eDreams ODIGEO S.A. (EDR) Earnings Call Transcript & Summary

Good morning, everyone. Thank you all for joining us today for our first quarter fiscal year 2024 results presentation for the 3 months ending 30th of June, 2023. I'm David de la Roz, the Director of Investor Relations at eDreams ODIGEO. As always, you can find the results materials, including the presentation and our results report on the Investor Relations section of our website. I will now pass you over to Dana Dunne, our CEO, who will take you through the first part of the presentation. Thank you.

Thank you, David. Good morning, everyone, and thank you for joining us. The key takeaways from today's results presentation is that eDO continues to show strong growth in subscribers, revenues and profit. In fact, our cash EBITDA more than doubled in just 1 year, and cash EBITDA margin improved 9 percentage points versus the first quarter of FY '23. This means our cash EBITDA margin improved from 9% in Q1 '23 to 18% in Q1 '24. And we added 1.5 million subscribers in the last 12 months and 375,000 in Q1 '24. In total, we are on target to meet or exceed our self-set targets for FY '25. Today, we'll take you through the key points of our strong performance. This will include; one, eDO results highlights; 2, the Prime model proven to be a success and we'll review our excellent first quarter FY '24 results; 3, we will then explain the improvements on disclosure we have implemented so there is a better understanding of our subscription model; 4, we'll cover our investment highlights and we'll conclude today's presentation with some closing remarks about our long-term fundamental growth potential well beyond FY '25. Please turn to Slide 4, which is a summary of our performance for the first quarter of the fiscal year 2024. As mentioned, our profit margins have increased significantly due to the strength of our Prime model and the maturity of Prime members. This also has resulted in cash EBITDA more than doubling year-on-year. Most importantly, we are on track to meet or exceed our self-set target for FY '25. Some of the key highlights for today's presentation are; first, in the first quarter of FY '24, the strength of eDO Prime model continues to drive significant improvements in profitability. Cash EBITDA stood at EUR 29.4 million, more than double the EUR 14 million reported in the first quarter of FY '23 and cash EBITDA margin had 9 percentage point improvement year-on-year. Cash marginal profit stood at EUR 52 million. That's up 55% year-on-year, and the margin had a 10 percentage point improvement in just 1 year as well. Prime share of the cash marginal profit reached 65% of the Group's total already, and now our results are largely driven by subscription. This has led us to change the way we report internally as a subscription-led business. And going forward, Prime and Non-Prime will be our reporting segment. Second highlight. eDO Prime [ miles ] is firmly established as a success. In the first quarter of FY '24, we reached 4.7 million subscribers. That's a 48% increase versus the same period last year, despite the industry moving to more normalized seasonality patterns. Since the first quarter of FY '23, customers booked closer to departure date due to the Omicron catch-up effect, which is no longer happening in the first quarter of FY '24. Post the period end, we have added another 200,000 members and have 4.9 million subscribers. Prime cash revenue margin. This is a new quarterly reporting KPI. It also showed very significant improvement, up 46% versus the first quarter of FY '23, and this is in line with the growth in Prime members. Also Prime share of total cash revenue margin for the first time surpassed 50% in one quarter since we launched Prime in 2017. Prime share of cash revenue margin was up from 41% in the first quarter of FY '23 to 57% in the first quarter of FY '24. Third highlight. eDO is well on track to meet or exceed its self-imposed FY '25 targets. That's because on the Prime members, our quarterly net adds run rate is ahead of implied run rate needed to achieve FY '25 targets. And Prime ARPU, as guided, is trending towards the mid-EUR 70s, and then will converge with our FY '25 guidance of around EUR 80 per user. In the first quarter of FY '24, Prime ARPU stood at EUR 75.5 per user. And the cash EBITDA, our first quarter FY '24 results demonstrated that an increase in share of year 2 plus Prime members has a very positive impact on margins, doubling year-on-year. Today's numbers reaffirm, we continue to be well on track to meet our self-imposed target of over EUR 180 million in FY '25. Fourth highlight. Longer-term and beyond 2025, eDO has strong fundamental growth potential. This is due to the attractiveness of our area of travel. We will continue to benefit from the strong online consumer leisure travel in which there is a structural shift from offline to online and convenience and desire to travel. Also, we will benefit from eDO's ability to further increase household penetration in the markets in which we currently offer Prime, given the current low penetration levels. Also, we will expand Prime into new markets, moving from 10 markets to many more markets. We will enter new customer segments, and we will further launch products and services under Prime. In sum, Prime has proven to be a success and is now firmly established. It delivered significant uplifts in profit margins, which will continue. We believe we have the right model, right people, and right structure to seize and deliver on the exciting shareholder value creating opportunities that are well, well, well ahead of us. If you could all please now turn to Slide 6 of the presentation, I will take you through the Prime model. In 2017, we launched our Prime subscription program. Until then, we were like all other travel companies. We were a transaction-based company, having a transaction-based relationship with our customers. In fact, the subscription model has been proven to be highly successful in other industries such as Costco for supermarkets or Netflix for video streaming and many other companies in many other industries as well. However, in travel, no one had done it, until us. Today, we have proven it is successful, with us having almost 5 million subscribers and adding around 1.7 million subscribers every year and with good healthy margins. Thus the company we