Serko Limited (SKO) Earnings Call Transcript & Summary

Good day, and welcome to the Serko FY '23 Full Year Results Announcement Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO, Mr. Darrin Grafton. Please go ahead, sir.

Thank you for joining this morning. I'm Darrin Grafton, the CEO of Serko, and I'm joined today by our CFO, Shane Sampson. There will be an opportunity for Q&A following our comments. I'll start on Slide 5. First, this strong result reflects focused execution on our growth plans and prior investments. In particular, we have successfully ridden the business travel recovery ways in our home markets of Australia and New Zealand. There has been significant growth under the Booking.com for business partnership. Second, the investments made in FY '23 and previously have been targeted and disciplined. We have invested in the right capability and technology to increase scale and operational efficiency. We can see the benefits of these investments in these results, and an example is the growth in unmanaged revenue and revenue growth is significantly higher than cost growth. And third, we are on track for our FY '25 financial goals, both our $100 million aspirational revenue target and being cash flow positive. Our FY '23 achievements are the result of decisions and execution across several years, often in a complex and uncertain external environment. We have a strong sense of accomplishment and are more focused than ever on building a globally competitive business. Slide 6. Our key financial outcomes are on Slide 6. I will provide more insights to these in the coming slides. Please note that on Slide 32, we have also set out our key financial and operational metrics by half for the FY '22 and FY '23 years. Turning to Slide 7; total income increased 154% to $48 million. Growth was underpinned by a significant increase in completed room nights of 381% and a maximization of the business travel recovery. Online bookings rose 93% to $4.1 million from $2.2 million. Total income was just ahead of the revised FY '23 guidance range of $42 million to $47 million, and this was also well ahead of the guidance provided at the start of FY '23 of approximately doubling revenue of the FY '22 year. I'm now on Slide 8. We've been very focused on cost discipline, balanced with targeted investments for scale and growth opportunities. Total spend increased 34% for the period, largely reflecting the scaling operations in the first half to accommodate revenue growth. We remain well capitalized with underlying monthly average cash burn reduced from 3.3% to 2.7%, and underlying monthly cash burn in the second half was down to $1.8 million. Turning to Slide 9; the graph on the left-hand side shows our total income from FY '19 to FY '23. This has increased by 95% over the same period. Since FY '20, the period immediately prior to the pandemic in Serko's previously highest year for revenue, total income has increased 79%. The middle graph shows online bookings have increased 93% year-on-year, and on the right-hand side, completed room nights were up 381%. This incorporates Booking.com for business and was driven by strong growth in the second half. Now on to Slide 10. The graph on Slide 10 shows how we have accelerated revenue growth in the past 2 periods, at an overall faster rate than cost Total spend as a percentage of revenue decreased from 330% in FY '22 to 174% in FY '23, and total spend growth reduced to 3% in the second half. We expect to drive further operating leverage as we move towards cash flow breakeven in FY '25. Both EBITDAF losses and net losses after tax improved in the FY '23 year, EBITDAF losses were $21.8 million, an improvement of 23% and net losses after tax were $30.5 million, an improvement of 15%. We are focused on improving our operational leverage, and this is taking place through a number of initiatives. Examples of these include, fine-tuning how we allocate our resources across multiple markets to achieve the right cost to benefit balance. We restructured our expense division to materially increase efficiency, while also innovating our expense product to drive further revenue and customer growth, expanding our China offices to access additional talent to complement the other locations. And we continue to assess our costs in an inflammatory environment and where necessary, we will make the appropriate adjustments on pricing. On Slide 11, we've provided our underlying cash flow and our underlying average cash burn, demonstrating higher revenue from targeted and disciplined investments. Based on both our revenue and cost expectations, we expect cash burn to continue to decrease. Straight to Slide 13; during FY '23, we defined how we could achieve the outcome we believe was possible, as the market recovered. We broke these objectives down into 5 areas; 2 of these are the revenue generation areas, 2 and 3, and the other 3 are the underlying frameworks to drive revenue and Serko's long-term success. I'll go into more detail on the revenue objectives and culture on subsequent slides, but we'll briefly touch on the other 2 now. The first of these being product health foundations. Part of customer success and focused on our ability to measure the impact our technology has on the customer. We experimented with new ways to produce better conversion of booking, stability and performance of our platforms and features needed to truly make a difference as the travel industry recovered. We implemented AMB testing with the help of our partner, Booking.com, which saw us run key experiments for Booking.com for business that have changed the trajectory of our revenue profile. The second of these objectives is platform foundations, as we drive towards higher scale global transactions. We needed to make sure our technology would stay ahead of this demand and have undertaken a number of initiatives to support this. These are already changing how we build, measure and drive Serko, as well as strengthening our position for the future. We invested in building a new foundational high-scale e-commerce-centric cloud platform based around the work required for the new hotel shop experience for Booking.com for business customers. The new platform gives us material improvement on the previous Zeno hotel shop experience. We're now approaching the final phase of this new hotel shop experience, and the progress to date has been successful, which is a testament to the collaborative partnership between the teams at both Serko and Booking.com. As part of our plans to open our content frameworks to enable third parties to build into the Zeno platform, we produced a new Zeno integration API, that will eventually enable partners to build content connections into Serko, truly enabling a wider scale of our platforms in multiple markets. And we are well advanced in a major data transformation, putting data into the heart of how we measure the impact of our technology. Turning to the unmanaged revenue strategy now on Slide 14. The significant growth in unmanaged travel is the result of the dedication and hard work by many teams. We are now entering the scaling phase of the partnership between Serko and Booking. Completed room nights increased 381% to $1.5 million, with over 1 million completed room nights in the second half. Average revenue completed room night or ARPCRN for the service was [ EUR 9.34 ], up 