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

Good morning, everyone, and thank you all for joining us today for our Q3 fiscal year 2025 results presentation for the 9 months ending 31st of December 2024. I'm David de Roz, the Director of Investor Relations at eDreams ODIGEO. As always, today's presentation is shorter than usual because of quarterly results, we only do a limited financial review. And you can find the results materials, including the presentation and our results report in 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, David, and good morning, everyone, and thank you for joining us today. ODIGEO continues to show very strong growth in Prime subscribers and cash marginal profit margin continues to build as the maturity of Prime members increases. In fact, cash marginal profit margin for Prime in the last 12 months was up 8 percentage points over last year, and that brings it to 46% of the cash marginal profit margin for Prime. In addition, we added 305,000 subscribers in the third quarter of FY '25. And today, we're already above 7 million members and on track to meet our self-set targets for FY '25. Today, I will take you through the key points of our strong performance. And this will include 3 things. First one is just discussion about the ODIGEO results highlights. Second will be then a review of our strong 9-month results in which the Prime model continues to drive very strong growth for us. And then third, we'll conclude today's presentation with some closing remarks. If you can all turn now to Slide 4 which is a summary of our performance for the first 9 months of fiscal year '25. As mentioned, our profit margin has increased significantly due to the strength of our Prime model and the increasing maturity of Prime members. In turn, this has resulted in cash EBITDA growing 40% year-on-year and 70% versus the same quarter of the previous year. Some of the key highlights for today's presentation are: first, in the 9 months of FY '25, the strength of our Prime model drove significant growth and has guided to improvement in profitability. Specifically, Prime members grew 26% year-on-year, reaching 6.8 million members with net adds at 305,000. We are on track to reach our 3.5-year-old sell-imposed FY '25 target of 7.25 million members. Also, cash marginal profit for the 9 months of FY '25 was EUR 201 million. That's up 27% year-on-year. And the margin had a 6% improvement reaching 38%. It was 41% in the third quarter of FY '25, and this makes the progress towards our guidance of 42% to 43% in the second half of fiscal year '25. Cash EBITDA for the 9 months of FY '25 was EUR 124 million. That's up 40% year-on-year and cash EBITDA margin improved 6 percentage points versus the 9 months of fiscal FY '24. More importantly, free cash flow, excluding the non-Prime working capital, grew even more and was EUR 69 million in the 9 months of FY '25 versus EUR 36 million in the 9 months of FY '24. That's a EUR 33 million improvement year-on-year and an increase of over 91% during that period. As a result of the strong free cash flow, the company has already repurchased in the 9 months of this fiscal year, EUR 40.1 million of its treasury shares as part of our ongoing equity share buyback program for a total amount of around EUR 90 million, and we will continue to buy more taking advantage of how undervalued we think our shares are. Second highlight is that the Prime model continues to drive very strong growth. The growth in Prime more than offsets the anticipated decline in the non-Prime side of the business and resulted in significant improvements in overall ODIGEO profitability. Prime cash revenue margin for the 9 months of FY '25 grew by 19% following the strong growth in members and as guided, partially offset by a lower ARPU. On cash marginal profit for the 9 months of FY '25 grew 43%. And the margin had an 8 percentage point improvement year-on-year and also prime cash EBITDA for the 9 months of FY '25 grew even more as we start to leverage a more stable fixed cost base. Together with the strong top line growth on cash EBITDA grew 52% and the margin expanded by 7 percentage points. Third highlight is our outlook. ODIGEO is on track to meet the EUR 180 million cash EBITDA target and Prime member target of 7.25 million. We're also on track to achieve our free cash flow excluding non-Prime working capital of over EUR 90 million, and that is more than double versus the fiscal year 2024. All of this growth has been delivered despite many industry and other headwinds over the past 3 years. As guided in the first quarter of FY '25, it's important to highlight that we expect to see better year-on-year comparatives in the second half of the fiscal year as our member base continues to increase and the maturity of our prime members grows. Year-on-year comparative remaining of FY '25 are expected to be as follows: Prime members in the second half of the fiscal year are expected to grow around 24% versus March 2024. And the cash marginal profit margins are expected to be around 42% to 43% in the second half, resulting in around 40% cash marginal profit margin for the group for the full year of FY '25. Looking into the future. For FY '26, we've made public at our Capital Markets Day, 3 new targets. The first one is Prime members over 1 million new members. Second is cash EBITDA in the range of EUR 215 million to EUR 220 million. And the third is generation of free cash flow excluding non-Prime working capital of over EUR 120 million. And longer term, we've also said that Prime members will grow in excess of 10% in FY '27-'28, which shows once again ODIGEO has strong fundamental growth potential beyond FY '25 being significantly underpenetrated in many markets. In sum, Prime's proven model continues to drive very strong revenue and profit growth and has delivered a significant uplift in profit margins. We believe we have the right model, the right people, and the right structure to seize and deliver on the exciting shareholder value-creating opportunities ahead of us. With that, now let me pass it over to David Elizaga, who will take you through some of the KPIs for our Prime model and the strong growth and significant profit improvements in the first 9 months of FY '25.