were back in 2017 is not the company we are today. No longer are we a transaction company like all other travel companies. Instead, today, we stand at over 50% of the company's top line and profit margins being driven by subscription with all of the benefits of a subscription company. This means much more certainty in the predictability of results, lower susceptibility to external impacts, higher customer loyalty, et cetera, et cetera. Already the subscription part is over 50% of the company's results, and that is only getting bigger and bigger every day, every month and every year that goes by. Thus today, we are really a subscription company and that is the way in which we manage and run the business. Please turn to Slide 7. Related to us being a subscription-based company is the rapid growth in subscribers. In fact, Prime members are on track to meet or exceed our guidance to reach 7.25 million members by the end of March 2025. On a run rate basis, we are ahead of the required pace to achieve our target of Prime members. Please note, net adds of Prime members are influenced by seasonality, and in particular, in the first quarter of FY '24 because of the industry moving to more normalized seasonality patterns. For example, the net adds of Prime members in the first quarter of FY '23 were positively influenced by the Omicron catch-up effect as more people were looking to book their travel closer to summer departure date. Net adds increased because of that. But overall, in higher volume seasonality periods, we should have higher net adds, such as the fourth quarter. Coming back now to our target of Prime members for FY '25. We continue to be on track to meet or exceed our target of 7.25 million Prime members by the end of March 2025. With the excellent progress made, the target is absolutely achievable. Together with our existing plans, we will continue to grow our Prime addressable market, launching Prime in new countries to accelerate our run rate further. This gives us full confidence in meeting or exceeding our FY '25 target. Please turn to Slide 8. Cash EBITDA is on track to meet our target of over EUR 180 million in FY '25. The growing maturity of Prime members has resulted in strong improvements in profitability during the last fiscal year. In the first quarter of FY '24, cash marginal profit margin continued to improve. It increased to 31% from 21% in the first quarter of FY '23. That's a 10 percentage point improvement. Cash EBITDA also improved substantially. In the first quarter FY '24, cash EBITDA margin more than doubled at 18% versus 8.8% in the first quarter of FY '23. This is an improvement of 9 percentage points, well above first quarter, second quarter, third quarter and fourth quarter FY '23 margins. Turning now to Slide 9. Let me remind you that when looking at Prime versus Non-Prime, we still think it makes more sense to look at our business on a last 12-month basis as Prime is an annual subscription business and the Non-Prime part is quite influenced by seasonality patterns. Our KPIs reported today show strong growth and significant marginal profit uplift as maturity of Prime members increase. Another proof point that we are really a subscription company is our strong growth in cash revenue margin and cash marginal profit has led to a 50% cash revenue margin and 59% cash marginal profit in the last 12 months to June 2024, being delivered from Prime members and that was versus 41% and 53% just a year ago. As we now have a much larger portion of Prime members in the second year and subsequent years of the membership cohort, the level of profitability of Prime continually improves. Now let me pass it over to David, who will take you through our excellent first quarter FY '24 results and the improvements in disclosure.

Thank you, Dana. If you could all please turn to Slide 10 of the presentation, I will take you through the financial results in more detail. In the first quarter of fiscal '24, we have delivered a strong growth in cash EBITDA and substantial improvements in margin as the maturity of Prime members increases. In the first quarter of fiscal '24, cash revenue margin is 5% higher than in the first quarter of the previous year. Cash marginal profit and cash EBITDA improved 55% and 110% respectively between the first quarter of last year and the quarter that we just published. Over the past year, our subscribers grew by 47% to 4.7 million. In addition, 57% and 65% of our cash revenue margin and cash marginal profit in the quarter, respectively, are now from Prime members. As guided, the maturity of Prime members is the most important driver for profitability, and this has resulted in the strong improvements in profitability as we have more Prime members renewing their membership. Cash marginal profit margin increased to 31% for the first quarter of '24 from 21% in the first quarter of '23; 10 percentage points improvement. Cash EBITDA margin in the first quarter of '24 more than doubled and stood at 18% versus 9% in the first quarter of fiscal '23. Cash EBITDA stood at EUR 29.4 million in the first quarter of '24, up 110% per year. Please turn to Slide 11 of the presentation. Revenue margin, excluding adjusted revenue items, was EUR 157.5 million. The application of a new estimate for revenue recognition of Prime subscription fees, which we will explain in detail in the next section of this presentation has a catch-up effect from the past. This is why we have adjusted the revenue margin down by EUR 7.9 million, as this amount is not reflective of the current period's Prime revenue. Adjusted revenue margin increased by 8% to EUR 157.5 million, mostly driven by an increase in Prime revenue margin up 65%, following the successful expansion of the Prime member base. Prime revenue margin growth rates were offset by the non-Prime revenue margin, which decreased 23% versus the first quarter of '23. That quarter, first quarter of '23, was positively impacted by the catch-up of Omicron booking. Variable costs decreased by 8% on lower variable cost from Prime members driven by a more mature Prime member base. Overall, the first quarter of '24 have seen the improving trends we saw in fiscal '23 continue and significant improvements in profitability as we have more Prime members renewing their membership. Fixed costs increased by EUR 3 million, mainly driven by higher personnel costs. As a