36% from EUR 6.88. This was down slightly half-on-half from the EUR 10.10 to EUR 9.03. Shift in average revenue have largely been the result of movements in the hotel room rates and euro exchange rates for completed rooms outside the eurozone. We have seen a significant increase in the number of businesses, both registered and using the platform. At the end of the period, the number of registered companies was just under 600,000 with 157,000 of those being active in the past 12 months. The number of active customers was up 144% on the prior year. I'm now on Slide 15; during the early FY '23, Serko and Booking set the approach for success based on some foundational work needed for conversion, scale and experimentation. Booking shared key resources to enable Serko to build out our data platform and experimentation technology, that has now changed the way we build our products. In July 22, Booking.com and Serko looked at how we could fast track conversion through experimentation, and the success of this experiment sets Serko on a path to build out a new hotel shop experience based on the user experience of the Booking.com leisure process. This new technology set a foundation that we can then add corporate specific functions and usability needed in the future. The first phase of this technology went live in January 2023 and was successful, with the final phase of this work scheduled to go live, as we bring the new CWT contents online. This new technology will be used for the recently announced CWT partnership, to bring both hotel loyalty rates and Booking.com content together, and a common user experience familiar to Booking.com users. This will also combine a next-generation shopping experience with existing Zeno functionality, to deliver additional content for hotel, flight and rental car to Booking.com for business customers. This overall work-together-as-partners have enabled Serko's strong revenue growth and our confidence in our outlook statements that we are making today. We would like to thank the teams of both Serko and Booking.com for the massive effort they have put in together face-to-face to build the technology needed. It truly represents our purpose of bringing people together. And when this happens, it can create remarkable outcomes. The CWT partnership deepens the Booking.com for business offering and creates in our view, a wider appeal to business customers that buy specifically based on these offerings. It also brings 2 of our key partners together while delivering new and exciting content for business customers across the world. The addition of CWT content is a significant step in delivering on our strategy of bringing the best of business travel to Booking for business. And is the culmination of many months of planning by Serko, CWT and Booking.com. We expect the offering will go live towards the end of the second quarter of the current calendar year, as outlined in our market announcement last week. Serko expects the benefit from the expanded offering through increased customer acquisition. However, at this stage, Serko is unable to quantify the size of those benefits and any net positive impact for the future revenues just yet. Slide 16. On to our managed revenue strategy. The recovery in business travel in Australia and New Zealand has been strong, with online bookings up 7% in Australasia, and average online bookings for the year were 89% of pre-pandemic levels. In New Zealand, volumes were 136% of pre-pandemic levels, and in Australia was 82%. This is the last period we will provide measurements against pre-pandemic levels. Average revenue per booking in ANZ declined fractionally as a result of customer changes, which reduced supplier commissions, partly offset by a slightly stronger AUD. Serko has continued to gain market share and through its channel retailers has secured one of the largest travel accounts in Australia, which is scheduled to go live in the second half of this calendar year. In North America, we have continued to build our strategic position in this market and sign new reseller agreements. As mentioned on the previous slide, in North America, the team had been working with the wider executive team at CWT to bring about the addition of CWT content. We see this as an example of the opportunities that are available to us in North America. We have launched new updates through our speed technology within the market and are piloting new innovations in the space with key customers. We have continued to develop technology to support NDC, a data standard that allows airlines to evolve how they personalize and sell inventory. Serko has already successfully collaborated with Visa, CWT, United Airlines to deliver a significant NDC project. Serko has continued to work with NDC connections with airlines in our home markets and the USA., including Qantas, United and American Airlines. Serko is also committing to work closer with Sabre, to assist the progress of NDC and other initiatives needed for the global marketplace. Slide 17. Looking at our culture. On this slide, we have published total headcount data by half for the past 2 years for both employees and contractors as well as by location. Serko has continued to grow our headcount over the years to support the revenue opportunities we see in front of us. While many companies have seen a slowing growth and have undertaken broad headcount cuts, Serko has a very strong revenue growth. We did carry out some targeted efficiency initiatives in FY '23 and expect to continue to do so in FY '24. Serko was able to continue to grow strongly in the second half with essentially flat headcount of only a 3% increase in total spend. We indicated during the financial year, our desire to set up additional lower-cost development hub. And in FY '23, we scaled up our China operation by 36%. This hub is allowing us to achieve a number of objectives, including cost efficiencies and access to larger pools of talent and expertise, to complement the expertise we have in other locations. Our investments in people have been beyond targeted new roles to support scale and growth. We have invested in establishing the pathways and tools for our people to advance within Serko, ensuring we retain and grow our people. As a result, we've seen a significant shift in our monthly poll survey score, where I have access to the learning and development I need to do my job well, which improved from 62% favorable in March '22 to 85% favorable in March '23. The poll results for learning is a core employee happiness metric for high-performing technology staff, and we see this as a significant improvement. We've also continued to strengthen up our approach to diversity, publicly producing our Mind The Gap report and holding ourselves accountable for striving towards our diversity and inclusion goals. On Slide 18, we've released our 2023 ESG report today. We have steadily advanced on our sustainability journey over the past year and are pleased to report solid progress across environmental, social and governance with highlights on the screen. We are committed to continuously improving what we focus on in ESG and how we measure, manage and report on it. More detail on this is set out in our report, and I encourage you to read this. Thank you. I'll now hand back to Shane for more detail on the financials and I'll rejoin the call for the outlook.

