Experience Co Limited (EXP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Experience Co HY '24 Results Conference Call. [Operator Instructions] CEO, John O'Sullivan; and CFO, Gavin Yates, will present the results for the half year, followed by a question-and-answer session. [Operator Instructions] I will now hand the conference over to CEO, John O'Sullivan. Please go ahead, John.

Thank you. Thank you, and good morning, ladies and gentlemen, and welcome to Experience Co's First Half Results Presentation for Financial Year 2024. With me this morning is our new CFO, Gavin Yates. Turning to Slide 3 in the market presentation, today's agenda will be as per previous market presentations. I'll provide a short overview of the business highlights for the first half of the year. Gavin will present a more detailed financial update, and I will complete the presentation by providing a trading update and outlook. We, of course, are happy to take questions at the end of the presentation. I'd now like to turn to Slide 5 of the presentation. The first half of FY '24 was another lively 6 months for the business, characterized by a number of key events as we continued our recovery journey. The most significant of this was the impact of Tropical Cyclone Jasper, which impacted our operations across our Skydive, Reef Unlimited and Treetops Adventure business units from the December 8 until just before Christmas. Despite the obvious disruption caused by this weather event, our business suffered minimal damage and our Cairns business units in Reef Unlimited and our Skydive experiences were able to resume trading for the post-Christmas period. Our Port Douglas and Daintree tour operations were disrupted until late January, after which the road between Cairns and Port Douglas was restored. And whilst all operations have now been restored within the business, only our Treetops' Cape Tribulation site remains closed and will do until early April, depending on the timing of the reopening of road access into the site. On the 27th of December, the business announced a new debt facility with the Commonwealth Bank of Australia, worth $42.7 million. This replaces the previous facility with National Australia Bank. This new facility provides our business with a more appropriate level of debt financing, working capital and growth capacity. It also provides a different covenant regime in gross leverage ratio and debt service cover ratios, replacing the minimum cash covenant operations that we have been operating since post-COVID. The group also commenced construction of a new Treetops site in Canberra, the first attraction of its kind in the nation's capital, which will be completed by April. And we remain excited about the possibility of organic growth within this side of our business. And finally, we saw continued improvements in the inbound recovery story of both Australia and New Zealand, with aviation capacity returning to near pandemic levels. Turning now to Slide 6. Gavin, of course, will provide a more fulsome update on our financial results for the half. But at a high level, the group generated $62.3 million in revenue. We delivered an underlying EBITDA of $7.1 million and a net loss after tax of $1.3 million. Our balance sheet has cash and cash equivalents, as at 31 December, of $10.7 million and net debt of $6.4 million. Turning now to Slide 7. Across the operating segments of the business, the half was characterized by the following events in each business unit: Skydive in Australia, New Zealand responded encouragingly to the continued improvement in the inbound tourists, which provided further tailwinds for the business unit's revenue and earnings improvement. Both markets have consistently seen volumes at above 50% of the 2019 levels. And New Zealand remains a standout in terms of pace of recovery, given Australia's larger reliance on domestic customers, which have been affected in the later part of the half by cost-of-living impacts. Our focus remains for this business unit on ensuring load efficiency within our Australian operations. On the Great Barrier Reef, our business continues to trade at approximately 90% of pre-pandemic volumes, notwithstanding the obvious impact of Tropical Cyclone Jasper for the half as well as more Australians heading offshore for their holidays, as with the case in 2022. The performance of Reef Magic and Dreamtime Dive & Snorkel were particular highlights for the half, both consistently performing ahead of our expectations. Treetops Adventure, despite some softness in the second quarter of FY '24, mainly due to weather, cost-of-living impacts and the closure of our Cape Tribulation and Taronga Zoo sites unexpectedly; saw an improvement on PCP in terms of number of customers. We have been particularly encouraged by the customer response to Cape Tribulation prior to Tropical Cyclone Jasper, and we remain very excited about the prospects of our new Canberra site. Finally, in Wild Bush Luxury, the category of premium venture travel was not been immune to the impacts of cost of living and outbound replacement traveled by Australians. But at an underlying EBITDA level, the business unit was profitable, but it has seen a correction in numbers from the FY '22 and first half of '23 trading, which was driven by [ post-COVID ] bubble. Turning now to Slide 8. Australia's inbound story continues to improve, with most key source markets now back at over 70% of pre-COVID capacity. And we note that over the last 12 months, China's recovery is still only partially realized, along with that of Japan and Hong Kong, which are both very important markets for our business. Turning into Slide 9. Before I hand over to Gavin, Slide 9 outlines the recovery profile of aviation capacity and the type of visitor that is now coming to Australia. Pleasingly, we're seeing the return of inbound capacity to -- aviation capacity to close to 100% of 2019 capacity, and this is projected to continue throughout 2024. In addition, we are seeing a more normalized balance of VFR to holiday travel volumes, and these are important metrics for our business. All of these metrics indicate a great opportunity for EXP to continue its recovery towards our 2019 performance in Skydive and the Reef as well as our continued growth in our other operating segments. I'd now like to hand over to Gavin to give you a financial update.

