Earnings Call: Q1 2021

May 10, 2021

Good morning. This is Mark Hammes speaking. Good to have you all. We currently have a bit of a problem showing the slides, but I'll just kick off and start giving you an overview of Q1, where we are. So coming out of a terrible 2020, it's probably fair to say Q1 was not that different. The market segment development, we are still very much hit am severely affected by the COVID-nineteen pandemic. Our Q1 was actually terrible because we've seen in Germany very severe lockdowns. There was nearly no domestic traveled. There was a very, very, very little European and international traffic actually travel. In fact, to be able to travel, you have to be very brave or you had to be very brave in Q1 because the rules were so unclear. And we've basically seen a continuation of Q4, a complete standstill in terms of actual travel activity, which means the demand for package tours and hotels remained at very, very low level. We've seen one exception of that. We've seen a short boost in demand when Mallorca opened, but that was really a burst, I would say, because we had an ongoing political discussion afterwards that it's bad behavior to actually travel, and we've seen this in our booking figures as well. So Q1 overall, a very bad continuation of what we've seen last year. What does this mean a bit more precisely? We have seen very little actual travel happening, though, especially towards the end of Q1 with vaccination starting to kick in and the mood and the discussion changing, we have seen a slight pickup in booking. For reasons of prudence, we are not showing these bookings, if they have not been departures. So right now, in our revenue, we basically assume bookings that come in will not be travel. So if you look at the revenue numbers we report in Q1, you only see our media revenue and you only see travels that actually already happened in Q1, which again has been very little. What you don't see in the revenue numbers is that we collected around €6,000,000 of travel volume in Q1. So these are the bookings that we have in our books. And now you can make your own estimation of how much of these EUR 6,000,000 will be traveled over the next month. It's very hard to predict. It obviously depends on how the markets open and how the vaccinations are going. If you then look at the Q1 figures, we're showing €1,700,000 in revenue. Again, we have an additional €6,000,000 of bookings in our books. We have €1,400,000 gross margin and that resides in an operating EBITDA of minus €5,900,000 or an EBT of minus €7,200,000 so if you would assume for a second that all the €6,000,000 we have in the books would be traveled this year, Q1 would have nearly been profitable. I think this is highly speculative. Out of the EUR 6,000,000, there's a couple of bookings that I would say are unlikely to be traveled. But I also would expect right now that this number will not go down to 0. So it's anywhere between 0 and €6,000,000 very hard to predict. We can talk about the outlook a bit later, and Markus can guide you through the detailed figures. Right. Thank you so much, Marc. Also warm welcome from my side. So just picking up on that point with the bookings that We have but have not been traveled yet. As Marc pointed out, we deliberately decided to take a very conservative stance there really only recognize the revenues that have been traveled. Of the €1,700,000 of revenue in see one about €1,000,000 was commission revenues, about €400,000 was advertising revenues And the remainder was in the tour operator revenues. Again, like how do we view those €6,000,000 The good news really is that there is not it's not lumped together in one time frame, but it's actually spread out fairly evenly from short term bookings that will have or are supposed to happen within the next couple of days weeks up to bookings even into 2022. So there's a whole range there. And again, following the accounting guidelines, only if we can really, with a high degree of certainty, estimate the revenues we're allowed to recognize them. That's why we take, again, this very conservative stance of not showing them also to avoid showing negative revenues as we had in last year again. So again, the SEK1.7 billion, take it with a grain of salt, but that's really what happened in Q1. Going further onto the cost cite, and that actually should be fairly old news to all of you. Number 1 is marketing expenses are still close to 0. And that is actually very interesting and very good news for us. So all the bookings that we managed to do, we managed without any marketing costs whatsoever. Is that going to last even if the market picks up again Significantly, very unlikely. We certainly think that we need to restart marketing at some point. But as of now, the way how we view the market, we can capture our fair market share on bookings without having to invest anything or very little into the marketing part. So all the bookings that happened so far are highly profitable, as Marc pointed out already. Personnel expenses, the minus 5.1%. That's pretty much the figure I kept telling you over the last couple of calls as kind of like the steady state. It probably is a little more is somewhat higher than 5.5 5.1 more towards 5.5. Why is that? With the now the determination of Georg's Hess contract and more or less him now being off the payroll, we had an extraordinary positive effect of about $400,000 in Q1. If you add that up, you're at the minus 5.5%, which is the kind of like the steady state figure that we've been viewing over the last couple of months and have been indicating already. Other expenses, significantly down over the last year. Here, again, we managed to really realize on the cost savings and bring down structural costs. There are some variable part in that as well. So again, if revenues start to pick up quite significantly, also this figure certainly will rise a bit. But everything that is fixed, we've managed to really bring it down to a level that is sustainable for quite a while. So adding all that up brings us to an EBITDA of minus 5.5 percent and depreciations are slightly down. Again, this is one of the factors with us not activating so much because with fewer people working on that, of course the activation rate was down. So we will see somewhat reduced depreciation over the next couple of quarters as well, bringing us to an EBIT of minus 7.1 and then basically an EBT of minus 7.2. So overall, again, not very surprising. I think the figures that we laid out the last couple of