result, adjusted EBITDA was EUR 20 million, a material increase. Adjusted net income stood at EUR 1.1 million in the first quarter of fiscal '24. Turning now to Slide 12, I will take you through the cash flow statement. In the first quarter of fiscal '24, despite moving to more normalized seasonality patterns, we ended first quarter with a positive cash flow from operations of EUR 18.3 million, mainly due to the successful expansion of the Prime member base, which resulted in higher EBITDA. In the first quarter of '24, we had a working capital outflow of EUR 9.3 million, again, mainly driven by the business moving to more normalized seasonality patterns. In the first quarter of '23, the higher working capital inflow was positively impacted by a catch-up effect from Omicron bookings, which resulted in an increase in volumes between March and June '22, which was larger than the increase in volumes between March and June of '23. We have managed our liquidity position well, consequence of our strong business model and active management. Liquidity has remained more than sufficient and stable throughout the pandemic. At the end of June, '23, the liquidity position was strong at EUR 198 million. We have invested EUR 10.8 million in the first quarter of '24, an increase of EUR 3.9 million as we capitalized our software. Cash used in financing amounted to EUR 5.2 million compared to EUR 34.8 million in the first quarter of '23. The variation mainly relates to the payment made in June '23 of the government-sponsored loan of EUR 3.8 million, the repayment of the Super Senior RCF by EUR 30 million in the first quarter of '23, and the payment of the costs associated with the refinancing of our EUR 3.4 million in the first quarter of '23 as well. If you could please turn to Slide 14, let me run you through the rationale and further improvements we have made to our disclosure for you to be able to measure us and our subscription model. As the majority of eDO's performance results is driven by subscription, we have decided to change the reporting breakdown to better reflect our subscription listing. As you can see over the past 4 years, the evolution from transaction to subscription business is clear. Prime revenue margin went from 4% to 55% in the first quarter of '24 of our overall revenue, and marginal profit went from 2% to 57%. From the first quarter of '24, the Group will disclose Prime versus non-Prime, as revenue margins, variable costs, marginal profits and adjusted EBITDA level with quarterly figures and not only last 12 month figures. The Group will also start reporting revenue by timing of recognition alongside the Prime, non-Prime dimension to align with the new reportable segment. And 3, in order to align the financials better with the evolution of the subscription service, the Group has also decided to change the Prime base of revenue recognition from revenue recognition based on usage to revenue recognition based on a gradual model. If you could please now turn to Slide 15, I will go into a bit more detail about each of the changes in disclosure and rationale behind them. Before the change, as you know, the Group identified as segments the different markets in which it operated, since it was the basis on which the information was reported internally and the strategic decisions were made, such as the launch of new services, pricing strategies or investment in marketing. But with the shift in the Group's majority revenue and profits coming from subscription, this is no longer the way we look at information in order to evaluate performance and make operating decision. The Group considers Prime versus non-Prime in segments as a better reflection of how the leadership team evaluates operating performance. And from the first quarter of fiscal '24, segment information is presented with Prime and non-prime as the new segments. Comparative disclosure has been restated to reflect this change in segments. So what this means, for the Prime segment, it means the profit and loss measure generated from Prime users. In the case of cash revenue margin for Prime, it includes elements such as, but not limited to, Prime fees collected, the GDS incentives and commissions derived from bookings of Prime users, ancillary services purchased by Prime members, et cetera. And for non-Prime segment, it means the profit and loss measure generated from non-Prime. If you could please now turn to Slide 16. The change in the segment reporting makes a new revenue breakdown based on revenue recognition more appropriate. Before the change up until the fourth quarter of fiscal '23, the Group disaggregated revenue from contracts with customers by source of revenue as in diversification revenue, Classic customer revenue, classic supplier revenue and Advertising and Metasearch. Following the Group's change in its operating segments and the expected evolution of the product, management has considered that the previous revenue disaggregation was no longer relevant and instead, a revenue disclosure based on the uniqueness of the revenue recognition method alongside the Prime, non-Prime dimension is more appropriate. Revenue has been aggregated based on the similarity of economic factors and the similarity in the timing of revenue recognition and makes it easier to link revenue to operating KPIs, being the 3 new parts of the breakdown. First, Gradual, which represents revenue, which is recognized gradually over the period of the service agreement and mostly relates to recognized subscription fees, the service of cancellation for any reason and Flexi Ticket, and airline over-commissions. Transaction Date, second type of revenue, which represents the revenue, which is recognized at booking date and mostly relates to service fees, ancillaries, insurance, incentives other than airline over-commissions and other fees. And Other, which is a residual category and mainly relates to advertising and metasearch revenue, tax refunds, and other fees. If you could please turn to Slide 17, we have also made a further change in estimate regarding the recognition of subscription fees, which aligns with the evolution of the prime product and relevance of service for subscribers. This has resulted in the accounting estimates regarding the recognition of subscription fees, changing from revenue recognition based on usage to revenue recognition based on gradual model. The change