Thank you, Dana. If you could all please turn to Slide 6 of the presentation, I will take you through Prime model. eDreams profitability was up significantly due to strong growth of Prime members in the year 2 plus and cash marginal profit margin for the Prime segment reached 46%. Cash EBITDA also rose significantly. In the third quarter of fiscal '25, our last 12 months Prime cash marginal profit margin continued to advance, increased to 46% from 38% in the third quarter of fiscal '24, an 8 percentage points improvement. Group cash EBITDA over the last 12 months also improved substantially. In the third quarter of fiscal '25, cash EBITDA margin reached 22% versus 17% in the third quarter of fiscal '24. That's an improvement of 5 percentage points. If you please turn to Slide 7. 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 showed strong growth and significant marginal profit uplift. As marginal profit was up 25% over the last 12 months as we have more year 2 plus members of Prime. Also Prime strong growth more than offset the anticipated and planned decline in the non-Prime side of the business as we focus on Prime. We continue to be selective on how we spend marketing, and we put more focus on Prime products versus developing products and services for the non-Prime side of the business. As we discussed at our first half results, in the third quarter of fiscal '25, we have moved past the 1-year period of intermittent access to Ryanair, which had a meaningful impact on the non-Prime services. This has led to a reduced decline compared to previous quarters, with the third quarter of fiscal '25, down only 6% compared to the third quarter of fiscal '24. That's a notable improvement from the 17% decline of the non-Prime side of the business in the first 9 months. This evolution in the non-Prime side of the business contributed to a consolidated 10% increase in revenue margin and cash revenue margin in the third quarter of fiscal '25 compared to a 3% increase during the first 9 months. This growth is encouraging, especially considering that the strong growth rates in the prime business were previously offset by the challenges in the non-Prime business, partly due to the intermittent access to Ryanair. ODIGEO is fundamentally a subscription business focused on travel. Over the last 12 months, Prime has delivered 67% share of group cash revenue margin and 83% share of group cash marginal profit versus 58% and 71% a year ago. There should be no dispute now that we are a subscription-based business and should be valued as such. As we now have a much larger proportion of our Prime members who have renewed the subscription for a second year, third, fourth year, the level of profitability of Prime continuously improves. If you could all please turn to Slide 8 of the presentation, I will take you through the financial results in more detail. In the 9 months of fiscal '25, we delivered a strong growth in cash EBITDA and substantial improvements in margin as the maturity of Prime members increases. In the 9 months of fiscal '25, cash revenue margin was 3% higher than in the 9 months of fiscal '24 and up 10% in the quarter. Cash marginal profit and cash EBITDA improved by 27% and 40%, respectively, between 9 months of fiscal '24 and fiscal '25. If we look at the comps quarter-on-quarter, cash marginal profit improved by 41% and cash EBITDA by 70%. Over the past year, our subscribers have grown by 26% to 6.8 million, and our ARPU was reduced by EUR 5.5. As guided in the first quarter of fiscal '25, we have given more discounts to our Prime members as our algorithms indicate it is better for lifetime value. As a result of all the above, ARPU is expected to continue at around mid 70s for the remainder of the year. Coming back to our 9-month P&L, 70% of our cash revenue margin and 87% of our cash marginal profit in the first 9 months are now from Prime members. As guided, profitability was up significantly due to strong growth of Prime members in year 2 plus. Cash marginal profit margin increased to 38% for the 9 months of fiscal '25 from 