Jayride Group Ltd

ASX:JAY

Earnings Call Transcript

[Unknown Attendee]

Good morning, everybody, and thank you for joining us for the Jayride Q2 Results Investor Conference Call. With me, I have Co-Founder and Managing Director, Rod Bishop; and Peter McWilliam, CFO. As usual, the format of today's call will be Rod and Peter will present the results, and then we'll be pleased to open up the line for questions. Thanks again for joining us. And on that note, I'll hand over to Rod. Thank you.

[Rodney John Bishop, Co]

Jayride today is pleased to present this quarterly result, showing Jayride as a fundamentally improved and more profitable company positioned well for recovery with contribution profits above prepandemic levels for the third consecutive quarter, 112% improvement to cash receipts from customers versus Q1 and a $400,000 improvement of stand still operating cash flows versus prior quarter. Good morning, and thanks for coming. First up, to acknowledge the obvious, trading conditions were not kind to travel companies last quarter. We had transatlantic and Australian reopenings in our favor, but lockdowns related to Delta in Europe and delays to border closures in Australia ultimately were more impactful during Q2. Refunds rose again. So despite being up substantially since this time last year, we did trade down quarter-over-quarter on our top numbers. Recovery hasn't happened in a straight line. Yet, we're in the fortunate position that we're resourced to ride through any chop in the market. So we've taken it in our stride. And consistent with our strategy throughout the whole pandemic, we're focused on improving the platform to capture the recovery, expanding our margins, putting all short-term volatility aside to focus on what really matters and that is to build our traveler offer to win the competitive market for the long haul. And in these results, you can see the early signs of that future platform and how it's positioned to make the absolute best of the recovery ahead. Compared to prepandemic levels, we have: higher total contribution margins; higher total contribution profits already for 3 consecutive quarters now above prepandemic all-time highs despite that volume recovery still ahead; rising net revenues per trip through our new platform; and despite elevated refund rates, strong control of cost per trip with still further operating leverage ahead as we return to scale; improved cash receipts and reduced debtor days; improved stand still operating cash flows; and most importantly, we have successfully recruited our new key talent across sales, marketing, product and technology who will be transformative to the next stage of growth of the company. So these Q2 results are an early output that show the company we're building. And the results are impacted by things, of course, but have held up well despite it all to post one of our most profitable quarters ever. The key result is that we're starting to see evidence of the emerging of the enhancements that we've made to our platform and operating model, which results in a fundamentally improved and more profitable business and platform to capture the next wave of the travel recovery. On today's call, we'll step through the key highlights of the quarterly results, put aside the short-term volatility, focus on what we are building and talk about the growth ahead, then open the room for questions. Starting with the first result, which is net revenue and contribution. Net revenue down 19% versus last quarter, but up 256% versus the prior corresponding period. Contribution down just 9% versus last quarter, but up 322% versus the prior corresponding period. This is outperformance on contribution which is proving resilient despite the chop in volume. As I've said, it's the second highest ever quarterly contribution profit result higher than prepandemic for 3 consecutive quarters, second highest contribution margin of 42%, target of 50% still in place and significant scope for further margin expansion ahead. Second, trips, down 21% versus last quarter, but up 238% versus prior corresponding period. In green and yellow, you can see U.S. and Europe, respectively, impacted by winter and lockdowns in Europe. In light and dark blue, you can see Australia and Asia, respectively, did not come back for the summer. Australian borders are now open. But during Q2, entry for most arrivals was pushed back to the 15th of December. And of course, New Zealand's borders still stay shut. So we've missed a summer in the Southern Hemisphere, which is frustrating, but we're well positioned now for the upcoming Northern Hemisphere summer as it will build across Q3 and Q4. And of note, we're still taking an approach towards highest total returns. And so as we look at this graph, we see that we are retaining those market share gains in Europe, with Europe trips still above prepandemic all-time highs despite winter, despite lockdown, we're winning market share. Drilling into the detail on contribution profit. Net revenues of $7.71 per trip for the quarter were the highest since the pandemic began, despite elevated refund rates due to the new vehicles and service classes with their premium price points. By and large, launched in December, now beginning to increase average order values and commissions across the platform. Also, variable costs of $4.44 per trip. That's the second lowest cost per trip in company history as ongoing investments that we're making into our operating platform and operating leverage, and in general, reducing pain points in the system start to provide a superior traveler experience at less cost. Together, they create contribution margin with a yield of 42%. That's the second highest. And we've invested throughout the pandemic to achieve that margin expansion now here realized. On to refunds and contribution, we continue to reaffirm that 50% contribution margin once refunds return to prepandemic levels. And you can see that here on screen, looking at refunds on the left, our actual refund rate for the quarter, 28% compared to historical baseline of 17%. So it remains elevated. And then on the right, the actual contribution margin in blue of 42% for the quarter compared to where our contribution would be with a more, I guess, historical refund rate showing margin already at 50% contribution for the quarter. So as we work towards realizing that 50% contribution margin, the workers' platform improvements to optimize refunds, leveraging our new vehicle types and service classes for higher revenue per trip and leveraging scale and making further platform improvements to reduce variable costs. Now to talk about cash, I'll hand over to Peter, CFO.

