Experience Co Limited (EXP) Earnings Call Transcript & Summary

Welcome, everybody, to the Boardroom Experience Co Full Year 2021 Results Call. [Operator Instructions] So I would like to thank you all for joining us today and hand over to our first speaker and Chief Executive Officer, John O’Sullivan .

Thanks very much. Well, good morning, ladies and gentlemen, and thanks very much for your time this morning, and welcome to the Experience Co Financial Year 2021 Results Presentation Call. With me today is Owen Kemp, Experience Co's Chief Financial Officer. And this morning, the format will be I'll provide some context and overview of the year that's been. Owen will walk you through our financial results in a bit more detail, and then both of us will wrap things up with providing you with -- you on the strategic outlook and a quick trading update. And then we're happy to take your questions. So turning to Slide 4 of the presentation. Financial year 2021 presented without question some of the most challenging and irregular conditions that our business has faced with continued state- and government-induced lockdowns and border closures. Throughout the year, however, 3 themes emerged within our business. The first was that we were extremely pleased with the response of an Australian-only market in embracing our experiences, particularly on the Great Barrier Reef and also at our Skydive Australia drop zones. Secondly, the health of our balance sheet enabled us to commence the execution of the first part of our acquisition strategy with the acquisition of Wild Bush Luxury and the Maria wilderness walk, both award-winning wilderness experiences located in Australia. And finally, as we have done so during FY '20, we have continued to focus on investing in our technology platforms, new products and processes that will enable the business to take advantage of returning demand in the year ahead. Basically, all of this means that the business is very well positioned to capitalize on Australia's reopening, which we expect to happen during the first part of the calendar year 2022. Turning now to Slide #5 and the FY '21 financial snapshot. Owen will obviously take you through our financial results in more detail. But at a very high level, despite the ongoing volatility generated by the pandemic, I'm very pleased to report that our revenues were $44.4 million, excluding any form of government support. And the business was able to generate an underlying EBITDA of $6.8 million. Our balance sheet efforts and the continued focus on restoring the health of the balance sheet saw our cash and cash equivalents position improve to $13.3 million and net debt reduce further to $2.8 million as a result of the last of our major divestment programs through our business simplification process. Turning to Slide 6 before I hand over to Owen. Laying out before you on this slide has been our strategy that we've adopted during financial year 2021 to manage the impacts of COVID-19 on the business and how we are approaching the first half of 2022. From a very high level, each quarter has been very different and characterized by externalities that, in some cases, have arisen in a matter of days, such as the Northern Beach's lockdown in December of 2020 and, of course, the introduction of the Delta variant, which occurred in June of 2021. Despite all this, demand for the business has remained constant and, in some cases and some experiences, has been enhanced as Australians have sought to escape the year and take advantage of their destination. For the first half of financial year 2022, our focus will be navigating some of the most adverse trading conditions that we've seen since the quarter 4 of FY '20. But by doing so, we are focusing on maintaining our position on strong cash management disciplines, a disciplined approach to the management of our costs. And we will continue to ensure that the business is in a good position to take advantage of the Australian summer holiday period, which we believe, due to the vaccination rates upswing in recent weeks, presents a great opportunity for the business. So with that overview, I'll now hand over to Owen to take you through our financial results.