Thank you, John, and good morning, everyone. Turning to Slide 11, financial performance. The first half '24 results represent a continuation of the trend of improving earnings and cash flows of the group post-COVID. This is particularly pleasing, given it was achieved against the backdrop of a challenging macroeconomic environment, the more gradual return of international customers and difficult weather conditions, most notably Tropical Cyclone Jasper. Revenue of $62.3 million and underlying EBITDA of $7.1 million represents circa 20% growth from the prior period and was largely driven by an improved contribution from Skydiving, in line with the ongoing recovery of volumes post-COVID and related operating leverage. Regrettably, as John mentioned, Tropical Cyclone Jasper impacted our earnings during the December school holiday period. But thankfully, due to the excellent work of our team, the impact was minimized, and most of our operations recommenced as soon as possible. During the half year, the group was not immune for cost pressures associated with the inflationary environment, and implementing initiatives to improve the efficiency of operations and cost base was and continues to be a key focus of management. Net debt was $6.4 million as at 31 December, and I'll make some further comments on the group's recent corporate debt refinancing on an upcoming slide. Turning to Slide 12, first half '24 revenue. Pleasingly, total sales revenue of the group continued its positive growth trend, with total sales revenue of $62.3 million in first half '24, representing a record half-year result post-COVID. As illustrated in the chart on the slide, the group's revenue growth was driven by the ongoing recovery of Skydiving volumes, which are now circa 60% of pre-pandemic volumes in both Australia and New Zealand. Adventure Experiences revenue was also improved, mainly due to the combined impact of price increases and steady total volumes for Reef Unlimited and Treetops Adventure. Turning to Slide 13, Skydiving. As noted earlier, Skydiving recorded strong growth in revenue and earnings, in line with the continued return of inbound markets during the half year. Australia reported 37,000 [ tandem ] packs, which represented 25% growth compared to the prior half year, with our Wollongong, Byron Bay, Noosa and Mission Beach drop zones recording the strongest growth. New Zealand reported [ 16,000 tandem ] packs, which represented 77% growth compared to the prior half year, with New Zealand's earlier restatement of China authorized destination status a key driver of the more pronounced growth rate compared to Australia. Pleasingly, average revenue per [ pack ] remained strong in both markets and benefited from increased [Audio Gap] were evident, and improving the efficiency of operations remains a continued focus of management. Turning to Slide 14, Adventure Experiences. Pleasingly, Adventure Experiences' volumes and revenues remained resilient during the half year. The relatively higher exposure to domestic customers saw volume growth rates slow, largely due to the continued elevated levels of outbound tourism post-COVID and domestic cost-of-living pressures, in addition to the more gradual return of inbound markets. Reef Unlimited volumes remained in line with prior year despite the impact of Tropical Cyclone Jasper, with increased levels of cruise ship activity in the region, helping support volumes. Treetops Adventure's revenues and volumes were up 4% compared to prior year despite experience a softening in the second quarter, as John noted, with the half year performance benefiting from increased contributions from our Cape Tribulation before Tropical Cyclone Jasper and Taronga Zoo Wild Ropes site since reopening. Our Wild Bush Luxury business experienced softer trading market condition, as John mentioned. And feedback from other operators indicates the category, in general, has experienced a bit of a slowdown following elevated visitation levels during COVID. During the half year, segment margins were impacted by the loss of earnings due to Tropical Cyclone Jasper, as well as cost pressures. With respect to cost pressures, I guess, some key examples include the [ award ] wage rate increase following the Fair Work Commission decision last year, higher fuel diesel rates due to the global geopolitical environment and reduced government-levied concessions post-COVID. As I said earlier, management remains focused on improving the efficiency of operations to help the mitigate impacts of some of these factors. Turning to Slide 15, balance sheet. On the balance sheet, Experience Co ended the half year period with a cash balance of $10.7 million and net debt of $6.4 million. Pleasingly, operating cash flows increased in line with improved performance of our Skydiving segment. Investing cash flows were slightly lower than the prior comparable period and mainly comprised CapEx associated with the maintenance of our aircraft and vessel fleets, renewal of equipment as well as investment in the new Treetops Adventures Canberra site, following commencement of construction towards the end of the half-year period. The improvement in financing cash flows was largely driven by the net proceeds from the refinancing of Experience Co's corporate debt facility. I'll now provide an overview of the refinancing on the next slide, Slide 16. As noted earlier, Experience Co entered into a new corporate debt facility package with Commonwealth Bank of Australia in December, which replaces Experience Co's prior facility with National Australia Bank. The overall CBA facility limit of $42.7 million mainly comprises a $14 million equipment loan facility with a 5-year maturity, which was fully drawn at 31 December, and a $20.5 million market rate loan facility with a 3-year maturity, of which $2 million was drawn at December 31. The remainder of the CBA facility package comprises asset finance lease, overdraft, credit card and bank guarantee facilities, with an aggregate limit of [ $8.2 million ]. For clarity, it's highlighted that the initial [ $16 million ] drawdown under the facilities was primarily used to refinance the NAB bank loan of $7.4 million and the remaining NAB asset finance leases of circa $5.2 million. With respect to the refinancing of the asset finance leases, there has essentially been a transfer in our balance sheet from lease liabilities to bank loans for those that have had a look at the movements across the period. There's no minimum cash requirement financial covenant under the CBA facility, as John mentioned. Instead, the CBA facility includes gross leverage ratio and debt service cover ratio financial covenants, providing additional flexibility with respect to cash reserves held. We're pleased with the support and flexibility afforded by the CBA facility, which sees the group well placed to capitalize on improved volumes, progress planned organic growth projects and complementary acquisition opportunities. Back to you, John.