[Peter Charles McWilliam, Chief Financial Officer]

Apologies for the delay there. Thanks, Rod. Speaking to the waterfall chart on Page 3 of our quarterly results update. Before we get into the detail, the key point I want to make today is that even on subdued volumes, we are tracking towards stand still operating cash flow breakeven and we have a strong balance sheet to fund our growth strategy. Q2 capped off another encouraging period for the Jayride team. We have leveraged our brand and expertise to efficiently and effectively secure execution talent and are increasingly observing that Jayride is becoming a fundamentally more cash-generative business. To help you observe the underlying business performance, we provide extra disclosure around stand still cash reporting. to help you separate the underlying performance from the investments that we are making to improve the underlying performance. For the December quarter, the stand still operating cash outflows materially improved by $400,000 quarter-on-quarter. We are naturally encouraged with the momentum, but it determined to transform the business and substantially improve the $148,000 stand still result. The cash waterfall groups, the drivers behind stand still operating cash flows and the growth investments to make it easier to understand the 2 types. Let's now take a closer look at the 4 drivers behind the $148,000 result. Contribution amounting to $168,000 marginally declined from $186,000 for a net movement of $18,000. Notwithstanding challenging operating conditions, this was still the second highest result in the company's history. Volumes are proving to be resilient with a global footprint and prior initiatives to enhance card sizes and variable cost efficiency are showing early signs of what our fully funded growth teams can deliver in future periods. Receipts movement from trips booked amounting to $42,000 materially improved from negative $235,000 for a net movement of $277,000. We accurately advised last quarter that we expected to improve performance in this area and largely delivered the result through enhanced financial processes and by renegotiating commercial terms with a couple of new European partners. Prior to the pandemic, the company benefited from negative working capital and carried a substantial advanced booking cash float. We expect to consistently see positive receipts movement from trips booked as volumes increase. Grants and other income amounting to $219,000 moderately improved from $143,000 for a net movement of $76,000. The company expects to receive its R&D rebate of $337,000 this quarter. Operating cash outflows amounting to $576,000 marginally improved from $593,000 for a net movement of $17,000. As outlined last quarter, these costs are mostly fixed. With a $400,000 improvement to stand still cash flow and a balance sheet that can be leveraged, Jayride is showing it will be a fundamentally more cash-generative model, and it is well positioned to transform its operations in coming periods. Let's now take a look at the growth investments. For the September quarter, growth investments exceeded $1 million, up from $870,000 with technology and sales and marketing teams increased. This is consistent with our previous disclosure. The growth teams are primarily focused on our access to Northern Hemisphere channels, enhancing the product offering and the automation of booking-related processes impacting variable costs. The work tends to either build advantages or achieve parity on particular aspects of our business relative to other companies in the market. We are selectively putting our capital to work to build sustainable competitive advantages and the foundations that can support a transformation of the business in coming periods. Before summarizing, I want to take a moment to help you bridge the current cost base into Q3. Given we expect a couple of additional changes, stand still operating costs will remain predominantly fixed and should be stable. Growth investments into building sales and marketing channels and enhancing the technology are expected to moderately increase before stabilizing this quarter. The moderate increase remains consistent with my last update and our selective capital deployment approach. Q2 was another milestone period for the company. After establishing ourselves as the strongest counterparty and repairing our balance sheet in Q1, we have now materially improved stand still operating cash flows and secure the talent to capitalize on the material market opportunities in front of us. I look forward to sharing our next update with you. I want to thank you for your support. Back to you, Rod.

[Rodney John Bishop, Co]

Thank you, Peter. Lastly, I'd like to talk about outlook. Outlook is positive. And we feel well placed to deliver growth and improve contribution profit as trip volumes rise in the second half FY '22 and beyond, which will, of course, accelerate our company's progress towards stand still EBITDA positive and stand still operating cash flow positive. We're building for a stronger, larger, more profitable business, executing methodically to a plan, building enhanced products to win the market with traveler experience and deliver further margin expansion. We've got a clear line of sight on these market opportunities. So here are the things that we're building to capture those opportunities. We've got potential to build increased passenger trips through: capturing that recovery; improvements to service levels and winning market share with our expanded traveler offer; investments into deploying new offers like vehicle classes and service types into new channels like booking.com to increase our total addressable market, market share and reach; and further expansion in our company's major markets in North America and Europe with summer expected to drive higher seasonal travel. So this should all take place now for a Northern Hemisphere summer that progressively builds across Q3 and Q4. Even as trips grow, we also have potential to build for revenue and contribution to have higher growth rates through increased net revenue per trip. That's through further investment in the company's expanded traveler offer as refund rates continue to get back to prepandemic levels and as a result of continued improvements to our operating model. Also, through decreased variable costs per trip, including through scale and operating leverage and continued investment into the systems and automation that drive improvements in our operating platform. Lastly, the potential to complement our company's strong organic growth with disciplined acquisitions that are consistent with our strategy to grow scale in key markets, clearly able to add new channels to reach new travelers and are on compelling financial terms. So that ends the formal part of today's call. In conclusion, I would say trading conditions is not kind to us during the quarter, but regardless, we show margin expansion and early signs of a fundamentally improved and more profitable company that we're building compared to prepandemic. Our opportunity remains intact and our strategy remains the same, to position ourselves for the recovery, to build our traveler offer and win the competitive market for the long haul. We have successfully recruited our key talent across sales, marketing, product and technology and expect that to be transformative to the next stage of growth in the company. So we're on our way. Building and leveraging our product advantage to win share and deliver return to shareholders. Thank you for coming this morning. Thank you for your support. Now I'd like to open the room for questions.

