Jayride Group Ltd

ASX:JAY

Earnings Call Transcript

[Michael Brown]

Good morning, everybody. I'd like to welcome you to the Jayride Q4 quarterly business review. Thank you for joining us. With me today, I have Co-Founder and Managing Director, Rod Bishop, on the screen; and also Peter McWilliam, CFO. The format for today is that Rod and Peter will present an overview of the Q4 results, and they will share slides from the ASX document that was released yesterday. Following that, we'd be delighted to have questions. So on that note, thank you again for joining us. And I'll hand over to Rod.

[Rodney John Bishop, Co]

Good morning. The global travel recovery continues to gather pace in the Northern Hemisphere. I'm sure that it's strange to hear about as we're all in lockdown in Australia to be talking about travel recovery. But here we are, the majority of Jayride's business is focused on Northern Hemisphere markets, U.S. and U.K., and those markets are rapidly reopening on the back of advanced vaccination programs. So accordingly, Jayride is pleased to report record revenue growth rates, record contribution profits above pre-pandemic levels and our strongest ever balance sheet. Together, these 3 things, they show the power that Jayride has in the Jayride model and also the leverage that we have to the continued recovery in the Northern Hemisphere. We're committed to investor transparency. And so we pre-released our revenues and passenger trip numbers in the first week of July. I won't focus on it too much today other than to say that, that 79% quarter-on-quarter growth rate in Q4 over Q3 was the highest growth rate we've ever achieved for net revenues. On today's call, we'll focus on the 2 new areas of disclosure in today's release: that is the contribution profitability and contribution margin; and then secondly, the cash and cash flows. Each of these 2 things speaks to our increased operating leverage. And our intentional strategy is that we talk throughout the pandemic to improve business fundamentals and how those now come into play as the travel recovery continues in the Northern Hemisphere. First, let's cover the contribution. And for that, I'll start to put on screen some slides from the release that was shared overnight. So with contribution, let's cover the result itself. Let's have a short explainer of what contribution profit is and its importance to Jayride and third, let's then drive into the drivers of the result. So the result first. In Q4 FY '21, we've achieved contribution profit after variable costs of $157,000. That's Jayride's highest ever quarterly contribution above pre-pandemic levels. It's a growth rate of 111% in Q4 versus the prior quarter of Q3. And for the year, it's a growth rate of 231% in FY '21 versus the prior year of FY '20. So whereas trips and revenues have significant recoveries still ahead, margins have now surpassed pre-pandemic levels. And this is a result of our work on margin expansion. So that margin itself has expanded up to 45%. And that's Jayride's fastest-ever margin expansion. It's our highest ever margin and it's significantly above the 11% contribution margin that we had pre-pandemic. For those of you who are newer to Jayride, I'll take a moment to explore contribution profit and explain how it works and why it's a very important measure. So contribution is the amount of profit that we keep on passenger trips booked after all variable costs. It's calculated as net revenues less all variable costs of those revenues. Now we don't have so many direct costs, but we like to be very holistic and consider anything at all that touches or interacts for the passenger trip to be variable. So that in the case that passenger trips volumes grows, as it's doing at the moment, we can focus on scaling that area. In this instance then, variable costs include, for example, all advertising and marketing costs, all other variable operating costs, including, for example, transaction fees, goodwill, also customer service costs with our full customer service team. So net revenue less all variable costs. That's our contribution margin, and that's a scaling profit level. So as trips grow, that profit level grows. And as trips growth continues, ultimately then, Jayride reaches the point where its contribution will self-fund millions of dollars of investment continuing each year into growth in technology leadership and entrenching our competitive advantage. Today's result on contribution, that record contribution profit at record contribution margin above pre-pandemic levels and at a record revenue growth rate is proof that the Jayride model works and that our profit profile is scalable and leveraged to the continuing global travel recovery, especially in the Northern Hemisphere. I'd like to unpack what's driving that improvement in contribution profit. It's driven by 2 things: one is trips growth; and two, is a disciplined control of costs as we scale, and that manifests in terms of improved unit economics. I will talk about trips growth first. So Jayride earns its revenues and contribution for every passenger trip booked and passenger trips booked grew at 83% in quarter 4 versus the prior quarter, up to 47,000 passenger trips for the quarter. Growth built throughout the quarter were 30% growth month-on-month in June versus May and 20,000 trips booked in the month of June. So trips growth is being driven by intentional strategies to win market share and improve the traveler experience as being aided by 3 tailwinds. So those strategies, they focus on retention of travelers, conversion of travelers and acquisition of travelers. The enhanced retention is all about building relationships with travel brands through high service levels and improvements to user experience and traveler self-service, that includes, for example, a membership system that we released in the recent quarters. Our conversion is all about enhancing the way that travelers experience the website. For example, enhancements to mobile users, better rates and coverage, but also exploration of things like new vehicle types, classes