Experience Co Limited (EXP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Experience Co Limited Fiscal Year '26 Full Year Results Conference Call. [Operator Instructions] I would now like to turn the call over to John O'Sullivan, Chief Executive Officer. Sir, please go ahead.

Thanks very much, Tiffany. Good morning, ladies and gentlemen. With me this morning is Gavin Yates, CFO of Experience Co, and it's our pleasure to present to you our FY '26 annual year results. As per our usual format, today's presentation will be divided up into 3 sections. I'll provide an update on the business trading for financial year 2026, Gavin will take you through the financial results in a bit more detail, and then I'll close off with all questions with a trading outlook and strategic update. And then, of course, we're very happy to take your questions. Now turning now to Slide 4. Before Gavin takes you through the numbers in a bit more detail, let me give you the headline picture for the financial year 2026. In short, it was a year of modest revenue growth, but a step back in earnings driven largely by factors outside of the business' control, which Gavin will unpack shortly. Revenue from continuing operations came in at $129.6 million, up 2% on PCP with modest growth in the top line in a genuinely tough operating environment with underlying EBITDA from continuing operations at $17.6 million. That reflects the external headwinds that we'll talk to shortly, primarily being weather, industrial action and, of course, high cost impacts caused by the Middle Eastern conflict. Underlying net profit after tax from continuing operations before impairment was $2 million. And on a positive note, our NTA per share improved 3% to $0.10, whilst net debt was broadly flat at $10.7 million. At a segment level, the Skydiving and Aviation business had an underlying EBITDA of $9.7 million and Adventure Experiences produced an underlying EBITDA of $15.4 million, both down modestly on PCP, but Adventure Experiences once again remains the clear engine room of the group. Turning now to Slide 5. As we outlined at last year's result, our strategy had continued to be built around the same 4 pillars of earnings optimization, sustaining trading momentum, growth and the quality of the portfolio. On earnings optimization, FY '26 delivered -- as we said, delivered modest growth, but a slight decline in EBITDA and EBIT, with cash flow also impacted by softer trading. That said, we managed the fuel cost increase across the business and our focus on cost savings targeting of more than $2 million of annual cost out of the business, really designed to assist us in mitigating the external impacts that we spoke about before. And of course, our focus on procurement still remaining a priority. On trading momentum, the encouraging story is that underlying bookings remained strong throughout our key trading windows with performance really only impacted by external factors such as weather and also industrial action and tourism conditions across Australia and New Zealand also continued to improve. On growth, we delivered a full year of operation from Aquarius II, our new vessel purchased at the end of 2024. We also were able to commission the Reef Magic IV vessel project with support from the Queensland Government's Tourism Icons program as well as opening new attractions at our Canberra treetops Park site and the acquisition of West Beach Adventure Park in South Australia. On the quality of portfolio, we continued our strategic review of the Skydive Australia business unit, culminating in the entering into a term sheet with Inflite Aviation. And of course, we successfully completed the divestment of Wild Bush Luxury. Turning now to Slide 6. This slide summarizes the performance by business unit. Reef Unlimited delivered marginal growth in customer volumes despite several weather events in quarter 2 and quarter 3, with the full year contribution from the Aquarius II vessel underpinning a strong cruise and charter performance and providing valuable fleet redundancy. In the Tandem Skydiving business unit, this business unit remains one of the leading operators across Australia and New Zealand with continued growth in the New Zealand market, underpinned by strong Queenstown market. Australian operations were impacted by Protected Industrial Action during the peak trading periods of Christmas, Chinese New Year and Valentine's Day. And we also made the decision during the course of the year to consolidate our Victorian operations into the Great Ocean Road drop zone. Treetops Adventure achieved revenue growth despite broadly flat volumes, reflecting our pricing strategy and continued focus on customer spend. And we are also, as we outlined before, able to roll out new experience initiatives such as Networld and Zipline courses in Canberra, and that is continuing across several other sites within the portfolio. Finally, within our Corporate division, the team maintained its focus on cost efficiency and was rolled out with the deployment of a new payroll and workforce management system, Tanda, which is designed to ensure that at site, we are able to drive better efficiencies with site labor. And as we've said before, we simplified the portfolio with the completion of the Wild Bush Luxury divestment. Turning now to Slide 7 before I hand over to Gavin. It's worth stepping back to the macro backdrop in which the business operates as it remains a key driver of our business. Domestic and international tourism markets in both Australia and New Zealand continue to grow, albeit at a much more modest pace and Australian overnight trips now at 113 million, which is ahead of pre-pandemic levels with holiday travel continuing to be the main driver of growth. International visitation to Australia is also continuing to recover well with holiday trips up 14% on PCP and New Zealand's international visitor spend is projected to reach $16.3 billion by 2029. Dispersal, however, within Australia still remains a significant issue. We remain as a business, continue to engage with Tourism Australia, Tourism New Zealand and the relevant state and territory authorities as well as our trade partners to make sure that we continue to take advantage of the continuing growth in tourism in both markets. And we do continue to monitor the performance of these markets very closely. I'll now hand over to Gavin to provide you a financial update. Thank you.