[Unknown Attendee]

[Operator Instructions] And I do see James there. So James, please fire away.

[James Tracey, Director of Industrial Research]

Thanks, Michael. Just a sort of open-ended question really to start with. Rod, do you think we could be past the worst? And could you refer to some forward-leading indicators that you look at and possibly some early trends that you're seeing in January so far?

[Rodney John Bishop, Co]

Yes. We see ongoing recovery. In particular, I'd note that last year in the Northern Hemisphere was already a good summer. And we find ourselves with a larger market opportunity, especially in Europe, never before. And having retained prepandemic all-time highs right through winter, right through lockdowns. So we look, again, forward and we say Q3 and Q4 will be Northern Hemisphere growth per usual, and we're looking forward to leveraging it. In general, growth into FY '22 and onwards.

[James Tracey, Director of Industrial Research]

And you mentioned in the release, B2B partners, Booking.com and other partners that are adopting your travel class functionality, are you able to give a sort of quantify the incremental volume that you could see from that? I mean historically, half of your business has been B2B, could that B2B component double because there's obviously twice the volume going through the sort of premium channels. That's just the channel that you're accessing before, which is the more economy channel. Is that right? Or is there any more color you can add to that?

[Rodney John Bishop, Co]

Yes, that's right. We're looking for both expanded total addressable market through those channels and also expanded revenue and through growth conversion and higher average order values and maintaining high margins as we push our new product offers through these new travel channels. It was late last calendar year, we completed the release of our version 3 API that includes the new vehicle types and service classes. And we're deep in integration with many partners on implementing those. And so we'd expect to see a certain number of bookings through a certain channel. We're now looking forward to an expanded amount of bookings as a result of those new offers being available through that channel. So yes, it will be nicely additive and also ongoing. On an ongoing basis, we'll have the ability now to deploy new offer after new offer through a new channel after new channel. It will be a key driver of our growth.

[James Tracey, Director of Industrial Research]

I mean for the partners where you've already had that functionality switched on to some kind, I mean, what's the -- been the change in the sort of volume that you've gone through those partners?

[Rodney John Bishop, Co]

It's a good question. So just for clarity. So the new vehicle types and service classes were only ever deployed through B2C channels last quarter. It's this quarter that we're now deploying through B2B channels. The B2C channels, though, very perform. And so you can start to see that in the average order values, net revenues per trip having increased despite the fact that the bulk of that content came in only in December and on the B2C channels. Still managed to increase net revenues per trip overall as a result of travelers just preferring higher average order value, higher -- larger vehicle better, service class. So we get the ability to meet traveler needs, provide more satisfaction and also realize margin expansion at the same time.

[James Tracey, Director of Industrial Research]

That's great. And then another thing you mentioned in the commentary, which I found interesting was acquisitions. Are you seeing any change in the competitive environment happening that have caused you to mention it? Or what are you thinking about the competition and how that plays in the current environment.

[Rodney John Bishop, Co]

The pandemic has been hard for travel companies, and it's been a long road. And there are some travel companies out there that -- founders are a bit tired and so opportunities exist. Throughout the whole pandemic, we've been consistently looking to see if there are interesting things to buy. And in general, we stayed away from things at the start of the pandemic because the distress and the risk outweighed the potential benefits. Now here we are approaching the tail end. There may be opportunities. And so we continue to explore. We're looking still very clearly for things that are compelling in terms of -- they have a clear strategy. They come at compelling financial terms. It's very obvious how we're going to integrate them. But as we look, we're starting to define slightly more than we did before. Still not in any hurry. We have great organic growth potential, but interesting to pursue.

[Unknown Attendee]

[Operator Instructions] We'll always be pleased to take follow-up questions offline. So please send any questions through. We'll give Rod, Peter or myself a call. And on that note, I will hand over to Rob for closing remarks.

[Rodney John Bishop, Co]

Thank you very much for coming today. As we've stated, trading conditions, obviously not kind for travel companies last quarter, but our result demonstrates strong underlying performance for our company despite the volatility in the travel market. It reaffirms our confidence that there's an opportunity here to build for larger scale and more profitability. And that leaves us focused on execution and the things that we need to build. So thank you for joining us, and we look forward to updating you again in February. Have a great morning.