Q2 2022 Membership Collective Group Inc Earnings Call
Second quarter 2022 financial results conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again.
Then press the star one.
Thank you Thomas Allen Chief Financial Officer, You May begin your conference.
You for joining us today to discuss the membership collective groups second quarter 2022 financial results.
Some of today's statements may be forward looking and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our most recent quarterly report on Form 10-Q filed on May 18th 2022.
Any forward looking statements represent our views only as of today and we assume no obligation to update any forward looking statements if our views change.
Now you should have access to our second quarter 2022 earnings release, which can be found on membership collective group Dot com in the news and events section. Additionally, we have posted our second quarter 2022 earnings presentation, which can also be found on the news and events section on our site.
During the call. We also refer to certain non-GAAP financial measures.
These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.
In affiliation to the most comparable GAAP measures are available in today's earnings press release.
With that I'll remind everyone that during our last earnings call, we highlighted our six strategic priorities.
Sure.
First global expansion of Soho House.
Second enhancing the value of our <unk> membership third Haas Foundation's our ESG platform fourth.
Operational excellence, while delivering profits and free cash flow.
Growing new membership brands and profit streams and six.
Driving a great digital experience.
I will now pass on to Nick Jones, our founder and CEO to discuss how we progress against the first three pillars that Andrew Carnie, Our president will discuss the next three before I get into results and guidance.
Good morning. Thank.
Thank you very much for joining us today I'd like to welcome Thomas to the team excited the heavy onboard.
We're very pleased to be reporting another good quarter of growth.
Very complicated operating environment.
Let's start with the expansion of some of the houses.
As you know we talked about non news has is this year. We are on track to deliver that so far we have opened five.
First one we opened Nashville, and North America, very strong membership demand I'm really pleased to say we've already got around 2000 members. We then opened Bryan B Tran itself first ever so house on the coast in Britain Brightened.
There's a very creative city.
Already a lot of our members loopnet.
Then open Hollaway House, which is in West Hollywood, California, It's a full site in La <unk>. The reason why we opened.
Our members from all around the world kept saying they want to rooms in west Hollywood and we've been able to deliver them.
It's been a great response to them back in July we opened so Copenhagen, which is our first in Scandinavia and incredibly exciting market for us.
Such a great city, Copenhagen full of great people and the membership applications are really flying and.
Also in July we opened little have some dialogue.
See you growing with island Robalo moves in South London, and the reason why we opened and this will have some balance is a lot of our members live in the area and this was in response to a lot of people sort of working from home more and US one thing to just do what our members wanted and we expect to expire.
More into local neighborhoods in the future.
The full remaining houses to open this year.
The Miami Pool House, whether you have a beachhead in Miami, which is one of our top performing houses we have a huge amount of demand as more and more people have move down to Miami since the pandemic is located and a great creative neighborhood.
Really excited about opening and also do we have a second highest in Scandinavia opening towards the end of the year in Stockholm, we already have a huge amount of cities with our houses members and.
Converted church.
<unk>.
Towards the end of year, we're opening in Mexico City, a really exciting time for us because this is our first half in Latin America.
Great building generals house.
It's going to be a big club with swimming pool and pool House and we are very excited to be entering that market.
And then right at the end of the year. We're opening Bangkok. This is further expansion for us into Asia, credibly vibrant city and excited to keep making our membership global.
<unk> disease with our houses.
Is really key for us to support new pipeline of houses we have added another 10, new cities as part of our CW H program, this quarter, including Nairobi Manila and <unk>.
And yoga and we're even more confident about our international growth in the future with this program.
Next I want to talk about enhancing membership value coming.
And the team wake up every morning, and think how can we make life better for our members because membership is at the heart of what we do we know our members love new houses.
We grow value in demand of end membership, let's say pleased with new openings that we've done this year and all our new houses have seen a very strong membership demand locally from the start.
We also love putting on great experiences outside our houses for our members for instance.
Here, we had the regulatory hottest festival in West London, and also we did the Soho Desert House at Coachella.
Our members love seeing the houses out on the road.
All of this added 11000, new members since the last quarter and.