Thanks, Gavin. To conclude today, I would like to provide a quick trading update and outlook for the business post half-year trading. Turning to Slide 18. Management confirms that there is no change in our previously referenced strategy for the business during FY '24, and that our longer-term view of the earnings capability of the group remains unchanged, noting, however, the importance of inbound recovery as well as potential impacts of the cost-of-living pressures on consumption of travel experiences in both Australia and New Zealand. This will be something that management actively monitors over the remainder of the financial year. Turning to Slide 19. The China recovery story into Australia continues, noting that leisure arrivals for the half were at 56% of their 2019 levels. This was primarily driven by VFR visitations [Audio Gap] post-COVID. Also noted is a steady progression of the growth of -- in aviation capacity, which peaked [Audio Gap] in March. As I referenced before, this is something we will continue to monitor during the course of the year. Turning to Slide 20. For the recently completed Lunar New Year period [Technical Difficulty] numbers of customers from the [Audio Gap] to this market, we saw an improved level of activity. Like the results that we saw in the first quarter during the Golden Week holiday period, the most pronounced impacts within our business were on the Great Barrier Reef. In New Zealand, we saw a return of approximately 54% of the market relative to 2019 across our business, with the most pronounced impact being felt in Queenstown, which was closer to 68% for the holiday period. On the Great Barrier Reef across our Big Cat and Reef Magic businesses, the two parts of our business which are exposed to this market, we saw return rates of 68% of Lunar New Year volumes from 2019, with the most pronounced being within [Technical Difficulty] which outperformed Lunar New Year volumes in 2019 for the FIT market. Finally, whilst we saw increased levels of Lunar New Year customers within our Skydive Australia business unit, it wasn't pronounced as a recovery in New Zealand with 46%. We attribute this to the later reopening of the ADS relative to New Zealand within Australia as well as a more gradual recovery in the market. Turning to Slide 21. Before Gavin and I take questions, we'd like to provide a quick update on our trading in January and a broader outlook. Our unaudited results for the month of January had the business making an underlying EBITDA of $2.8 million, despite the continued disruption to our Reef business caused by damage in the region due to Cyclone -- Tropical Cyclone Jasper and weather impacts across the Eastern Seaboard, which disrupted our Skydiving business unit. Both New Zealand Skydive and our Reef Unlimited businesses exceeded their budgeted underlying EBITDA targets, while Skydive Australia and Treetops Adventure were both profitable at the underlying EBITDA level, despite the impacts of weather. Wild Bush Luxury had a [ shoulder ] season and had outcomes closer to management's expectations. As we approach the remainder of calendar year 2024, management's focus will remain on the following: firstly, continuing the recovery of Reef Unlimited and Skydive business units towards their 2019 levels; focusing on the growth of our Treetops business unit with the opening of Canberra and continued assessment of other new greenfield sites; management of our cost base to ensure improvement in our margin efficiency. As has been consistent with other results, we will not be providing a guidance for FY '24. Thank you, and we're very happy to take your questions.

