Experience Co Limited (EXP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Experience Co Limited's FY '25 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to CEO, John O'Sullivan. Please go ahead.

Thanks, Travis. Good morning, ladies and gentlemen, and welcome to the Experience Co FY '25 Results Teleconference. With me this morning is Gavin Yates, our CFO. This morning, we'll run through the investor presentation highlights that was uploaded to the ASX platform early last evening. As per previous presentations, the format of today will be the same. I'll provide some introductory comments. Gavin will take you through the financial results in a bit more detail, and I'll make some closing remarks on the outlook of the group, and then we're happy to take your questions. Turning now to Page 5 of the presentation pack. Whilst Gavin will spend more time on the financial results of the group for the year a little later in our call. At a high level, FY '25 marked the continuation of our improvement in financial performance of the group compared to previous periods. Key highlights included an increase in revenue to $134 million (sic) [ $134.3 million ] and underlying EBITDA of $19.3 million, driven primarily by the Adventure Experiences segment and a fast improving Skydiving segment. And underlying net profit after tax before goodwill impairment of $2.1 million, largely off the back of improved earnings and an overall improvement in our cash position of $2.8 million on the previous year. Significantly because of the performance during FY '25 and the continued positive outlook for the group, the Board has declared a fully franked dividend of $0.0025, representing the first dividend paid by the group since FY '18. Turning now to Slide 6. As we articulated during last year's AGM, this -- last financial year was characterized the focus of management on 4 key areas, being business improvement, sustaining of trading momentum, growth and the quality of the portfolio. This slide summarizes the key outputs from the year with the following highlights also to be noted. Our focus as management on the overall business performance has delivered on positive outcomes for each of the key metrics of the business, including revenue, underlying EBITDA, free cash flow generation and underlying net profit before impairment. Whilst much of this is down to the improvement in our trading performance, our focus on operational and corporate costs has also played a major factor. Secondly, throughout the year, we witnessed during trading in our key school holiday period was the first time since FY '19, strong and ahead of expectations. Our December, January and April trading months more than exceeded the FY '24 performance of the group. And even though May and June were disappointing, pleasingly, the underlying demand during those months was in line with our expectations. Thirdly, our growth agenda was mainly focused on unlocking opportunities within our existing portfolio, and this was a highlight by the work done in our Skydive team, particularly in New Zealand, the purchase of our new vessel Aquarius II as well as an extremely strong performance from our newly opened Treetops Canberra site, which will now see new attractions being added to this site as a matter of priority. Finally, the group had announced a nonmarket share buyback in late June and continue to assess the opportunities for the disposal of excess and nonperforming assets within the group. Turning now to Slide 7. This slide contains a business unit summary of the performance during the year. And whilst I won't go through this line by line, I'd like to point out the following. Firstly, all business units reported improved earnings performance from previous comparable period. Our Skydive and Reef Unlimited business units continue to remain leading providers of experiences in their genres, and Skydive has been a key contributor during FY '25 to the overall earnings growth for the business. Both have benefited from the continuing improvement in international visitation to Australia and New Zealand. Treetops Adventure and Wild Bush Luxury both reported strong improvements on underlying earnings and margins, and Treetops Adventure particularly benefited from a concerted focus on improvement in average revenue per customer initiatives at a site level. Finally, in our corporate costs, management maintained its focus on efficiencies and in particular, focus on free cash flow generation. Now turning to Slide 8, before I hand over to Gavin. The backdrop to the group's improved performance in FY '25 has been the overall improvement in both domestic and international tourism in both Australia and New Zealand. This has always been a clear driver and a key sensitivity to Experience Co's business performance. What gives the Board and management great confidence about the future is the outlook for both markets in terms of overall visitor night trips in Australia and New Zealand as well as the projected growth in overnight visitor expenditure. We continue to work with Tourism Australia, Tourism New Zealand and the relevant state and territory tourism authorities as well as domestic and international trade partners to continue to take advantage of these improving market dynamics. With that, I'd now like to hand over to Gavin to take you through the financial performance of the group in more detail. Thank you.

