Camplify Holdings Limited (CHL) Earnings Call Transcript & Summary

Everybody, and welcome to the CHL FY '24 announcement call. Firstly, I'd just like to start with an acknowledgment of the country. I would like to pay our respects to traditional owners, the elders past and present, and value the care and custodianship of these lands. Camplify Holdings Limited is a proud Newcastle-originated company, build on the lands of the Awabakal & Worimi people. Today, I'll present to you our FY '24 results. My name is Justin Hales, the CEO and Founder of Camplify. I'll walk you through our high-level strategy and key deliverables for CHL for FY '24. And I'll hand over to Andrea MacDougall, our CFO, who will walk you through the key metrics and results for the period. In May, CHL outlined to the market, our 3- to 5-year goals, our strategic focus on growing our core revenue through a focus on recurring revenue and consistent increase intake rate, delivering on operational scaling business with the technology to pay out this efficiency, focusing on members and member services to enable our members through improve products and services, building our business to a profitable model through a focus on performance. In FY '24, we began in earnest a road towards delivering on these outcomes with some short-term hurdles, which I'll touch on. Our 3- to 5-year goals included $125 million in revenue. For FY '24, CHL achieved $47.8 million. 20,000 Camper+ members or you might know them previously as premium members. For FY '24, CHL closed the year with 4,908 members. 71,000 total fleet or FY '24 CHL closed the year with 32,789, a 20% normalized EBITDA. For FY '24, CHL closed the year at minus 9%. For FY '24, CHL had a period of consolidation, optimization, and preparation. In order to position the business for further evolution and potential expansion, CHL needed to invest in the consolidation of teams, systems, and procedures to enable efficiency. In FY '24, CHL undertook major projects to enable this goal, including the migration of PaulCamper to a centralized CHL platform and the implementation of a number of improvement systems. These projects are designed to establish a foundation for growth and improvement in key metrics over the next 3 to 5 years. Migration of PaulCamper platform to the centralized Camplify technology stack began in January '24. This project is now functionally completed. The migration of the technology stack was an important project for our long-term success for CHL Group as it enabled the centralization of development teams, the reduction of business risk, and the ability to roll out new products to the European market. However, this project hit a number of stumbling blocks, notably, SEO impacts as a result of platform content migration and Google remapping and ranking issues. The verification of new all-owner customers in line with European banking standards, payment platform issues with third-party providers, and change management issues with retraining of customers of new technology. The impact of this project on the business in the short-term saw a reduction in revenue of $3.4 million directly related to the migration of the project in reduced trade. This was combined with $1.9 million of one-off costs incurred as a result of the project. In the longer-term, CHL has identified $3.1 million in ongoing cost savings as a result of the completion of the migration project, and all signs indicate an expected return to normalized trade of PaulCamper in FY '25 with future upside in the following years. As part of the growing business, CHL in FY '24 needed to invest in core technology and business systems to enable the future growth and expansion of the business. In this period, the company committed to a significant investment towards our future years' results and through the implementation of these systems of technology. In FY '24, the following achievements have been completed toward our 3- to 5-year goals. We migrated all countries to a single platform with multiple brands. We migrated all countries to a single payment gateway system, implemented a global CMS, implemented and migrated to a global accounting system, implemented a global insurance technology system. Implemented a global HRIS system, and implemented AI payout systems to reduce customer service ticket management. E-platform changes improved our customer conversion across the platform through these technologies. Our business process also improved through the centralization of teams and consolidation of roles. We set up EU-wide NGA status for our key insurance products. We engaged with key suppliers in the EU to roll out white labeling of new insurance products. We implemented improved insurance claim handling. We migrated core customer service teams to AI-first approach, reducing claims handling and improved customer service. We've created business-to-business divisions to enable the key supply of products in ANZ. We've created new membership offerings for the EU countries, allowing the rollout of these products in FY '25, supporting our member-first approach. We rolled out a global finance ERP system to improve our reporting and efficiencies. Already, CHL can see early measures with the positive impact of these projects. I look forward to updating you all on the true impact of these projects as we continue down our path in our AGM in November. While completing these projects and the major business destruction of the PaulCamper platform migration. Despite these projects and the impact of the PaulCamper migration across the business, CHL was able to still achieve significant growth for revenues with the group growing by 24.9%. Importantly, Camplify saw revenue growth in all markets with the exception of Germany. Take rate for CHL Group reached 28.9%, up from 26.1% in FY '23. The increasing take rate of our top-level accident access reduction product in ANZ markets to 57.5%, across all of their bookings and increased premium membership reoccurring revenue drove the increased intake rate. Excluding the PaulCamper markets, the take rate was 32.7% versus 29.9% PCP. I'll now hand over to Andrea to walk through the financial results and business metrics.