[Operator Instructions] Your first question comes from Allan Franklin from Canaccord Genuity.

Thank you for all that detail that come through. There was a good level of context there. But just to sort of jump in with a couple, if I may, just on the Treetops side of the business, just help us sort of think about the next sort of couple of quarters in terms of what you think is sort of cycling period-on-period? And I guess we get a level of the tail benefit from Cape Tribulation and Taronga coming through. And then the second part of that is just how you're thinking about activating the domestic audience to sort of -- to help drive and/or keep volumes cutting through?

So the second part of the question is around Treetops Adventure or just...

Sorry, both just relating to Treetops, such as glancing over the third quarter and fourth quarter in terms of -- if you think there's anything particular to draw out in the PCP volume positive or minus?

Yes. Yes. So I think on the -- I mean the third quarter and fourth quarter for that business unit, particularly in terms of the seasonality, it's really centered around our April school holiday period. So that is the key trading month for this business unit as we go through the remainder of the financial year, as well as, obviously, Saturday and Sunday trading within the business in those non-holiday periods. So really, for us, Allan, the way we're thinking about that at the moment, we're still into February. As I said, January was disrupted by a lot of the heat conditions that we had in New South Wales as well as some storm activity on the Eastern Seaboard, which in particular affected the Sunshine Coast locations like Coffs Harbor, which are traditionally locations that do quite well in that month. So we're just waiting to see how February washes out. There is a little bit of softness in the numbers, particularly around some of the sites that are in demographic areas that you'd expect to be impacted by some of the cost-of-living pressures. So what we are looking at is a number of initiatives that we have been activating in and around more family packages being available to the market, targeting more aggressively school groups and birthday party groups to put into the market. As well as now with Taronga fully opened, we think there's some opportunity there to try and activate some corporate markets with our partners at the Taronga Conservation Society. So really, for the key month we'll be looking at will be April, particularly in that, that Easter trading period and then going into the school holiday trading period. And as I said earlier, we hope to have Cape Tribulation back in time for at least part of that school holidays period because what we found the pre-cyclone was that, that site was actually really performing well on a PCP basis.