implemented aligns with the standards of other subscription businesses and helps investors and sell-side analysts to better understand the business as a subscription company. The change in revenue recognition does not affect any of the cash metrics, nor any of the cash metrics, but does affect the recognition through the P&L of subscription fees, revenue margin and adjusted EBITDA. We continue to believe that the best way to understand our subscription business is through the cash metrics, and the cash metrics are unaffected by this change. We have been communicating on cash metrics for some time and we'll continue to do so like other subscription businesses. If you look at the chart on the left-hand side, you can see a material increase in adjusted EBITDA, even using the former accounting [ estimate ]. The chart shows pro forma of the first quarter fiscal '24 adjusted EBITDA. The reported figure is EUR 20 million, and the figure if we have not changed the estimation of revenue recognition of subscription fees is EUR 16.2 million. The increase from previous year is very material in any case. In the following 2 slides, 18 and 19, we will show you how our figures look like on a quarterly basis with the new accounting decision. Please turn to Slide 18. On the left-hand side, cash revenue margin growth was driven by the successful expansion of the Prime member base and partially offset by the decrease of non-Prime, which last year was positively impacted by the catch-up of Omicron bookings. On the right-hand side, if we look at cash revenue margin by timing of revenue, the increase in gradual revenue margin, up 34% follows the strong growth of the Prime business as the subscription fees are a substantial part of the gradual revenue margin, and the decrease in transaction data revenue margin is due to the decrease in non-Prime bookings as the first quarter of fiscal '23 was positively impacted by a catch-up of Omicron. Please turn to Slide 19. Cash marginal profit continues to show rapid growth, with significant improvements in profitability. In the first quarter of fiscal '24, cash marginal profits for Prime increased to 35% from 27% in the first quarter of fiscal '23. That's a 9 percentage points improvement in just 1 year, as the cash marginal of profit for Prime weight over total expanded 13 percentage points, from 52% in the first quarter of '23 to 65% in the first quarter of '24. Cash marginal profit margin for non-Prime also expanded 7 percentage points from 17% in the first quarter of '23 to 25% in the first quarter of '24 as continue to focus on the most value-added non-Primes. As you can see, our business has evolved tremendously from a transaction business to a subscription business. As a result, it is appropriate that our reporting evolves from one typical of a transaction company to one more suited for a subscription business. I will now turn the presentation back to Dana to go through our investment highlights and some closing remarks about ambitions from fiscal '25 onwards.

Thank you, David. In the next 8 slides, I'm going to share some additional data on eDO and to try to summarize why we are an attractive company for investors, and we believe that we have ample room for valuation expansion. Please turn to Slide 21. First reason, subscription is a superior business model as proven by other companies like Costco and Netflix. And our Prime members are on track to reach or exceed the 7.25 million members by FY '25. Please turn to Slide 22, second reason. eDO has demonstrated the ability to grow its membership base, penetrate markets and capture new customers, and we expect that to continue as the market recovers. Please turn to Slide 23 of the presentation. Third reason, within travel, eDO is the global flight leader, excluding China, and we leverage this for our success and in providing a competitive edge versus others. Please turn to Slide 24, fourth reason. We are in pole position in an attractive market and have the first mover advantage. Please turn to Slide 25 of the presentation, fifth reason. eDO is unique in terms of profitability and growth. This subscription model is improving in other industries to generate both long-term high growth and good profitability. This is the case for subscription companies such as Netflix and Costco amongst the others. At the same time, we are just -- we are not just copying, but innovating; taking the model to new heights and doing things that no one else has done. Please turn to Slide 26 of the presentation, sixth reason. Since very early days eDO has been recognized as a leader in AI in Europe, always being a step ahead. Please turn to Slide 27 of the presentation, seventh reason. We are very well-positioned, well-financed and well on our way to meeting our self-imposed FY '25 targets, which to remind you are; Prime members over 7.25 million members, Prime ARPU around EUR 80 and cash EBITDA in excess of EUR 180 million. If you could please turn to Slide 28. I would like to conclude by highlighting the strong fundamental growth potentially beyond FY '25. The longer-term potential beyond FY '25 is huge. Prime is only currently in 10 countries, yet as a transaction model, we're in 44 countries. Thus, overtime we will continue to expand clients in many more countries. Also, within each country where Prime is currently offered, we are nowhere near the normalized household penetration of Prime. This will provide large growth. In other product categories that have much longer tenure of introduction of subscription, European household penetration [ can be ] 20% to 60% depending on the product. Our current average penetration of our top 6 markets is only 27%. Third, many successful subscription programs evolved into more segmented customers -- segmented offers by customer and product segments. This also provides significant market growth opportunities for us as well. Overall, eDO is now a much higher quality business with the pivot to our subscription model. This delivers loyalty and repeating customers, resulting in more and more profitable and predictable business. We are delivering high underlying profitability and has huge growth potential. All of this will drive superior returns for shareholders, excellent service for customers while at the same time transforming and revolutionizing the industry.

Thank you, Dana. With that, we would now like to take your questions.