Thanks, Justin. In FY '24, CHL continued to show growth in GTV and revenue, with GTV growth of 13.1% to $165.5 million and revenue growth of 24.9% to $47.8 million. Take rate has increased globally from 26.1% in FY '23 to 28.9% in FY '24. We continue to see increasing uptake of our top-level accident access reduction product in ANZ with 57.5% of bookings taking the higher level. This drives our take rate increase along with the increase in premium members or Camper+. Our standout performance in terms of growth were in New Zealand and the U.K. New Zealand continued its strong growth post the acquisition of Mighway and SHAREaCAMPER, with revenue growth of 69% versus PCP to $5.1 million, driven by bookings growth of 55% and fleet growth of 68%. The U.K., after a slow year in FY '23 has achieved $2.3 million in revenue, a growth of 108% versus PCP. We saw a significant increase in bleach utilization as fleet growth came in at 12%. However, bookings grew by 65%. Average booking values increased in these regions by 3% and 12%, respectively. Our other regions saw a decrease in average booking values with Australia's decrease of 6% being driven by the reduction in booking lens caused by the reduction in temporary accommodation bookings. In EU regions, we saw average booking values decrease with lower day rates from owners driving this decrease and slightly shorter average booking length. Retained hires grew in all regions, with global retained hires at 25.3%. This shows the increasing support from customers who are already CHL users. Germany's revenue decreased during the period due to the impacts of the platform migration. The annualized impact on revenue of this migration is a reduction of $3.4 million. This represents a pro forma reduction in revenue of 43%. GTV reduced by $17.6 million versus prior year, had PaulCamper being CHL-owned for the entirety of FY '23. Cost of goods and GP margin saw a negative impact from the reduction in revenue from PaulCamper regions as well as global inflationary pressure on repair costs. CHL has also seen an increase in the volume of damages incurred during the period. We are reviewing our processes and undertaking a fleet safety project along with higher education to address the damage volumes. We will also increase premium membership premiums for new customers in FY '25 to improve the revenue flow and GP margin of the premium membership product. Existing members will be reviewed at their renewal dates. Due to the platform migration, CHL has incurred higher than normal costs with one-off costs identified at $1.8 million. $200,000 of this relates to acquisition and business combination costs, 360,000 relates to Mighway set-up, licensing, and software setup costs, $800,000 relates to termination costs of staff, and the remaining $400,000 relates to operational costs around the increased customer service demands during the migration and setup costs for our global finance, ERP and CMS. Our employee benefits costs were above our expectations due to both the one-off costs mentioned above and the reduced revenue from PaulCamper during this period. Employee benefits as a percentage of revenue increased to 37.3% versus 32.4% in FY '23. Excluding termination costs, this came in at 35.5%. During H2 FY '24, we have focused in implementing AI into the customer journey, which we are seeing good impacts on the customer service team and are now able to handle higher-level queries and improve the number of bookings per team member. Automations within the platform are also creating further efficiencies for customer service and finance team members. Marketing expenses increased slightly versus PCP. We took FY '24 coming in at 16.7% of revenue, up from 16% in FY '23. Between February and April, marketing in PaulCamper regions was switched off whilst we managed the owner re-onboarding and verification for the new platform and payment system. From May to June, we accelerated marketing spend in these regions in order to drive visits and booking requests back to historic levels. These metrics are trending in the right direction, and we expect them to normalize in FY '25. Customer acquisition costs remained broadly in line with normal with Camplify owner CAC at $143.37 and higher CAC at $23.52. PaulCamper owner CAC has increased to $49.24 as we have commenced actively acquiring owners late in FY '24 and higher CAC at $21.74. As part of the migration and the analysis of tools and teams, we have identified $3.1 million in ongoing cost savings with $1.3 million relating to employee benefits costs and the remainder being in systems and tools savings as well as the improved merchant fees through our global payment provider. Future bookings GTV, excluding TAC, as at 30th of June 2024, had decreased 4.5% versus PCP. A reminder that future bookings are bookings where the deposit has been paid, but revenue not yet recognized as the travel has not commenced. In Camplify regions of Australia, New Zealand, U.K., and Spain. This is a point-in-time measurement and is heavily dependent on short-term events, e.g. weather, economic concerns, et cetera. We have run this number again as of the 26th of August, and future bookings GTV is now up 2.4% versus the 26th of August 23, and booking numbers are up 5.3%. This will continue to build towards the peak season in ANZ regions, and we are confident about the upcoming peak season based on current booking levels. CHL's closing cash balance was $14.8 million, although we have seen a reduction in cash of $11.6 million during the period due to the migration impacts and associated costs as well as the acquisition of the rent attempt business, we have sufficient free cash to meet our growth needs in current markets. We expect cash and bookings to build coming into the peak season in the ANZ region. CHL remains a capital-light business with a strong balance sheet. Thank you. I will now hand back to Justin.

