Serko Limited (SKO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Serko Interim Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Darrin Grafton. Please go ahead.

Good morning, and welcome to today's results presentation. My name is Darrin Grafton, I'm Serko's CEO, and I'd like to officially welcome Shane Sampson, Serko's new CFO, who joined us last month. Today, we are presenting our interim results for the period ending 30 September 2021, and launching a capital raise of up to $85 million via $75 million placement and a $10 million offer for retail investors. If we move through to Slide 5 is the tectonic shifts of the business travel landscape settle through the pandemic. We believe there will be only a handful of significant market players who will have an outsized opportunity through the recovery. Serko is positioning itself to be one of these global standing players. Today, we're announcing a capital raise to enable us to capture these global growth opportunities. The pandemic has continued to rock the global travel industry with each country at a different stages of recovery. Although COVID has dampened demand, and subsequently revenue, it has also helped accelerate the opportunity for technology to manage the emerging complexities of a post-pandemic world. And it is allowing Serko to set some very strong foundations globally. To take advantage of these opportunities, we intend to continue investing in the global growth opportunities being presented and the confidence that business travel will resume, the ongoing headwinds of COVID may impact but our ambition to execute on our strategy remains resolute. We've continued to guide Serko through the pandemic, focus clearly on the opportunities that lay ahead. The progress we have made is underpinned by the dedicated team that have stayed focused on the strategy and execution needed through a very complex environment. During the past year, we have rolled out the Zeno platform globally in partnership with Booking.com, laying solid foundations for growth in the unmanaged travel sector. We're at the early stages of our journey to globalize as we realize our vision of a business travel marketplace and believe we have only just started to capture the opportunities of both our partnership with Booking.com and the potential in our North American market. We've continued executing what we can control, the foundational work that moves us forward in our global strategy, remaining laser focused on the key opportunities across the 3 core go-to-market initiatives which we will cover during this presentation. We are, therefore, announcing today a capital raise that will enable us to invest for growth into the unmanaged travel segment through our partnership with Booking.com for business, accelerate the development of our global marketplace strategy and pursue opportunities for inorganic global expansion. As COVID continues to bring uncertainty in the market, we are prudently maintaining sufficient capital reserves to preserve our resilience and to pursue these opportunities and the event that business travel takes longer to recover than currently anticipated. If we move to Slide 7. Executing on what you can control is key during turbulent times, and we have remained focused on delivering what we have committed to our customers, investors and with earnout control. Some of the key highlights we have achieved are as follows. We have successfully completed the migration of Booking.com for business customer base in September 2021. Today, we have seen over 300,000 business customers migrate, and over 30,000 new sign-ups since we launched. At its foundations, we have brought to market a multi-language, self-onboarding, self-management platform for unmanaged business travel. We are proving out the connected trip offering and have established flight connections across multiple suppliers and brands, with rail expected to be available in the second half of this year. We are now entering the phase of activating these customers as they begin their journey back to travel through a continual investments and content to enable the connected trip and user experience enhancements driven by our customer insights. And although we are still operating under a worldwide pandemic, the recovery across certain markets has seen an increasing transaction growth over this period of 1,000 to 1,500 per week day in October. We expect our future investments in marketing and product technology to increase transaction numbers as we bring to market the solutions that are needed through the recovery of business travel and to really capture the full opportunity. North America continues to present opportunities across an increasing reseller base in this market. Travel management companies are now starting to activate customers as they begin their return to travel. Our focus is to continually invest with these customers and the technology needed specifically for this market, and to build the brand to the level we have within our home market. We are confident the North American market remains one of the largest opportunities for Serko. And we are in discussions to roll Zeno out with some of the large global corporations that we've had in our pipeline. Part of our North American market investment has been the launch of the new Zeno Expense platform, and we believe our continued investment to bring to market a single travel spend management application will be a key differentiator in this space. In ANZ, we continue to demonstrate resilience through strong customer retention numbers. Our volume during the recovery period in New Zealand was up 160% on June 2021 over 2019 volumes before the lockdowns were imposed. We continue to see migration to the new Zeno platform with 67% of customers currently booking on Zeno, which shows the growth we are making through our technology investments combined with our continued focus on the customer needs in this region, we believe we are well positioned to continue to be a leader in the ANZ market. Slide 8. In 2020, Serko transitioned into a business with global aspirations. And during 2021, we redefined our position from being a strong local player to one with global coverage. We now have global scale, expanding from 5 countries we operated in when Zeno was launched to now having our platform available in 180 countries, with 9 languages now supported. Our focus is to continue the investment in this area to support complex languages and increase our content offer that will drive additional demand as we build towards our goal of solving the challenges of business travel globally. We are poised for growth out of this pandemic, and the investment to date has proven our ability to grow from a strong local player to one with global coverage. Our focus is now on scaling the business to activate the opportunities we have ahead of us. We have completed the migration of Booking.com for business customers. We have received market validation in the North American market to position ourselves for growth in that market. We have maintained our leadership in the ANZ region, and now we are focused on transforming the scale of the business to be a major global -- globally in this sector. This means extending our partnership with Booking.com into new phases, that means adding to the scale of our teams in North America and more broadly to support the demands of a truly multinational customers along with the aspirations of Serko and our channel resellers, and it means creating a truly scalable platform that underpins our transition to become a business travel marketplace. We continue to pursue opportunities to accelerate this transition, both organic and inorganic. Slide 10. Our vision is to build a business travel marketplace, bringing together the world's travel buyers with the universe of travel content, and we're doing this via the connected trip. Serko is uniquely positioned to bring this to market. We are one of the few players in this market that has an independence of conflicts on both the supply and demand side of the marketplace. We have strong relationships with key supply channel partners and established partnerships with channel resellers across both the managed and unmanaged travels. And the Zeno platform not only fulfills the basic function of a marketplace by facilitating the transaction, our technology supports the change management and servicing requirements needed through our ecosystem connections. Slide 11. The network effect of a marketplace is achieved through scale, and the Serko Board have recognized the opportunity by earmarking funds to create an open platform that will enable service providers to help Serko scale across the global market. Through a single platform, we are looking to service multiple channels to market to solve the distinct needs of both the managed travel, which is generally done through travel management companies, and unmanaged travel, which is generally done direct with a supplier or through an online travel agency. Moving to Slide 12. Central to our proposition is removing the friction that is inherent in business travel. The core challenges such as the spend control and risk management are consistent regardless of the size of the business. The problem just becomes exponentially harder, the bigger the company and the larger the overall business travel spend. Getting approval to travel and purchasing itinerary elements before and during a trip requires travelers to interact with multiple disparate systems and websites. Couple this with an increasingly complex COVID travel requirements, the environmental considerations that are now in front and center, and the authentication requirements of new payment standards and the opportunity for technology is simply is clear. This is the