Thanks, John, and good morning, everyone. Just starting on Slide 9, financial performance. The FY '26 results are consistent with the year-to-date results presented in the Q4 trading update released to the ASX platform on the 4th of August. The group's financial performance from continuing operations reported modest improvement, as noted by John, in revenue despite being significantly impacted by external factors, particularly during the second half of FY '26, including adverse weather, the escalation of the Middle Eastern conflict and subdued consumer sentiment. Revenue from continuing operations grew by 2% to $129.6 million. However, underlying EBITDA from continuing operations decreased by 8% to $17.6 million and underlying profit after tax decreased by 30% to $2 million, reflecting the impact of these external headwinds on operating margins and business performance. Pleasingly, all business units other than Skydive Australia achieved revenue growth during the year despite the external impacts affecting consumer demand and processing rates. During the year, management responded to the prevailing market conditions through targeted rate changes and increased promotional activity, particularly for Skydive Australia and continued focus on improving the average customer spend. Management also removed a further $2 million of annualized operating costs during the year via the group-wide cost-out program, building on the $2.5 million of annualized savings delivered across FY '24 and FY '25, which helps to mitigate some of the impacts of the inflationary operating environment. The group's performance also included the full year benefit for Reef Unlimited Aquarius II and new attractions for Treetops Adventure, mainly in relation to Canberra from the fourth quarter. It's highlighted that the statutory loss after tax from both continuing and discontinued operations of $3.3 million included a loss after tax of $0.9 million in relation to the part year contribution of Wild Bush Luxury and transaction costs in relation to its divestment, which was effective from the 1st of May. Turning to Slide 10, Skydiving. The Skydiving segment reported a mixed year with a stronger performance in New Zealand offsetting softer trading conditions in Australia. Segment revenue decreased by 2% to $63.8 million, and underlying EBITDA decreased by 3% to $9.7 million, although underlying EBIT increased 9% to $5.4 million. Skydiving New Zealand reported total revenue growth of 7% and volume growth of 9%, reflecting bookings growth in every month of the year, partially offset by a lower average processing rate due to weather impacts, including during key trading periods. During the year, the 11% depreciation of the New Zealand dollar against the Australian dollar also impacted the conversion into Australian dollars of the local currency earnings generated by our New Zealand operations. Skydive Australia reported a total revenue and volume decrease of 7%, although revenue and volume for our current operating sites, which excludes Melbourne and Yarra Valley, decreased by a more modest 4%. Australian operations were impacted by protective industrial action during peak trading windows and volume performance across our Australian sites was inconsistent over the year. During the year, management consolidated the Victorian operations into the Great Ocean Road drop zone, placing the Melbourne drop zone into care and maintenance and permanently closing the Yarra Valley drop zone. Pleasingly, photo and video uptake continued to remain strong across both countries. And as previously announced on the 14th of July, the group has also entered into a nonbinding term sheet with Inflite Group in relation to the proposed combination of our respective Skydiving and Aviation businesses, and John will provide an update on this later in the presentation. Turning to Slide 11, Adventure Experiences. The Adventure Experiences segment remained the largest contributor to the group result with both Reef Unlimited and Treetops Adventure achieving revenue growth despite the challenging operating environment. Segment revenue grew by 6% to $65.8 million, although underlying EBITDA decreased by 4% to $15.4 million and underlying EBIT decreased by 3% to $9.4 million, reflecting the impact of the externalities on operating margins, particularly during the second half of the financial year. Reef Unlimited revenue increased by 7%, with volume growth of 4%, driven by a solid first half, which was partially offset by softer second half volumes. Volume growth was reported in all months other than December, January, March and April, which were impacted by weather events and a crocodile impacting our Port Douglas Low Isles operations, mainly during the third quarter. Average revenue per customer increased by 4%, reflecting the impact of historical rate increases and product mix. Treetops Adventure revenue increased by 2% with volumes slightly down on prior year, reflecting mix of