and product offerings that we're looking to bring to market in the near term. And then enhanced acquisition is all about organic search, but also tighter and stronger relationships with those strategic brands that we work with like the Booking.coms and the Expedias of the world. And so as we continue to improve the fundamentals of the business here, we have still those 3 tailwinds at our back. The global travel recovery continues, especially in the Northern Hemisphere. You've got that enhanced competitive standing because we again have paid refunds and kept transport companies all throughout this. It's allowed us to successfully navigate COVID and allowed us to pick up new business. And thirdly, just that change in traveler needs that's leading them to prebook online in a more common way rather than just turn up and wing it. And that's because they're seeking higher quality of service or more personal space or more preplanning simply for a level of confidence. On the screen, you can see the graph that shows where these 3 tailwinds and strategies propelling us foremost, and it's about the Northern Hemisphere. So green marks passenger trips that are being booked in North America, yellow passenger trips in Europe. And together, these regions in June represent 85% of Jayride's trips. In June, also in the U.S., Jayride has pulled ahead of the 2019 prior corresponding period with more trips booked in June in 2021 than in 2019. And also in recent weeks in July in Europe, Jayride has similarly pulled ahead. And so currently, in these latest weeks in July, they are above, in 2021, above the prior corresponding weeks in July of 2019. As we go then, that means that we're accelerating faster than the market in certain regions we care about. The graph on screen shows the U.S. trips. The blue line shows the market recovery as a whole, which is since July this year, a very fast growth rate. That number comes from the TSA and that's showing travelers through U.S. airports with 173% growth over the course of the financial year. Over that same time period at those same airports, Jayride's passenger trips have grown faster, 414%. So these trends, they go to demonstrate now that we are successful in winning market share and we're looking forward to that continuing. As those strategies and tailwinds then continue and our trips grow as each trip is profitable, then our contribution profit level increases. And we'll find ourselves positioned in a way to have a very scalable profit profile. The second thing that's driving contribution and contribution margin is the disciplined control of costs. Our contribution margin has expanded even as our trips have grown. In Q4, that was the record 45% contribution profit margin, up from 11% prepandemic and still with further expansion potential. Contribution margin growth is being driven by control of the cost of servicing a trip, including to enhance process, self-service, automation, building a traveler self-service, culture around our membership portal, optimizing the work of our customer service team, these sorts of enhancements to the business. The work focuses primarily on product and technology. And we're building all the things that are typical of a modern travel booking platform. So I'd call them in a way hygiene, right? These are the things you'd expect from a flight booking platform or a hotel booking platform, the membership portals, the self-service to update bookings, these sorts of things that improve traveler experience but also reduce our cost to serve. So our work focuses on that technology, and you can see the result of that work here. It's sustainable improvement to reduce variable costs. And you can see that, that improvement is continuing even across the quarters of COVID. So we've ended the position in the year rather in a much better position than we started with, $4.08 of variable cost per trip. And that has improved across COVID and improved significantly since FY '20 where we averaged $9.05 of cost per passenger trip. As I've said, we've got still further optimizations ahead in this area. A final point just to note as we talk is the impact of refunds on contribution. It's a core proposition of the Jayride customer service promise that you as a traveler can get a full refund including that we don't receive a commission on any booking if you change your mind, 100% cash refund. We think it is an absolute advantage that we offer versus competitors in the market. And typically, over time, that's run to a cost of 17% of revenue. You can see on the graph on the left, historical refund rates at 17% in green and then the actual refund rates spike at the onset of COVID. However, the refund rates are returning to historical norms. This comes through then as a reduced net revenue per trip. And it also reduces contribution margin because we're trying to make a contribution on a smaller revenue per trip. You can see the effect of contribution on the right-hand graph. And you can see as a result of that currently elevated refund rate even with our contribution, which is in blue at 45%, if we had to apply that standard 17% refund rate across the whole of COVID, then we would be at 54% in the latest quarter. So still another way that we've got really clear line of sight on further margin expansion if we go that way. So looking still further ahead, we will talk to cash. And I think before I hand to Peter, I just want to give one final point, which is the highlight of the quarter, that was the capital raise. We had commitments for in excess of $10 million, and that's a very strong endorsement of Jayride's growth strategy from new and existing institutional and professional investors. And we just want to thank those investors for their support. That first tranche of funds from the capital raise completed successfully in June, and we're scheduled to complete the second tranche of funds this week. So we're looking forward to deploying those proceeds to generate further profitable growth across FY '22. And I look forward now just to hand to Peter to talk about the cash result in more detail.