opportunity for Zeno, a single managed platform that removes the complexity in a frictionless booking all the way through the payment and reconciliation. Moving through to Slide 14. Key to this is making the right investments ahead of the shifts needed with the return to travel in a new and emerging environment that is now exponentially more complex to diverse. Our strategic vision is our pathway to ensure that when travel returns, we are well positioned to capture the opportunity. We remain focused on executing against our strategic objectives in Australia, North America and our partnership with Booking.com, building a global marketplace through an open technology and application framework and building the foundational organization capabilities needed to meet the scale of our ambitions. Slide 15. The Booking.com for Business platform targets the unmanaged travel space, and our vision for this to become the leading digital platform for small- and medium-sized businesses. The global travel shutdown in 2020 gave us the opportunity to accelerate what had originally been planned a 3-year program of works to migrate customers from the legacy Booking for Business product. We've built a migration system that is scaled to handle thousands of customers migrating on to the platform every day and maintain and build a platform that is scaled with the demands today. This project has been a huge effort from the Serko and Booking.com for Business teams, and is a accredited to the efforts during a time where the teams could only work remotely. And despite the ongoing travel disruptions from a 0 base, we have seen bookings grow to the range of 1,000 to 1,500 transactions a week day, and we are pleased to see Serko's average revenue per booking was above $20 in October. We expect to continue to see variability in booking volumes and average revenue per booking as businesses adapt to COVID travel requirements. And seasonality impactors such as the length of stay and occupancy rates deliver a different mix of transactions as travelers also gain the confidence in traveling for longer. As we start to model the data that come through, we will, in turn, be able to provide the market with additional metrics to assess performance. The acceleration of the program to migrate customers from the legacy Booking.com for Business platform brought forward the onboarding of customers but was prioritized based on key customer segments only and the development work to invest in product capability to capture the full opportunity of the SME unmanaged travel market remains a multiyear project that we will now be investing in. Slide 16, Serko and Booking.com are now focused on the next phase of the rollout to activate and engage users with a connected trip offering and enhancing the user experience to ensure we are positioned to capture the revenue opportunities as global business travel recovers. Through the initial migration phase, we believe we have captured less than 10% of the pre-COVID opportunity, presenting an exciting growth opportunity for Serko and Booking.com as global business travel recovers and the planned investments were made. Key focus areas for attention and investment as we move into the next phase, include activating the existing customer base of migrated customers, the launch of a new mobile app offering to capture what will become an increasingly significant booking channel over the past 18 months. We're also focused on growing the base of SME customers through investments and content to support a more complete connected trip offering, enhanced servicing options and expansion into regions that require complex language sets. Slide 17. The validation phase in North America is complete. The Zeno brand now has a presence in the market that is driving pipeline growth, and Serko's focus is now scaling customer growth over a multiyear period through 2 primary market channels. Serko's 6 active resellers in the market with transacting customers, and we expect more to follow. Transactions have steadily increased over the last few months as businesses started to reengage and work through the vaccination and COVID restrictions with their customers. However, they still remain at low levels, we expect these resellers to start to widen the Zeno user base as travel -- business travel recovery in the USA starts to take shape, and they become operationally proficient in onboarding and servicing Zeno. We've also continued to develop our expense referral partnership, including NetSuite and OMNIA Partners as we introduced the recently released Zeno Expense to the base in North America. A secondary channel focus is the Fortune 500 companies whose travel programs are large enough to command a direct relationship with their travel technology partners as well as white label opportunities with non-travel management company resellers. We've seen an increase in inbound inquiries from Fortune 500 companies to participate in RFPs. And we are currently in discussions with several global companies after being selected with their TMC partners to roll out Zeno to their travelers. We're also exploring requests for companies that we want to white label our platform to enable their own business customers to use our technology to enhance their own marketplaces. Slide 18. Despite the turbulence of lockdown, we have continued to occupy a strong position within the Australasian region for managed travel. This has underpinned our regional growth, which saw a recovery to 160% relative to the pre-COVID 2019 levels when lockdowns were lifted in New Zealand. And we saw a rapid return to 50% of 2019 levels as the borders opened between New South Wales and Victoria. During the lockdowns, our resellers have continued to work to move customers from Serko online to Zeno, increasing from 53% of transactions a year ago to 67% now. And we continue to win new business of our competitors within the region, which also positions us well for a strong recovery. Our investment in Australia will continue with innovations such as the recent release of the Mission Zero sustainability features, the travel safe technology to identify a traveler's compliance with COVID-related travel requirements, and the work we are doing with the airlines on their NDC program. Slide 19. The foundation of a marketplace model is connecting the suppliers and buyers together at scale. Our strategy to achieve this is by creating an open platform that leverages a content hub, making it easier to connect new suppliers and unlocking the ability for third-party developers to build on to our platform, extending the breadth and depth of content available across the markets and product categories much faster than Serko could do on its own. Of course, business travel bookings are not simple transactions. They are made in an environment, sort of a complex policy, risk and environmental information. We believe technology has an important role to play to reduce the inherent friction, inherence in business travel through integrated content to support effective business decisions, making and ultimately driving greater visibility and control over pre-trip and in-trip purchases to optimize travel spend. Slide 20. Key to achieving our goals is a high-performing team, and we are focused on developing our employee experience to engage and retain global diverse workforce and a competitive talent landscape and effectively aligning our people to an organizational objectives. We're developing our operational model to support the transition to a marketplace platform ensuring we have the right organizational design and leadership to scale. We are investing in people and technology to support a next-generation data platform that can deliver enhanced and trip experience and intelligent customer preferencing. Slide 21. Organizations are facing increasing pressure to demonstrate their commitment to sustainability. And delivering a more sustainable travel program is becoming a key priority. Serko is helping to drive the shift by supporting customers on the path to carbon-neutral program with our Mission Zero solution in Zeno. Mission Zero enables organizations to reduce their environmental impact of their travel by preferencing more sustainable booking options, by visualizing the footprint of their itinerary and then by purchasing and retiring carbon offset to the equivalent of the emissions, all within the Zeno booking workflow. We're also continuing to develop our ESG program to ensure Serko acts as a reasonable, responsible corporate citizen. Slide 22, an update on M&A activity. As indicated previously, Serko continuously assesses both organic and inorganic opportunities for accelerating the realization of its strategic goals. During COVID, we have been assessing market players that could enable Serko to fast-track its marketplace strategy. To this extent, Serko is working through due diligence on a global trip -- travel technology business. Consistent with Serko's rigorous approach to assessing potential acquisitions, the transaction will only proceed if the strategic business case has proven out, due diligence has successfully completed and binding terms that makes Serko's investment criteria can be agreed. Where the transaction to proceed, it is expected that the estimated value range would be between NZD 50 million and NZD 75 million. The majority of the value would be structured as a deferred to align to the synergies we would expect over a 3-year period performance-based script consideration. Further update on the potential acquisition will be provided at relevant time. Serko is looking to set aside part of the capital raise for investments and acquisitions of companies that will assist Serko in delivering our marketplace vision. I'll now hand over to Shane.

