Serko Limited (SKO) Earnings Call Transcript & Summary

Good day, and welcome to the Serko results announcement conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Darrin Grafton. Please go ahead, sir. Thank you.

Good morning, and welcome to today's results presentation for the year ending 31st of March, 2022. My name is Darrin Grafton, I'm Serko's CEO, and I'm here with Shane Sampson, CCO's CFO. We'll give you a short presentation focusing on the highlights, then we'll turn to our strategic priorities. Shane will give us an update on the financials, and then finally to the outlook. Slide 5, operating highlights. So starting with the highlights, it has been both a significant and challenging year for Serko, the ways of Delta and Omicron and the lockdowns that followed each outbreak, made for a very complex operating environment for the business travel industry and Serko. However, we focused on what we could control and consequently, we have made significant progress, especially when considered against the backdrop of the adverse environment. From a near standing start, we delivered our partner, Booking.com, a global platform for small and medium-sized businesses and onboarded over 420,000 customers to the new Booking.com for business platform through the year. bookings on the platform are rising steadily, and in the month of March, monthly room nights booked reached 39,000, which represented a 42% increase on October, when we completed the migration phase. We continue to work together with Booking.com, in driving both customer acquisition and conversion. In our core Australasian market, the effects of the COVID lockdown hit travel transactions, especially within our home market of New Zealand. However, during the year, we continue to grow our market share, retained key clients and in the last quarter, saw evidence of a recovery with improving transactions across our travel platforms. We are pleased to also see the recovery trend continue into both April and May. And in North America, we are seeing the validation of the investments we have made during the COVID pandemic period, with Visa going live on Zeno as their corporate Booking tool and the announcement today of CWT selecting our Zeno travel and expense product to be one of their globally preferred Booking platform for their customers. Finally, we have continued to build capability and capacity in a COVID constrained environment. We raised $83 million in a successful capital raising last year, guaranteeing our funding and allowing us to look beyond the pandemic turmoil for the recovery. We have managed that cash prudently within the guidance we gave investors. We have successfully worked to retain and recruit talent, in what has been a highly competitive market. Moving through to Slide 6, financial highlights. Our financial results have improved over the prior year, but they still tell a story of a company operating in a highly constrained market. Segment revenue or total income before it is reduced to reflect Serko's share of jointly agreed marketing expenses was $19.8 million, a 17% increase on the prior year and above the midpoint of our revenue guidance. Total income increased 12% to $18.9 million, following a 44% increase in revenue from customers to $17.9 million. Revenue growth was driven by a partial business travel recovery over the previous financial year, a strong contribution from Booking.com for business, and a modest increase in revenue from the North American market. These gains were, however, diluted by the lockdowns and travel restrictions in Australia and New Zealand through the third and fourth quarters of the financial year. EBITDAF losses increased 28% to $28.1 million from $22.3 million in the same period a year ago, with the rise reflecting an increase in operating expenses, as we scaled up and invested in the execution of our strategy. Net losses after tax increased 21% to $35.6 million from $29.4 million and costs [ in ] full-time employees have continued to increase, reflecting the ongoing investment we are making in the growth into new markets. Moving to Slide 7, our strategic priorities. Serko is heavily focused on execution, to deliver on the opportunities that we see before us. We have identified 5 key areas of focus as we scale. One each focused on our 3 fundamentals of customer experience, our long-term strategy of building the marketplace and our people. Our 2 revenue-based goals are unmanaged travel, our partnership with Booking.com and managed travel, which includes our core businesses in Australasia and the emerging business in North America. Each of these strategic goals has a 12-month objective, that our teams can align to, with supporting key results that hold ourselves accountable. I'm going to spend the next few slides looking at each of these goals and how we have performed against these and our focus for the year ahead. Slide 8, customer experience. Serko's product teams are focused on driving customer satisfaction by continuing to enhance the performance and usability of our products. These efforts are being assisted by Booking.com, which has given us access to insights it has gained, as it has grown to become one of the world's largest online travel retailers. With the support of Booking.com, we are now transitioning to an experiment led development approach, built on data-driven decision-making. We've scored some early wins with enhancements to the platform, such as multiroom bookings and Express Search that are helping to increase customer satisfaction. Development continued to pace, and our determination to deliver an excellent customer experience, will be an important focus of both our investments and our key driver of growth going forward. Turning now to our progress with Booking.com for business. We are immensely proud of what we have achieved, especially when it's considered against the unprecedented disruption in global travel and the tremendous volatility brought about by the waves of first the Delta, and then the Omicron variants of the