Thanks, Andrea. Now looking forward to FY '25. A key focus for CHL in FY '25 is the global rollout of new member service products across all markets. Insurance is a key product offering for customers on both sides of the marketplace. Our new products and services will begin significantly being rolled out in FY '25. This will not only grow our core marketplace. It will also allow the expansion of products and services outside of our core products and customers in the future. For FY '25 -- for search health, FY '25 will be about leveraging the investments we have made to position ourselves for future growth. In line with our 3- to 5-year goals, our core technology focus will be to improve the usability of our platform for both owners and hires with measurable increases in conversion rates to maximize traffic and returning customers, improve our premium membership or Camper+ members, membership offerings through the platform performance for members, including the member offerings. Continue to optimize the platform for third-party products to reduce manual tasks and increase growth. Utilize AI systems to improve overall customer experience and reduce customer management, and improve insurance products and services, enabling the adoption and satisfaction with member-led insurance products and a rollout of new products and services. Mighway remains a key strategic project for FY '25. In FY '24, we achieved an MGA status in the European markets. We have coupled this with an organizational focus on embedding and improving member service products, insurance-led to improve the best-in-class service for our customers looking to leverage the CHL offering. Mighway had a significant step forward in FY '25 with the achievement of regulatory statuses, implementation of InsurTech systems, and dramatic improvement in claims management. As of today, CHL has doubled the speed of our claims processing and achieved a 74% increase in customer satisfaction in our post-claims review. These metrics are indicative of the organizational-wide systems implementation and business focus on insurance, allowing CHL to be business-ready for an acceleration in insurance in FY '25. CHL remains on track for significant implementation of insurance-led member products across the business in FY '25 in every market, including travel, liability, and vehicle cover products. We look forward to providing an update to this at our AGM in November, including a rollout of multiple products across multiple markets. Overall, the business remains in an excellent position and confident in achieving FY '25 consensus numbers previously published. In every market, CHL remains on track with our 3- to 5-year goals. Our key North Star metrics of revenue, fleet members, and EBITDA remain our focus across all areas and drive our decision-making. We remain committed to our plan and positive about the ability to deliver against these goals. Our next major update will be in November at our AGM, where I look forward to sharing with you our major milestones following the journey and providing a business update. Thank you. And now I'll look at the Q&A function and answer some questions that are coming through.