And we now have 142000 members and we're on target to hit 160 to 165000, which will be fantastic.
The thing, which I'm Super proud of is our retention and that remained at around 95%. Despite obviously the concerns of a tougher economic environment and increases in our membership fees.
Finally, I want to talk about half foundations, we published our first ESG report in May and we're making good progress in line with our target.
Our environmental goals, we've committed to reducing the impact on the planet. We are pleased with the progress we've made and waste reduction with number of houses now separating food waste was increased by 20% meeting our 2022 targets of social programs Harte Hanks.
This isn't about we saw continued growth in our Mentorship and fellowship programs.
Where we can make a real impact by helping people from less privileged backgrounds gain access to the creative industry grew up really members and we have launched both programs and 70 new cities. This year, we now support 815, <unk> and <unk>, which is a 70% incur.
Since the end of last year.
I would love to now pass to Andrew to discuss the other pillars.
Thank you Nick and good morning, everyone I'm going to discuss how we delivered operational excellence, whilst delivering growth in Q2, and then touch on our other membership brands and businesses and then talk more about what's driving that teach they experienced before I hand over to Thomas.
Starting with operational excellence, we were able to deliver improved results. Despite factors such as continued wage inflation.
Hi chain, Ashis, caved impacts and high energy prices, along with currency headwinds.
We grew EBITDA to $50 million of 28 million year on year, and 30 million quarter on quarter.
That's with our in house revenues growing 140% year on year helped by 40% year on year like flat Revpar increase with lie flat revpar, 16% above Q2 2019.
Contribution margins improved by 260 basis points year on year.
F&B margins again were up by 230 basis points versus Q2 thousand 19 despite.
Around 20% high food cost inflation.
Next an update on our other <unk>.
CG brand outside cell house membership, we had a very strong quarter of revenue across our other businesses, increasing by about 100% year on year.
The MTGE members are now up 12% quarter over quarter, and 51% year on year as we've talked often about <unk> trends have continued to grow and was our largest contributor of growth of 8000 members quarter on quarter, or 26% and Thats, a 300% increase year on year and as a reminder, <unk> house friends.
A predominant guests have members that convert to be friends of sell a house and now that sustain our bedrooms and get benefits within <unk>.
Our MTBE waitlist is now <unk>, which is growing again quarter on quarter and its highest level ever. Despite the banqueting takes that Nick mentioned earlier on what that shows is the health of our business and that we still have record demand for all our membership sounds me Greg.
In June we are in the net nomad in New York.
Net side outside of London, and we successfully opened 700 members and have a growing maintenance and we remain on track to open a net Doha in Q4 this year.
As we mentioned on our last earnings call Q2 is the season for Scorpius and we're delighted to say that we have in two weeks area due to amendment demand and say five had a very strong season. In fact last week, we had our biggest week in scope versus history, which again just underlines the strength of our scope is brand and why we will continue to grow.
Globally.
Finally, we continue to deliver great performance and momentum throughout the quarter and also home business with sales up again to 105% year on year. What that tells US is we are delighting. Our members. This month, we are integrating our home plus membership into friends membership are harmful spend as a high spenders and high value to us and we wanted to give them more value.
Whilst increasing our share of wallet.
Turning finally to digital we continued to develop our products to give members the best experience whenever our houses and connect with them either in person or digitally our global websites <unk> Dot com is accountable for membership acquisition and key to unique visitors to the site increased by 12% quarter on quarter and 69.
9% year on year and as I already mentioned, our waitlist globally is an all time high on the priority amendments shop delivered 75% of all global bookings consistent with Q1 and that significant when you consider occupancy cost bedrooms rose to 81% in Q2 up from 60% in Q1 and these bookings are organic.
Which I think we've stressed on the previous earnings call with no marketing dollar spend or booking engine fees for our bedrooms.
We've now launched <unk> connect all of our members last quarter, we saw 40% quarter on quarter growth of members using connection features and we're working to optimize it before launching our digital membership with that I will hand over to Thomas who will take you through the results in detail before we take your questions.
Thanks, Andrea and good morning, everyone. This is my eighth week on the job I joined <unk>, because I felt is a great company with visionary leaders.