Thanks, John, and good morning to you all. As you've alluded to, John, the financial performance for the period is one of a story of the pandemic. So we'll start with the financial results for the period. Revenue of $44.4 million was in line with our expectations for the year, which we always knew was going to be a tough one. But in amongst that, trading has been a month-to-month proposition of border restrictions and lockdowns in all major metropolitan locations throughout the year, notably in key holiday periods. Underlying EBITDA of $6.8 million was assisted by government support in the period, in particular, the JobKeeper program and also targeted industry support from the Queensland and New Zealand governments. Net debt in the period reduced to $2.8 million, down from $9 million at the commencement of the period and in line with the half year balance. In light of market conditions, no dividend will be declared for the period. Now clearly, the results for the year do not reflect the earnings potential of the business in normal conditions. So in amongst these numbers, it has been really pleasing from the CFO chair to see how quickly and rapidly the consumer demand responds when market conditions allow. This was particularly evident as the year progressed and most pronounced in the Q4 period, where despite the lockdowns and border restrictions, domestic demand was a driver to encouraging trading performance. And that's the trading performance we like, which is without the government support of the JobKeeper program. So overall, we have been extremely pleased to have managed the profitability and cash flow so prudently in what has been a challenging period. Moving on to Slide 9 and our Skydiving business. Skydiving, including our maintenance activities, saw encouraging volume despite the ongoing impact of lockdowns. In particular, the Australian drop zones performed well with key metro locations trading at 50% to 60% of pre-pandemic levels prior to the emergence of the Delta strain late in FY '21. New Zealand, with its exposure to the international market, has continued to see subdued volumes at a tick below 15% of the FY '19 comparator. Pleasingly in the Skydiving business, both Australia and New Zealand maintenance and air operations businesses flexed really well in the period, making the most of short-term excess capacity of both labor and equipment to generate some temporary income. John will also speak shortly to some of the initiatives in relation to new product and investment in systems and processes that positions us well for the market reopening. Of course, today, we are faced with the challenges of the lockdowns, particularly in New South Wales and Victoria for our Skydiving business. And fortunately, in some ways, it is in our seasonal low period. So with that all said, we are encouraged that there is light ahead for Skydiving as we approach the peak summer trading period. Moving on to Slide 10 and our Great Barrier Reef Experiences business. This business was slower out of the blocks in FY '21 than the Skydiving business, somewhat unsurprisingly given the Queensland border. And interestingly, we had -- when we looked at the numbers, Victoria had been closed for 293 days for the year and New South Wales over 200. So what we are pleased about in this business, as John alluded to, was the swift return of demand when the conditions allowed. But also, the cost reduction of prior years is clearly being embedded. The investment in online and digital has yielded benefits with record levels of bookings being achieved despite the lower overall numbers. Exiting the period, we were quite excited to see Q4 volumes be about 76% of pre-pandemic levels. This was encouraging because, as we all know, New South Wales and Victoria, the 2 key source markets, were not fully open for the entirety of the period. So these results in the July period tells us one clear message in relation of this business. Demand is strong when conditions allow, and we expect consumers to improvingly recover quickly as markets and airlines are opened up to the region. Moving on to Slide 11 and the balance sheet. It's probably a simple update for today. We leave the business better positioned than at the start of the period despite the challenges that John alluded to in relation to the pandemic. Seeing out the FY '21 year without a need to raise capital while maintaining the earnings capacity of the business is an achievement the management team is extremely proud of and proves the capital management disciplines instilled in the business from 2019 is certainly the right way forward. We continue to monitor developments across all major markets. And while we expect August and September to be challenging times in the near term, it is pleasing to see vaccinations progressing in what feels like a pathway emerging ahead of our peak summer season. So with that, I'll turn back to John now to take us through the final phase of the presentation.

Thank you very much, Owen. Turning now to Slide 13 and -- with the strategic outlook and trading update section of the presentation. Throughout calendar year 2020 and to date during this calendar year of 2021, management and the Board of Experience Co have made a strategic priority to continue to invest in the business to ensure that we're in a position to take advantage of what we believe will be rapidly improving trading conditions from the beginning of next year. As you know, a key part of this development has been our investment in new products. And in particular, I'm very pleased to report that our new Great Barrier Reef Experiences pontoon, developed in partnership with the Queensland state government, is well progressed, ahead of its launch for calendar -- early calendar year of 2022. In addition to this, in July of this year, we have also been able to launch, in partnership with Sea World Helicopters and also the Gold Coast City Council, a premium helicopter skydive experience over Surfers Paradise. And we believe that this drop zone will only grow into becoming an iconic adventure experience not only in Australia but also globally. In addition to our investment in product, we've continued to focus on the improvement of our technological capability and business systems with the introduction of automated check-in and prearrival systems and waivers for our Great Barrier Reef Experiences and Skydive Australia business units as well as the rollout of a new online safety portal through a partnership with Donesafe and continued investment in our online presence and our reservations capability, again, making it easier for customers and also our sales teams to execute on the growing demand. Finally, I'm very proud of the work that Experience Co has continued to do with our work in the community and, in particular, a highly successful partnership with the mental health research institute, the Black Dog Institute, with the CEO Skydive in April of 2021, which will continue into 2022; and also our work with Stellar Experiences, a non-for-profit organization providing experiences for people with all abilities. These 2 initiatives, in conjunction with our work on the Great Barrier Reef with the Mars family and also the citizens of the Great Barrier Reef, are continued examples of our position within the community. Turning to Slide 14 to talk a little bit more about acquisitions. As you know, we announced the acquisition of Wild Bush Luxury and Maria Island wilderness walk in April of this year. I'm extremely happy with the progress of the integration of Wild Bush Luxury into the EXP business, and we now have in place the final approvals from the Tasmanian government to be able to complete our Maria Island Walk transaction. These 2 businesses continue to trade strongly even with the impacts of the pandemic, with both enjoying record levels of advanced bookings for 2022. And in the case of Wild Bush Luxury, we're seeing strong interest into 2023. Both provide us not only with unique organic opportunities but also give us the opportunity for other bolt-on acquisitions, which we are currently looking to progress. More broadly, we're very excited about some of the acquisition pathways ahead for the company. We're well positioned now with a clear strategy, a healthy balance sheet and an ever-growing pipeline of opportunities for us to execute against both in Australia and also in New Zealand. To close today, I'd like to turn to Slide 15, where Owen and I would also like to provide you with a quick trading update and also outlook.