[Peter Charles McWilliam, Chief Financial Officer]

Thank you, Rod. It's great to see the step change in unit economics in 2021 clearly shown through those tables and graphs. To help validate revenue contribution and operating leverage, let's take a look at cash performance, and in particular, the table on screen. Growth in cash receipts, the first column, outstripped net revenue growth between Q1 and Q4 by 450% to 235%. Operating costs, the second column, which includes both variable and fixed costs were limited to a 33% increase as a result of enhanced unit economics and operating leverage. These 2 drivers led to an improvement in net cash flow, less grants, financing and FX of 14.5% over Q4. Ahead of year-end reporting, I would like to quickly point out our cash performance over the full year, which is the final row on the table. Total operating and financing cash outflows were $2.5 million and the fixed cost base net of R&D was $3.9 million. It was diligent management of the resources during a period where we significantly improved unit economics and operating leverage. My final thoughts. Through the judicious deployment of resources, we have delivered a sustainable step change in variable cost per trip and are now benefiting from continually improving operating leverage with validation of the model in both contribution and cash results and the best balance sheet we have ever had, we are very well positioned to have a strong 2022. Thanks, Rod.

[Rodney John Bishop, Co]

So that concludes the formal part of the content for today. And just to conclude, I would confirm and restate what myself and Peter have said that it's a high-quality position we find ourselves in, despite being locked up in Australia. That Northern Hemisphere focus that we've got has manifested as record revenue growth rates, record contribution profits above pre-pandemic levels and our strongest ever balance sheet with clear line of sight on continuing recovery, especially Northern Hemisphere and continuing optimizations we can do to further expand margin. So outlook remains positive. We're pleased to say that those foundations that we've built across 2021 put us in a really good position to leverage the global travel recovery as it continues. And I look forward to telling you more about that in 4 weeks with the release of our full annual results. So until then, I'd just like to thank you all again for your interest in our company and participation in our latest capital raise and open the floor to you for any questions.

[Michael Brown]

[Operator Instructions]Rod, you mentioned in the ASX release, the technology improvements in the areas of customer service, process automation and traveler self-service, could you talk a little bit more about those? And what sort of ideas you have in terms of how they may evolve and what sort of implications they might have for the business?

[Rodney John Bishop, Co]

Absolutely. Thank you. Yes, so this is a key area of focus for us. And over the 10 years of building Jayride, it's been pushed to this most recent period. We spent 8 years perfecting global transport aggregation. And now we get to focus on really improving that traveler experience. And I use the word hygiene a lot because this is not about cutting new turf. This is about the things that travelers expect from a modern travel booking platform. So if you've used Expedia, Booking.com, these sorts of platforms before, you'd be familiar with the kind of things we're building and the work that we're doing is about copying their best practice that they have applied to things in other verticals like hotel or flight booking. So we mean a membership portal that you can log into, that remembers you, that says, "Welcome back, Michael, here are all your previous trips, you can click to rebook them, you can click to edit them, you can click to cancel and get your refund. We can automatically process refunds. We can make sure that those sorts of transactions are instant. It's about taking out the human touch points in these interactions because that's what travelers prefer. But also because by removing human touch points, then we end up with a leaner and lighter operating model with the ability to be more responsive in real time. Long term, where this takes us to is a level of responsive service that is so fast that you can be booking while you're in destination. We can be bringing down that booking in advanced window from really significantly prebooked to, "Hey, I've just arrived, and let me prebook something before I catch my bags." And the more that we take out those human touch points and the more that we automate, the better experience, the more real time and the less cost we carry. So a very significant piece of work ahead. If you're not familiar with our membership system, do try to use it, log on to the website and sign up as a member and experience what it is. And that's the functionality is being deployed into that membership system at the moment.