Thanks, Darrin, and good morning, everyone. I'm on Slide 20. A note that comparisons are to the prior comparable period being the year of 31 March, 2022, unless explicitly stated otherwise. Looking at the profit and loss as a whole, total income grew by 154% to $48 million. I will talk about revenue in more detail on the next slide. Operating expenses increased by 50%. I will also talk to these in more detail on a later slide, but note that the growth in operating expenses was partly driven by noncash items, including increased amortization of declined capitalized software, lower capitalization of product design and development costs and the employee share scheme. And note that we consider the more useful measure to be total spend, which I will talk to on a subsequent slide. We reported a foreign exchange gain of $1.7 million. This partly represents an accounting anomaly, where intercompany balances can give rise to foreign currency exchange gains and losses, although the weaker New Zealand dollar did result in economic gains of foreign currency free cash and receivable balances over the year. The weaker New Zealand dollar are positive for Serko, as most of our revenues are received in Australian dollars and euros. Net finance income grew to $2.6 million from $0.6 million, reflecting both additional cash on hand as a result of the capital raise in late 2021 and increased term deposit rates. Our net loss after tax reduced by $5.4 million or 15% to $30.5 million, reflecting Serko starting to achieve operating leverage, as revenue grew strongly with lower growth in operating expenses. In particular, as Darrin noted earlier, revenue growth in the second half of the financial year remained strong, while growth in total spend fell to 3%. The EBITDAF loss reduced by $6.4 million or 23% to $21.8 million. As a percentage of revenue, the EBITDAF loss fell by 111 percentage points to 47%, and reflecting operating leverage being achieved as revenue growth. Looking at the revenue in more detail on Slide 21, the key highlights are travel platform revenue, which grew by $7.2 million or 80% to $16.3 million, primarily reflecting increased travel volumes in Australia and New Zealand. And net of consideration payable to customers, supply commissions revenue grew by $19.9 million or 578%, driven by increased Booking.com for business completed room nights and the higher average revenue per completed room night or ARPCRN. As Darrin noted earlier, online bookings increased by 93% to $4.1 million, with the bulk of that growth coming to the Australia and New Zealand market, but also an increasing contribution from Booking.com for business. As also mentioned by Darrin earlier, we conducted an experiment, which resulted in us moving most traffic to Booking.com's total search experience. That change leads to a doubling of the number of bookings being made and the second half of the year benefited from the full 6 months of that change. Looking at revenue by geography, Australia and New Zealand revenue grew 70% and 61%, respectively, reflecting the partial recovery of business travel from COVID-19 travel restrictions. The strong growth in Europe and other geographies was driven by increased supply commissions, particularly Booking.com for business. Average revenue per booking, or ARPD, for travel-related revenue, that's travel platform and supply commissions increased by 65% to $9.56. The growth in ARPD is driven by the increased average revenue per completed room night, and the increase in the number of Booking.com for business bookings as a proportion of total bookings. The ARPCRN in euro terms increased by 36%, reflecting higher hotel prices relative to the prior comparable period, as travel rebounded strongly. Turning to Slide 22. Operating expenses grew by $27.8 million or 50% to $82.8 million. As a percentage of revenue, operating expenses fell to 178% from 308%, a decrease of 130 percentage points, reflecting operating leverage as revenue grows. Remuneration and other benefits grew by $17.3 million or 54%, reflecting the planned increase in average headcount, the higher average cost per staff, [ limited ] due to wage growth for ticket staff in the year ended 31 March, 2023 and also the impact of noncash items, which increased relative to the prior year. The 2 most significant noncash items were capitalization, which declined by $1.7 million to $13.6 million, reflecting the mix of software development we've undertaken in the year. Secondly, the employee incentive share scheme costs, which are noncash and grew by $1.9 million to $6 million. Third-party direct costs are external costs, driven by activity in our platforms, and increased by 61% to $10.4 million, reflecting increased booking volumes, partially offset by scale and efficiency benefits. Amortization and depreciation increased by $5 million or 62% to $13 million. This relates to higher amortization if the value of capitalized software has grown and as most new assets capitalized since early 2022 have been depreciated over 3 years rather than 5 years. Looking at Slide 23. This is a reconciliation of total spend to operating expenses. Total spend is a non-GAAP measure, which Serko uses internally to measure spend before the impacts of capitalization and amortization. In software businesses, the nature of the projects being worked on, can result in significant differences in the proportion of product design and delivery costs, which are capitalized. We consider that total spend is a more useful measure of the cost base of the business and that it removes the volatility which can occur as a result of capitalization decisions. We focus this management on managing the real cost of the business, remuneration benefits and external spend. Note that total spend is not exactly the same as cash costs, as in addition to timing differences in working capital, Serko's employee shares [ have been grown ] $6 million of total spend, that does not have any cash impact. Looking at Slide 24, Product design and development has driven 2/3 of the growth in operating expenses with expense after capitalization and amortization up $18.1 million or 86%. The growth reflects increased investment in staffing, higher amortization and lower levels of characterization, as we continue to invest in our platforms and services. Slide 25 is a reconciliation of underlying cash flow to GAAP cash flow. We used the term underlying cash flow earlier in the presentation, and we also talked to it during the FY '22 results call, underlying cash flow continued to provide a clearer view of the cash flow trajectory of the business. Underlying cash flow reduced by $6.5 million to [ $33.1 million ], and as Darrin noted earlier, underlying cash burn was significantly lower in the second half. In FY '22, we noted that we have received duplicate customer receipts, that the underlying cash burn was therefore higher in the second half of FY '22 than on the face of the [ deck ] cash flow statement. In the current year, those amounts have been repaid, and we've made a natural adjustment. Underlying cash flow also adjusted out some of the noise in the GAAP cash flow statement. In particular, the net movement in short-term investments is shown as a cash inflow and cash outflow in the GAAP cash flow statement. However, from an economic perspective, we believe that's not part of cash burn. We also had a capital raise in the prior financial year, which is also adjusted out. Looking at our balance sheet on Slide 26. Our balance sheet remains strong with cash and short-term deposits of $87.7 million and no debt. Receivables grew strongly, reflecting increases in revenues and payables declined due to the repayment I just mentioned, partially offset by growth in operating expenses in the March 2023 quarter relative to the March '22 quarter. Thank you, and I'll now hand back to Darrin for the outlook.