Thanks, John. So in the short term, as would be unsurprising to many of you, is that there are short-term headwinds for the business in the first quarter of the financial year '22. New South Wales and Victoria Skydiving operations are suspended at present, including our largest drop zone in Wollongong, all the result of the Delta strain that has resulted in the lockdowns in New South Wales, Victoria and New Zealand. In amongst all this, in the July month, we saw the GBR Experiences business recorded its highest post-pandemic volumes with close to 17,000 customers in the month of July, highly biased to the front end of the month, remembering that Victoria and New South Wales were largely closed for the period. That was particularly pleasing to see 60% of the FY '19 comparator, which was a strong one, in that market despite those conditions. As John alluded to, premium ventures continued to see strong forward bookings but, of course, in the short term, are impacted by the availability of key source markets to travel into the regions. Overall, what we're seeing continually is as operations open up, demand continues to be robust. So even when we have the restrictions, each time we are opened up, we're seeing fast snapbacks as and when lockdowns and restrictions ease. As of today, we've got a net debt balance of $4.7 million and cash of approximately $11 million, and that includes the completion of the acquisition of the Wild Bush Luxury business on July -- in late July 2021. So over to you, John, for the final comments on the outlook.

Thanks, Owen. Despite what we are seeing in quarter 1, our outlook does remain positive due to the fact that we believe there is a far more intelligent dialogue being taken by the federal government and various state governments with the Australian people when -- on the inevitability of having to live with COVID-19 in the same way as we do as a nation with diseases such as influenza and other infectious diseases. We also believe that as Australia reopens once again internally, there will be a space of revenge spending, as so aptly coined by Ahmed Fahour, and will result in a very strong summer period. And our suite of experiences and new products are very well positioned to take advantage of this. As also alluded to previously, we also expect during the financial year to be able to take advantage of an ever-growing pipeline of acquisition opportunities but also importantly, reap the benefits of our investment in new products and the systems that we've made in the business over the last 12 months and also during FY '20. As has been the practice since last financial year, we won't be providing any guidance for financial year 2020 due to the environment that we exist in. And with that, I'd like to once again thank all of you for your time this morning, thank, of course, the team at Experience Co, our staff members, our contractors and, of course, very importantly, our customers for supporting us during the last financial year. With that, Owen and I are now very happy to take your questions. Thank you.

[Operator Instructions] Our first question comes through from John O'Shea from Ord Minnett.

Just a question from me. You mentioned that on the acquisition side and obviously with the lockdowns, what are you seeing there in relation to the kind of opportunities that have risen? Have they -- has the lockdowns kind of created more pain for people and how you sort of view it in that sort of framework? In other words, if an opportunity arises that's attractive, are you keen to press a button despite, obviously, the lockdowns being there, albeit for perhaps a short period of time? Or -- and what are you seeing in relation to vendor's expectations in that sort of environment?