virus. The past year was not an environment conductive to confidence, but we pushed ahead with our plans, because we saw we had been handed a unique and significant opportunity. So let's look at those achievements. We migrated 390,000 Booking.com for business customers on to the platform. Since completing the migration, we have added an additional 54,000 companies to the platform and now have more than 420,000 registered customers -- companies on the platform. We think zero to more than 420,000 companies is a significant achievement for the year. Assisted by the travel market recovery, we have seen an increase in monthly room night spots, as indicated in the highlights, we saw more than 39,000 rooms who were booked on Booking.com for business in March, up 42% from October '21, and have seen a continuation of that trend through into April. Importantly, average revenue per Booking, according to Serko through Booking.com's business continues to be ahead of the $20 we reported at our interim results in November. Slide 10, continuing to build the connected trip. Given the scale of the Booking.com opportunity, we are investing heavily to deliver our vision of making business travel as frictionless as possible. We are collaborating with Booking.com through a newly resourced, dedicated team from their side to maximize conversion of registered users and to transacting customers. Together, we are focusing our resources on driving customer conversion through an investment in usability enhancements and the introduction of new content to build out our shared vision of the connected trip. This new content includes Booking.com brands such as rentalcars.com, airlines and partnership offerings with third-party business tools. Air travel is now able to be booked through the Booking.com business platform in 31 countries, and including Australia, and in the coming weeks, New Zealand as well. We're also coinvesting with Booking.com and targeted digital marketing to drive customer acquisition. Moving to Slide 11, managed travel. Returning to managed travel, our core Australasian business is at the start of what appears to be a solid recovery after a year of immediate volatility. With COVID becoming endemic in both New Zealand and Australia, we are now seeing a steady recovery with bookings across the region, ending the year at 78% of pre-COVID levels. We have seen this recovery continue into April '22, with Australasia volumes back up to 83% of 2019 levels and more specifically, New Zealand volumes in April were 114% of 2019 on a path back towards the high we experienced during 2021. The business has performed well through the pandemic affected period. We've retained key customers, including the top 2 accounts in Australia, and one new enterprise accounts to grow our market share of the ASX 50 Index to 62%. Our nascent North American business is benefiting from a recovery in travel activity, and importantly, we continue to see signs that validate our approach. Fortune 500 company Visa, selected Zeno by Serko as its corporate Booking tool and has now rolled out the platform in North and South America and the Asia Pacific region. Today, Zeno was also named global preferred supplier by CWC, one of the largest travel management companies in the world, and an endorsement that makes Zeno one of the limited number of platforms they will support. This is further proof point of the investment we have made into one of the largest business travel markets in the world. We continue moving through to Slide 12. We continue to invest in the foundations of our marketplace vision to create an open platform, with a content hub that enables third-party suppliers and partners to connect at scale. In the 2022 financial year, we progressively expanded the content offering across multiple markets, including flights, selected rail offerings into Booking.com for business. We rolled out product innovations through specialist provider integrations, including destination, health and safety and arrival requirements, in alignment with Serko's focus on integrating material environmental, social and governance factors into our strategy, we launched an environmental impact and carbon offset functionality for flying. Again, as we add content and capability to the platform, we benefit from a network effect, becoming more compelling to both buyers and suppliers, and helping to realize our goal of becoming the destination of choice for business travel management. Moving to Slide 13; finally, we are continuing to develop a culture of engaged Serkodians, who uphold our corporate values and enhance our reputation as an employer of choice. Their approach recognizes the pivotal role culture plays in attracting and retaining talent. Key initiatives over the last year have included the development of strong diversity goals, careful attention to buyer, and a refresh of our reward and recognition programs. We have also made efforts to accommodate the challenges of being apparent, by enhancing our paid parental leave program. We regularly survey employee sentiment. We have a rigorous health and safety management system, and we carefully monitored the health of our employees through the pandemic. The response of our team through the pandemic has been impressive and has reinforced our approach. On behalf of shareholders, we thank the team for their continuing commitment and efforts. Our work on culture is also at the heart of our evolving program, to ensure material environmental, social and government and ESG matters are integrated into our strategy. We are proud this year to play a part in a program to help alleviate the refugee crisis in Eastern Europe. Following the Russian invasion of the Ukraine, alongside Booking.com and the United Nations Refugee agency, we supported NGOs with a platform to provide accommodation to refugees displaced by the war. Finally, we have strengthened the team with the appointment of Shane as Chief Financial Officer. And I'd like to now hand over to you, Shane, to cover the financials in detail.