Thanks, Darrin. Before I start, I just note all percentages I refer to based on the movement or relative to the prior comparable period of the 6 months to 30 September 2020, unless, otherwise, stated. Now looking at our key metrics, total operating revenue increased 81% to $9.2 million from $5.1 million, while total income increased 16% to $9.9 million from $8.5 million. The higher growth in operating revenue reflects lower wage subsidies and higher travel-related revenues as a result of higher travel booking volumes. Total travel booking volumes rose 157% to $1.3 million from $0.5 million, lifted by limited lockdowns in Australia and New Zealand during the first quarter and the new Booking.com for Business transactions. We continue to invest strongly with product design and development expenditure increasing 52% to $13.4 million as we implemented Booking.com for Business and continued with other initiatives. Overall, operating expenses grew a little more slowly at 42% to $25.3 million. The higher investment resulted in a 50% increase in the net loss to $15.2 million. The key metrics slide picked up most of the key points on the net profit and EBITDA slide. We have 2 points to note, particularly here. One is that EBITDA losses increased 76% to $11.8 million from $6.7 million, reflecting the increased investment levels. Other income, predominantly grants decreased 79% to $0.7 million, primarily reflecting lower wage subsidies in the period. I also note that in the period, we moved from the Callaghan Grant Scheme to the research, development, tech incentive, or RDTI Scheme. We expect to receive RDTI payments of $0.7 million in relation to the period. However, we've deferred $0.6 million of net revenue on the basis that we capitalized the rise in costs. Looking at revenue in more detail. As shown in the highlights slide, our operating revenue increased 81% to $9.2 million from $5.1 million. Travel revenue grew by 170% to $5.8 million, reflecting the bounce back in travel in the first quarter. Expense platform revenue was flat and content commissions grew 94%, reflecting the increased volumes of travel activity. Average revenue per booking, or ARPB, was $7.38 compared to $8.76 during the full year FY '21 period as a result of a change in revenue mix. The expense platform has a higher average revenue per booking. And then the prior comparable period, the very low travel levels meant the expense platform revenue had a higher weighting. If you look at the purely travel-related average revenue per booking, that was flat on the prior comparable period and slightly up on FY '21 as a whole. We note that Booking.com for business platform related average revenue per booking in September was just below the $20 mark, and we've seen it go above that in October. By geography, the rebound in Australia and New Zealand stands out. Most of the U.S. revenue is expense-platform related, but the travel revenue grew by an average of over 10% per month from May. Looking at transactions. This is a subset of the graph that was on Slide 18. You can see that strong rebound in the first quarter with New Zealand bookings averaging 151% of pre-COVID levels reflecting market share gains as well as the recovery from COVID. In June, we peaked at over 160% of the pre-COVID level. In Australia, there was also a rebound to 62% in the first quarter with a peak of 72% in April, but Australia had more intermittent travel restrictions, with the key Sydney-Melbourne route being a key one that made the recovery more modest than in New Zealand. In the second quarter, travel restrictions kicked in as Australia locks down and then New Zealand followed in August. In Australia, transactions in the first half of November 2021, however, I would note, averaging 52% of COVID-19 levels, so we can already see those starting to normalize. Looking at operating expenses. As I noted on the key metrics slide, operating expenses grew 42% to $25.3 million relative to the prior comparable period. Relative to the second half of FY '21, however, costs did not grow, which you can also see in the head count, which jumped 60 versus September 2020, but only 8 since 31 March 2021. We had provided guidance to market of average monthly cash burn of between $2 million and $4 million, and we held to that delivering average monthly cash burn of $2.9 million, just below the midpoint of the guidance despite the lower revenues due to lockdowns. The trade-off was that we held back in this month that had been planned for expanding our product development capacity. A core part of the capital raise is allowing us to move our focus from managing investment based on COVID-impacted revenues to allowing us to focus on delivering against the opportunities in front of us. In product design and development, costs grew 52% from the prior comparable period to $13.4 million. Of the total product design and development costs, $7 million was capitalized, an increase of 42% from the prior comparable period. As a proportion of total product design and development cost, the portion capitalized, reduced from to 52% from 55%. Product design and development expenditure also grew relative to the 6 months to 31 March 2021, with growth of 30% unlike overall operating expenses, which did not grow. Finally, turning to the balance sheet. Serko ended the period with cash and short-term deposits of $62.3 million, down on the $79.9 million at 31 March 2021. As noted earlier, we held the cash burn over the 6-month period at $2.9 million, with slightly below the midpoint of the guidance range of $2 million to $4 million. Other current assets increased by $1.1 million since 31 March 2021, primarily reflecting government grant income and Booking.com for Business revenue. Intangibles grew by $4.2 million to $27.3 million, reflecting capitalization of product development costs of $7 million less amortization of $2.9 million. I will now hand back to Darrin for the outlook.