31% in the 9 months of fiscal '24, that's a 6 percentage points improvement and 41% in the third quarter of fiscal '25, making good progress towards the guidance of the range of 42% to 43% for the second half of fiscal 2025. Cash EBITDA margin in the 9 months of fiscal '25 also achieved a very substantial improvement and it stood at 23% versus 17% in the 9 months of fiscal '24. Cash EBITDA stood at EUR 124 million in the 9 months of fiscal '25, up 40% year-on-year. Please turn to Slide 9 of the presentation. Revenue margin, excluding adjusted revenue items was maintained in line with last year. The strong growth of Prime revenue margin for the 9 months of fiscal '25 grew by 18% following the strong growth in members was partially offset as guided by a lower ARPU. This strong growth in Prime revenue margin as anticipated, was partly offset by the non-Prime revenue margin, which decreased 17% versus the 9 months of fiscal '24 following the switch of our customers from non-Prime to Prime and more generally due to the focus on the Prime side of the business. Variable costs decreased by 5% in the 9 months of fiscal '25, despite the higher revenue margin as an increasing maturity of Prime members reduces acquisition costs. Fixed cost increased by EUR 7.4 million, driven by higher personnel costs and, to a lesser extent, higher IT costs. Now that we have reached our recruiting targets, fixed costs will grow less quickly than they did over the last 2 years. And as a result, we will see more leverage of our fixed cost for the rest of the fiscal year. As a result, adjusted EBITDA for the 9 months of fiscal '25 was EUR 79.7 million, and that is EUR 123.7 million, including the full contribution of Prime from EUR 55.5 million in the 9 months of fiscal '24. Adjusted net income stood at EUR 14.5 million in the 9 months of fiscal '25. Turning now to Slide 10. I will take you through the cash flow statement. We closed the 9 months of fiscal '25 with a positive net cash from operating activities of EUR 48 million. Net cash from operating activities decreased by EUR 14.5 million versus the 9 months of the previous year while in the third quarter of fiscal '25, we show a very meaningful improvement of EUR 32.5 million, which improves the cash flow year-to-date meaningfully, mainly reflecting: first, the working capital improvements of EUR 18.2 million from an outflow of EUR 26 million in the third quarter of '24 to an outflow of only EUR 7.9 million in the third quarter of '25 driven by a higher increase in Prime deferred revenue, higher hotel-related working capital performance, an improvement of average basket value in the third quarter of '25 versus the second quarter of '25. And second, while in the 9 months of '25, we saw a working capital outflow of EUR 27.3 million compared to an inflow of EUR 5.6 million in the 9 months of '24. This difference is primarily attributable to a substantial working capital outflow of EUR 19.4 million in the first half, contracting with a EUR 32 million inflow in the first half of '24, offset by the reversal trend previously described for the third quarter of fiscal '25. We still think that you -- should we see similar performance of the average basket value in the second half of '25 to the way it was in fiscal '24, this would result in neutral non-Prime working capital in fiscal '25. We have ample liquidity and headroom to deliver our plans, a consequence of our strong business model, cash generation and active management. At the end of September 2024, the liquidity position was strong at EUR 189 million. We have continued to invest in our business with EUR 41.6 million spent in the 9 months of fiscal '25, an increase of EUR 5.6 million as we capitalize our software. Cash used in financing amounted to EUR 54.2 million compared to EUR 17.9 million in the 9 months of fiscal '24. The variation of EUR 36.3 million in financing activities mainly relates to the acquisition of treasury shares of EUR 40 million during the 9 months of fiscal '25. I will now turn the presentation back to Dana to do some closing remarks.