Thanks, John, and good morning, everyone. So you're turning to Slide 10, financial performance. The FY '25 results are consistent with the Q4 trading update that we released to the ASX platform on the 30th of July. It's pleasing to report on another strong year for Experience Co with continued growth in revenue, underlying earnings and importantly, cash flows, which have been achieved despite the backdrop of challenging economic conditions, weather-related disruption and a more gradual return in international visitation than originally anticipated. Revenue growth is 6% to $134.3 million and underlying EBITDA growth of 34% to $19.3 million, represent Experience Co's strongest financial performance since the onset of the pandemic. Trading during the year was characterized by strong trading during the key peak holiday months, which offset softer trading during the seasonal shoulder months and periods impacted by weather disruption. Pleasingly, the improved financial performance reflected revenue and earnings growth for both the Skydiving and Adventure Experiences segments as well as lower corporate costs, which are outcomes of both improved trading conditions and actions taken by management during the year to enhance performance. The 3% increase in underlying EBITDA margins of 14% was driven by both operating leverage as volumes increased, improved site efficiencies and cost savings from the corporate cost out program undertaken during the year. The group reported a statutory loss after tax of $1 million driven by the recognition of the Wild Bush Luxury goodwill impairment of $3.1 million. However, the underlying net profit after tax before goodwill impairment of $2.1 million is the first time Experience Co has reported an underlying profit after tax since the pandemic and indicative of the improvement in underlying business performance. Turning to Slide 11, Skydiving. The Skydiving segment continued its recovery during the year, added by the ongoing return of inbound markets into Australia and New Zealand. Segment revenue growth of 5% and underlying EBITDA growth of 27%, was primarily driven by improved volumes and site efficiencies. In terms of volumes, Skydive Australia reported growth in tandem PAX volumes of 9% for the 9 drop zones that operated all year. While the pace of growth varied across sites, the Airlie yearly Beach Drop zone reported the strongest growth rate as it benefited from the return of backpackers to the Whitsunday's Region, which is a good sign. As we previously reported, 2 Skydive Australia sites were placed into care and maintenance in mid-September 2024, which allowed us to simplify the network structure and provide opportunities to optimize the asset usage and capital requirements of the business during the year. The Yarra Valley drop zone is planned to be reopened later in 2025. Skydive New Zealand reported growth in tandem pax volumes of 10%, driven by the continued return of international visitation into the Queenstown, Wanaka region, while both the Queenstown and Wanaka drop zones reported growth for the year, the growth rate was most pronounced for the Wanaka drop zone as it benefited from initiatives implemented to improve site efficiencies. During the year, management continued to take a targeted approach to pricing within the context of the existing price point of Experience. Average revenue per customer growth of 2% for the core tandem skydiving experience was reported by the segment, which was supported by continued strong uptake of photo and video in both countries. Pleasingly, the Skydiving segment reported improved operating margins, which was primarily driven by the higher volumes and the inherent operating leverage in the asset base. During the year, management continued to implement initiatives to enhance operational efficiency and optimize asset usage across the network with improved packs per load efficiencies achieved across the network during the year. Accelerating the improvement in performance of the Skydiving segment continues to be a priority focus for management. Turning to Slide 12, Adventure Experiences. The Adventure Experiences segment reported another strong year with growth in revenue of 7% and underlying EBITDA of 14%. All 3 business units within the segment reported improved financial performance. However, overall performance was led by the contribution of Reef Unlimited and Treetops Adventure and improved average revenue per customer, steady volumes and cost control. Segment earnings growth was driven by a strong year for Treetops in particular. Reef Unlimited reported growth of -- revenue growth of 7%, primarily driven by 6% increase in average revenue per customer which was influenced by product mix, price increases and stronger onboard sales. Reef Unlimited volume was only slightly up on prior year as a strong first half of the year was largely offset by more weather disrupted second half particularly in February due to weather associated with tropical cyclone, Alfred. Shifting to Treetops, the business unit reported revenue growth of 12%, primarily driven by a 10% increase in average revenue per customer associated with price increases, site mix and ongoing focus on improving average site spend. Treetops Adventure had a similar year to Reef Unlimited in terms of volume. In that it had a strong first half of the year, which was largely offset by softer trading and inclement weather in the second half. Other key highlights for Treetops Adventure included the first full year of operations for the new Treetops Canberra site which performed ahead of business case expectations as well as the reopening of the Zip Coaster attraction of the Treetop Central Coast site. Turning to Wild Bush Luxury. The business unit also reported improved financial performance driven by improved walk volumes and cost management offsetting a softer accommodation volumes during the year. However, the segment continued to experience the impacts of elevated level of Australians traveling outbound as well as higher domestic airfares to our key access points such as Darwin, which underpinned the goodwill impairment. Now turning to Slide 13, balance sheet. Importantly, Experience Co's balance sheet remains well positioned to support continued growth. Experience Co maintained a modest net debt and gearing level during the year, with a closing cash balance of $11.1 million, net debt of $10.9 million and a net debt to underlying EBITDA ratio of 0.6 at 30 June. As can be seen at the bottom left table on the slide, the group's debt facility with CBA remains available to support the business. A key highlight of FY '25 was being able to utilize the market rate loan facility to support the acquisition of the new Reef Unlimited vessel Aquarius II, which has been performing strongly since commencing operations. At 30 June, the business maintained $14.2 million of undrawn funds available across the market rate loan and asset finance facilities, which are available to support future growth initiatives. Further, at 30 June, the Australian operations Experience Co had $55.9 million of carried forward tax losses available to enhance future cash flow generation. Experience Co also had $9.3 million franking credits balance at 30 June, a portion of which will be utilized in paying the $0.0025 per share fully franked dividend next month. Turning to Slide 14, cash flow. Firstly, in terms of the tables on Slide 14, the top table represents a summary of the statutory cash flow statement reported in our audited financial statements. However, similar to our half year results presentation, we have again included some additional information on the slide to provide further insight on underlying free cash flow of the business, specifically the middle and bottom tables. A key highlight of the year has been the improvement in cash flows generated by the business, as illustrated by the 53% increase in statutory operating cash flows to $17.1 million. As can be seen at the bottom, the business reported a $6.3 million increase in underlying free cash flow, which was a function of 2 key factors. Firstly, the business maintained strong conversion of EBITDA into cash flow with underlying free cash flow improving in line with business performance and inherent operating leverage in the asset base. Secondly, maintenance CapEx remained at a broadly similar level to prior year, increasing by $0.8 million to $8.1 million and is primarily driven by scheduled maintenance activities for the aircraft and vessel fleet as well as equipment renewal for Skydiving and Treetops Adventure. In terms of growth CapEx, the key investments during the year were the purchase of hangar facility and related equipment at Shellharbour Airport for our Skydive Australia operations and the new Reef Unlimited vessel Aquarius II. As noted earlier, the group leveraged the CBA debt facility for these investments. In terms of financing cash flows, that breakdown has been provided on the slide. A key highlight, albeit small in absolute terms was the share purchases associated with the commencement of the on-market share buyback in June. Looking forward, improving the free cash flow of the business will continue to be a priority focus of management as well as maintaining a disciplined approach regarding the allocation of surplus free cash flows. Importantly, the improving cash flows of Experience Co provided with a greater optionality for initiatives such as the share buyback, paying a dividend and stepping up our growth ambitions in FY '26. I'll now hand back to John.