[Michael Brown]

Thank you, Rod. Who would like to ask the next question, please just raise your hand.

[Rodney John Bishop, Co]

Hi, Robert.

[Unknown Analyst]

Rod, well done on those results. Just in terms of given the significance of the Northern Hemisphere going forward, have you given any consideration or thought to shifting senior resources for business development to the Northern Hemisphere, given Australia, you're doing well, but it's a relatively limited market? And obviously, at the moment, it looks like there's more opportunity in Northern Hemisphere coming out rather than us going into lockdown.

[Rodney John Bishop, Co]

Absolutely. Yes, one of the key deployments of resources from the recent placement is additional sales and marketing across the Northern Hemisphere and boots on the ground is definitely part of that. And so when we talk about business development, we mean new travel brand partners that are B2B or B2B2C in nature. And what we mean is to have senior sales leaders who are experienced, who know who's who over there, who know the technology platforms that matter to the TMCs over there. They come with that knowledge, they come on the ground, they're in the time zone and there are some great team members potentially there that we've been in touch with for quite a while and who are currently available. So we're just progressing through that at the moment, and that will be part of the deployment of resources to our Northern Hemisphere business, especially as boots on the ground. Now with regards to some of the other teams, we do already have some Ukrainian developers, that's kind of part of our engineering group. We're considering to expand some of that too. Just the talent is available globally at the moment and the world is a very flat place. So to be able to expand our team to cover more time zones and work across more regions in the world is definitely an area of focus. Did that answer your question, Robert?

[Unknown Analyst]

If no one else, I'll just have a follow-up. Just in terms of that refund rate, is it starting to -- I'm guessing it's going to hopefully continue to trend downwards in the Northern Hemisphere. But obviously, Southern Hemisphere where -- with Eastern Seaboard lockdown, it's probably going to increase more than anything else, is it?

[Rodney John Bishop, Co]

So the thing that drives refund rate is changes to border policies and not reopenings, only closures. Because if borders are closed, then people aren't booking, you can't catch a refund. It's only if a person books and then the border policy changes before they travel, a refund happens. And so as long as you have a net global movement towards more reopenings, then refund rates will continue to come down. What we caught at the very end of June was a little bit of headwind in refund rate across Australia and New Zealand, as you're aware, obviously, local lockdowns. But Australia and New Zealand is not the main story at the moment. And so as long as we continue to get more reopenings in more international regions, and we'll continue to get more bookings. And so as long as those corridors and stay open, then, yes, refund rates will come down. We see really, really positive noises out of the Northern Hemisphere at the moment. So in this result, there's a little bit of progress in Europe after May 17. And you might remember Boris Johnson in the U.K. reopened international travel to Europe and other destinations from late May. And so we caught about 1.5 months of that. And then still more recently, July 19 still a further reopening, the Freedom Day. And the way that manifests on us is that vaccinated British citizens can now travel to and from most countries on earth anything with a gold or an amber status, without mandatory quarantine on rearrival back in the U.K. And also, they moved travel from an essential thing -- an essential travel only to just any old travel. And so that's, again, really good tailwind for us. And so as long as those trends continue, and there seems to be a lot of political will for that to continue, then we'll be in a good spot. With regards to that trans-Tasman corridor and the fact that it shut down, that's a one-off set of cancellations then that we put through. But as it's currently shut, there's not more cancellations to come. All of those have been processed. And so the only way it can go from here is a reopening. I see James Tracey with his hand up.

[James Tracey, Director of Industrial Research]

Rod, I just got a question about business-to-business, it's an important part of your -- business-to-business integration is roughly sort of part of your revenues historically. Can you talk about any progress you've made in that area and any trends that might be happening with some of your travel partners, like Booking.coms and Expedias? What trends are happening in terms of attaching trips to the bookings for hotels?