Thank you, David. Please turn to Slide 11 of the presentation. Overall, we're very confident that we'll meet our self-imposed FY '25 targets of 7.25 million Prime members and cash EBITDA of EUR 180 million. More broadly, ODIGEO has huge potential and is delivering superior returns for shareholders and customers while transforming and really revolutionizing the industry. Furthermore, we're confident in the growth and profitability outlined in our FY '25 and longer-term guidance and also believe the company's worth continues to be unrecognized and undervalued. As a result of this and due to our strong liquidity and balance sheet, we will continue with our daily repurchase program, and we will consider subsequent share buybacks as we continue to generate free cash flow on an ongoing basis.

Thank you, Dana. And with that, we're going to start taking your questions. The first question comes from Francisco Ruiz, the analyst of BNP Paribas. It says, in order to reach your cash EBITDA target of EUR 180 million, you need a growth of more than 50% versus the fourth quarter. This also implies a peak increase in cash marginal profit margin of circa 45%. Is it what you expect? Is the cash marginal profit margin at this level recurring? Look, I'll take this one. So following the guidance that we have given, directionally, we expect to end in a cash marginal profit margin of around 40% for the aggregate. So given the evolution, and you've seen the significant progress that we've made throughout the year, first quarter and the second quarter, the third quarter, in the third quarter, you're seeing a very important improvement in margins. That trajectory is going to continue. We're going to continue in the fourth quarter and is also going to be sustained by the increased amount of members of Prime that are in the year 2 plus, and that's what drives the margins. The next set of questions comes from Carlos Javier, the analyst of Banco Santander. The first one says, you have seen an improvement in the average basket value this quarter. Do you see it sustainable or it was some specific to the third quarter of '25? So it is seasonally normal that from September to December, the average basket value increases. We saw that in the last year. We've seen it in this year, but now I'm referring to '23 and '24, of course. So this has behaved, let's say, in line with the past history in terms of seasonality. Considering a higher weighting of hotels in your bookings, Sorry, this is the second question of Banco Santander, which I haven't said. Considering a higher weighting of hotels in your bookings, could we consider a different seasonality in working capital moving forward? Would it be correct to assume a better working capital than before in 3Q and 1Q and perhaps less positive one in 4Q? Hotel is a very good opportunity for our business. In terms of working capital, it is, of course, less important in size than it is for flights. It is gaining importance, and it is somewhat changing the perspective. So to remind people of the basics, when we sell a flight, we collect from the customer today. And on average, we pay to the airlines 2 weeks after. When we sell a hotel, in general, we collect from the customers today, and we actually send the money to the hotelier after the check-in of the customer. So there's a slightly different movement there. When we published September, we figured out, I think, that in September quarter, there is a negative effect because we've been collecting money. And by September, all of the check-ins for the summer period have happened in July, August and September. So there's actually an outflow versus the past. That doesn't happen in December where it is, let's say, more of a stable situation. So in December, hotels is a positive contribution to working capital. For the quarter ended March, it depends. It really depends on when the Easter is happening. This year, Easter is happening in April as opposed to March in the previous year. So from a working capital perspective, on the hotel side, it should help us in this year. In other years, it depends. Next set of questions comes from Nizla Naizer, the analyst of Deutsche Bank. I'm going to read them one by one again. The first one says, reaching the 7.25 million target implies adding around 407,000 net new Prime members in the fourth quarter. What will drive the step-up in the net additions after the 305,000 done in the Q3? Any specific regions you're targeting more? What I say to this is, yes, your math is correct. And second, it is also correct that if you look at almost every year for the last 2 or 3, there is a significant difference between the net adds that we do in the December quarter and the net adds we do in the March quarter because December is a low seasonality period. And March is a high seasonality period, and we actually announced just 2 or 3 days ago that we have surpassed in the first half of February, the 7 million mark. So we are on our track to get to the 7.25 million. The second question from Deutsche Bank is how should we think of margin improvement from these levels in fiscal '26? We expect that the cash MP margin in fiscal '26 is going to continue to advance precisely because of the mechanics that I covered in the previous question from another analyst. You're going to have a continued increase in the percentage within Prime of how many members are year 2 plus versus year 1. And on the other hand, you're going to have Prime representing a higher share of the business versus non-Prime. Both of those mechanics push to higher margin. We have, however, not given a specific guidance on margin, which we're not going to give this year, but we stay by the guidance that we provided in our Investor Day in the month of January that we will reach a range of cash EBITDA from EUR 215 million to EUR 220 million, and we will deliver 1 more million Prime members that we end the year fiscal '25. The third question from Deutsche Bank is, could you kindly remind us again what would be the working capital impact in fiscal '25? What is the non-Prime component within this versus Prime? Assuming that we have flat gross sales and behavior of the basket size similar in seasonality than what we had last year in fiscal '24, we should have by the end of the year, a neutral working capital movement. The next set of questions comes from the analyst of CaixaBank, Guilherme Sampaio. The first question has already been asked, it's about seasonality of cash MP margin. And the second question, which is about the basket value in Q3 versus Q4 has also been answered. I'm going to move to the questions of Beatriz Rodriguez, the analyst at Bestinver. Looking ahead, do you foresee any threats that could impact your estimate of a stable Prime ARPU of a range of EUR 70 to EUR 75? Well, ARPU is based on the last 12 months figure. So a good chunk of the ARPU fiscal '25, at least for the first couple of quarters is already in the ARPU as of today, and we're already in that range. So I would say that absolutely, we're going to be in that range for the beginning of the year. I don't foresee any big changes in that respect. And we stand by our guidance of a range of EUR 70 to EUR 75. The second question of Bestinver analyst is how has your company's performance been in non-Prime products? Is the hotel segment evolving as expected? It is. It is behaving in a very positive view. I encourage you and any other listeners to the call to refer to the materials that we included in our Investor Day presentation about our hotel product. It's evolving very well in terms of attachment, in terms of conversion, in terms of the Net Promoter Score for the product. We believe we have a very good high-quality product, and it's being very well received by consumers and making progress. Next set of questions comes from Bharath Nagaraj, the analyst from Cantor Fitzgerald. The first question is, do you some -- I don't think there's a word mentioned that I'm missing here. Some initial data on the return of investment from any investments made to grow in newer regions and to penetrate further in existing regions. I think this one is more for Dana.