Very attractive brand in sell out and loads of runway for profitable growth.
Really impressed by the operational expertise I've seen so far there is some of the highlights of the second quarter.
Total revenue grew almost 100% and would have grown over 100% and another $10 million had not been for FX headwinds.
<unk> contribution also increased over 100% with margins up almost 300 basis points.
As we keep on stressing so as membership growth was very strong, which coupled with price increases drove 47% growth in recurring membership revenue.
This is also helped by another reduction in frozen membership.
As in members as a percentage of total members is now below pre COVID-19 levels, highlighting the increased value for our members and having an active membership.
And as revenues grew 140% year over year benefiting from stronger F&B trends and as Andrew mentioned, 40% higher revpar year over year, and 16% higher than <unk> 19. Other revenues were up 104% helped by strong Scorpius and home results public restaurant townhouse revenues and increased management fees.
From the NAD the line and so on.
Our reported adjusted EBITDA in the second quarter was $15 million above consensus was based on our analysis of $13 million and consensus metrics says, it's $12 million or beat would have been even more pronounced had not been for headwinds from FX, which was a million dollar headwind.
And Hong Kong is still taking a longer than hoped to recover which is another million dollars head against budget and the tough weighed in food and beverage cost environment.
That said our improved profitability reflects continued focus on cost management as well as strong top line performance.
The capitalization table shows our position at the end of the second quarter, we ended the quarter with $266 million of cash and cash equivalents and restricted cash and the undrawn revolvers $86 million, which provides us with sufficient flexibility to fund our operational needs as well as capacity grow.
No.
Net debt was $444 million a quarter and.
The company repurchased two 3 million shares for $17 million during the second quarter.
As you can see from our loan maturity profile. The vast majority of our debt currently runs out to 2027. We're currently looking at refinancing options for the debt coming due in 2024.
Our priority remains to generate free cash flow in the short to medium term and we expect to be cash flow positive in the fourth quarter of this year.
On to guidance, we continue to see strong momentum in all our metrics. However, FX has gotten meaningfully against us and we now expect Hong Kong to continue to be a drag on the results for the year.
Going into each guidance line in more detail.
We are on track to deliver our total cell Ross members target of 160 to 165000 members by year end at June 30, we were halfway through the year and had added almost 20000 net new members compared to our approximately 40000 annual goal.
Remember new household things are outsized contribution to this growth we only opened three properties in the first half and a variety opened two of the six houses we expect to open in the second half. So we're well on our way to hit our memory growth target.
On revenues, we are cutting guidance by $40 million.
When a company is does guidance assume the pound dollar exchange rate will be $1 34 for the year, whereas now one point too in the Euro dollar exchange rate will be one <unk> is now at parity.
We had a $10 million FX hit to revenue in <unk> and I expect another $40 million impact in the second half assuming current rates remain.
On Hong Kong restrictions continue to limit our ability to ramp up that property that probably <unk> project by $2 million in the second quarter and assuming current trends remain format budget by another $5 million for the remainder of the year.
So if you add up the FX and Hong Kong headwinds imply $57 million of downside when we're only counting our guidance by $49.
The offset is we are continuing to have good traction in taking price and continue to see consistently strong demand trends. Despite concerns of a recession on EBITDA, we're cutting our guidance from $80 million to $90 million to 70 to 80, Luckily a lot of the FX impact is translation. So as we noted we had a $1 million FX hit in <unk>, We now expect.
And a $4 million impact in the second half restrictions around Hong Kong hurt us $1 million in the second quarter and will likely be another $4 million impact in the second half.
While we were able to offset some of our revenue headwind to a better core performance. Our EBITDA guidance range was a lot tighter cost environment remains challenging and so we felt it prudent to take the more conservative path on EBITDA. We're also mindful that we have done $18 million, we have done in the first half of the year. So we have a lot to make up in the second half that said.
We have seen Europe recovering well and outperforming this summer and our business seasonally typically ramps up through the quarters with <unk> benefiting from summer business and <unk> from holiday events.
Two and I would like to remind everyone that we are a unique membership platform with multiple revenue generators high retention, we try to be as asset light as possible and we have other business line to continue to scale.