Thanks, Shane. Okay. Slide 31, outlook. While the impacts of COVID on the travel industry is continuing longer and perhaps, then analysts first predicted. We believe with Booking.com for Business now live on our platform, we have an opportunity to capture transactions globally as travel resumes unevenly around the world. The impacts from the pandemic and other factors signaled throughout the period continue to make it challenging to determine the timing and realization of revenues from the opportunities outlined today. But overall, we are expecting significantly stronger full year results than last year, which shows some signs of recovery. While we expect some of the disruptions to our home markets to continue in the second half, transactions are expected to rebound as domestic travel restrictions ease. As we have seen in the past. We are pleased to have already seen positive uplift with the first wave of border restrictions being removed, resulting in transactions increasing up to 50% of pre-COVID levels. Serko currently anticipates full year revenue and other income between $21 million and $25 million, and this outlook assumes general reduction of domestic travel restrictions within Australia and New Zealand, and no significant lockdowns in Europe and North America. The upper end of the FY '22 range assumes Australia, New Zealand transaction volumes in December quarter at 50% of 2019 levels, rising in March quarter to 75% of 2019 levels as lockdown restrictions lift. And Booking.com for Business revenues grow from covenant levels through to March '22 as enhancements made to the offering with a similar COVID-19 rebound as assumed in Australia and New Zealand. The lower end of the range has shown Australia and New Zealand volumes in December quarter at 50% of 2019 levels rising to only 60% of 2019 levels in March quarter. Limited growth in Booking.com for Business revenues with increasing COVID impacts offsetting the impact of new features and new offerings coming into the market at the lower end of the revenue range. Monthly cash burn in the 6 months to 31st of March '22 is to be expected closer to the $4 million as investment has accelerated. In the second half, Serko does not expect to be eligible for the New Zealand government wage subsidies due to the growth in revenue from Booking.com for Business. Serko continues to see strong growth opportunities, and we believe our target of reaching $100 million in revenue in the midterm remains achievable. We're raising capital now to allow us to continue to invest in these growth opportunities either organically or inorganically while retaining a prudent cash buffer to guard against potential ongoing impacts of COVID and their uncertainties. On Slide 32, capital raising overview. I'm going to move through to Slide 33, in the use of proceeds. So the capital raise is strategic with around $62 million of existing reserves as at September, the Board of Serko has decided that the uncertainty from COVID continues to bring to the market requires strong long-term working capital set that will enable the company to preserve our resilience as we continue to invest and execute against our strategy. We're prudently maintaining sufficient capital reserves while investing in the opportunities we see in front of us. The majority of our investment is forward-looking, driving ahead of the midterm revenues, and we recognize a faster recovery may result in stronger-than-anticipated balance sheet, which Serko will use to further invest into growth opportunities. Serko is a growth business. And with the foundations laid to date, we believe it is time to step up into the global arena and drive towards the aspirations we have for Serko, and the requisite amount of capital. We are raising capital to continue investing for growth in the unmanaged travel segments through our Booking.com for Business partnership to accelerate the development of our global marketplace strategy and to pursue the opportunities and the inorganic global expansion. The pandemic is reshaping the business travel landscape, disrupting legacy approaches to travel management, and accelerating a shift to technology to solve the emerging needs of business travel in a COVID world. We believe the market potential for Serko as a business travel recovers is significant. The revenue opportunities are expected to be large, and investment Serko needs to make now is essential to capture these opportunities. We ask for your support to enable Serko to become the global world leader it aspires to be. Slide 34. The capital raise announced today is to be conducted by a fully underwritten placement of up to NZ 75 million and up to NZ 10 million non-underwritten retail offer. Serko retains the ability to accept oversubscriptions at a sole discretion to ensure it has sufficient flexibility to cater for demand from institutional and retail shareholder base. The placement will be conducted through a board in which institution and other select investors will be invited to participate by Craigs Investment Partners Limited, Ord Minnett Limited. The trading call will be granted by the NZX and ASX prior to the market opening today. Further details of the capital raising are set out in the documents released to the market today and retail investors will be able to subscribe for up to 50,000 new shares under the retail offer. Fit to announce the completion of the placement and resumed trading tomorrow, the retail offer will be opened on the 30th of November and close on the 14th of December. That completes our presentation. And before I turn to the Q&A for Slide 36, I draw your attention to the appendix slides from Slide 37 for further information. With that, I'd like to conclude the presentation and open up for questions. Thank you very much.