Thanks, Shane. Serko has made significant progress towards its goals as reported in FY '23. Business travel demand is tracking strongly, and Serko is well positioned to deliver increased scale and operational efficiency. Serko confirms its aspiration of $100 million in total income for FY '25. Serko is well capitalized with cash of $88 million and no debt. Underlying monthly cash burn peaked in 1H '23 and Serko is committed to achieving positive cash flow for the FY '25 financial year with appropriate cash reserves on hand at the point of breakeven. Serko anticipates full year total income of between $63 million and $70 million for FY '24 based on current trends, including the continued business travel recovery. Growth in active customers and Booking.com for business and a strong euro to NZD exchange rate, and current average revenue per completed room night. There are a number of initiatives which have the potential to drive further revenue growth. However, the timing and therefore, the impact on FY '24 revenues is uncertain. Serko anticipates total spend between $86 million and $90 million based on its current investment plans and anticipated efficiency gains, partially offset by higher volume-related costs. Guidance remains subject to ongoing risks, including geopolitical and macroeconomic risks. Thank you. Shane and I are now happy to answer questions you have.

[Operator Instructions] Our first question is coming from Joshua Dale.

Guys, it's Josh from Craigs Investment Partners here. Well done on an exceptionally strong result. Just first question on Booking for Business. It feels like the hotel shop interface and improved support function through CWT, gave you most of the wave here in terms of product development milestones. Is there anything major on the product development front that is still needed in your view?

There always will be Booking at what we want to do, as we're scaling up to look at other opportunities. So it's a continual incremental of how we attract more customers into the platform. And so yes, you could see the ones that we have is the big significant points, are the ones that we've kind of talked through, you've raised there. But like we indicated, we want to make sure that we will take on all these opportunities to where we both see that we can actually grow customer acquisition and grow the share of the wallet through the connected trip and that's the focus. And we'll be clear on that as we go through like we are now. But I think we've seen that this phase is about scaling. And this is -- so those current 2 things are a key contributor to that scaling. But definitely, we want to carry on looking at where we can actually make those investments to get those capital returns, and I think that's how we're looking at it.