Thanks, Darrin, and good morning, everyone. Darrin has already called out some of the highlights for the year. I will go into a little more detail on the financials, and for those of you who want even more detail, I recommend the management commentary at Page 16 of our Annual Report. Unless otherwise stated, all references are for financial year 31 March, 2022 and comparisons are against the end of 31 March, 2021. Turning to Slide 15; our total income increased by 12% to $18.9 million. However, there was a significant change in composition with revenue from customers up 44% to $17.9 million, while government grants dropped by 77% to $1 million. This reflects the partial recovery in travel volumes we saw during the financial year and the associated decline in COVID subsidies and also the end of the Callaghan Innovation grant in the prior financial year. We have also deferred $1.4 million of the research development tax incentive or RDTI for short and COVID-19 substitute grants claimed during the year and to future years. Operating expenses increased to 23% to $55.1 million, as we continue to invest for future growth. The net loss after tax increased 23% to $35.6 million, with higher income partially offsetting the higher operating expenses. The EBITDAF loss increased 26% to $28.1 million, consistent with the higher net loss. Looking at revenue in more detail, you will see that we are showing segment revenue of $19.8 million, an increase of 17%, which places us above the midpoint of guidance of $18.5 million to $20.5 million. We have explicitly called out segment revenue, a non-GAAP measure, as we believe this provides the best view of the performance of the business. IFRS 15 requires that any consideration payable to customers is treated as a reduction in revenue. Under our agreement with Booking.com, we share the marketing costs, as well as the commission revenues for the Booking.com business platform. We agree the budget for marketing expenditure and marketing expenditures not directly linked to revenues. Nonetheless, the accounting standards require us to net down revenue and marketing expenses. We use segment revenues in internal reporting to provide visibility of both the commission end, and the marketing expenditure on a gross basis, and we wanted to provide the same visibility to investors. Travel platform revenue increased 42% to $9 million, reflecting the rebound in travel markets that Darrin has talked about. Supply commission revenue increased, primarily driven by the Booking.com for Business platform, where the main migration was completed in September 2021. As already noted, other income declined by 77% to $1 million. Consideration payable to customers was $0.9 million, up from nil in the prior year. If you net off the consideration payable to customers, supply commissions increased 541% to $3.5 million. After deducting consideration payable to customers, total income was $18.9 million, an increase of 12%. By geographic region, Australian revenue grew 42% to $10.7 million, while New Zealand declined by 29% to $1.5 million, reflecting the travel restrictions in place in New Zealand over most of the second half of the financial year. North American revenue increased by 10% to $2.6 million, with Europe and other, which includes Booking.com for Business, grew by 705% to $3 million. Online bookings increased by 67% to $2.2 million. Average revenue per Booking for travel-related revenue increased by $0.08 to $5.80, primarily reflecting the higher average revenue per Booking for Booking.com for business transactions. Looking at the transaction analysis slide, Darrin has talked to the Booking trends in Australia and New Zealand earlier in the presentation. The key call out, is that it was a year of highs and lows as COVID restrictions impacted periodically. However, we finished the year, with Australasian volumes trending up strongly, with March up 78% of 2019 Booking volumes, as travel restrictions lifted. Operating expenses increased 23% to $55.1 million, primarily reflecting our continued investment for future growth. Selling and marketing expenses increased by 50% to $3.1 million. Third-party connection costs increased by 67%, consistent with the growth in online Booking volumes. As travel recovered, we also increased marketing expenditure to support future growth. Note that marketing expenditure on this slide does not include the contributions payable to customers, which are instead netted off revenues for accounting purposes, as discussed earlier. Hosting expenses grew by 82% to $4.9 million, slightly ahead of the growth in online Booking volumes of 67%. We maintained elevated levels of hosting capacity to ensure resiliency, as we undertook the successful migration of Booking.com for Business customers, and also to ensure there's capacity on the platform, as Australasian business travel volumes recovered. We expect to see the hosting costs of Booking decline in the upcoming year. Remuneration and benefits remains our largest operating expense, and increased by 9% to $32.1 million. Administration expenses grew 41% to $6.9 million. Within administration expenses, professional fees increased by 90% to $1.6 million, with the increase primarily driven by costs related to the potential acquisition and by consulting services. Amortization and depreciation grew by 43% to $8 million, reflecting investment in our platform over the past few years and the associated increase in the value of our intangible software development assets. Employee head count grew by 9% to 312, with the growth concentrated in the latter part of the year. Given the challenges of the current employment market, we also increased the number of contractors, which are not included in employee count. Product design and development on Slide 19, is a non-GAAP measure. It represents the internal and external costs related to product design and development, that have been included in the operating expenses, all capitalized as computer software development during the period. Our total product design and development costs increased by 33% to $25.5 million, as we invested our platforms to support our growth strategy. Capitalized product design and development costs increased by 112% to $15.3 million. This reflected the growth in product design and development costs, but also an increase in proportion, capitalized to 60%. Our balance sheet remains strong, with no net debt, and cash and short-term investments increasing 56% to $124.5 million as at 31 March, 2022. As you will see on Slide 20, there has been an increase in liabilities. These primarily reflect additional payments from customers, which we expect to reverse in the upcoming financial year. The signing of new leases for some of our offshore offices, and deferral of income, primarily reflecting the deferred grants in research and development, tax incentive deferrals mentioned earlier, of these items, only the additional payments from customers are expected to lead to increased cash outflows in future periods. I will now hand you back to Darrin to discuss the outlook.