So, the first question in FY '24, there was a growth in paid membership was 7%. However, the revenue growth was 48%, which indicates an increase in premium membership. Can we explain what the primary reason for such a strong growth number in that category? And could we expect future growth at similar levels in membership revenue? So, I'll let Andrea answer some of those questions. I think the first part is that we saw a different vehicle mix of vehicles being insured through that membership. And we rolled that membership out into New Zealand in that market. It's primarily drivable, which is a different mix in vehicle types. We only currently have that membership offering running in earnest in ANZ. We have a small pilot project in Germany at the moment and now have the ability to look to roll that out into the rest of the European markets in FY '25. Andrea, do you have any more color on that question?

Yes. So, I sure do. So, with our memberships, when we increase the pricing, we can increase the price for new members straightaway so that any new sign-ups come through with new pricing. Over the last few years, the prices have increased each year. But for our existing members, we can only pass that price on as their renewal date. So, in FY '24, we have seen those increases building from the last couple of years as they come up to their annual renewal dates. So, in FY '25, again, we are putting in a price increase around October this year for new members. Our existing members, again, will be increased on their renewal date. So, we'll see an immediate bump from new members joining in the increased revenue and then an incremental improvement in the existing fleet, which we'll see the bulk of flow-through in FY '26.

Okay. Thank you. Another question has come through from a few people. What does normalized trade mean for PaulCamper in FY '25? So, right now, where our focus is on getting them back to normalized booking levels from premigration level. We're still slightly down in the booking levels. We've seen that it's kind of gone up and down as across the months that we've had a number of issues that have plagued that project as I outlined before. We do expect to see that return to the previous year's trade in the half and that once we can get that back to parity that we can actually then focus on sort of what it means post that in terms of our future for that location. We're already seeing an increase in conversion, which is excellent. So, we're actually getting better value out of the traffic that we've got coming to the site through that improvement in conversion via the platform improvements that we've made. And we see that with the technology changes that we have rolling out, we're very confident about actually being able to offer customers a better product than what they previously had, and we see that, that will be a positive impact on bookings and also revenue in the future. With our new statuses that we have and the integration of those insurance products into those regions, we're also confident about being able to actually increase that take rate in those regions, probably more than we ever were before. So, now we're really focused on getting that back to normal trade and then focusing on increasing that take rate, which will increase our revenue in those regions as well. So really, that's our focus for the German market right now is to achieve those outcomes. Another question has come through around GP. So, gross margins flagged that premium membership rises and Mighway impact. Can we talk around some of the damage issues and how we're going to reduce that damage? And how soon should we expect to see that return to the high 60s, Andrea?

Yes. So, with the increasing damage, we have in place a project to improve the safety of the fleet that has been worked on for the last few months and is being rolled out probably in late H1 FY '25. This will address and make sure that the brands are having the appropriate safety checks being done regularly. We give on some further education on how they can ensure that the hirers really understand how to use the vans appropriately, when damage can occur such as when winds come through, making sure that awnings are folded away prior to bad weather, and things like that. We also have a higher education program that will be rolled out through our online training platform, which will be, again, giving hirers those tips. So, before they go out on a trip, they can understand how best to care for the vehicle as well. So, we do expect that to sort of come in prior to the peak season, and we expect those GP margins to be able to improve. Having said that, again, with the increased premiums that we'll pass on, that will also positively impact that GP margin in FY '25.