Thanks, Gavin. I'd now like to give you a quick update on our strategy and outlook for the group before taking questions. Turning now to Slide 16. In the financial year 2026, our strategy will continue to be built around the 4 pillars of improvement in business performance, sustaining trading momentum, future growth and the quality of the portfolio. During this coming financial year, our focus on free cash flow generation, in particular, the focus on improvement in Tandem Skydiving earnings within Australia as well as our focus -- continued focus on our capital expenditure across all business units will be a priority. From a trading perspective, as we've said before, we believe that our group is uniquely placed to capitalize on the world's overall desire to experience adventure as well as do this in iconic locations such as the Great Barrier Reef, Sydney and surround the South Island, New Zealand Australia's Red Center. Thirdly, there is an immediate focus within our group on actioning organic opportunities, some of which I'll summarize over, but new products such as Two Island Explorer tour on the Great Barrier Reef, expanding our efficiency in Skydiving as well as the identification of new Treetops locations and expansion within these experiences offerings will be key to this. Finally, we will continue to review business operations and asset returns. Turning now to Slide 17. A key part of our strategy for FY '26, as I said before, will be focused on organic growth. This is primarily off the back of recent projects, which demonstrate the company's strong track record of delivery of organic projects within the portfolio. On this slide, a few pertinent examples are outlined. But in our Marine, Treetops and Skydive divisions, we've been able to successfully deliver projects such as the Remora Reef Pontoon Aquarius II and the Treetops Canberra sites that have all provided healthy returns on invested capital as well as high utilization rates and importantly, growth to existing volumes of the business. Turning now to Slide 18. With this track record in mind mine, our focus during FY '26 on growth will be primarily focused on our Marine and Treetops business units with a focus on adjacent opportunities, new experience development and importantly, experience enhancement of existing assets. In our Treetops divisions, we have currently identified over 10 sites nationally that are all in different stages of development, and we are actively expanding our existing portfolio of sites. An example of this has been the commissioning of a new zipline coast and [indiscernible] attraction in our Canberra site. We also believe that at the right time, our Marine division is ready to take the next step and expand outside of its existing footprint as well as exploit some of our competitive advantages within Cairns and Port Douglas. A good example of this is our new 2 island tour between Fitzroy Island and Green Island launching in September, which will be the only tour of its kind, given the exclusivity of our permits. We believe that this will provide us with a competitive advantage in the all-important East Asian markets that have constrained itineraries and a desire to experience the reef. Thirdly, we are actively looking at bolt-on acquisitions for the outdoor adventure and Marine segments and have now established a solid pipeline, which will be continually assessed. But importantly, funding for this growth agenda will be supplied by our cash reserves and our debt facility. We are extremely encouraged by the level of support that we have with CBA. And this, coupled with our improving business performance means that we can confidently move forward on this agenda. Turning now to Slide 19 before we open the call up to questions. I'm very pleased to be able to report to you that July was a continuation of the strong trading momentum that we experienced during FY '25. The July result was both ahead of PCP and our own internal forecasts. A noticeable impact on our trading was the British & Irish Lions tour to Australia and across certain parts of our business. The increase in the number of customers from the U.K. and European continent was over 60% up on PCP. With the Green and Gold runway of events in Australia over the coming year, this gives us great confidence about our ongoing business performance and targeting the customers from these events will be a priority. Importantly, today, we've been able to declare a fully franked dividend of $0.0025 in -- the first dividend since FY '18. This is an important milestone for the business as we continue our journey of business improvement and is tedamount to the Board's confidence of the future trading momentum within the group. And whilst the group does remain confident, we are not complacent about the job ahead, and management's focus will be upon 3 things: continued and accelerated revenue growth across all business units; focus -- continued focus on corporate efficiency and operating efficiencies with a particular focus on procurement opportunities; and a continued focus on the free cash flow generation of the group. Like FY '25, we are also targeting a cost efficiency program through a focus on procurement that seeks to yield over $2 million in annualized savings. And already, we've conducted our insurance brokerage tender, and we expect to see significant annualized savings achieved off the back of a simplified approach in this category. Other areas that we have also identified include food and beverage procurement in certain parts of our business, printing and also an overarching review of our IT contracts and systems. A result -- as a result of all of the above and what we've said today, our longer-term outlook and the earnings capacity of the group remains unchanged. Thank you for your time this morning, and we're now ready to take questions.