Yes, sure. And then just on the -- on Adventure Experiences, I mean, top down, I appreciate there's a fair bit going on there. But -- no doubt you lost a level of revenue, which perhaps impacted margins towards the back end of the period. Perhaps just sort of touch on that, if you can, and or sort of how you're thinking about sort of cost pressure in that grouping?

Yes. Thanks, Allan. So just with respect to, I guess, the first part of the question in terms of Tropical Cyclone Jasper, so there was obviously an impact of the disrupted trading towards in December. And I guess, moving forward, obviously, most of our operations have now recommenced, with the exception of, obviously, Cape Tribulation. So we're hopeful that the impact on margins, moving forward to that, sort of will dissipate. We still have seen some impact over January over the period, with -- our Port Douglas operations have been a bit softer relative to Cairns. But as I said, sort of some of that stuff is getting a little bit easier as visitation returns. I think in terms of the cost pressures, I guess, it is heavily leveraged to the return of volumes. I guess things we can control is looking at things like our rostering and just making sure that we're doing that efficiently. And as volumes sort of recover that we sort of continue to sort of monitor those rosters and just to kind of maintain margins as best as we can. Wages cost is, as you would expect, one of the largest, if not the largest, cost component of that division. So it is an area where, obviously, we're focused on and just making sure while volume is a little bit choppy at times that we're sort of managing those rosters accordingly.

Yes, helpful. And sorry, just one other quick one. We don't get to see the sort of clean profitability showing through just from New Zealand specifically. But are you sort of confident to seeing what you're seeing now, seeing some of the volumes coming through that the sort of you're starting to see that it benefits of operating leverage showing through? And I guess, just an underlying confidence that the sort of margin profile, say, in that New Zealand business, can it get back to where it was, historically?

Yes, certainly, we're seeing that. I mean, to give you an idea, the efficiency ratio that we're seeing in that business unit at the moment is that it's operating at around 7.1 per load, which, as you know, is really when you start to get into that -- those high sort of 20% margin. So it's certainly now starting to show that flex that we know that, that business unit can do. In Australia, it is still a little bit more inconsistent across the different sites just because of the way that recruitment of tandem masters has worked out and also demand in each of the different sites that's varying. So that's where we're spending a lot of time on working with the operational teams in restoring that. But within New Zealand, yes, we are seeing the return of those margins.

[Operator Instructions] Your next question is from Julian [ Milka ] from AMP.

Just a few for me. Firstly, the cash flow statement showing lease payments up quite a bit to $8.4 million, is that because that figure includes that repayment of the NAB facility or is it a step-up?

That's correct. So -- in front of me, so yes, as I mentioned, the step-up there is the repayment of the outstanding principal balance with respect to the NAB asset finance leases. That's why I sort of tried to clarify that in some of the opening remarks because essentially, there's been a movement in our balance sheet from lease liabilities to bank loans.

So does that -- so the underlying number of 3, is that the sort of run rate on a half basis for these payments?

Yes, so I guess at a high level, nothing has materially changed in terms of, I guess, the -- if you sort of extract out the lease liabilities.

Right. And what sort of CapEx are you expecting for the second half?

Yes. Look, I think the run rate -- I mean I think the key change is obviously, we've got the balance of -- we are investing in our Treetops Adventure experience. We expect it to be similar to what we saw in the first half, with maybe a slight uptick just because we have got some of the completion around the construction of the Canberra site in particular.

And also finally, what there is sort of headcount now? And is it getting easier to find people or still a bit of a struggle? I know you talked about camper -- the skydiver guys, but just generally?