[Operator Instructions] We'll now take our first question.

John O'Shea from Ord Minnett. Darrin, can you hear me okay?

Yes.

Just a question from me as to how we should think about the medium sort of term opportunity? You've reiterated, you see the target of the $100 million over the medium term. How should we think about this capital raising in the context of that? Is the opportunity the same? Does the capital raising accelerate the timeframe for you to get there? Does it mean the opportunity is larger than that, but take longer to get there? Or how do you think -- you understand what I'm asking you, how do you think we should see this capital raising in the context of that stated target that's been there for quite some time?

Yes. So some of the opportunities are definitely outsized on the -- that are coming in through the John, that's definitely to look to actually widen the pipeline of what we would probably be investing maybe towards the end of the year, and following through into the year next year sort of thing, is starting to bring some of those investments forward and actually using some other players to actually help us get there faster with the pipeline of interest coming in and actually widening up other markets that we may have done at a later stage, increasing that, which increases our likelihood of having a strong run rate into FY '23 as well. And so the overall part is that the capital for us enables us to not be as cautious and enable us to push kind of widen the pie, widen where it is today. So even though we've got a COVID effect, we're able to actually bring more of the pipe. And then as that recovers, get a wider opportunity scale in the later sections of that as well. So it does kind of overweight that sort of thing. And then the acquisition, which is part of what the capital is for, we hope that when we bring that in, that could actually fast track us by almost 18 months ahead of our strategy out 3 years as well. So the combined effort is really to create a faster outsized opportunity. Shane, if you got any other...

Yes. I think -- yes, every call we particularly the portion around the marketplace. That's a medium-term investment that increases the opportunity significantly in the medium term, but doesn't deliver in the short term in the same way. But the other 2 components do.

So what was that, Shane, just missed that, sorry. When you said it was the other 2 components, is that what you meant.

The portion that's the global marketplace portion, if you like, that's a medium-term investment. So that's, if you like, building the next card queue beyond the initiatives we already have underway...

In other words, the second of the third, the one that's not Booking.com are not acquisitions.

Correct. That's...

Yes. It is marketplace, point 2.

Yes. There's been few -- in the more medium to long term growth opportunity.

Yes. With the other ones have a faster payback because they're based on known investment that information. So we know we can pull some of those forward into the year.

Yes. So if I could summarize -- if I interpret what you said correctly, what you're really saying is the acquisition, if it happens, if it happens fast tracks the -- bringing -- the -- fast tracks the delivery of the $100 million. The Booking.com and the global marketplace about -- well, sorry, the Booking.com, we know what that opportunity is, and it's about continuing to broaden out the connected trip. And that's what the direct approach that you said, useful. And the global marketplace one increases your medium to longer-term opportunity beyond the $100 million.

Correct. And it enables us the long-term-- yes, correct. And it enables us to also reduce our cost base. So the more open the platform, the more capacity we have by other parties building onto the platform. So if we were connecting a new airline. And that airline could work with a local system integrator to connect that into the API framework, and it no longer requires a cost on our side. And so as we open the platform, we also get wider scale in countries where we would normally have to scale teams to do that work. So making that investment into that enables us to fast track all of those connections externally and to make sure the compliance that's needed around the really tight legislative areas around globally can all be met through opening that platform as well. So a lot of work has to go in to making sure that as people connect that still meets the policy and security requirements needed in some of these markets that are very tightly regulated now.

We'll now take our next question.

It's Jamie Foulkes. Checking my lines working properly.

Yes. All good, Jamie.

Well, this result it actually provide more questions than answers to me. But if I start with what I think are probably the 3 most important areas. My first question is on guidance. You're coming in 40% below consensus for revenue in 2022. To me that cannot be COVID impacts completely. So question a, why so larger delta? And b, what proportion of that 21% to 25% is booking contribution, please?

We -- as you know, the revenue target on just even our home revenue, which was sitting, I think, previously, 2019 had over $24 million. We're down -- we notified that Australia being the biggest portion, not back to about 35%. So that does play a huge portion of that. And then the Booking.com, sort of can hand over to probably, Shane, who can give you some metrics on that.