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

Good to see the confidence in some of that commentary. I might just kick off there, if I can. It does feel like you're feeling more confident and you have sort of talked about in the last sort of 5 minutes or so. But just to sort of clarify, please, what's driving that confidence? Is it a whole lot more sort of pathway behind you to say, you know what you're doing, your operations are in control? Or is it more sort of stronger bookings, agent intentions that you're seeing and just the extent to which you think international or domestic will drive the next leg of growth?

Yes. Look, I think -- thanks for the question. I think it's a combination of all of the above. I think over the last 12 months, during FY '25, in particular, we've spent a lot of time in improving the operating margins of the business. And as we said before, we have taken $3 million of annualized costs as an example, we've really focused on increasing the percentage of direct bookings on Skydive, for example. We're getting more customers booking direct with us than going through agents, which is -- prior to FY '19 that wasn't the case. So we've done a lot of work in the business settings. And then what we're seeing, as we pointed out in that strategy update, is that we're seeing an improvement in the overall macro settings for international visitation, which is continuing its improvement back within Australia and also New Zealand. But we're also more confident now about the domestic outlook, particularly given interest rate cuts and also the trends that we're starting to see play out through the business. So, I guess, it's a combination of those and as we've seen from the outlook from both Tourism Australia and Tourism New Zealand that the growth rate in inbound visitation in both markets is looking very healthy. So it's a combination of all of that. And then I think it's -- I think over the last 12 months, Gavin and I have also developed a better handle on what levers to pull. And we've really noticed this year that -- we just think this procurement opportunity is a big opportunity for us as well. So there's a combination of a whole different factors playing out.

Yes, helpful. And maybe just sort of touching on the New Zealand market. Skydiving, obviously, you did note Wanaka is driving most of the growth, just a reminder in terms of the extent to which you sort of may choose to or can sort of shift volumes between those locations and to the extent to which you are sort of feeling confident into Chinese New Year, which I think was a little bit impacted last year.