calls, we pretty much hit spot on. And with revenues deliberately more or less taking a conservative view, I think this should all it should be pretty standard to what you've seen. Moving forward to Page number 9, the current situation and the current liquidity situation. Due to the very successful a capital increase that we did in February. And again, like thanks to all of you who participated in that. We are now in a position Well, we have roughly $60,000,000 in cash available as of end of March, which is up From the December figure because the capital increase happened in February, we used that as Also, as we indicated in the prospectus, to pay back the revolving credit facility that we had with our banks. So right now, only the long term COVID plus loan that we have in Switzerland is used as debt. So seeing that, you see that we have quite a healthy net cash balance there. And basically, right now, we have quite a significant runway even if the market were to remain fairly weak going forward. And that actually puts us in a very good position to do the right things going forward. Again, when we come to the cost base, marketing, we are very conservative there as well. We are very cautious, but we stay alert and we more or less are able to initiate marketing immediately if we see that the market comes back. So there's no delay for us and potentially us missing the wave, But we can act there as soon as we see demand coming back. Personnel, again, this is fairly stable right now. We are I'm back in hiring some backfill positions that we need to have, especially on the engineering side. But again, this will be done again with a very prudent approach and we try to manage the cost there as much as possible. And also the other expenses there, the comprehensive cost reduction measures have materialized, and you can see that fairly well in the cost reduction over on a year on year basis. So that's pretty much where we ended with Q1. And now for the outlook for the rest of the year, I'm going to hand back to Marc. Thank you, Markus. So it's May 10, and we still cannot give you a real outlook because we simply don't know. But let me give you a couple of pointers and cornerstones that might help you making your own picture. Basically, with the rising vaccination rates, we also see a slight increase in bookings. Specifically since end of April, we see consumer mood changing and I would say changing passed and relatively drastically. We see a positive trend since that in terms of bookings. And I would say we are accelerating the numbers of bookings we are getting in. So consumer mood has definitely picked up. There's obviously differences in age cohorts. But generally speaking, we see an upward trend compared to Q1. And if you read newspapers, you also see that travel is becoming a topic and how to. It is still, however, very complex, both for consumers as well as the industry, where can you travel and under which circumstances. You might have picked up, for example, for domestic travel, it's very unclear where you can travel with kids or without kids, whether you need to be vaccinated or tested. But we see the cloud clearing a bit the sky clearing a bit. So number 1, consumer mood changing and we see that bookings pick up. The summer season itself will be heavily impacted by the amount of vaccination rates, the infection rate both in Germany, but also in potential travel countries. And last but not least, this is why even mid of May, I cannot give you a clear indication. It is also heavily impacted by political decisions. So take again a domestic example, Mecklenburg Vorpomann will not let you in if you have kitschleife, Keulstein will. This is not a pattern we can predict and how it will change, and we have the same European countries and even more so for Turkey, Egypt, which are strong markets for us, and we're dependent on these political decisions. This will remain highly volatile and it's very unclear what amount of the bookings we have in the books will actually be traveled. We are, however, prepared both financially as well as from the team set up to stand out a very long travel ban. On the other hand, we are ready for a jump in demand. Markus has spoken about this a second ago. We are ready to kick off marketing if needed with a minute notice. And I think right now, we see more optimism than pessimism. In any scenario, we obviously use the timed to further develop our products. And we are absolutely sure that there will be a surge in demand. Actually, again, we do start seeing a bit of this. And then the question is just when do people start traveling. Beyond that, we have a fully functional business model, and it will come back. And again, we see first signs of that. What does this all mean for guidance 2021? We cannot give you a good guidance as of today simply because we don't know how much of the travels people can actually take. We're working with a positive and a negative scenario. In the positive scenario, the gross margin should at least double to last year. And again, you've seen we already have €6,000,000 revenue in the books. The question is will people travel or not. We also have a negative scenario assuming that people can still not travel to core markets like Mallorca or Canary Islands or Egypt or Turkey. In all these scenarios, the operating EBITDA will definitely be improving compared to last year. And now you basically have to take out your old crystal ball and do an estimation of what do you believe, where can people travel. There's a good chance that Q2 can be a good quarter and Q3 can be a strong quarter. But there's also saw a non zero probability that we remain at the very low revenue levels you've seen in Q1. Thanks for that. With that, we close the presentation and are open for questions. Thank you. We will take our first question from Felix Allman of Warburg. Please go ahead. Good morning. This is Philip Kamer from Warburg Research. My question is, Looking at the revenues, do you have provide any as if figure if you didn't have these cancellation options? How would the revenue be if you show all the revenue you made, if you thought there wouldn't be cancellation options? Of course, it's not a Logical question, but I'd rather have to be I'd rather like to have an impression of the bookings in general in the Q1. I mean, basically, we've shown the figures. So the 6,000,000 that we mentioned on Page number 5 as potential commission claims that we did not show. That's pretty much not all of it, but the bulk of it is was generated