We will answer the questions sent to us in writing in the webcast. We will take questions in a first come, first serve basis. We're also trying to group questions of similar nature. Should we not have time to respond to questions from the webcast, the Investor Relations team will make sure that those are answered afterwards. So, I'm going to see the list of questions now. The first set of questions comes from Nizla Naizer from Deutsche Bank. The first one says, on the competitive environment, have any of your larger global peers gone down the subscription path, how do you view the recent news around Google Flights highlighting when it would be the best time to book flights on a certain route? Does this take away some traffic that may have directly come to your website? Dana, do you want to take this one?

Sure. Yes, absolutely. So let me -- there are 2 parts to this first question. Part 1 was about just global competitors are going down the subscription path. And again, it depends on what we mean by global competitors, but just for focus and [indiscernible], I know there is TripAdvisor that did launch a subscription program several years ago. And I think they did for probably around 2 years [Technical Difficulty] made public in their disclosure about it, and then they pulled back since after about 2 years. And I think that, you know to kind of paraphrase and they said that they like the subscription base. I think it's a good opportunity, but it wasn't working in the way in which they wanted to work for them. [Technical Difficulty] So, there has not been any further pursuit from them. And I don't think that you see a material pursuit from any of the other global competitor today. This subscription model is very difficult to replicate. We have now 6 years. And actually, I would say, actually even, we've been working on this for over 6 years, subscription. And it requires an awful lot of effort, awful lot of insight and some prerequisites as well to be able to really do it and do it extremely well. We started in flight. We now actually have flights, hotels, we have cars that have packages, et cetera. And so we've come a long way in that period of time. And so it's very difficult, and it's a huge undertaking for anyone else to actually try to overcome. In terms of the second part in this question, I think it was about Google and Google Flights, in terms of they have a new feature that highlights the best time to book in a certain route. And I think the question is, does it takeaway traffic from us coming directly to our website? The answer is -- to answer it in one word, no, it doesn't. It's not one of the key drivers of customer choice at all, and furthermore, let me link it specifically to our business, we're more of a subscription than a transaction business. And thus our dependence on these types of channels is less on average than other companies. And I think, in fact, you've seen that we have experienced a material reduction on marketing costs once the customer [ decides ] comes to Prime customers. And so you see as we get into the year 2 plus, having more and more Prime customers and subscribers moving close to that first booking, the margins are extremely attractive for us in that. And then lastly, as we have an awful lot of our first-time subscribers coming from pure referrals and word of mouth. And I think we've also shared with investors that the customer satisfaction and net promoter score is extremely high for Prime and therefore, we benefit from that as well. David, you have the filed now.

Okay, the second question from Nizla is, can you give us some color on prime churn? Has it changed or stayed stable over the last 4 months? Does it vary by markets? Well, as we have said multiple times, we only disclosed the churn one time to give comfort to people and we don't see the vast majority of other B2C subscription programs doing this. However, let's say on a more qualitative basis, we have seen churn slightly improving. As you know, we monitor continuously customer satisfaction and net promoter score, which are 2 very important variables for us. And at the moment, these KPIs are truly remarkable. And although we can still get better, of course, according to these figures, we are not worried about an increase in churn in the short term. The third question would be, I understand the subscription pivot results in the new reporting structure. But could you please give us some color on how overall bookings performed in Q1? Well, let me remind everyone that the things that we have discontinued are things that are non-relevant for us anymore. In fact, they have the risk to confuse people regarding what really drives our numbers, because we are a subscription company and therefore, we are adding other disclosures which is much more relevant for our subscription company. For instance, we do not give the booking for Prime because it would just confuse people as they're not a driver of our results. Addressing your question, I say, on a more broad level, we continue to have gains in market share, and we continue to trade in a very positive way. But we're not going to disclose the number of aggregate bookings or the number of Prime bookings on an ongoing basis. The next set of questions come from Francisco Ruiz from Exane BNP. The first one says, once the seasonality has returned to a normality, how do you expect working capital to perform within the year? Let me take that one. I'd say directionally, we should see an inflow because our gross sales are growing as expected, and we keep having more volumes than we used to have in the past. That's for the aggregate of the year. However, let's say, this is -- this can be, as you know, impacted by seasonality from quarter-to-quarter, and there is one other thing for the aggregate of the year, particularly with the March year-end that we have for our fiscal year and where the seasonality of this has changed somewhat versus the previous year. In 2023, the Easter was in the first week of April. And this time, it will be on the last week of March. Therefore, we have 1 more week of vacation period within the quarter, that last quarter. And like we have explained and I'm happy to repeat, when peoples are on vacation, they're not booking vacation. They're just on vacation. So periods of vacations like the week of Easter tend to be low booking period. That one fell to April '23, and the next cycle is going to fall into March '24. The second question is about the Prime subscription. It says, could you give an idea if new Prime members are in new geographies or you see also nice growth in geographies where the product will be more mature like France? Actually, we see a relatively similar performance across geographies. The biggest drivers is for the total amount of members is the size of country and the date of the launch of Prime. But I think people should keep in mind and we've disclosed these figures in the past, that still the relative