Yes. So look, the capability that's in building the Skydiving business, both in Australia and New Zealand is that if we have a day where -- in certain drop zones, if we have a day where it's blowing out and we know where the conditions are going to be challenging to be able to jump safely. We can transfer customers and also [ tandem masters ] to an alternative site. So in New Zealand, for example, we're basically an hour between the shop that we have on Shotover street and also the airfield in Lake Wanaka. So utilizing our existing transport infrastructure, we're able to transfer as many of those customers as we'd like to do. And equally in Australia, for example, just last week, we had a day where [ Wollongong ] wasn't able to jump. So we sent our 54 seat bus from Sydney that goes around the hospitals, we just set it up north up to New Castle we were able to process those customers. So that's a practice that's been embedded in the business now for a long time. We also do that up in North Queensland, for example, and we have done it in Southeast Queensland between Nisa and Byron as well. We're feeling very confident about Chinese New Year into New Zealand in particular, because of the fact that Queenstown is a -- it's a must-see destination. It's on every first-time visitor's itinerary to New Zealand, it's a lot like Sydney and the Great Barrier Reef and Uluru is in Australia for that. So provided that the weather gods favorably smile on us, we see no reason to be not -- we see no reason not to be confident about that trading period both in New Zealand and also in Australia. I mean, I think what happened last year in FY '25 was we came out of January, which had been really, really strong. We had good underlying momentum. But we did run into some pretty severe weather. And obviously, we take safety in all of our businesses pretty seriously. So we're unable to process that volume. So -- but over in New Zealand, we were pretty happy with the volume at that time as well.

No, helpful. And sorry, I did misspeak a little bit as well. I was also alluding -- what meant to allude to Golden week, which I think is ahead of, obviously, Chinese New Year and probably within reach now. Same comment will go for Golden Week, New Zealand as well Aussie.

I think just overall in both markets, we're seeing that continued improvement in that Chinese market. And I think both markets now are back to sort of 70% of holidaymakers into both Australia and New Zealand for the China market. Now some parts of Australia obviously are ahead of that curve, some are behind because of the various -- I guess, the dispersal within the country. But certainly, we're looking forward to Golden Week. And we just -- as I said, we're looking forward to what we've established this financial -- last financial year, sorry, was a really strong trading record in those peak holiday periods, which has been really important. So because as we say in the presentation, that accounts for upwards of 80% of our overall business during the end.

Helpful. Maybe just one last one on TNQ and the market dynamics up there. There's definitely positive framing from [ Cairns ] Airport and where they want to go over the next 15 years. We have seen good investments in accommodation by multiple operators and I guess nice to see the Skyrail investment flowing through. You've obviously done a couple of things in that region. How do you sort of feel about the product offer and the extent to which other operators are now starting to lean into the market growth?

Yes. So I think we are very, very excited about it. I mean I think the $85 million that the Chapman family spending on Skyrail is really important for the region because that is such an important attraction for Cannes and Tropical North Queensland. But I think for us, the important thing is why we've invested in Aquarius II, why we've launched the Two Island tour and why we did [ Remora ] and why we've gotten the returns on those assets as being that anything up there that you start to invest in new products and that differentiates you from your competitors, is we've seen in our business that it responds very favorably to. And the Two Island tour that launches on the 1st of September for us is really important because no other operator can provide that. And what it provides you is a full day doing 2 islands, being Fitzroy Island and in Green Island. And those 2 markets are quite important for that East Asian visitor that's really important to that region. So that's why it's just basically deploying Aquarius II or one of our other vessels there. So the incremental cost we have to spend on it is virtually nil because the vessel is already operating and the crews are already being paid for. So we just think that enhancement of existing experiences, new experiences in that range in the market responds to really quickly. And the fact that we've seen our investments, [ Baileys ] invested, I think, close to $20 million on Silky Oak lodge. We think that's just overall really positive for the region and positive for our business.

[Operator Instructions] The next question comes from John O'Shea from Ord Minett.

Can you hear me okay?

Yes. Yes. Thanks, John.

Yes. First one for me, just intrigued as to the bill sort of rationale for the dividend you could maybe just talk you through that might to start but we have a couple of questions after that.

Yes, it was very simply this, John, that they felt that the trading performance from FY '25 and then the outlook for FY '26 and beyond that basically, we had the capacity to do it and they felt -- we feel confident in the business outlook. So it was really that simple.