So, just a couple of questions about the performance of PaulCamper, and particularly around the issues that we had during the migration. How do they become apparent? And when do we disclose those? So, it was basically an evolving process. So, as we started to do the migration, and we started to see customers need to be reverified, we then had to look at the uptake of that verification as that increased and we saw more and more owners verify on the platform, then we started to see other issues come through as we saw a volume increase in the hirers come through. So, we had a period of a few months that we needed to actually see how that data played out. And they're very much a seasonal business. So, it evolves and changes as we get further into the season. So, we disclosed those results. I don't have the exact date to him, but you can see in our disclosure statement that we had, the impact of that project. And we felt as though we had enough time to actually truly see where and how that was impacting the platform. So, we disclosed that information in the update we provided. And we pretty much were in line with our expectations around that impact of the migration. We do feel now that we're very much on top of that. We've got a couple of things to roll out in the next coming weeks that we believe will fully resolve the majority of those issues, particularly around payments. And we can now see that we're actually providing a better experience for customers than what they previously were at. So, we had a need to do that migration in line with the synergies, but also in line with maintaining business risk. We're an online platform. It's really important to make sure that we have a secure system. And so, we identified that that was a key risk to the business in that legacy platform that PaulCamper was on. And so, we needed to make that change to ensure that the business will be secure for the future. And so, while we did have some issues along the way, in the grand scheme of things, we feel like we're going to be in a much better position with that business moving forward. A question around growth. So, I'll just refer you to the consensus numbers around that growth target, and we believe that we're in line with those numbers moving forward, and they're in line with our goals over that sort of 3- to 5-year period that we have disclosed and the business is comfortable with. A question around the acceleration of marketing spend for '25 and how that's changed and where do we see that moving to in the future? Any color on that, Andrea?

Yes. So, we expect, as a percentage of revenue, that marketing spend to come back sort of into line to that sort of 15%, 16% that we have seen historically. We did have to accelerate that and increase our spend a little during the last couple of months of FY '24, but we are confident to get those numbers back in FY '25. And obviously, as a percentage of revenue, that's so stable, but that does mean that we increase our dollar spend in the market and during the year.

Thank you. A question around the recent closure of Uber car share in Australia. And I guess, kind of ties into the question around sort of insurance losses that we've questioned, that we've seen in terms of damages. I think it's very important to note that car share and what we do is very different. There losses are very focused on high-volume, lots and lots of rentals in lots of time. And therefore, they're sort of like a micro transactional environment. Our average booking length is closer to 10 days. And we actually have a policy that performs quite well in terms of loss ratio across the board. And we see that our overall policy performs really well. I think in general, there's been an increase in insurance costs for every insurance business that's out there in the last couple of years. Mainly, that's due to changes in parts and material of the actual repairs. So, just kind of adjusting to that new normal in terms of the insurance prices, and we constantly check our insurance prices versus the market. And we feel as though we're priced really fairly and that we will evaluate that, but our loss ratio is actually in line with where we would expect it to be. So, it's just a matter of sort of managing that value. Another question sort of come through as to if we feel as though the PC migration impacted the Australian result? I would say that the business went through has been through a bit of a restructure in terms of the way that we do things, teams, as a response to what we saw through that migration. And so, we've improved the operational teams across the board, including Australia. I think that it was a huge focus for us and that the business needed to respond to those issues. And now that I feel like we're actually in a much better position to be able to service all the markets through our new structure and team that we have in the way that we can actually respond to customers. So, I think one of the leading indicators for us has always been the fleet. And so, we need to get more and more fleet on a platform to actually service demand to customers and to enable us to be able to invest in that forward momentum of the platform. And so, I think when we have -- if you have a look at the half results, you'll see that the fleet sort of slowed a little bit in compared to where we had expected it to be at. And now we're starting to accelerate that fleet growth. And so, that's a really good indicator as to future business performance historically. And so, I think that that's directly pretty much aligned to when we started to go through that business restructure and the destruction that the migration certainly had on the business. So, very confident now about where the business is at with those new changes that we've made to be able to be in a much better position for the future. So, a couple of direct questions, Andrea. The take rate for, I guess, the European countries overall has been lower than ANZ. And that's primarily driven by both, I guess, AER and membership products in these markets, on average, sort of where do we see that at the moment and where do we think that, that might head towards in FY '25?

Yes. So, we do see lower take rates in Europe. The PaulCamper take rates remain around 18.2%. That is going to stay fairly steady until we see an increase in the Camper+ members there and also once we roll out the AER product. So, we are looking at rolling out the AER products throughout Europe across FY '25, and we will see an impact -- a positive impact on take rates there. Spain, the take rate sort of sits around the low 20s as of the U.K. Similarly, we'll see those increase there. In New Zealand, we do see a slightly higher take rate in the mid-20s as we do have that premium membership, and we do have the accident access reduction product. As the GTV from bookings grows versus the premium membership growth, we would expect to see some slight increase, but the smaller fleet size there and premium membership base doesn't have a significant of an impact on the take rate as we see in Australia.