penetration of Prime members versus the amount of households in one country is quite low compared with other subscription products. And we disclosed the last time that France, which was our oldest market is under 5% of penetration, and that compares with ranges of -- depending which subscription product you look at for a B2C between 20% and 50%. So it's still very early days. So, we continue to see nice growth of subscribers across both old markets and new markets. The third question is, with the new segment reporting, the revenue margin for Prime members will be just average Prime members in the period multiplied by ARPU? That's actually not that way, for 2 changes versus your question. First, ARPU is based on cash revenue margin and not revenue margin. So ARPU has inside the full amount of subscription fee regardless of the elements of accrual in the P&L. And the other thing is that it is based on the last 12 months reporting. So, it's not Prime numbers in the period, you need to bake a period of all 4 quarters for that to be correct. The next set of questions is from Andrew Ross of Barclays. First one says, do related to removal of disclosure of gross bookings. What is the best way to model your working capital if you don't disclose the gross bookings? Actually, we do disclose the gross bookings. You can still find them in the notes to the financial statements. The second one says, isn't the number of bookings for Prime member an important metric to understand the sustained value of the proposition to drive your ARPU? Remind us why you believe the subscription income is a relevant metric when you're factoring discounts on flights and then still making mark-up on ancillary items with Prime. How do we build confidence of that the value of Prime is sustainable without knowing the frequency? Okay, that's a very valid question, and I'm very happy that it has come up. But the most important thing to retain is that we are definitely a subscription company now. And the number of transactions do not determine the profitability of the subscription model, and we've explained this multiple times, but I'm delighted to explain it again. Yes, new transactions will increase the ARPU, but we have also said that that's only the revenue, it's not the profit. We have also said that we do not make much more profit or a meaningful amount of additional profit of a Prime member that makes 3 bookings versus one that makes 2 booking or one that makes 4 bookings versus another one that makes 3 bookings. So, at the profit level, we tend to equate, right? It needs to be -- we want it to be a really great deal for the Prime members. And therefore, beyond the second booking, we're not making additional money because of the customer mix model. The engagement of the subscribers with a subscription service, which is what I think you're getting to, is perfectly observable in 2 metrics. One is the evolution of the Prime members, and 2 is the profitability. A decline in engagement or an increase in churn would result in either a decline in members, or a decline in margins or a decline of both. But you will be able to observe it from those 2 metrics. And we have decided to discontinue providing the prime booking as it is a KPI which anchors investors on the transactional business mentality. And I think we need to really move away from that mentality, because that's not what explains our business. We keep, on the other hand, providing bookings for the non-Prime business, which is the residual transactional business that we [Technical Difficulty]. From a customer point of view, we have occasionally shared, not every quarter but regularly, customer satisfaction numbers, NPS Net Promoter Scores, which have shown that customers are very satisfied with Prime and have high level of promoting Prime to their friends and family. Going forward, we will continue to periodically share that, as we have done in the past. The third question from Andrew is, any commentary on how you would expect trends to go through Q2, Q3, Q4? Is still expecting an acceleration in the back half of the fiscal year as comps normalize? Well, I would say a couple of things about this. We're giving a hugely detailed 18 months out guidance and no one else in the market is giving, right? And I think that gives you a North start that is very interesting. The other thing that I would say, and let me here, for instance, point to the new disclosures that we are starting to give, and in particular to the revenue breakdown. We have the one in which we break down the revenue between the gradual revenue, transaction-date revenue and other. Being the first 2 categories, the really important ones. If you look at the data that we have disclosed for the last year, you will see that gradual revenue increases every quarter, and that is because that's the one that is driven mostly by the number of Prime members and Prime members increased every quarter. You will see on the other hand that the transaction date revenue is one that has more variability because it's the one that depends on seasonality, right? You should expect that pattern of behavior to continue going forward. You should expect the gross revenues to increase every quarter, agnostic of it is a Q2 or Q3 or Q1, and you should expect the transaction date revenue to have more variability, right? To remind everyone, Q3 is the lowest seasonal period of the year. So, from now to then we go into quarters in which the transaction date revenue only will be going downwards, and then Q4 will pick [indiscernible] again from a seasonality perspective. The next set of questions come from Carlos Trevino of Banco Santander. The first one, could you elaborate on the reasons for your working capital outflow in the Q1? It was fully driven by lower bookings at the end of the quarter versus the inning or are there any other reasons? No, it's really mostly driven by that. The comparable quarter of the previous year, so March to June of '22, you will remember that it was an upward seasonality because the Omicron wave affected the population mostly between December of '21 and February of '22. And therefore, in the following periods, bookings that people would have normally done in January and February for the summer departures didn't happen, and those happened in the quarter from April to June of '22. This year, we had a return to more normal seasonality patterns because thank God, there was not a new strain of COVID that was affecting people's behavior and people in January and February were making booking as normal for the summer, and therefore, you didn't have that surplus of bookings into the month of April to June, that would normally not be done in that period of time by customers. That's the one that is fully effective. The second [ quarter ] is, could you elaborate on recent business dynamics in July and August? Should we expect normal seasonality in the second quarter of fiscal '24? Dana you want to take that one?