Yes. So I think definitely, one chance with consensus was that all about one of those reports were dated back in May, at which point, Australia and New Zealand were both tracking extremely also definitely ANZ has an impact. Obviously, the other thing that we had communicated to market subsequent to those reports was that the Booking.com migration was being delayed by a couple of months. And so if you like, in terms of Booking.com revenues, the rate to grow those revenues have shifted to the left, and in certainly the complications of COVID in terms of activating that market hit on top of that. So those are really the 2 components, lower revenues than people would have been expecting in May before the lockdowns in Australia and New Zealand and on the Booking.com side, effectively, the growth kind of been moved to the right, and also being impacted by COVID. And you can see that in the guidance where you can see between the low and the high scenarios. A big component of that difference is in relation to Booking.com, with the 2 key variables being there. We're launching new initiatives that will engage more of those customers and see us have more transactions overall. So seeing some headwinds, particularly in German-speaking countries at the moment, which are a significant part of the Booking.com business. And so at the moment, if you like, on the low scenarios you mean that we can offset those impacts with the initiatives that we're doing on the high scenario. We assume that those initiatives bear fruit and that there's a slight COVID recovery.

And the contribution of booking in that 21 to 25, please?

So we're not specifically communicating that. However, you can, to some extent, derive it. If you look at the ANZ numbers, if you look at the low scoring ANZ number, that's going to be similar to the first half. You take off the wage subsidies because we indicated any of those, you kind of work out. I think the other call out would be, we've indicated and 1,000 to 1,500 transactions per day at an average revenue per booking of $20. So you take the midpoint of that, that gives you a run rate of around 550,000 New Zealand on the live scenario. We're assuming that we stand it run rate in the second half in the high scenario. We're obviously assuming that we can grow that materially with the exit rate being significantly higher than where we are today.

Okay. Second question on booking. There's a lot of metrics here. And if we cut straight to the chase, how much revenue are you -- or were you expecting when you did your DD from booking in a normalized year as part of the JV, please?

I think our key challenge here is that Booking.com don't want us releasing the information on their behalf. So that's one of the reasons why you're seeing us communicating a range for Booking.com rather than an exact number. However, certainly, what we can say is, we've made that statement that we think we're less than 10% of the opportunity. That is just less than -- that is less than 10% of just the opportunity relating to what was via pre-COVID. That gives you some idea of the scale of the opportunity that's before we take into account any of the opportunities to connect other products or work with them to enter the North American market more strongly, et cetera. So -- just if we look at the pre -- pre-COVID 2019 volumes that we're were doing, we're less than 10% of those. So it's a definitely significant upside. Some of that will come through COVID recovery, both COVID recovery in terms of volumes, so more business businesses taking more trips and also the average revenue per booking of $20, we think is probably in the order of 30% to 50% lower than the 2019 levels with the drivers for that being people taking shorter stays. So I think we have got a business trip, I'm making that trip shorter than I would have pre-COVID times. And also hotel rates are down due to the lower occupancy levels of hotels. So COVID seemingly has a significant impact, but there's also a number of initiatives that we're working on to increase. So as you would have seen, we put our annual report and in this presentation, first focus was the migration stage now into the activation and engagement. And so we're still steadily working through delivering the things we will have stock, realize the other 90% of that opportunity.

I mean I'll ask in a different way then, your 300,000 number, and for clarity, can we just confirm whether this is individual people accounts or 300,000 SMEs that you've onboarded because it's a big difference.

300,000 SMEs. Companies.

And then the final question -- okay. Yes. And the final question on bookings. The [ ARPU ] is -- or what you've just put out is around EUR 12. That's significantly less than what you're previously guiding in about EUR 30. What's the difference here? And is that down to purely occupancy rates and hotel yields, but I'm just trying to figure out what the delta is driven by?

We're talking about our portion that's what Serko receives in our hand at the moment as well. So just making sure you're aware that, that $20 ARPB that CFOs take right now, over $20. And what increases that take is length of stay and rates are compressed due to high availability that reduces the opportunity. But as the people increase their length of stay, so does our take. So as Shane indicated, it could be a 30% to 50% gain in average revenue per booking. Last week, we released multi-traveled and multiroom per booking. All of these things make a huge difference to the average revenue per booking that we will receive across those transactions. So as -- COVID, what it does is, it affects people's ability to stay longer. They do shorter trips to balance their risk. But as they become more confident, they stay a bit longer. And because of that occupancy goes up, and we saw that in October. So we saw under $20 in September, over $20 in October. So you've seen the stuff change in there as the world starts to travel again, the rates go up and the length of stay goes up. So we get a win on transactions, and we get a win on the other side as well. And as we enable more pieces in the technology that enable wider transaction scope of the connected trip, we can get an even higher ARPB over that as well. So it's a combination of the investments we make into the connected trip, the length of stay and how the traveler patterns actually met through. And so COVID has a double effects on us at the moment, shorter stays, low occupancy, lower rates and people not activating. So although we've got the 330,000 customers, including new ones, there's a percentage that are ready to travel. That level of customers that have said they're going to travel and they want to use the system, and then it's actually making sure that they're activated. And that's why we call this stage the activation stage, is getting them in and through the pipeline into that platform. So that's really how we look at it. So we look -- can we go wider through what we're building to catch more of the business section of those people traveling and people that want to travel? Can we build the tech wider to do that, fulfill the pipeline even under the COVID effect, which gives us a faster scale coming out? And in the COVID part, we can't control. So there's a certain amount we can control. Can we market and influence them to travel? Can we make sure that we've widened the content and added rentalcars.com and added rail and added more air content and the likes in there? And can we shop more? So those are the things that are within our control. The rest of it sits outside there.

Okay. And final question for me. What are your assumptions around marketing costs in the JV as a percentage of the revenue you're generating from it, please?