Right. Just a follow-up. It feels like perhaps the big thing you're missing is a mobile app. You've probably been asked this question hundreds of times, but it does feel like the missing component. Is that part of your plan?

It could be. And today, the Booking.com has a mobile app. So the mobile app that there can be used with the business travel as well. So if you make your booking, you see it on that mobile app, you can change it on the mobile app. So it's not that there isn't a mobile app, it's just it's a common app today. Now that doesn't mean in the future, we won't look at how we can actually make a specific functionality for Booking for Business customers, but it may still be in the core bookings for business app, and so that's a strategy run in conjunction with Booking.com. But today, if you make your booking, you can actually see it, use it and travel on it on the current mobile app.

Okay. That's helpful. On the CWT arrangement, how are they being compensated for providing access to the travel consultants? I assume it's some sort of clip of the content they're providing?

Josh, yes, I think clearly, the first one is because of the agreement is between CWT and Booking.com, we can't talk to any of the commercial team specifically, but we can talk about to our expectations. So I think that I will cover [ off ] some of the other questions that we'll get around the same topic proactively. The first one is, as we put in our release, it doesn't change -- so it doesn't change our relationship with Booking.com, so we continue to get half of whatever supply commission they have received, get shared with us. And similarly, we continue to contribute half of the cost of customer acquisition. We don't anticipate meaningful revenue from the additional CWT, the key value for us is that, it should enhance customer acquisition, particularly in the North American market. And in terms of the cost of servicing effectively, there will be some contribution, didn't include it within the cost of acquisition that Serko makes, that is -- actually the delta would be not meaningful. So if you like, the primary impact of the CWT arrangement that should help us to grow our customer acquisition rate. And it also just allows both -- all 3 parties to effectively explore what the types of these services are and therefore make decisions about what comes next.

Sure. That's really helpful. Last question for me. Your implied cash burn forecast for FY '24 appears to be around $21 million based on the guidance you've issued for both revenue and total spend. That will leave you with around $67 million of cash, give or take, as you hit breakeven, what do you intend to do with that cash?

I mean certainly, from our point of view, it's helpful to have a solid cash buffer. Obviously, inorganic options become an option with the passage of time. But from our point of view, as [ probably the ] executive CFO, we are always happy to have a solid cash buffer in the business, just gives us plenty of optionality and if any events, the travel industry in the future means we can continue to run the business as opposed to getting distracted by short-term impacts.

Our next question is coming from Siraj Ahmed with Citigroup.

Three questions from my end. Just in terms of -- I mean, pretty strong performance from Booking.com for business right in the second half. If you could just help us with how it trended through the course of the half, I mean it looks like March may have had an impact from industry action, but it is key to understand how it went through in the second half. And what have you -- in terms of the guidance for FY '24, if you could just help break down the drivers, right, between Booking.com and managed travel, that would be helpful.

Siraj, I think in terms of the breakdown, our expectation is that most of the growth will come from the Booking for Business supply commission side, and that particularly our expense and travel platform revenues will be relatively consistent, saw a little bit of growth, but most of that growth year-on-year comes out of Booking for Business. I think one thing that has challenged a few investors is, [indiscernible] talk to people our views to monitor the traffic to the Bookings for Business site. Those have provided quite good proxies, probably up to about June last year, but have departed. So what we we've seen is, I guess, people seeing those numbers indicating that we are not tracking well in Booking for Business. I think from our point of view, we're quite pleased with where it's tracking, obviously, still challenging for us to look at exactly how much of that is underlying trends versus perhaps some seasonality or recovery from kind of pre-COVID impacts on business travel, but from our point of view, obviously, with the guidance we've given, we're pretty happy with where that Booking for Business is tracking into FY '24.

Got it. And secondly, the managed travel segment was a bit weaker than what we expected. Seems like the recovery compared to pre-COVID was a bit down half-on-half. Just trying to understand what's happening there? Did you lose some share with your customer? And also the ARCP...

Remember the second half, where you lose for almost 4 weeks of trading, and it's a little bit different in Australia and New Zealand through the December period from the middle of December to the middle of January, you actually lose 4 weeks of trading. And that's normal if you look at the current trendlines and those graphs that we've previously provided. So when you take that into consideration, in fact, they've continued to grow customers as indicated, they are also one of the major new customers in that region. So here, we've had a stellar retention rate in the last year.

Yes. Got it. And just the ARPB decline. Darrin, you sort of mentioned supply commissions. Can you just clarify what happened there in terms of the managed travel business?