performance across sites, contribution from the new Canberra Networld attraction from the end of March and the loss of the Newcastle site from the end of October 2025. Average revenue per customer increased by 2%, driven by historical price increases, site mix and our continued focus on increasing customer dwell time and average site spend. Operating margins across the segment were impacted by the weather events, fuel cost increases and general wages and cost inflationary pressures despite improved average revenue per customer. During the year, we also continued to invest in the growth of Treetops Adventure with the acquisition of the West Beach Adventure Park in Adelaide on the 30th of June, marking Treetops' first entry into South Australia. Turning to Slide 12, balance sheet. As John indicated, the group's net debt and gearing remained at a similar level to the end of the prior year with net debt of $10.7 million and a net debt to trailing 12 months underlying EBITDA ratio on a pre-AASB 16 basis of 0.76x at 30 June 2026. Closing cash decreased by $5.7 million to $5.4 million at 30 June, driven by the dividend paid, debt repayments and reduced business cash flow generation during the year. Gross borrowings, including asset finance, decreased by $5.8 million to $16.2 million, which I'll touch on shortly on the cash flow slide. The divestment of Wild Bush Luxury, together with the decrease in cash accounted for the majority of the movement in tangible assets during the year. Tangible assets at 30 June also incorporate the outcome of independent market valuation of our aircraft fleet attained during the year in line with the group's accounting policy, which resulted in no material change to the aggregate value of aircraft. As can be seen on the bottom left of the slide, the group's CBA debt facility remains available to support the business with undrawn funds of $15.8 million at 30 June available across the market rate loan and asset finance facilities, which are the key facilities available to support growth initiatives. Further, at 30 June, the Australian operations of Experience Co had $57.7 million of carryforward tax losses and the group had a franking credit balance of $8.5 million. Turning to Slide 13, cash flow. Firstly, in terms of the tables on Slide 13, the top table represents a summary of the statutory cash flow statement reported in our audited financial statements. And however, similar to recent results presentations, we've also again included some additional information on the slide to provide further insight on the underlying free cash flow of the business, specifically the middle and bottom tables. Statutory operating cash flows decreased by 30% to $11.9 million during the year, primarily reflecting the decrease in underlying EBITDA, lower cash conversion due to working capital timing and the impact of additional nonrecurring significant items during the year. As seen in the table at the bottom, while the business remained underlying free cash flow positive at $2.3 million, the business reported a $5.1 million decrease compared to the prior year, which reflected the decrease in underlying earnings and lower cash conversion. It's highlighted that the average cash conversion over the past 3 years is 94% with 91% in FY '24, 108% in FY '25 and 84% in FY '26. A key driver of the fluctuations in cash conversion is the movements in trade receivables and deferred revenue balances associated with the timing and profile of the group sales and bookings. This was partially offset by a modest reduction in maintenance CapEx to $7.7 million, which is primarily comprised of the scheduled maintenance of our aircraft and vessel fleet. In terms of growth CapEx, the key investments during the year were the acquisition of the West Beach Adventure Park and the construction of the new Treetops Canberra Networld attraction, together with product enhancements at existing sites such as installation of Zipline courses. Proceeds from the sale of assets of $4.5 million primarily comprised the Wild Bush Luxury divestment net proceeds of $3.4 million after completion adjustments and transaction costs and proceeds from the sale of one surplus Skydiving aircraft. It's also noted that the majority of the net proceeds from the Wild Bush Luxury divestments have been allocated to the repayment of debt in line with CBA's approval of the divestment, albeit the funds are available for future redraw subject to the normal drawdown process under our facility terms. In terms of financing cash flows, the breakdown has been provided on the slide. Key items included corporate debt and asset finance facility repayments of $4.2 million, the repayment in full of the New Zealand government loan at expiry of $1.7 million, AASB 16 lease principal repayments of $3.4 million and capital initiatives during the year comprised the dividend paid of $1.9 million and the on-market share buyback and further purchases of $0.2 million. I'll now hand back to John.