Thanks, Shane. 2 years on from the first imposition of global travel restrictions, we are gratified to see the gradual recovery of both in Australasia and the new markets we are pursuing. Transaction volumes through April and May are showing the recovery has been sustained into the new financial year. However, we are not complacent about the ongoing risks, including uncertainty of geopolitical events, the potential resurgence of COVID and additionally, the structural changes to the travel market that have occurred through the pandemic. Nevertheless, the proof points of the current market continue to give us confidence about our prospects, and we now expect revenue for the year ended 31st of March, 2023 to be approximately double what we have achieved in 2022 financial year. We continue to be confident about our prospects, the disruption of the last 2 years has sharpened our focus on building on the strength of our technology, and indeed, how we progress towards our aspiration of $100 million of revenue. We are tightly focused on execution and using our capital to directly drive the outcomes related to both our strategy and shareholder return. We thank shareholders for their continuing support. That completes our presentation. But before we turn to Q&A, I draw your attention to the appendix slides, and we would now be delighted to take your questions.

[Operator Instructions] The first question, the line is open now from [indiscernible].

It's [ Guy ] here. Just I guess, to start, congratulations on signing up Visa. If I could just ask a few questions around, I guess, a little bit more detail. I noticed that there's a comment at the bottom of the slide that the CWT deal isn't expected to be material this year. Has that to do with like onboarding timeframes, or is there something else which we're aware of?

You're correct. That's the -- just the timeframe guide to -- as we start to set that up and start to roll out and the travel recovery. So you're looking at how that sort of takes effect.

Okay. And then I guess, for now -- on then, like under the current agreement with CWT or just under the agreement with Visa, I mean, how material is it expected to be beyond the next 12 months?

And that's where we -- I mean, we're one of few globally preferred platforms, which means as they start to retain business, our platform will start to be used more widely across the globe as well as in our local markets here, in North America as well, which means we can take on the likes of those Fortune 500 companies like Visa, and start to secure some more around that area. And they take time to go through RFP process as we know. And so we know that it sort of has more of a mid to sort of long-term impact into that top end of town as well. So it's a great endorsement of where we've actually got to from that investment during the last 2 years to get to that point, and we're pleased to be able to finally name one of those Fortune 500 companies as well.

I guess on the Booking.com bookings, are you able to give us a little bit of color around phases?. I mean like how many of the 420,000 customers are actively booking and what sort of repeat bookings are you seeing?

Hi Guy. Yes, I mean, at the moment, you can tell by the total transaction volume, it's a smaller proportion of those customers that are currently active. And that, I guess, is a combination of the impact of COVID on the travel market and also for small businesses, the frequency of travel can be lower. So you get a range from customers in there who would only be expected in a non-COVID effective time period to book once or twice a year through those who are regular bookers. So I think at this point, probably still a bit too thin to drill into that other than the COVID and obviously, with the 88,000 bookings and 420,000 registered users, that the proportion that are popping in each month, is a small percentage currently.

Okay. Maybe if I ask in a slightly different way, can you give us a bit of detail on provision rates? I mean like, how does the customer sign ups compared to, I guess, website traffic and then maybe a little bit of just around attachment rates given the content roll out?

Yes. And certainly, at this point, the attachment rates are still relatively low. They're higher for new sign-ups. But for existing customers, I guess a lot of people are using that platform as the hotel Booking platform, that has taken us a little bit longer to get those people aware that they can book the flights for it. So we're seeing higher uptake amongst the new sign-ups and the migrated customers, they are still relatively low.

Yes, they come in an intent of only ever Booking via Booking.com for the hotel. So it's actually education and that about what can actually done through there, and as Shane indicated, the new clients that are coming in, going how -- we'll have a look at this new platform that does the connected trip and the likes.

Okay. Can you maybe -- like I think last time you talked content-wise, you had rollouts in Germany, perhaps you can [indiscernible] more versions out. Can you give us a little bit of color as to what you need to see before, like each step at which you expand your content with the...

Yes, very much linked to the Booking.com brand. So as they get their licenses and everything to trade in each market, then it just opens up at the same time. So as they open up air content into a specific market like Australia, then we activate at the same time. So a lot of it is around establishing the commercials between the suppliers and the different market regulations and the market conditions, and then we follow that. So we're sitting on top of the overall commercial aspect of how Booking.com operates. So we run at that pace, is the easiest way to explain it. And like we -- I think we saw about 4 weeks ago, the Australasian market activate flights. And then -- and it just follows that sort of cycle. The Rentalcars.com will be next, and that will activate across the markets, as it's following what's available up there as well.

We will take the next question from line [ Joshua Hill from Grace Investment. ]

Just first question, you're looking for revenues to approximately double into FY '23. What are you assuming in terms of the split between Booking.com and the managed travel business? Is there a steer you can give us?

Yes. I mean I think the -- you're right, we've given that relatively generic guidance rather than a tight range, and that partly reflects our view that there is a reasonable distribution of potential outcomes on the Australia, New Zealand and norms, that's mainly going to be driven by where COVID sets. We are effectively assuming similarly to what we saw in April, on sort of mid-80 for Australia and New Zealand. On a sort of pre-COVID basis, Australia, New Zealand is probably about $24 million of revenue. So that number is tighter and will be impacted predominantly by changes in COVID-19. We continue to have really strong customer retention, and we may get some more wins, but that's the whole scheme of things, where the Australia/New Zealand revenues that will predominantly be a factor of, will there be any further COVID impacts? The [indiscernible], we continue to see growth here, but off a low base. And so Booking.com is really the piece with the greatest potential for variance, both upwards or downwards, just because we still have a very low percentage of the opportunity. You would have seen in the growth, that we've got a good trajectory. But at this point, we don't think it's appropriate a detailed view of where we see that sitting over the year.

Just touching on volumes for Booking.com for business. They're improving, but there's clearly some way to go in terms of engagement, which is something you're focused on. But what are the biggest pain points for your Booking.com for business customers at the moment? Is it the lack of that or support function or something else? Is there anything that you're really quite focused on?