Yes. So effectively, within the managed travel business, we receive some supplier commissions from certain hotel content and effectively just with changes in the behaviors of our customers, we saw a reduction in consumption of some of that content and therefore, lower commissions, not sort of protecting material in the overall scheme of things, but it did impact the Australia, New Zealand PB by a few cents, and also effectively that content mainly related to a U.S. supplier. And so it's historically always been reported under North America for us from a geographic point of view, since that's like where the money comes from. So that also created a headwind for the North American business, and why it wasn't a big number in the scheme of our overall results, given that North America business is still in growth mode, that was a meaningful headwind for that business.

Okay. And just lastly, just clarify, in terms of CWT -- thanks for the additional color, but just clarifying, when you say you're getting 50% of the share, is that net of what CWT would be taking, or is it just -- or are you sort of implying that the CWT payment will go from Booking.com? And secondly, in terms of customer acquisition, can you help us as to how that will work? Because essentially CWT going to market to get some of these SME customers, is that how we should think about it?

I can probably talk to the marketing sort of -- the marketing story is that, it has a wider appeal. If you're able to -- if you buy with hotel loyalty rates or if you want to see specific corporate [ ASAs ] or corporate side of things, you'll now be able to do that. And you'll have a single point of context if you want to have your account managed with CWT servicing staff across all the content of the connected trip to simplify the offering in there. And of course, that is an option for people to be able to use, along with all the current offerings that's there. And so is that -- in certain markets where it may have a lot -- it may have a different appeal to different customers. So it increases the audience, and of course, that will be driven from standard marketing and customer acquisition processes that we together use today.

Just on the first part of the question, I think we said we don't anticipate meaningful revenue on the CWT content. On the Booking.com hotel content, we'll continue to share 50-50 in net with Booking.com. Okay. And just clarifying, just quick thing, in the guidance for next year, assuming CWD is not a big factor for this new partnership, is not a big factor?

So we can't -- we actually -- like we've kind of said, we don't know until the acquisition and the customer, and we see the impact of that. We can't quantify that until it -- because it's one of these things that you're activating and there's no fixed amount, it's based on the customers using and driving the content and the mix of content into there. So that's why we've said we can't guide on it, because it has to go live, and then we have to actually see how the customers activate. So that's why it's quite hard for us to predict right now. It's a scaling opportunity, the new customers acquisition, how that mix works out and these new markets or new customer ranges, and that way, we'll know what that actually means at that point. So we can't predict that right now. It's just literally impossible until we actually start to push that stuff through. So it's an option of how to bring a wider breadth of content for business travelers, that should increase the number of customers and the appeals are [ through that ] in key markets.

Our next question is coming from Tom Deacon with Macquarie.

Just in terms of the Booking.com JV metrics, if you could dive into those a little bit more, what would you guys be expecting in terms of yield and the sort of growth in completed room nights in FY '24?

In terms of yield, I think we are broadly expecting a certain around about -- where it was at 31 March. So still seeing strong average revenue per completed room night rolling into FY '24, and I think breakdown was over at the Booking.com Partner Conference in Miami, so we expect to see, we're still seeing strong hotel rates in Europe. So we'd expect those to sit there and actually got the number of completed room nights off the top of my head, but when we call out [indiscernible] you can reverse if you -- reverse engineer, but most of the growth is -- in the guidance is in Booking.com and then reverse engineer the -- driven the completed room nights, to be able to give the number of completed room nights.

Shane, no problem there. In terms of active customers or the growth there, how much is the activation of existing customers versus new customers?

For next year half, and we've definitely seen more of the existing customer base activating as well.

Okay. Okay. That's helpful. And in terms of sort of the organic customer acquisition and how that's sort of relating to what we're spending to acquire those customers in FY '24, what would be your expectations there?

Yes. So we're sort of broadly expecting similar customer acquisition -- organic customer acquisition, a very -- we've built in a very modest assumption on what we might get out of the CWT number out of the CWT initiative, and then in terms of return, Booking at a pretty strong focus on ensuring that there's an ROI of 1 on any dollar spent on customer acquisition, and that's measured over a 12-month period. So if you assume that -- so I think if we spend $20 to acquire a customer, then we're expecting to get $20 worth of commission within the first 12 months of that spend, and we've been outperforming that to date. And obviously, in the business base, the assumption would be that you should be able to hold those customers over time. So from my point of view, if we can maintain a sort of 1-year payback on marketing and those customers have a longer life, it makes some pretty good economics. I think the key challenge is being at the new stage of it, obviously quite hard for us to look at what the lifetime value is, based on getting really only been operating on Booking for Business about 18 months to a meaningful degree.

Understood, Shane. I'm sure those retention rates will look reasonably good once they emerge. Maybe just a last one for me just, on the CWT partnership. Obviously, there's been a little bit of competitive movement in the space or some of your competitors providing TMC like functionality. How much of this new partnership is a response to that, to try and win a little bit of share and got both value chain and CME versus I guess wanting to sort of build the partnership with CWT and sort of provide some growth on sort of an existing [indiscernible] which you guys have put a lot a couple of years ago, right, you've sort of looked to build out the business with them, but has it -- I guess, generated that much in the way of sort of North American bookings?