in Q1. There's some overspill from Q4. But in essence, if we were to like in if we had shown this figure as we've shown in the past, we probably would have had something like a 10% cancellation buffer on that. But other than that, that pretty much would have been the revenue. That's why Marc mentioned before, if those revenues had been made and we would have shown them, we would have ended the quarter on at least breakeven, if not slightly profitable. Okay. Very good. So I got this right. Other question was about the competition. You are in the market looking at your competition day by day. If tomorrow would be normal again, What would you think how much of your competition is still alive today? Are we talking about 90%, 70% or what would you I think we need to Marc speaking, a very good question actually. I think we need to look at competition in various clusters. First of all, our partners, the 2 operators, are also at the same time because many of them do direct sales via the via Internet and obviously, their franchise offices. I would say some of the tour operators are using the crisis and the state money they got to heavily attack, specifically TUI, which is a great partner for us. But they are also a strong competitor using a lot of the government money they got to compete with us. And I would say they are here to stay as a strong competitor. Some of the midsized tour operators have reduced the activity in direct sales because they realize it's costly. They are not specialized, so potentially a bit less. Then on the second level, we obviously are maybe not directly competing, but we have the same wallet we are addressing, the brick and mortar travel agencies. This is still very hard to predict because they benefit from the state ad. It's very well tailored to a lot of the brick and mortar travel agencies. Though I would say it's fair to say that a small to significant amount of brick and mortar travel agencies will go out of the market and might not open up again. It's very hard to say is it 10% or 30%, but I would say it's at least double digit in percentage, and that will basically grow the online market share, and we will benefit from that. And then thirdly, we obviously have the direct competition to other OTAs or multi online players. Here, I would say, specifically, the big 3, so Appendin, OLAP, Check24 and us are here to stay. It's hard for me to judge on how well they come out of the crisis, but I would expect intensified competition after the crisis. Though I think everyone in the industry has learned a lesson that the 2019 marketing figures have been devastating for everyone except Google. And we see a reduced spending on that, and I would expect that all 3 players will act rationally. And we will not see these marketing figures go up again to but again, I don't make the decision for my competition. So I cannot really judge that, but I wouldn't expect them to go out of the market. Last but not least, there's a range of smaller OTAs and online players. We've seen a couple of them go out of the market already, and I would expect that many of them will not come back because as you've seen with our figures, it takes a while until you get back to profitability, and I wouldn't expect all of them to come back. So generally speaking, I would say, we will come out of the crisis with a slightly better competitive situation than it used to be. On the other hand, some of the 2 operators might try to source more consumers directly. So net net, I would say the crisis will be positive for us in competition landscape. Okay. Allow me one final question with regards to your content on your page With regards to the client valuations and the client generated content, due to the fact that you didn't make any troubling the last 12 months. Did your content some kind outdated? Or I could imagine that it needs to lift. And if it doesn't get updated for a year, it outdates? Or What is your content still worth when it comes to customer valuations, for example? Excellent questions. Thanks, Felix. It's a discussion we continuously have internally. First answer is the majority of the content does not necessarily outdate. We have some rules on when we start deprecating or taking old content offline or not having it for the overall rating and yes, fresh content is always better than old hotel ratings. But many of the, say 1 plus year old content is still very valid in terms of what the customers can expect in a specific hotel. So it's aging well. Secondly, we actually collected quite a bit of content over the last year. Again, travel was low, but it was not 0. So we did collect content. Specifically, we collected quite a bit of content very much tailored to the COVID situation. And if you go to our web page, you now see that we even have indicators showing how hotels are dealing with the COVID situation. All in all, you're right. We've collected less content over the last year, and I wouldn't feel comfortable if this would go on for another 3 years. But we already see this picking up, and I'm not worried about our content not being relevant at the moment. Again, I would be more worried if competition would collect this content and we wouldn't, but everyone has a lower degree of content. So we still remain the absolute leader in amount of hotel reviews. We still remain the absolute leader in trustworthy content, both COVID times and pre COVID. And so the distance the competition is still massive. So I'm not worried about that. Thank you very much. Thank you, There are no further questions at this Time, I would like to hand the call back to you. Thank you. Thank you all for listening in and for the good questions. I have to do this reminder again because I think we finished the business section. We might see a very strong summer in terms people being able to travel. And we already see that some of the preferred locations are starting to be overbooked. Actually, we might have a situation where short term booking this year might be more expensive than a long term booking. You're all very valued invested as an analyst of holiday check. I highly recommend book your vacation now. My personal tip for this year, again, being Greece and Spain being top locations. Or if you have a bit more money in your wallet because our stock went so well over the last month, Maldives are also a great spot. Thank you all for listening in, and I hope we are seeing the end of the pandemic over the next months to come, both for us personally as well as for our business. Thank you all. Bye.