Sure. So overall, so Q2 would be the summer, right? So July and August, and I think it's been a very good July and August, quite frankly, well not just for us, but also for the industry, quite frankly. I think we see a couple of important things that I can highlight. The first is that we see the importance from a leisure customer point of view, that leisure travel is even under, let's say sub-optimal economic or macroeconomic environment, right? And now there clearly over the past 12 months have concerns, like inflation and other macroeconomic like issues. And yet we have seen that, from a leisure point of view, travelers have begun -- continuing to travel. Now this is actually not a surprise to us, and I think we've tried to share data in the past where if you look at it over, let's say, from 1980 to 2020 just prior to COVID hitting, amidst the many macroeconomic shocks as well, yet still leisure customers have traveled and really want to travel. That and what they tried to do with discretionary income is actually reduce other categories of discretionary income before travel. So we do see a definitely good one. The second thing what we also see is that a return to seasonality, and so, we do now see seasonality coming in, and so we would expect as David has said is, for example, as we go forward in Q3, it would be the normal seasonality, which is Q3 is not as strong on an absolute level than a Q2, whereas the Q4 is absolutely much stronger than a Q3 on an absolute level. And that's the normal part of seasonality of our business and of the travel industry.

Okay, thank you. The next set of questions comes from [indiscernible]. The first one says, your growth past fiscal '25 in my mind will come from; one, expanding Prime within its existing European market; 2, broadening the product offering; 3, expanding a fully functional Prime program into new markets. Any update on this initiative, especially pushing to hotels? Dana, do you want to take this one?

Yes, sure. Look, I think, Chad asked this question before I did my closing statements. And so I actually did address most of the growth on this. Let me just kind of summarize first the growth and then cover a couple of things that maybe I didn't touch on. But the growth is around kind of, let's say, multiple dimensions. So one is I talked about in terms of expense lines within the existing European markets, we talked about the penetration being on average around 2.7% and talking about other subscription-based products being at 20% to 50%, 60% to even -- there's a lot of room for us there to grow. So, the second one is obviously expanding into new markets where as a transaction-based business, we're in 44 countries. And in terms of subscription-based, we have in 10 countries. So clearly there is a lot more geographies that we can go to and that's just simply addresses that increase with our total addressable market. The third one is around broadening our product offering. Prime has -- we started Prime as being a flights-only subscription program. And then we added hotels, then we added cars, we added dynamic packages as well. And it's shown that the vehicle of Prime is actually a travel product, not just a flight product. And we get very, very good and high levels of customer satisfaction and actually much high levels of customer satisfaction for a customer when they're in Prime, and when they're taking one of those 4 Prime products versus doing it as a non-Prime. And so, overall, there's really good growth for us in terms of the product offering in dimension as well. And then there's also lastly is having from a customer segmentation point of view, when you look at other subscription-based businesses, they do have segmented offerings and that provides good and meaningful growth as they try to target new or adjacent customer segments. And so, we absolutely have good opportunities as well. So in total, there's very large growth opportunities ahead of us around these 4 dimensions. David?

Yes. The second question from the same investor says, it looks like your margins on non-Prime business are moving up. What is happening there? Longer, more complex trips, a pullback in performance marketing spend, lower performance marketing prices? Let me take that. We said a few times, I think, during the call today, we flagged that the first quarter of the previous year was a little bit of normal, and there was a very high amount of bookings with -- some of the bookings that should have been made in January and February actually happened much later, what we call the Omicron bookings. And when we compare what we've done on the non-Prime side of the business this quarter versus last year, basically we're becoming more selective, right, and we're doing less bookings with higher revenue margin per booking, and marginal profit margin. The third question says, when do you anticipate announcing post fiscal '25 financial targets? I think almost I'm going to say, nice try. We have given a super detailed guidance out, which right now is 18 months out that no other company does. We feel very comfortable sticking to that one. And even when we will give guidance beyond the fiscal '25, you will be the first to know. The next set of questions come from Tom Bushey of Sunderland Capital,. It says we appreciate the commentary on the business change since 2017 and the new metrics. Now that you have proven to have a stable, high growth and significantly cash generative business, what are your current thoughts on share buybacks to take advantage of the undervalued stock? I do agree with you that we are a cash-generating business. and that with the subscription model, we will continue to be and in fact, generate more cash over time. And over the last year, we've been able because of this to repay all outstanding bank debt, and that includes what we had under the revolving credit facility drawn and the government-sponsored loan. And we have a good liquidity cushion now, which is composed mostly of large availability under the revolver as opposed to cash in hand. In order to make an investment into our own securities, we first need to have discretionary cash in the balance sheet, which given we are about to enter the low seasonality period of the year in winter, it will happen at the end of the fiscal year. It is at that point in time that the Board will decide what to do, and we'll make the best use of discretionary cash to invest in cash security. The next question comes from Gabriel Megias of Bestinver. You have provided non-Prime bookings in the first quarter of '24. Could you give the figure for the first quarter of '23? And we actually don't disclose this number. I can give you an indication of direction. Directionally, we have had less non-Prime booking in fiscal '24 than we had in fiscal '23 based on this dynamic that we were seeing, but we're not going to disclose retroactively the non-Prime bookings. We will disclose those from this moment onwards in time. There's another question from [indiscernible], the