Yes. I guess, I mean it's great that CWT were selected, because working with the operational teams and getting this bedded in, it's going to have a direct benefit of actually being able to scale out to the wider customer base within CWT, and you can't do everything at once. You can't take on this opportunity and scale customers both sides, you've got a scale to be focused on where you can make your investments, both sides. They have to make some choices around that. And this was quite a strategic part to bring through into [ Zeno ]. and Booking.com ran a process to select CWT into [ Zeno ]. And so yes, it's great that it means that the investment we made in operationalizing, connecting to all their systems, we get to kind of maximize that benefit as well. So over the COVID years of working and connecting into the different operational systems to get customers like Visa Live, we can now use that benefit and the relationship with Booking.com and the Booking.com for Business partnership as well. So it really maximizes the investment that we've previously made.

Our next question comes from John O'Shea.

Good work on the outcome guys. Can you hear me okay?

Yes, we can. Thanks, John.

No worries. Look, mine is probably more of a specific question around, obviously, your total spend number there in '23. Can you sort of give us a breakdown there in broad terms as to what's the capital cost versus the capitalized software cost versus the operating costs. I note that this year, the capitalized costs were about $13 million -- sort of let's call it, $14 million for argument sake. What would you anticipate that to do in '24, and I guess that will kind of solve the question?

Yes. John, I think I still -- my starting assumption would be a similar number to FY '23 to like the $14 million value. The reason we've tried to focus on total income and total spend rather than say EBITDA, that number could move, which could push EBITDA up or down. fecal, we want to make sure we're able to hit the guidance that we give. That's something that's completely within our control business accounting kind of nuances around what gets capitalized. But I think that's a pretty reasonable starting assumption in terms of where we'll [ hit ].

So we're sort of talking, okay, so $14 million, so we're talking kind of $72 million to kind of $76 million of sort of operating costs? And I guess my question is, the sort of efficiencies you're talking about, the sort of things you are doing in terms of offshore cost centers and so forth, do you think that the way you framed that number, has that been dependent on your rate of growth with Booking.com as to -- you know what I am asking, I'm trying to get some sense as to whether that number is a conservative number? Is it an aggressive number? What are the variables there that we should be -- because we -- you've spoken about the years that once you get into '24, then we should start to see some efficiencies coming through in that cost number. You had to invest a lot to getting the Booking.com up and running. And now you're starting to see the revenue come through some sort of moderation in those operating costs. Do you know what I'm asking? It's sort of a long-winded question? Do you know what I mean?

Yes. So I think it's a good question, John. I think that probably a couple of things I'd point to is that growth, I think the midpoint equates to about 6% growth in total spend, which are basically broadly inflation in this environment. We have done a couple of initiatives in FY '23 that is, if you like, improved our cost efficiency, we've got a number more we'll do in FY '24. Some of those initiatives require investment in themselves to drive them. And so given the strong growth that we are experiencing on revenue, obviously, slightly above our guidance, even our revised guidance range, we've made the choice we want to keep investing. So in real terms, it will be about the same cost year-over-year, but that will include investing to both grow revenue and there's some direct sort of cost of sales involved in there, but also some investment and some cost efficiency initiatives over the year as well. So I guess our expectation would be, we should be in a -- you're ignoring any other big step-out growth things that we should be in a healthy cost trajectory into FY '25, where those cost efficiencies are starting to outweigh inflation and volume growth.

Yes. So taking that step further, would it be fair to say that whilst the revenue is coming along really well, we just step out that kind of cost trajectory in terms of the cash flow a bit into '25, do you know what I mean? As in the taking a little bit longer to get to that meaningful cash positive number? Is that what you're saying?

Yes. I think I think in terms of getting to the cash positive...

Free cash flow positive we're talking.

Yes. Yes, we had signaled that November, that we expected that we're targeting that for FY '25, so we're still on track from that perspective. I think certainly, from our point of view, we're making conscious choices to keep the level of investment where it is, while we drive the revenue and cost initiatives, just taking some of those cost benefits straight to the bottom line.

Next question comes from Vignesh Nair with UBS.

Awesome. Just 2 quick and easy ones from me this morning. Firstly, on unmanaged travel, I just wanted some more color on your observations around room nights per trip or per booking. I think at the previous half year result, you said it was around 2.2 nights per booking. Has that sort of increased or decreased since? And secondly, just on unmanaged travel as well, are the geographies still focused around Europe, or is that sort of being expanded further out?

Vignesh, I think I'll probably let Darrin take the second point. But in terms of the average room nights per room booking, I think that 2.2% is still about the right number. I mean, you can kind of to some extent, kind of flow that through in the average revenue per booking calculations as well. So broadly, that would be accurate in terms of -- I guess, as of today, the focus is still -- the majority of the revenue is still heavily weighted to Europe. Darrin, if you could to talk to the [indiscernible]?

