid for it. But not only is that where we want people to book, but it's also where we show people the social features. So it's encouraging people to use the app. So although it may not be classed as a rewards program in the classic sense, It's very much a strong incentive program paid for by our hustling partners to incentivize people to use the app. That would be the first point. I think the second point, when you compare Expedia and Genius program, the Expedia program is actually funded by Expedia itself.

41:34 So it's a very chunky cost against gross margin. Whereas the Genius program, similar to our own program, is actually a promotional discount that is paid for by our partners. And the last point I would make is the important thing with any rewards program is to be able to do an a b test to check that it actually is generating incremental value, which is something we test ourselves and, you know, I can tell you that we're very comfortable that the setup that we have incentivizes the behavior that we want and also generates quite a significant value. Next question, please. Yeah. Thank you, Gary. I'm going to bundle a number of comments that we've received, which are generally in the area of describing and sharing a little bit more color around the competitive landscape and who else we feel that we operate against. You might just share some comments on that, guys.

42:32 Yeah. So the the the question was actually even more pointed than that, which is are you gaining or losing share versus booking.com? So I think the history of the company as it went, let's say, 2014 to 2016, when Booking entered the sector, it went from a market dominant position and it started losing share versus booking.com. When I was asked to take over the company in late twenty eighteen, we laid out a program of sort of core platform improvements over 2019, 2020 that we've executed against. And I also said that to investors back at tail end of twenty eighteen at the Capital Markets Day then that we would formulate a growth strategy for the company, you know, based on these two observations.

43:24 One, vast majority of people go hustling to meet other people. And two, when they go hustling, it's not the only thing they do. They go volunteering. They do short adventure tours. They're looking for work stay experiences. What you will see over the two years of COVID is that we've done a tremendous amount to make our core platform far more competitive. We did a lot of testing in second half last year around the different feature combinations to come up with that base infrastructure. We're starting to see the traction even against those zero v 0.1 features. And if you look at the accelerated growth patterns since week one this year, whilst I can't be a 100% certain that we are taking share, I can be very confident that, you know, the level and the recovery that we're seeing, you know, is really, really tremendous.

44:21 Next question. Yeah. Thank you, Gary. Again, to to try and cover as as much ground as we can, I'm going I'm going to do a little bit of bonding here. And, generally, there have been a lot of questions in the area of the rising cost of living and all of the the news that we see day in, day out around inflation. Guys, you might share what your thoughts are on how this impacts our our customer base and how we might see it impact trading. Should I check that one, Caroline? Yep. I can do. Of course. So, yep, you cannot escape inflationary pressures and the news, the damage that it has in in news flow. We're not seeing it. It's it's I suppose the most immediate answer is that we don't we're not seeing yet the numbers. There's a lot of pent up demand, as we said. Bed prices in hospitals, they're they're low.

45:15 And we feel that our customer cohort, they're they're not as, attuned to inflationary pressures as other cohorts might be. They're generally more resilient. They have less major significant overheads maybe as compared to older demographics. They don't have the same level of of of mortgage or or debt. What they do have is, though, a willingness and an appetite to go and embrace life, and they will take on debt to cover the cost if if they need to. And there's plenty of articles out there in terms of customers in our age demographic being surveyed around, you know, what is it that they want to do or how do they feel about life demographic of kind of our appetite for debt and appetite to to to, see the world.

46:05 The other thing as well, we've we we we also know from previous patterns is, that our businesses continue to acquire new customers. We have somewhat many data points going back over the years that we can go through the data, look at the the trends on us, and reading the data, what does it tell us? It's in terms of crisis, we haven't seen our our customer acquisition rate dip. Our customer lifetime value is also holding up. So they're they're a pretty resilient bunch. They, and and we get the same repeat patterns year on year, which makes us feel confident that even in a time of recession or inflation, the demand for travel will still be there. That cohort, that age demographic, they are more resilient, and they will they will go and they will take the trip.

46:52 And I think the the cost of the trip as well is is another thing. It's it's affordable for them. I don't know, Gary, if you want to to add anything that we're seeing on the supply side or or anything further to add to it. No. I think that's perfect. I'm just conscious that we have a few more questions, which is good. Yeah. Thank you, guys. And if it's if it's okay with everyone on the line, we will we will remain on the line for a few minutes. I think it's a little bit past the the guided forty five minutes at this stage, but there are a number of questions and clearly a lot of interest out there. We'll we'll try and do our best to provide as much insight and colors to those and respond as as we can. So we will stay on the line and continue with the with questions. Guys, the next question we have is around another very topical issue that we can't escape from the news, and that is around the availability of good talent and staffing issues that perhaps we're experiencing or that are potentially even impacting our hospitals as well. So you might share some comments on that.

47:50 So like absolutely everything else in our vision business, we measure everything. And one of the things I look at very closely is hiring rates and attrition rates. What we see in the first quarter now versus 2020 and 2021, which obviously were COVID years, hiring rates are in excess of attrition rates. So even though we went from, I'm gonna say, three twenty, three thirty people in 2019, and now we're around the two thirty level, we are running just a little bit light in some critical areas, but what we are able to do because we're trying to do something that's incredibly fun, incredibly exciting. Nobody's tried fusing a social network with an OTA before.

48:40 It's a very young company that's very, very flat. So when people join us, you know, they know they're going to be working on stuff that's really exciting. They're also not going to be a small cog in a big wheel. It's very much big cog in a big wheel. And consequently, although there is a bit of salary inflation and that's to be expected from a retention and attrition basis, we're actually in net growth mode. David? Yeah. Thank you, Gary. We probably have time to squeeze in two more questions, I think. So we'll we'll we'll go with the first of those. And that question is a supply side question around how hospital churn and the hospital base has developed, particularly particularly over the last number of years and as we're last few years as we come back to the pandemic.