Thanks, Gavin. To close off this morning's call, I'd now like to give you a brief update on our strategic priorities for the financial year ahead, the proposed Skydive transaction and of course, a look through of trading in the month of July. Turning now to Slide 15. Our priorities for FY '27 remain consistent with the 4 pillars that we operated to during FY '26. The being around earnings, trading momentum, growth and quality of the portfolio. On the focus of earnings, free cash flow generation remains the #1 priority. We continue -- we will continue with the rollout of the Tanda platform to assist us in optimizing rostering and labor efficiency at site and also driving incremental savings through focused initiatives on procurement. With regards to trading, underlying demand for Australia and New Zealand tourism still remains strong, and we'll continue to invest in our direct-to-consumer channels while strengthening our positioning with trade and wholesale partners. And our growth, our focus is on actioning organic opportunities that are already in train, Reef Magic IV and the continued rollout of site enhancement across our Treetops network and investment in customer connectivity in our Skydive Australia facilities and ground transportation. Finally, on the portfolio quality, our key priority remains the progression of the proposed Skydive transaction, which I'll speak about in a minute, along with continued disposal of surplus assets and evaluation of any accretive growth opportunities. Turning now to Slide 16. As we announced to the market on 14th of July, the business has entered into a nonbinding term sheet with Inflite Aviation to combine our Skydive and Aviation business unit with Inflite's business, creating an Australia and New Zealand aviation tourism business. Upon completion, the combined business is estimated to have an enterprise value of approximately $110 million on a cash-free, debt-free basis with EXP receiving consideration of approximately $65 million, made up of $41 million in upfront cash, a $5 million vendor note to be paid after 5 years and a 32.5% equity interest in the combined entity. Since the announcement of the term sheet, the focus of both parties has been engaging in financial, legal and tax due diligence as well as conducting of management site inspections across Australia and New Zealand, which have now both been completed. In addition to that, we are also progressing due diligence, commercial and legal negotiations and also the financing plan in parallel. I have to say that the intent on both sides has been extremely positive, and we remain confident in our ability to complete this transaction. I want to be clear, however, that no action is required by shareholders at this stage, and we'll continue to update the market in line with our continuous disclosure obligations. Turning now to Slide 17 before we open up to questions. I'm pleased to say that the group had a solid start to the financial year with July revenue and underlying EBITDA both ahead of PCP. July delivered an unaudited revenue from continuing operations of $11.7 million against $11.4 million in the same prior comparative period with an underlying EBITDA of $2.3 million against $2.1 million, with growth reported across every business unit aside from Skydive in New Zealand, which was impacted by generally less favorable weather at our Wanaka drop zone. Skydive Australia reported revenue growth despite a reduced operating footprint, supported by improved external aircraft maintenance and cross-hire income, while Reef Unlimited and Treetops Adventure both delivered ahead of PCP on the back of higher average revenue per customer. Looking ahead, the Board and management remain positive of the group's longer-term earnings outlook. That said, I want to be upfront that changes to our business structure, the more gradual and uneven recovery in international tourism, ongoing macroeconomic uncertainty does mean the earnings recovery of the group is likely to take longer than we had previously anticipated. This said, our outlook for FY '27 remains positive, underpinned by the continuing solid performance, tourism markets in both markets and consistent demand for our experiences. Operating efficiency and free cash flow generation remain a key focus for the group. Finally, we also will remain committed and focused on progressing the Inflite Aviation transaction ahead of the year ahead. Once again, I'd like to thank you for your time this morning, and thank you for your ongoing support. We're happy to take questions.

[Operator Instructions] Your first question comes from the line of Allan Franklin with Canaccord Genuity.

I was hoping to just reflect on a couple of the organic growth pieces within Trees and Reef, and just perhaps the prospectivity of growth on a look forward. Could you just talk to how you feel you have put in place growth for the next couple of years within those 2 divisions, noting there obviously was an acquisition in South Australia and Trees and looking at adding another parts into Cairns with the help of that government grant?

Yes. Thanks, Allan. I'll kick off with the response to that and then also hand over to Gavin. I think as you summarized, the primary focus on the Reef Unlimited business is the delivery of Reef Magic IV. That vessel will provide us with an increased capacity for us to be able to service our Reef Magic pontoon as well as, we believe, gain more market share in that market because what we've seen is that investment in assets such as that do generate a growth in market share, particularly. So that is the primary focus for that business along with the efficiencies that we're seeking to gain at site through the implementation of the Tanda rollout as well as also trialing artificial intelligence within our reservations function. Within Treetops Adventure, our approach to growth is, I guess, is a combination of approaches. As you've identified, we did purchase West Beach Adventure. We're really excited about that purchase. We were able to buy it for a good multiple, and it adds another 25,000 customers, close to $0.5 million in underlying earnings. And we also think that it's the site ripe for expansion in terms of more experiences on the location enhanced food and beverage offering that we can grow those earnings. And what Mark Heinrich and his team are doing at the moment is, I guess, starting to fill out the number of organic opportunities that we're able to have to support that. So we're in negotiations with a number of councils at the moment around Australia for new organic sites as well as we're also in discussions with a number of other operators that have single sites that may be looking to divest. So it's a combination of the approach for growth for that particular business unit.