Thanks, David. It's really too early to say. We've just recently launched in a number of test markets, and it's really a test. It will take us time to gather all of the data in those markets. We then come back and we'll really assess in terms of the results, the cost benefits of making further investments and upgrades in the different markets and then really prioritize which ones we really want to push first, second, third and fourth on that. So like I said, it's too early to tell.

The second question from the same analyst is, have you had any success in converting previously churned Prime members back to members again? The background here is to grow your penetration in existing markets, you may encounter previously churn members. Could you share some data?

Yes, absolutely. So first of all, I just have to say that we don't disclose churn like most B2C subscription-based companies don't, have it confidential, sensitive, competitive intelligence. Having said with that, we do -- we -- in the Capital Markets Day, we did share that we actually had, particularly for the year 2 plus had seen a material increase in our ability to retain customers. which is very positive for it. And we continue actually to, if I can call it, invest, meaning spend time, effort, energy on this area to really continue to retain more and more of our customers and including even if they've churned because, again, travel is a less frequent purchase. It's not used, again, being a leisure-focused company, it's not used on, let's say, a daily or weekly basis, most people. So that you absolutely do get back, and we have a whole series of programs to encourage that as well. David, back to you.

Yes. The next question comes from [ Patriz Ristogi ] from Faro Wealth. And it says, can you reaffirm fiscal '25 free cash flow, excluding non-Prime working capital of about EUR 90 million. Also, could you roughly guide to what free cash flow looks like, including non-Prime working capital for fiscal '25? So to the first part of the question, yes, we reaffirm our guidance of the EUR 90 million. The second part of your question, there's a little bit of uncertainty, and that's the reason that we use the metric that we use. But referring to my -- one of my previous answers today, should the behavior -- the seasonal behavior of the basket size be similar to last year, we would envisage that for the aggregate of this year, the non-Prime working capital would be about neutral. So therefore, we will see a similar level, also EUR 90 million for the free cash flow, including the non-Prime working capital. We have no more questions at this point in time. So we're going to close here for today. We remain available at the Investor Relations e-mail address and our phone numbers that you all know very well if you have additional questions on the quarter. And before we conclude the call, let me just inform you that on Thursday, 29th of May is when we will be hosting our conference call for the full fiscal year '25 results presentation. Thank you very much. Have a nice day.

Thank you.