[Rodney John Bishop, Co]

Yes, happy to do so. So Booking.com and Expedia and many other travel brands use Jayride's transfers to attach to their other cuts. So for example, attached to hotels, attached to flights. And we're seeing an increase across the board in that type of behavior as those travel brands realize that a full service experience or prebooked, preplanned, not asking your traveler to hop in the taxi rank. These sorts of things are a defender of their core business of flights and hotels. And so we see, especially then brands like Booking, Expedia step up to that plank and really start to attach transfers in a way they never have before. So in Jayride's numbers, then that means that those brands are booking more now than they were pre-pandemic. So that's an increase to the size of their business, but also us winning more share as a strategic partner to them. And we expect that to continue, both as their brands recover but also as they start to attach transfers into more places in their funnels. Just considering kind of the relative size of some of these brands for a bit of context. Booking.com pre-pandemic was booking 2 million room nights every day. And their attach rate on transfers to those room nights would be 0.0%. I don't know, I wouldn't estimate the exact number. But they signed at around about 1 million passenger trips booked in 2019. And that's 1 million in a year of 2 million rooms a day. The attach rate very, very low. So the potential that they have as they start to take trips and attaching rides to itineraries more seriously is to really significantly increase their trip volume. And we, as a supplier partner to them, look forward to being able to service those bookings. And so the big opportunity here, as much as anything else, is about helping these brands to bring transfers to market in the right way with high service levels and things that travelers really want. And so long as those brands have the confidence that they are able to attach transfers that really work every time and provide a meaningfully enhanced traveler experience, then the upside potential is really great. And in a way, COVID is kind of an accelerator to that line of thinking for them.

[Michael Brown]

We have time for more questions if anybody would like to put up their hand.

[James Tracey, Director of Industrial Research]

Sorry, just a follow-up for me, Michael and Rod. Just around the balance sheet. So you mentioned earlier that once you get the second tranche, the balance sheet will be the strongest it's ever been. So sort of $10 million of cash, roughly speaking. Can you just go through some of the primary customer improvements that will result from that and the sort of the time line? I know Michael's question touched on some of them earlier, but just -- is there a point in time when you expect to see a step change in the customer experience and that leading into more trips and better contribution margins?

[Rodney John Bishop, Co]

Absolutely. So in regards to use of funds for the immediate opportunity to expand in the Northern Hemisphere, that manifest as more business development and more brand building with the large partners, but also better integrations because it's the integrations that allow those workflows in terms of travel booking to really sync. And so that's great business development people with great sales and marketing material, but also great product and technology support. The largest sum of funds into product and technology development is all about traveler experience. And so as I said, that's kind of hitting inflections where you get both the reduced operating cost and also the improved UX. And so things, as we've mentioned, like enhancements to self-service. But it goes still further than that. It goes into all sorts of new offers, for example, different vehicle classes, different types of services, different inclusions, being able to upgrade your booking in a variety of different ways. These are things that partners have asked for. But also these are things where we will be able to cut new turf and bring things that we know that travelers want that they have never been able to book on the Internet before. So it's a very exciting time ahead. We look forward to telling more about all of those initiatives in 4 weeks at our August results presentation. But I guess, in general, it would be to say front-loading of resources into sales and marketing to really address that recovery in the Northern Hemisphere, a very significant investment in the product technology over the long term to really build a technology advantage that manifest as the best traveler experience.

[James Tracey, Director of Industrial Research]

And do you know when I suppose the key changes are going to go live around the sort of the integration piece and the customer experience? Is this something in 2 years' time or 6 months' time?

[Rodney John Bishop, Co]

Yes, it will be iterative. Every single quarter something new, and the start of our development organization is very agile. And we tend to roll out piece by piece as we have, for example, with the membership platform, launched it and then building on it every month thereafter. And I look forward to giving you those milestones to look at within 4 weeks at the August result deck.

[Michael Brown]

Okay. Well, we'd be pleased to take any further questions off-line if there are no questions at the moment. It looks like Rod and Pete are getting off likely. And on that note, I'll hand over to Rod for closing remarks. Thank you.

[Rodney John Bishop, Co]

Thank you all for attending. Look, I mean, a very pleasing result today. And it is sure strange to be in lockdown in Australia talking travel, but the Northern Hemisphere is traveling and we're here in positions to capture and win on the basis of that Northern Hemisphere travel recovery. You can see it in the results that that's already working, and we look forward to putting the proceeds of the capital raise to bear on capturing still more of that opportunity as we head into FY '22. So thank you very much again for your support and interest in the company, and we look forward to keeping you up to date with the next step being the August results deck in about 4 weeks.