Generally, it's getting easy, and it has gotten easier as we've gone through the recovery, as we've come out of COVID. So -- but it does now -- and now we're getting down at a point where it's varying by location. So we're obviously a business that operates across 30-odd locations across both markets. So in places like Treetop sites, it's a relatively generic type of labor set that we need. It's fairly easy to find those staff and put them into the sites. You don't -- but say -- and say somewhere like the Great Barrier Reef, it can be more challenging because you've got accommodation shortages in locations like Cairns, for example. And the same over in New Zealand, where sometimes you have you parts of the year, which are more challenging than others. But overall, it's become far easier than it was this time last year, but there still are parts of the business where we're focusing on that because it is a little bit more difficult than other parts.

And the current headcount number?

The current headcount number is roughly around 1,200 across the business, and that's across full-time, part-time, casual and contractors.

The next question is from John O'Shea from Ord Minnett.

Firstly, I just wanted you to give an indication of -- particularly within the Skydive business, to what extent have you had to change your employment structure for the tandem masters? Traditionally, it was obviously a casual type per jump model. Has that kind of changed, given the labor challenges you've had? And how much of that cost is kind of baked into the business, if you like, if that's the way it's gone?

Yes. So within the Australian business unit, we have had to change the employment model. So we have moved them away from the previously operating contraction model to more traditional employment model, where we have a number of full-time staff. We have some key members within the job zone, like your operations manager or your chief instructors, that are full time. You then have part-time and then you have casualized workforce as well. Basically, though, that -- the model within that, though, is that they still operate -- in effect, it still operates in much the same manner that the contractor model did, in that after they've done a certain level of certain level of [ jobs ], they start to then earn commissions. Whereas previously, it was basically a piece pay start. This one has some fixed cost -- added fixed costs into the business. But then as volumes improve and as efficiencies improve, then the model works out pretty much on a like-for-like basis, with the exception of obviously there are some on costs that the business carries. Most of that cost now is largely embedded into the business, and it really gets back to then getting the volumes within the Australian business unit to basically -- both volumes in the business unit to then have that model kicking into the same way as how the -- traditional contractor model.

Do you have any sort of sense as to how much -- obviously, of course, I understand that, obviously, as the efficiency improves and you'd expect that to normalize, but how much -- do you have a bit of a sense -- I'm not going to hold you to, but just have a sense of how much we're talking here is sort of loaded up in terms of like-for-like in terms of bases, at cost to like $1 million a year, $0.5 million a year? What are we sort of talking of? I'm just throwing numbers out there. So it mean nothing, but, John?

Yes, sorry. Look, it's a difficult one to answer, John. I mean, it'll probably be irresponsible to start throwing numbers like that. But certainly, once -- as I said before, once you get the -- once you get that efficiency level back up into the same levels what we got in 2019, you start to see the models level out.

Normalized. Yes. Now the second question for me is on the Tree side, Obviously, I noted that you're planning to open your 16th sort of site. Of course, this is an area that you continue to mention as being an important part of your future strategy. And I note that, that facility within the your new banking arrangements that's dedicated to acquisitions. In an ideal sort of world, how sort of -- how mature is that market in Australia? Do you think it's early days? Do you think it's sort of part of the way through? Or do you understand what I'm asking?.

Yes. Yes. No, I think it's relatively early days, and I think there's a great opportunity for EXP to sort of continue to add scale to that business. And then the other thing we're also looking at within those sites is then adding additional activities within those sites, so that we get a greater dwell time on site, and then we can start to build ancillary revenues in and around those parts. So at the moment, your average dwell time is probably anywhere from a now an hour, 3/4 to sort of 2.5 hours. You'd like to get that higher, so you get more ancillary spend similar in the way that we do with, I guess, with Skydive, with video and Friday. And the key to that is adding sort of more activities into the existing footprints of the existing sites. So that's where we're focused on. We think there's still -- we still think there's the opportunity to do more parts within that business unit. So it's a relatively -- the experiences have been around for some time, but it's a relatively, I guess, new business in terms of its size and scale in the category.

Thanks a lot, John.

There are no further questions at this time. I'll now hand it back to Mr. O'Sullivan.

Well, thank you once again, ladies and gentlemen, and look forward to seeing many of you on our roadshow over the coming days. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.