Great. Another question for you, Andrea. In the report, we have a difference between higher revenue and owner fees for Camplify and PaulCamper. You just talked through about why that's different. What's the history on that? And what's the goal moving forward with those 2 differences?

Yes, sure. In Camplify regions, historically, we have had a fairly even split of fees to the hirers and to the owners. On the hirer side, we charge a commission of 10.5%. And then we've had the optional extra products around AER. On the owner side, we charge between 6.5% and 13.5%, depending on which insurance products the owners have. Within PaulCamper, because there's less complexity around their products. It's a pure commission model. Historically, they actually didn't charge anything to the hirer, and they only charge a 15% fee to the owner. I think it was in late 2021 that they introduced a 5% fee to the hirer. We will consider this over the future. But in Europe, there are stronger competitors as well. So, we need to keep in mind what sort of fee structures they have and make sure that we are remaining competitive with that. So, in terms of the commission changes, we would review that, but potentially the increases in take rate will mainly come from those additional products that we can refer.

So, question, the Australian market, do we feel as though it's mostly mature? Or do we still see high growth opportunities? I think we definitely have a lot of growth to continue to do in the Australian market. We still only have a small percentage of total RVs in this market on the platform. There's still a huge demand in the Caribbean camping sector from customers who want to get into using an RV in an ongoing basis. So, really positive about this market. We feel as though there's still a lot of growth opportunities. I think it's important to note that we've grown so significantly in the last few years that at some point, you can't continue to see 30%, 40%, 100% growth percentages in the Australian market. We still saw some good growth in Australia. And as we start to get more and more fleet on the platform, we still expect to see those good growth opportunities in the Australian market on the higher side as well. I think that one of our biggest challenges in the Australian market has been our insurance products. And certainly, our MOA division is about being able to address this and have a more transparent product for customers and to be able to have a product that is really integrated with our platform. And that's certainly our objective for FY '25. A question around Europe and competitors, how are they performing? No one other than us in the market are public, so we don't have any information to really disclose. I think anecdotally in the European market, particularly, I guess, in Germany, what we see is a lot more smaller business operators. And so, we've actually worked with those business operators in the Australian market to be able to help them utilize the Camplify platform as a way to do business and be more effective. And so, that's really what our objective is in the European markets to be able to introduce those tools and those products, particularly around insurance to be able to help small businesses really utilize the platform. One of the ethos, I guess, of PaulCamper previously was that it was truly a P2P. So, there was really no businesses operating through the PaulCamper platform. And so, now we're starting to look at how do we reintroduce those businesses to the PaulCamper platform under the Camper+ membership models in moving forward. So, that's certainly an objective of ours, and we've got good product sets and tools and et cetera, and experience to be able to do that in the European market. A question around the timing for the cost benefits that we've realized as a result of the migration into the -- as a result of PaulCamper, Andrea?

Yes. So, we've started seeing those flow through, and we will expect the majority of it to flow through into FY '25. The full benefit will be in FY '26.

Another question, I guess, around our working capital position and where we see that moving to versus historic levels in the next 12 months. I think the first part of that is, we're happy with the consensus numbers that are out there at the moment. Any other color on that, Andrea?

Yes. I mean, normally, we do operate in a negative working capital model. I guess, the reduced revenue and the additional expenditure that we've had during the migration period has significantly impacted that. So, we do expect that it would get back to that normalized model in FY '25 once we see that trade return to normal from PaulCamper.

I think another big part of that is the rollout of our additional products that we're sort of focused on in FY '25. And so, take rate plays an important part in that. And so, as we can continue to see the take rate lift increase in those various different regions, then we'll see the positive impact of that around working capital as well. Look, that's probably a summary of the questions that have come through. Thank you very much for your time today. I really appreciate the support that you've shown in the business, and I look forward to providing a further update to you at our AGM in November. Thank you.