Yes. And so I mean the CWT thing is definitely to probably drive a wider appeal across some of the other markets as well. So yes, it's now looking at who and what we partner with and how we build out the technology to really get scale across new markets as well. So the focus is definitely global and global scale.

Okay. Okay. That's helpful. And just secondly, on managed travel. I think following on from the previous question, I think you had mentioned ARPB weakness due to sort of a change in customer mix. But really, the sort of the trend has been downwards for the last few halves. What sort of inhibiting, recontracting existing customers at higher prices, especially in this environment? I would have thought it would be easier to approach customers and recontract at higher rates now more than ever?

Yes. So we've kind of indicated that that's definitely our plan, and we kind of have said that, as the contracts come up for renewal through this period, we'll be looking to raise pricing in the home markets. So that's definitely our intention, both from an inflation point of view, but we also -- as previously indicated through COVID, gave some assistance to a lot of the travel industry resellers that we had in the market to create the benefits, as they recovered in there, and we gave them a year coming out of COVID to do that. And so definitely the focus forward is about recontracting appropriately moving forward is what I would say. And that's a task our Australian team will be running through. So we tried to indicate that in the statements in there, but yes, that's definitely a focus of ours.

And just to get a feel for the quantum of that, is that -- do you think next half is going to be north of $5 for instance, for Australasia ARPB or is it still -- are you still sort of...

We know that some of our resellers will have already contracted with customers and we said we need to progressively -- probably bring on a pricing increase if and when we introduce that into the market. So we'll be sensitive to that. But with the still part that we've got to set drive that we need to get to as well, that would also, in some cases, kind of indicated where we wanted to be at this time with those partners pre-COVID. So it's stuff that we'll just work on through the industry. We've made it clear, we want to actually get to as a business and what we need to do to run an efficient and scalable business as well.

And our final question is coming from Wei-Weng Chen with RBC Capital Markets.

Congratulations on the result. Just a couple of questions from me. So the first thing was just on costs, $86 million to $90 million for the next year. Just wondering if you could speak to how much of the year-on-year growth with headcount and how much of that is volume related?

Yes. So the bulk of it will be headcount related, really just because headcount is the bulk of our cost base, so really 70% of total spend is on people cost and effectively -- while definitely the market is rationalizing a lot, still meaningful pay rises occurring, evidently in the pay review that's just occurred with our staff. So volume-related costs definitely growing, but we're a much smaller portion of our cost base. So we are seeing quite -- we feel like our gross margins that we've been achieving on new revenue this year has been quite strong. So predominantly out of the headcount and predominantly net headcount relates to building products to support future growth.

Yes. Okay. And I guess that's the next part of my question I guess, if we think ahead to FY '25, how should we thinking about the cost base to service $100 million of revenue? And I guess, headcount, will that need to materially change if you're effectively doubling this year's revenue?

Yes. So I think the way we see it is [indiscernible], with the support of investors, invested ahead of revenue to set itself up for growth and to be a $100 million business. And so we've got -- if you like, we've got the headcount and other cost base, largely in place that we need for $100 million, there'll be a little bit of volume-related costs, but not a lot. So really, over the next kind of 18 months, our focus is being more efficient than what we do to effectively absorb that volume-related cost growth. I probably would say in terms of headcount, kind of play this or possibly down a little bit into FY '25. But I think the one that we would call out is, we continue to look for opportunities for growth. So if we see those, we won't be shy about taking them. But in terms of supporting the $100 million revenue number, we think our current -- the cost base indicated FY '24 would support that.

Okay. And then this one -- just sorry if it was asked earlier, I've been on another sort of release as well. But how does the CWT content agreement change the economics for separate agreement with Booking? So just on a micro maybe revenue per completed room night level?

Well, yes -- I'll just clarify a little bit. It doesn't change our core economics. Our hope is that it will help us strengthen customer acquisition, probably both contingent on absolute volume and the economics of customer acquisition. I think in terms of the impact on some of our core metrics, we're probably still just working through that in terms of how we'll communicate the bookings on which we're getting revenue versus those in which we're not getting revenue, we're still just trying to work out how we will communicate those at the half year. So probably trying to give you some more clarity here the past year.

Yes. Okay. Because there will be some volume that will be nonrevenue-generating for you guys and some revenue, which will be to the prior agreement, yes?

Yes. So it will change the metric, but not the underlying economics for us, rather than hopefully, some positive impact on the customer acquisition.

That concludes today's question-and-answer session. Mr. Grafton at this time, I'll turn the conference back to you for any additional or closing remarks.

Thank you for joining us today. And look forward to meeting some of you over the next few days as well. So thank you very much, and that concludes the call for today.

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