Yes. It's fair at the moment, we've got an arrangement with them. We contribute a portion of via advertising spend that's specific to business as opposed to a particular percentage. One of the things within the Booking.com, 35% of the proceeds that it does give us the opportunity to do is to expand the amount of marketing at some point. At this point, we're still describe it as being test and learn, given we've only been kind of live -- fully live for about 7 weeks as we get clarity on metrics around tech and obviously, LTV will take a little bit longer to see how often people come back, then we may look to invest harder. But at the moment, I think if you look at the interim results, you can see within the other sales costs, you can see an increased the end costs, which is starting to hit some Booking.com spend also a little bit more for our marketing team sitting within those numbers. But at the moment, on the contractual arrangement, that sort of commitment is quite a low percentage of where we'd expect to be on revenue. The potential though is that we may decide that we actually want to invest beyond that level over time.

So just to be clear, should booking want to ramp up marketing spend, you're forced to essentially take that?

No. It's an agreed approach to the amounts agreed annually between each other. So what we do see today is a high volume of new customers just through their normal retail advertising which we -- which is the organic sign-ups that we actually get through there. We don't have to contribute to that. It's only for the targeted paid business stuff, and that's agreed annually between both parties on an annual amount.

We'll now take our next question.

It's Chris Byrne from Craigs Investment Partners. Can you hear me?

Yes, I can.

Just on this Booking.com you sort of talked about you captured sort of under 10% of that pre-COVID opportunity. And it's sort of you're tracking about 300,000 SMEs signed up. I mean has it plateaued at that level? Or are you seeing still rapid sign up going forward? I mean, that seems to be 90% that haven't signed up from COVID time. It seems like a lot of SMEs.

2 things. Customers sign up daily through that, Chris. And so the target was between, I guess, 200,000 and 300,000 activating through there. We're over that large number. And it's now actually the second phase of customers still actually subscribing to the system every day. And therefore, we're still seeing decent numbers come through every night.

Okay. And will those customers -- I mean that sort of talks to 2 million to 3 million customers pre-COVID. I mean were they all sort of active? Or was there quite a few there that you can sort of determine and say they haven't really booked in a decent period of time?

Yes. I think when we talk about 10%, we're talking about the revenue opportunities, the average revenue per booking has an impact. But the other point is while a lot of customers have chosen to ethically, selectively data pass to us that they're not necessarily traveling yet. So it's 80% of the customer like 10% of the trips that were pre-COVID, but a significant proportion of their pre-COVID is -- elected to register on our platform, they just may not have traveled yet.

We'll now take our next question.

It's Tom here from Macquarie. First one, just on Booking.com and some of the content development have guarantee shine. Could you just give us a bit of a status update in terms of how the content development has been progressing in those key initial regions, which are activated the U.K. and Ireland and Germany? And I guess, just what's really included in that ARPB number, which you guys have put forward today. Is it simply just hotel rates? Or are we starting to see some other tangential booking contributions there?

Mostly hotel content. So a lot of them migrated customers come in with the attempt initially to book hotel because that's like-for-like, how they actually transacted previously, and then a learning and searching and seeing how the air component. And so we get a little bit of air componentry booked in that connected trip. Rail is going live, hopefully, in this half, and that will go live in the Germany market. And we should start to see some of those types of connected trips as well. So as we start to bring those forward, we should start to see that flick through from there. So it's still mostly driven out of hotel content today, and a little bit of those transactions picking up. So the big 2 points would be here in hotel at this point.

It's helpful. Appreciate it. And then some of the target regions you guys have sort of highlighted you will be looking to sort of roll out. Is that in Europe, U.S.? Can you give us some more detail in terms of that regional expansion. Obviously, you're live in 180 countries the content development will take some more time, obviously, right?

Yes. So it requires legislative changes in each country to get the air content activated. So every time you launch an air program, we follow on the back of Booking.com doing that work, and then we activate it within that market. So it does go market-by-market. I don't have the total number. I think they advertise that they're in 27 markets, but I might have that number wrong for air. And so we kind of follow how they get through permission to sell flights and stuff like that within those regions. So there's certain different things to follow behind. And then as they get permission to do air travel in those regions. And the rest of it -- for us is globalizing is that some of these large enterprise customers that might be in 70 to 80 countries. So we're making sure that we've got the support structure to support those rollouts across those different departments, and some of our retailers may have a 5 center regional support structure to support those global accounts and making sure that we've got all the systems in place to do that as well.

Got it. That's helpful, Darrin. Second one, just on the New Zealand recovery. You guys saw the net bookings have increased pretty drastically over 2019 levels before COVID impacted. Where do you guys -- obviously, within the guidance frame, you said 75% in the second -- sorry, in the last quarter, if we recover to that profile. Where do you expect New Zealand bookings to level out at post COVID recovery? Should we be expecting some meaningful market share gains to remain within the business? So should we expect 120% pre-COVID? What's that number?

Yes. Like we've indicated, we continue to win and we haven't had any material losses today. And so the answer to your question is, yes, we would expect it to be up significantly as the recovery I think we got as high as 80% on customer to customer. So we would expect another 20% on our peak of 160% growth on top of that. So we do believe there's more room, and that's assuming people get back to 100%. And in some cases, we saw in other recovery models after September 11 and other impacts, up to 120%. So the answer to your question, yes, we -- some of the market leaders are predicting -- they've turned around it and say, hey, can you build the technology because we think there could be a travel boom. And we don't have the team to answer all of those support calls, can you make sure the COVID stuff and all of this information and the technology, otherwise, we won't be able to handle those types of questions coming in, and we've prebuilt all of that. So there's different views in them. But yes, generally, we've been expanding well through that sort of sign.