We're always focused on conversion. So I guess the part that -- the big part is actually looking at making sure that they're getting the right experience and the right rates and the right ability to look for what they're actually needing through there. And through the funnel, it's pretty good timing there, and it's about making sure that we're attracting the right type of business that's really to book for business and not just personal and making sure that we're actually driving that message right the way through and adapting it. So we've done quite a few changes to the dashboard and search ability to -- we've actually taken -- we've added a little bit more of a leisure approach to some of those sort of areas to also assist the users on that. So a lot of that is just working very tightly with Booking.com to take their insights that they're gaining, as well from that data to work out which pieces that we can control to influence behavior, and that's something they've been specialists and, of course, over the last 25 years. So we're learning from that, adapting the technology releasing, checking the metrics, how it's changing conversion. And the biggest part is sentiment, so waiting for that overall sentiment to actually grow and travel, which some of those markets are still affected by what's going on in the geopolitical regions and stuff like that at the moment. And just looking at how those sort of things flow through.

We will take the next question from the line of Siraj Ahmed from Citigroup.

Darrin or Shane, just on the FY '22 guidance, unpacking it. Shane, I just missed it. Did you sort of imply that you expect the revenue to be back to pre-COVID levels in the guidance...?

Sorry, sorry, what I was saying that we communicated what we think, if you like, a non-COVID level is, which will be up where we were in 2019, because we had gained some market share in the meantime. So with that debt base, it is probably about $24 million, and we're sort of expecting to be in the kind of mid-80s. So similarly to where we were actually tracking out of April would kind of be our midpoint. There's obviously a lot of varying views of how long it will take to get back to 100%, but we're certainly not anticipating that to occur this year.

Okay. So the guidance assumes that you would get back to, a year around, mid-80% in the ANZ business?

That's correct.

That's quite clear. Secondly, in terms of Booking.com, maybe one for Darrin, are you a bit surprised that the take-up has not been as fast, or even faster? And then in terms of conversions, what can you actually do to improve conversions?

Yes. I mean there's -- I know -- look, it's -- if you -- if we look at where Booking have us, we track ahead of where they expected us to be. So it's not unexpected, I guess. So I guess from that sort of side, is that there is a curve of what we're actually building to, from a technology point of view. The first part was getting across 180 countries, with the base technology and what we needed to get done since your kind of your base level, and then you're iterating on that to get to where you wanted to be, when you normally had a plan to roll it country by country. You're actually now building that out -- building out the connected trip, doing all of these sort of things and then looking at how our business travel recovers and we're mapping how SME is buying and the different sizes of businesses, and how those sort of impacts in there. So we work very, very closely with Booking around which features, which usability changes will make the biggest conversion difference in tracking the number of companies coming in to see how we can actually make sure that they're buying from Booking.com and not going elsewhere as well. So -- it's all really focused around those types of things and making sure that the buy occurs inside the platform as well. So it's -- yes, it's a very interesting sort of cycle. It's not unexpected for us. We always knew that we were going to be into this sort of cycle and focus on conversion and filling the funnel through that sort of model, and that's the stuff that we can keep building to. Booking.com applies more customers, more advertising, more people coming back through into the top of the funnel, and then our job is, once they collect search to make sure they get the property and out the other door, not the other side and make the money. And we are seeing, every time we release stuff, we're seeing that steadily increase, and we've seen that flow through from March into April as well. So steady progress, I guess, is what I'd say on that.

Got it. And just on that, on the ARPB, I think you've given disclosure on the room -- revenue per room night, I think EUR6.9 or something. So that sort of implies that you're running at 2 room nights per Booking? Is that -- is it still constrained?

Yes, they are still right about that level.

Yes, and we should see that increase as people start to stay longer. As we start to see the way of the safe travel cycles going with COVID, we'll start to see that shift.

And is that the assumption -- and within the guidance assumed the midpoint or the base case for you, I can just assume that the ARPB stays at $20?

Yes, probably hopefully reasonable to conservative assumption. I think the -- to the other issue and one of the reasons why we gave the average revenue per room night stayed in euros, as the currency has bounced a little bit around, thanks to geopolitical issues, and so that it would be -- that's probably the main thing, [indiscernible] to the downside. And then as we talked about previously, we see some potential upside, as hotel room prices to recover post COVID and as number of nights -- average nights per trip potentially extends a little.

Got it. And just last one, in terms of cash burn Shane, that you've given guidance to; just clarifying, you said stepping up. So should we assume that the cash burn for first half is going to be more than $3 million per half, second half, is that the way we should read into that?

Yes. I think if you adjust for the additional payments that we received from customers during the second half, we were probably more running around about $3.5 million of cash burn. So if you like, that's kind of the starting point. We're obviously seeing revenues rise, but we're looking to invest [indiscernible], so we would expect to see a bit of an uplift in the first half. And then we'll -- if you were to reassess where we're tracking, as we go through the year, it might [indiscernible] that we would go. But in the first half, you'd so expect to see the cash burn go a bit higher than that, sort of underlying 3.5% in the second half of the financial year just completed.

We will take the next question from the line of [indiscernible].

It's John O'Shea from Ord Minnett calling? Just a couple of questions from me. Thanks for the presentation, et cetera, and the details in the guidance. I just wanted to sort of unpick that medium-term target of $100 million a little bit closer, first of all. Can you -- is it safe to assume that the bulk of that uptick is related to your improving conversion rates, and I'll come back to that in a minute, around the Booking.com deal and obviously, the improving conditions post COVID, is that still the case that, that is what the uptick is primarily expected to be driven by?