49:37 Sorry, David. Could you repeat the question for me? I just had my Yeah. No problem. Gary Sam dropped for a second. No no problem at all. No. No. This question is a is a supply side question around her host hospital churn hospital basis about So last with the viewers. Okay. I'm gonna answer this super quickly because I know there's a couple of other questions that I think would be great for us to cover off. So numbers, end of twenty nineteen pre COVID, we had about seventeen thousand seven hundred hospitals on our platform. Two years later, that's only reduced by a net five to 6%. So we now have a bit over 17 and a half sorry. A bit over 16 and a half thousand hospitals on our platform.

50:26 That's a net reduction. What we actually saw was probably a 12% reduction, but we signed up new hospitals that were new to our platform over the two years to make it net six. So although it's been a really terrible time for the industry, there were lots of hospitals that shut up shop for three to six months. Many of them own their own buildings, they don't have lease costs. So it was possible for them to mothball their businesses. But overall, the hospital supply side has proven to be very resilient. If I may, it's very quickly to add in just for people on the call that may not be aware. In our prelims presentation that we released to the market at the start this year, there's a good slide in that presentation that actually sets out the half yearly and quarterly views around the hostel inventory.

51:15 So it's just a good good one to kind of look at to to see how it has been impacted in the level of churn, which and and for the numbers that you've talked to, Gary. Great. Thanks, Caroline. Thanks, Gary. A somewhat related follow-up question is regarding any if we have any plans to sell priority listing displays to our hospital partners similar to booking.com as a a means to supplement margin. So that's a big resounding no, but I want to explain why. So originally in 2019, our base margin was still about 15%, and the blended margin that includes products like priority listing took it up to 16.6.

52:02 And what you realize is whilst that gives you a short term revenue boost, what it does mean is it allows some hospitals to be able to push themselves to the top of the sword even though they have all review scores. So during 2020, we disabled that product completely. So now our sword order, if you go on to other competitor OTA sites, you'll see a little, like, a little note which sort of says, commission affects a properties listing in our sort order, something of that type. We have none of that. So the only way that you can get to the top of the sword on our particular platform is you have to have a very competitive price relative to other hostels on the platform, and you have to have the best review scores.

52:57 Right? It's a very, very pure sort order, which really in the long term guarantees that our customers are getting the absolute best find results for them. Thanks, Gary. We'll just cover our last question off now, and then and then we'll hand back to investor week's company to close out the call. Thank you everybody again for your for your questions, and I hope you found the the answers illuminating. Guys, the last question is just for us to share some comments or insight around the impact that the conflict of war in Ukraine may have had on our business. So I would say, historically, Ukraine and Eastern Europe in general has been a very small proportion of our bookings from a destination perspective.

53:45 So on a comparables perspective, when you look at 2019 versus this year, it's very, very, very small impact, if any at all. And indeed, we have taken all of the hospitals that are based in Russia and Belarus off our platform, similar to many other travel companies. I think the only risk that we have talked about when we did our preliminary results presentation a couple of months back is if fuel price inflation started to really filter through, it would jack up flight prices, which we then choke off demand. Having said that, it's not what we've seen. You know, if you look at weeks one to 18, there has been you know, travel is accelerating. Our customer base at least is accelerating in terms of their booking. So there's been no discernible impact whatsoever at this stage.

54:38 Yeah. And just just to quantify the net revenue impact of Russia and The Ukraine, it's 0.01% of our of our net revenue. So immaterial from that perspective, and we've no we've no operations in either of those regions and no people. So very negligible impact for us. Thanks, Caroline. Thanks, Gary. That concludes the q and a. So with that, I'm back to investors. David, Caroline, that's great. And thank you very much indeed for taking the time to address all of those questions that came in from investors this afternoon. And, of course, ladies and gentlemen, the company will review all of the questions submitted today, and we'll publish those responses on the investment company platform where it's appropriate to do so, and you'll be notified by email when they're ready for your review.

55:25 Gary, perhaps before redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Thank you. I've I've actually just flipped back a couple of slides just to really summary an outlook. I I think as I said, we're very strong brand recognition after twenty two years. You know, that manifests itself in an incredibly loyal customer base. Obviously, we have all of those HOSTELWORLD relevant reviews to help new incremental HOSTELWORLD find the best place to say. It's a very asset light, highly cash generative business model. You know, as you've seen from what we've been talking about, you know, we have an extraordinarily differentiated growth strategy in place, which is really laser focused on the needs of the host link category.

56:16 And from that perspective, when you look at the trajectory of what the p and l is going to look like, you know, you should expect to see much higher gross market values, higher revenues, increases in paid spend, but that's very, very data driven to make sure we maximize new customer growth rates for highly valuable customers at prices that we are willing to afford. And, of course, the piece that partially offsets and, you know, really drives that business model, of course, is having those social features in the app, which encourages more people to use the app, which brings down those direct margin. Sorry. Those paid marketing costs. We're encouraging start to 2022 looking at weeks one to 18. You know, I'd encourage you to have a quick look at the presentation, you know, after we've gone highly geared towards the recovery and obviously look forward to seeing or speaking some to some of you, I hope, in the next couple of trading updates over the next couple of months. So with that, on behalf of my team, well, thank you very much.

57:21 That's great. That's great. Gary, Caroline, David, thank you very much indeed for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure would be greatly valued by the company. On behalf of the management team of HOSTELWORLD GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all. Thank you.