Interesting, Darrin. And just a final one for me, just on the workforce. Obviously, wage inflation and pressures getting labor down here, certainly a problem for other tech companies in the market, how has hiring been for you guys? And how are you looking to diversify that with some of your other development regions as well?

Yes. Hiring for us -- it's a good question. Hiring for us with our brand has been -- haven't been too bad because we've got a very strong brand. It's quite an appealing place to work in and the sector that we're working and the type of customers that we have. And of course, we've got a diverse global workforce now in China, Minneapolis, Australia and New Zealand. And we want to diversify that further. So the global operating model for sourcing talent is definitely something. It is something that -- if we were to proceed on the acquisition, it would definitely help us out with creating a multiregional approach to this and solve some of those labor issues as well. So it's always a tight market, but we seem to be able to still source the talent in there. And I think from memory, we had 17 people come in, in October or something like that. So it's still -- we're still able to pick up the talent in there. And then we've got -- we've boosted up our what we call our PPC area and that ability to find -- to have talent managers filling the pipeline pre -- ahead of the need as well. And the Board's kind of signed off an additional 5 teams to come on board to really help us boot that up as well. So yes, we're trying to get ahead of that curve as well. And I think your other question, Tom, related to travel. You can see the demand that's pent up. And within New Zealand, even the likes of Ian Taylor referring that he lost deals by not being face to face and pushing to be able to get business trip -- business people and people just leaving with no ability to come back into New Zealand. It just shows how important face-to-face travel is. And it's been complex. And fundamentally, what we provide is the governance and the safety needs that even if you're a small business or a big business will need. And the wider we scope that and go through, the more customers that we fill into that pipeline, whether it's in the unmanaged side with Booking.com or whether it's in the other area. And our ability to then take that investment we've made with Booking.com and replicate it to other brands they have and airlines and other areas is our mixed part of that investment curve as well. So we're seeing that we've got this 2-sided model, which we talked about today, which is the unmanaged spend, and the problem SME have in traveling and the technology to solve that. And then we have the managed travel on and you've seen the storefronts with flight internet savvy and with Orbit Online and booking with Booking for Business and replicating these out, which is what Zeno is about, and overlaying that need to connect and travel, but with the compliance, that's what we do. And so that's where we see the opportunity coming out of here that's filled that funnel now at the top, and we have to widen it and really put our foot down to take a big chunk of what we consider will be an outsized opportunity.

We'll move on to our last question.

It's Siraj from Citi Group. A quick question. You made a mention about increasing consolidation in the sector. Just wondering whether the capital raise and the acceleration spend for you, is it driven by that? And do you actually see it as a threat? Because I see you mentioned that you lost one of your customers to consolidation -- because of consolidation. Just keen to hear your thoughts on how you think this consolidation places Serko in the scheme of things.

I mean in the part of -- it was a nontrading reseller contract and that sort of thing. So the consolidation is more that you've got the content providers merging together. And you saw Booking.com just acquired Getaroom. You've got different travel management companies like CTM acquiring Travel & Transport, and you've got other players doing this consolidation. And that always occurs when a market is disrupting. And you've got some of the major players that have been pretty badly hurt through this process, which leaves an opportunity for companies like ourselves that are a little bit more agile and ability to deliver the technology. And what you've got is a tectonic shift. So when we talked about the shift in the industry, we've got multiple things appearing. We've got all of the consolidation happening in the marketplace. And then we've also got the technology that's actually needed to actually bring all of these new disruptions and connections together, and how that's going to actually play out. And the great thing is that we foreshadowed a lot of this and invested ahead of that curve, knowing that we could predict that new NDC would become a shift, and travel management companies would need to move there because airlines would start to push commissions through the -- we knew that people were going to -- our research told us that people are going to buy via environmental choice. So we just didn't do a carbon offset per year. We pushed carbon offset across the entire trip. We now know that payment and everything is going to influence because of the way that cash is done. So we're going, hey, expense management can be totally disrupted, and we can do -- we can use payment and the ability for the Northern Europe -- the Europe region to move to this real complex payment model, and they need to virtualize the transaction, and we can move all of this technology forward to create a seamless payment and spend management, which potentially can disrupt the whole space of expense management. And we know that we can't just own 1 payment provider because Booking might use a payment provider, CWT and Flight Center may use a different one. And so we have to be independent. And a true marketplace doesn't lock itself down. It creates that flexibility to do that. And we're seeing the shift in payment, expense management and travel. And what we've done is we've built the technology. And so we've seen the top 4 players in North America start to work with us, start to look at their customers to build that pipeline. And so the opportunity is wide and it hasn't shortened, it's actually increased. We wouldn't be making this call to go harder if it hadn't increased, and we had some level of certainty around this. And so yes, it's not only increased the debt level. It's increased -- you can imagine if you're an airline and you need to get business customers secured through into there, what you're going to rebuild your same platform that's failed multiple times? Or could you do some of the sort of things to what Booking have done? And so our ability to replicate this platform over and over again for SMEs and the unmanaged space, it's phenomenal opportunity as well. So yes, it's an outsized opportunity. And because we've built the foundation -- we're scaled to tens of thousands of customers a night across one of the most complex incompliant markets in the world, being Europe with GDPR, and we've done all that successfully. And we've brought on over 300,000 customers in there and 30,000 new ones, and we're still onboarding every night. So yes. So we believe we've got the foundations right. We believe we've got the top-end funnel of customers coming in, and now it's about how do we get a wide enough system in place to meet the COVID impacts that are occurring. So if we can go wider, we can mitigate some of those impacts at the same time as actually increasing the funnel long and midterm as well.