CEO of [indiscernible]. Can you repeat what the Prime current household penetration is of the [Technical Difficulty] that is 2.7%. The next questions come from Guilherme Macedo of Caixabank. The first one is a clarification on the new reporting. Will Prime subscription revenue be accrued exactly linearly across the year? Yes, it will accrued gradually. And the second question is, will Prime variable costs accrual maintains the previous reporting criteria? The answer to that is absolutely, yes. The costs have always been accrued and will continue to be accrued according to when they are incurred. We -- if you take them by order, marketing cost when we buy the [ clicks ] to come to our website, merchant costs, when they are incurred in the transaction, customer service costs, when they are incurred et cetera. So there is absolutely no change in the accrual of the costs in our income statement. It's only the revenue related to the subscription. That's the only change. What could be the implications for EBITDA seasonality? Well, let's say, in terms of EBITDA seasonality, I'd say that you'd probably have pretty much the same way. Because if you look at it -- I referred to a comment that I was making before, and if you look at the breakdown, which I think is useful for everyone of a gradual revenues versus transaction date revenues, you're going to have gradual revenue on both -- mostly on subscription fees, which is going up quarter-after-quarter, and you're going to have the transaction date revenues, which are affected by seasonality. So if I take here instead of a very short view, if I take a long view, the more we have the Prime business being increasingly bigger than the non-Prime, you're going to see much less seasonality in our business from a P&L point of view. You will continue to have some seasonality on the balance sheet side, swing on the working capital side of thing, but the P&L should become more and more regular over time. The next question comes from Ankit Gupta of Goldman Sachs. What is the expectation around marketing costs in the coming quarter? Will it trend at a similar level to 1Q? Yes, we do expect that the real driver behind the evolution of the marketing cost is the increased seniority of our Prime members. The more Prime members that we have, which are in second and subsequent years, the less marketing costs will include. So, the patterns are going to be [indiscernible]. The next question is, do you have any targets for leverage metrics? And we're very happy to see the evolution of the leverage metrics. Actually, if you look at how they have evolved over the last 12 months; 12 months ago, leverage was measured according to our covenants or the net leverage over cash EBITDA on a last 12 month basis has come down from 6.5x to 3.5x, which is 3 turns in just 12 months, which I think it is quite remarkable. But that is, again, on the last 12 months measure. If you just take the last quarter and you multiply it by 4, you would actually be below 3x. If you take our public guidance on cash EBITDA from March of '25, which is EUR 180 million, you would actually be below 2x. So this is a company that is going to be below a 2x leverage, based on our public guidance that we provided. The next question comes from [indiscernible]. If I understood correctly, you said that beyond the second booking of a Prime member, you don't make any money. Could you elaborate a bit more on why that is the case? Is it the case that you designed the subscription fee such that you secure a target return within the first 2 bookings and then once the target is reached you give the full benefit of discounts for members? Well, I'll clarify this, hopefully, by referring to the model that we are inspired by. The model we were inspired by is the Costco model. Some of you may be familiar with it as investors, probably several of you will be familiar with it as customers. As an investor, the model of course -- well it's one in which Costco charges a subscription fee for being able to shop in their premises. And then the prices on the actual goods that people purchase, just have a small margin, put on top so that Costco is able to offset the cost of running the business that they have. So that each additional purchase from the customers brings in revenue, but it brings in hardly any profit. And really, the level of overall profits of Costco is quite predictable, you just take their number of subscribers and multiply it in terms of subscription fee and it takes you to the profit that they should have. That also means from the consumer point of view, that they know that the best deal possible they're going to get from Costco, because Costco is basically giving back to the consumers, almost everything except what they absolutely need to cover the costs. That's the same one that happens -- and that's how we price transactions and how we think about the level of, let's say, give back that we have to do to our subscribers when they make their second booking and the third booking and the fourth booking. They're going to get the best deal possible with us, right? And that's what we want them to know and how we want them to repeat. We don't price differently, depending if it is a first transaction or a second transaction or a third transaction. So, it's not like you get a better deal on the second and the first or vice versa and you get a better deal on the first and the second. You get an extraordinary deal in the first, in the second, in the third, in the fourth, et cetera. But there is a big difference between the first and all of the rest, which is that the first is the one that comes with a subscription fee for us. The next question and actually the last one that we have on the queue today is from [ Mathews Alfredo ] of Spread Research. Could you remind us in which countries is Prime already present? And what other countries are you planning on entering this year? We currently have Prime in 10 countries, which include France, Italy, Germany, Spain, Switzerland, Portugal, the U.S. Canada, the U.K. and Australia. We are present, however, in another 34 countries with the transactional model only. We feel very positive about the opportunity we have ahead of us. We will open a new country, but we do not disclose which until the moment that we have already done it because it will be interesting information for our competitors that we don't feel that we should provide to them. So that's the last question that we have. And with that, I would like to thank everyone for joining us today. Before we conclude, I would like to inform you that on the Wednesday, 15th of November, we will be hosting our conference call for the first half results for fiscal '24. And in the meantime, we will be very happy to receive your questions via our Investor Relations team or the investor e-mail address, which is [email protected]. Have a great day, and great end of August. And looking forward to seeing you in person soon or mostly on the 15th of November.

Thank you.