Yes. I mean certainly, when we're looking to the medium term, we expect to see a bigger contribution out of North America and a bit of an additional recovery upside out of Australia and New Zealand. But the Booking.com business is a pretty key growth opportunity for us.

Sure, just wanted to make that clear. And lastly from me, I mean, obviously, the conversion rate is -- has been low at this particular point in time. Can you just outline for our benefit, exactly the differences between the benefits of the customer Booking on the Booking for Business platform, as opposed to just Booking on the Booking.com platform? In other words, question/comment, whatever you'd like to call it, is the lower conversion rate, a reflection of the fact that customers are just -- there is just not enough incentive for them to book through the Booking for Business platform as a differentiator compared to Booking on the Booking.com platform. Can you just give us some clarity around what the benefits of actually Booking for Business sort of registering at Booking for that is, versus Booking.com?

Yes. So you definitely started a different point as a business customer. So you get almost a 10% discount coming in as a business customer. You start to get an immediate saving by Booking via the business platform, and that process enables a closed user group to see some benefits in there, and long term that will get bigger and bigger, as we start to introduce other sort of deals through into the platform, with Booking.com. So the part of the targeted platform is, understanding where your travelers are. So there's a whole part of being able to have the payment models, the different virtual card system set up, and the ability to really apply that to a true business sense, is the power of what the business platform does across that. And then you've got this ability to start at a point as a business customer, with a level of, I guess, loyalty or level of discount that makes it quite attractive as well. So it's not necessarily that. It's just the fact of making sure that the number of companies coming in isn't yet at the same number of 2019. And as that intent changes, it's making sure we're capturing that by the conversion and that -- so it's literally starting to see that actual recovery cycle of those 400,000 companies coming into the top of the funnel as well. And so we do see, as Shane indicated, a higher intent of more share of the wallet around the connected trip, via new customers joining the platform, because they're coming in via an advert or via a link that's actually explaining to them what they can actually do inside that system as well. So it's a dual education process around that side.

Sure, Darrin. I guess the -- one would say, okay, that all makes sense, but in the context of a corporate travel market that's clearly improving, and obviously, we're talking about people sort of 70 to 80 -- corporate getting back to 70 to 80. And ordinarily, SMEs would kind of lead the charge there in that recovery. Can you talk us through sort of how that -- you mentioned that the number of corporates are just not coming in at the same rate. How does that sort of make sense, in the sense of it does not -- corporate is recovering at a 70% to 80% and SME leading the charge, how does that make sense with a number of companies coming in, not the same point as 2019. Do you understand what I'm asking?

It's the main countries of volumes that have those different effects in there. And so you're seeing the European markets with different sort of, I guess, sentiment based on what's actually happening over there at the moment. So you might see a higher conversion on different countries that are less constrained locally or even down to what's actually happening as a cycle, because it's not a peak travel month at the moment due to, say, Europe conditions and winter or whatever it is in there. So we expect some of those sentiments will start to shift, as we get into the summer travel cycles as well.

Okay. So you're purely saying that it's a mix impact of the different countries, is that what you're saying?

Yes. That's right. I mean it's definitely to do with just -- we're just building out that sort of path and driving the different conversion factors across what we can control today. And if we pick up something that user sentiment wants us to do something, such as a faster search process, or a multiroom feature, we push it out. So we build that, push that out into the market. And so we just pick up on any of the user sentiment, and make sure that we push those features out. So matching a lot of what's done on the consumer side, if they feel it's important through that process.

But does that mean the different countries, obviously, you said you've completed it -- largely completed across certain countries. Does that mean that most of the core countries have been done, or do you understand what I am asking, like how far along that journey are you in terms of the geographical side of getting the -- on already?

We've done 9 languages. We haven't done the complex languages in some of the Asian countries in that. So we still got pieces that we're building out for those types of areas as well.

Okay. So we can largely say that Europe and the U.S.A. is largely done? And Australia?

Correct.

Okay.

So English speaking in those main core 9 languages that we've done, probably sits at around 60% of the potential market [ sort of sign ].

Sure.

The next call from Tom Deacon from Macquarie.

Just one quick one for me just on the labor side. How are you guys sort of finding labor market conditions in those key development hubs, and how should we be thinking around the uptick and head count over the next sort of 6 to 12 months, and how you guys might be further utilizing the contract development resources that you have used in the last 6?

Hi Tom. Yes. So we -- I think a couple of bits to unbundle there. Definitely the -- I think everyone is finding the employment market for tech talent challenging globally. And so it's definitely something that we [indiscernible] everyone else. We're probably expecting a wage inflation in terms of just on a sort of [ pre-hit ] basis, if you like, to be kind of high single-digit percentage, which I think is still a lot better than a lot of other organizations are doing. I think the head count growth we are targeting, trying to add sort of 30 to 50 people per quarter for the next couple of quarters, but there is definitely challenges around that. We had a decent start in April, but more months to go through. In terms of contract resources, we've kind of used a little bit, externally we started adding some more contractors, particularly just in skillsets that are very hard to come by. We've picked up some contractors to bring in, in those areas. But the key focus really for us over this year is getting to a new global operating model, where we can get into another offshore center. We've obviously got the benefit of having our Chinese operation, but I would like to build another high-quality, low-cost location that we can get into, even at those locations, prices are going up, maybe going up from a much lower base. So that's a key part of our strategy for the upcoming year, is achieving that, that we're operating in a new location where we've got a pool of talent, and we've got -- most of our development currently is in Auckland. So combination of bringing pool of talent in, and lower cost is one of the key things we're focused on across this year.