Yes. Thanks, John. I think certainly, in answer to the first part of your question, obviously, the trading conditions, particularly since late June, is probably -- we've seen more operators who were previously not so interested in having a discussion become a little bit more interested in perhaps doing that, and that's for various reasons. Some people might decide to go to another industry. Others might decide to retire. For others, that they just feel that, I guess, that the trading conditions over the last few months have probably been the last that they want to endure, so they'd like to check out. Certainly, for us, the way we're approaching it really, as we outlined on Slide 14 and as we did so with Wild Bush Luxury, was the focus for us is obviously within Australia and New Zealand. That's obviously our sweet spots in terms of operating geographies. Second to that is really this focus on adventure experiences that have a domestic audience primarily but then can flex to internationals. Because what we do know is that Australia will open up again to the rest of the world. And I think having obviously been in the chair where I've been selling Australia to the rest of the world, the safety -- the way that we've managed the pandemic will be a big advantage for the country moving forward and also New Zealand. So we're looking for those experiences that have that domestic audience but have that ability to flex up. In terms of timing, look, from our point of view, we're timing agnostics. We think now that the work that we've done in terms of restoring the balance sheet health, getting our management on costs, we've got a good discipline now in applying their ruler as we run over acquisitions, we will execute when we think the time is right for us. So -- and with a focus, of course, on the return on invested capital that any such acquisition may also generate.

And our next question comes through from James Tracey from Veritas Securities.

I'm just hoping you could give us a bit of an update on -- I know you sort of gave us a small update on current trade. Can you just talk about, obviously, the Skydiving, the big drop zones that closed? Can you just talk about what -- where you see the sort of pathway out of this pandemic? Clearly, the vaccinations are going up. There's also, I suppose, the issue of some states like WA and Queensland not wanting to have any COVID, whereas maybe New South Wales and Victoria will be living with COVID. So I just wanted to sort of get your thoughts on how you guys emerge as vaccinations go up and what happens over the next year?

Yes. Thanks, John. It is the question of the hour, I guess, isn't it? So for us, probably if I start from the high level of how John and I are looking at things at the moment with the management team, and I guess the first point I'd like -- we just sort of want to draw out of all of this is we are in that sort of low season point. So if you're going to have a pandemic, let's not be complacent, but you'd rather have it in the first quarter in the lockdowns. What we're really focused on, given the earnings prowess of our business, particularly Skydive, is really monitoring that we're ready to operate this summer. So it certainly doesn't look like September is going to be a great month, that would come as no surprise to you. But I guess we're increasingly optimistic that November, December and that Australian summer, which remember, we haven't had really with the bushfires and the pandemic in last year, this will be the first time in 3 years we've had a decent run, fingers crossed, as we go through it. And probably the other comment is while it is impacting the Skydiving operations today, and they are closed, I guess the thing for us is not to forget the impact that when you've got your 2 population centers closed on the eastern seaboard, and I think this is where you're heading, James, with Sydney and Melbourne, you're talking the best part of 11 million people trapped, who are key source markets for our Great Barrier Reef business. And also, while those locations are locked down and going through some pretty high caseloads, the prospect of the once touted trans-Tasman bubble seems like something that's a little way off there in terms of that. So I guess that's a probably long way of saying, look, we're encouraged by where the vaccination path is heading. You know that horizon of getting to that 80% threshold by the November month is really key for our business because that will give us a great shot at having a great summer.

I think just to add to that, I think one of the other things -- a couple of other things to remember, James, is that the Skydive drop zones, particularly -- or the Skydive business, particularly within Australia, will really be the triggers for the -- when the reopening is -- it's not really influenced whether or not you can travel interstate or not. They're very much -- they're operating as intrastate businesses or local businesses. So once New South Wales hopefully opens, we're able to operate. We can return those drops zones back on. And we know by looking at the volumes of bookings that are in limbo at the moment that we're pretty confident they'll be pretty busy. And as we approach summer, that's the zone. For the reef, the other thing -- the other key thing, and this is around Southeast Queensland, so what we know during the course of last year that on average, Southeast Queensland or intrastate Queensland travel was about 35% to 40% of the volume up there. So again, with the costs that we've taken out of that business, the lower sort of cost base that we have across that business up there, we can operate that pretty well with tapping into that source market out of Southeast Queensland. So that's probably what the key thing there is. So whilst we'd like to see travel between Victoria and New South Wales, and it's very important, as Owen alluded to, for the Skydiving business particularly, it's not really a big factor currently because of the nature of the customer. And for the GBR Experiences business, provided we can get Southeast Queensland up into the northern parts of Queensland, it will be busy, we think, particularly during September and then also December.

Okay. That's good to know because it seems like it was -- that GBR business especially can be a bit stronger than what I thought. I think people -- it was mostly people from Victoria and New South Wales but at the same time Queensland as they're also going to go north as well, which is good.

Yes. Look, I think overall, each of the markets, James, if we were to say one thing that's probably exceeded our expectations, John, on the upside, given Cairns' historical reliance on international markets. So once those borders are open, that's a real upside to that in the short term for domestic.