Shane, that's really helpful. And just to give us a sense of how -- has that constraint in the labor side, I guess, constrained your ability to grow revenues or your expected ability to grow revenues in FY '23?

Yes, it's integrated challenges just in terms of -- in the first half of last year, we had a guidance target around cash burn and therefore, when markets in Australia and New Zealand went backwards due to lockdowns, we kind of constrained hiring. Again, we did the capital raise, since we were having to add more head count. We have achieved growth in head count, but not in the growth we wanted. And so the goal has been to try and catch up with -- in terms of the more limited investment we did last year, and we were probably still a little bit slower in that process. So tied to conversations like -- the conversation around lifting those conversion rates and Booking.com on, so we'd love to have more teams in place, helping make all the changes to drive that. That's -- our goal is to get those in place over the next couple of quarters, but been a little bit slow to get there, we ideally would have liked.

Understood. Thanks Shane. That's helpful. And then just one on the marketing spend for the Booking.com JV. You guys spent almost $1 million in FY '22, how are you guys expecting that to track in FY '23, all going well?

Yes, so we're particularly expecting it to about double, if you like that sort of the agreement that we've got around how much we will spend -- probably at the moment, it's still been that sort of experimentation phase, rather than the heavy investment phase, that it got to the point where we were getting fantastic returns on the market, we might look to take that up there. Our base assumption would be about doubling of that number to sort of $1.8 million, $1.9 million.

We will take the next question. The line is open now.

Vignesh from UBS. Just sort of 2 quick questions from me this morning. First of all, looking at the managed side of the business, trying to get a gauge of ARPB in that segment. You're talking to $20 for Booking.com for business, but overall, you've got $5.80. What would you sort of read through for the managed travel ARPB this year? So what kind of proportional increase are we seeing on 2021 numbers for that side?

In terms of FY '22, relative to FY '21 and looking at travel-related revenue, the average revenue per Booking was fractionally down, and that would be around lower attach rates, if you look pre-COVID, it will move slightly to [indiscernible] kind of thing. We have seen a slight dip in the men's travel average revenue through Booking.

And is that sort of scheduled to -- yes, is that scheduled to sort of continue into 2023, or are you seeing some sort of reversion in your April numbers on those trips?

Yes. I think at the moment, we're not expecting a dramatic change in that number. The certainly some opportunities for us that could materially change those calculations. But sort of our base growth assumption, we kind of gave approximately double those and because it requires some activity by partners that we don't have direct control over. So we haven't incorporated those into our base assumptions.

Right. And I think you guys had mentioned before that you were sort of looking at increasing the sort of [ AFC ] in the ANZ market at least by about $2 over the next couple of years. Is that sort of still part of the strategy, or have you tilted away from that?

No, that's -- definitely is still part of a strategy.

And is that sort of set to come through in '23 or '24 or more long term?

We've pushed out quite a few -- when we talk about those other features that we've been pushing out, and as they start like -- such as environmental management, the sustainability, we make money off those sort of things, as well as what we're making out of hotel commissions. And as we get back to people Booking longer stays and things like that, we start to see that overall increase as well. So we see a combination of what is of both -- the hotel, the different segments, as well as the functionality. So it's pretty -- for this kind of FY '23 -- although we've got some tactics in there, it's quite early to see how those sort of play out, as we're going through this recovery cycle and the stay cycles and then just actually starting to get that map forward. So we've taken a slightly conservative view, as Shane indicated into FY '23. And then as we start to see the sentiment and everything change, we can start to map that better forward. But we may be able to give better indications at the half and even during the AGM.

Okay. Yes. Okay. That's helpful. And just looking at the managed North American side, what's the sort of strategy there? Can you give us some color on what exactly you're doing to explore growth? Is it more so increasing your TMC reseller footprint, or getting more of a share of existing resellers, as you've done with Visa?

Yes. I mean it's a combination of market awareness through RFPs and direct marketing, through our events that we attend, and then also activating those travel management companies in the Northern Hemisphere there, in both Canada and North America. And the travel recovery definitely helps with getting the volume back and getting that momentum, because when there was a travel freeze and travel bans on a lot of these companies, you're trying to get customers live, but they're not able to transact. So there's definitely momentum now, as those resellers start to sell it, implement them, learn how it works and then get the next ones on. So we've got teams that -- what we call optimization managers, which work with the travel management companies, to get those customers [ albeit ] in now, that they're transacting make sure that they're going through our Zeno Wins program and they're learning how to sell it. And then at the same time, our sales team helping hunt with them and find that sort of pass through. So those combinations of how we're sort of focusing. So there's definitely a focus on the number of customers that we bring through in FY '23 in the Northern Hemisphere there, and then leading through to transactions as well. So a multipronged approach of assisting those travel management companies, who spent a lot of time getting the technology ready during the COVID period, getting them onboarding those customers, learning how to sell it, support it, creating market awareness, which we've been doing a pretty good job. And then, of course, having one of the largest mega agencies now move us to globally preferred, makes quite a large statement in the market. So that helps both the brand and awareness as well. So some really good early signs in that market that we've got to build on, which is when you've made 2 years of investment in a no travel market, it's a pretty good first sort of sign out of it. And most of that sort of occurred, I'd say, from mid to late January onwards. So it's been a really last quarter impact that's been quite good for us in that market. But we're going to be building on that.

And so what's sort of style of cut through for someone like CWT of, say, the next 10 new corporate ads, what proportion of that goes to Zeno and what portion goes to someone like a SAP Concur? Like what's the style of share that you guys get of their wallet?

So predominantly where Serko checks in, is that we're a different user experience and a different piece of technology. So most of the time, we're going to be winning off. So the incumbent has been Concur and GetThere, and our competitors are -- we are winning off them. So these are people that have probably been using technology for a number of years, that they're not satisfied or the new wins. So a company like CWT is trying to win them off another company who the company has gone out to tender, because they don't like the incumbent technology they're using, and they want to change both servicing and technology. And so we had the benefit of that. So we come in with a solution that's differentiated, that's supported across the different regions, as you're seeing with Visa and stuff like that. And we use those referenceable clients to actually help secure those sort of wins. And so that's -- so in most times, we're going to be winning off the incumbent technology within that market. And probably -- we've kind of done that in Australasia. If you look at what we've done -- most of those competitors. So it's kind of familiar territory for us. So sometimes the companies will already use us in Australasia. The competitors are also down here. So we've learned how to sell against them. And that's why we've been -- so we're taking that same kind of sales cycle that we've been successful down under and now flipping that into the American market and the way we sell and drive that. So I guess, we've kind of learned a lot in being able to dominate the Australasian region against those players.

We will take the next question from [indiscernible] from Citi.

Just a couple of questions from me. How big is the Visa contract in terms of annualized revenue? And I just wanted to confirm that the title for FY '23 doesn't include Visa?

So guidance for FY '23 does include Visa, as we noted in the presentation. It's not material. It's definitely very -- quantitatively. From a qualitative point of view, it's quite a valuable range, to be able to point to in the American market, as processed CWT takes us into other clients, but from a pure dollar point of view, the Visa contract on its own isn't material.

Great. And just my last question. Did you have to lower pricing for the new CWT contract?

No, it's a matter of what we've already had in play.

Okay. Great.

And we've got opportunities together to make money and to get a different [indiscernible] so. It's very similar, higher in some instances.

We will take the next question. The line is open now.

It's Stuart Williams from Nikko here. Can you hear me okay?

Yes, I can.

Just specifically on Slide 8 and the reference to experiment led approach. Maybe you could just help us by giving us an example of either a product feature or a country feature that's really worked well and sort of the assessment cycle for understanding that it has worked well?

Yes, that's a really good question. So we -- of course, doing corporate bookings, you have a different way of actually searching and get people to put in travelers upfront. And to a leisure traveler, that can be friction, they just want to get in and do the search. So we brought out a flexible search option, where you could just put in the destination and the dates and the number of rooms that you wanted. And then you would fill the passenger stuff, rather than at the front at the very end of the Booking. And we AMV tested that against 50% of the traffic. And we got the results of that in a tested hire, and reducing friction of travel. So we pushed that part live. And so those are things that we take those sort of insights forward and then iterate different designs and for the process that may be able to get people who want a quick search, and maybe not ready to book. Because with a different pattern, we can kind of see people register and then 3 months later, make a Booking, where we can see them do a search and then come back and book 3 days later or a week later or even 2 weeks later. So mapping all of those patterns together. And some of the other sort of things is like, as little as putting, say, a yellow border around the search box may increase conversion. So we A and B test that. And those are the things that you sort of pick up. So very similar leanings to at Booking.com. And so they teach us that through this experiment led and of course, mapping all of the data to see and test it across different audience and that traffic that's coming in to the systems as well. So it's quite a -- it's very interesting for us, because it's a different way of building and testing out the technology. And in some cases, you're testing something else that doesn't make an improvement, so you don't push it forward. And then in other cases, you're doing something and actually producing technology. So it's very much customer-driven, in how the technology outcomes actually get into the product, which is really exciting. It's hugely exciting to learn how Booking.com have been successful in their space. And we see that same kind of reflection into our managed travel. So every investment we make in Booking.com for business, that kind of benefits our enterprise customers as well with a better usability and a better experience as well. So it's really exciting. And so we're really focused on the customer, and we've been like that through our partnerships, which is why we've had such a dominance in the Australasian region. And now we're getting into building a really true consumer style ways of experimenting and building this technology, which will only benefit us further in our managed travel market as well, which is probably one of the most exciting cultural -- and shifts for Serko over -- especially the year ahead.

There's no further question. Thank you.

Thanks, everybody, for joining us on the call today. We look forward to talking with you over the next few days and for those that have scheduled investor meetings. In the meantime, if you have any questions, then please don't hesitate to come back to either Shane or myself. So thanks once again. Thank you very much, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.