With that we'll now open up to questions. Operator can we take the first question. Please as a reminder, you can either ask or over the phone or submitted over the webcast.
Thank you at this time I would like to remind everyone in order to ask a question over the phone press Star then the number one on your telephone keypad. Your first question comes from the line of Stephens <unk>, calling from Citi. Your line is open.
Good morning, guys. Thanks for taking my question.
First question I had was just on the pricing power discussion, maybe could you talk a bit more in detail about the price increases you've done in the first part of the year do you see opportunity to take price up further in the back half and from a member perspective have you seen any sort of pushback to the increases in prices.
Great question.
As Steven said, we as we've already mentioned on previous earnings calls we haven't.
Increased pricing across all our channels from F&B to our bedrooms and our membership.
We feel good about pricing right now, we've pretty much offset all of inflation, including the headwinds that Thomas talked about LNG prices. So we didn't see any further movement.
On pricing for the second half on what we are focused on is always sort of any value for many of our members. So we're working really hard and I'll.
Have is to continue to keep him great events and great menu choices as we go through.
Second half.
Okay, Great and then I wanted to ask.
Just on the house revenue could you talk a bit more about maybe the cadence of the second quarter and then just if you can give any color on how July and August performing overall and you kind of gave some commentary on the last call that Nate was off to a good start relative to 19. So I'm wondering if that is that still holding.
Thanks Darren.
When we look at July July trends continued what we saw in the second quarter.
Second quarter like for like revenue growth for our houses.
<unk> was up low low double low double digits and what we saw in July was up about 13%.
We continue to see we're seeing real strength in the scorecard that we talked about earlier, so that's really going to help the third quarter and so we're seeing strong trends I mean, FX has gone materially against us.
The consideration.
Think about it.
A lot of it and the nuance we have seen on a relative basis, our business in Europe gets stronger.
Our North America business is getting slightly weaker we think that thats a function.
Our north American numbers going into Europe for the summer.
And we expect that to revert.
We had actually seen a bit of a R. J.
As we've got it in middle of August and likely people have gone back to school our return from holiday.
That's very helpful. Thanks for the detail best of luck in the second half.
Your next question comes from the line of Shaun Kelley from Bank of America. Your line is open.
Great. Thanks for taking my question welcome Thomas.
So I just wanted to maybe follow up because I think we're on a good path. There can you talk about like for like spending at some of the houses being up I think you said low double across the second quarter. So next year on year can you give us a sense and I know the house basis changed a whole lot, but give us a sense of where we maybe are in the stages of the recovery relative to.
<unk> 2019, I know it's maybe.
David metric at this point, but it is a way that we kind of trying to gauge how much recovery potentially may have relative to other categories of spending out there.
Thanks, Shawn My first earnings call I, probably should've been more specific it was versus 2019.
Sorry, Howard Thank you about our business I mean, when you're thinking about it versus the second quarter of last year.
Given the Revpar metric it was up 40% in the second quarter versus.
Versus 2019.
16%.
Thanks, John.
Second quarter of last year, I mean, do you remember the second quarter of last year, we're seeing some pretty significant as COVID-19 restrictions.
And so I think we all agree we should really be topping ourselves to the second quarter of 19.
Understand and then sort of the logical next step would be just the contribution margins I believe youre also up there versus 2019, which is which is encouraging but can you give us a sense of how stable are these at this level.
Or are we going to see continued operating leverage from here and how.
How should we balance that against some of the inflationary pressures.
And everyone has in this environment.
Steve I think.
Look I think that we can still deliver this growth in contribution margin.
We are we've been delivering we've been delivering on the price increases.
Setting the <unk>.
Cost inflation.
Our houses are maturing quite play.
Was.
It made it harder.
Colgate made it harder to ramp up the property, but now that we're getting out of Covid, where we're adding new members quickly and thats driving scale and so we're confident that we should continue to have improved margins versus 2019.
Thank you for the color.
Your next question comes from the line of Ali Naqvi from HSBC. Your line is open.
Hi, Thanks for taking the questions.
Just maybe.
Get some color on how <unk> performed during previous recessions or pace of economic weakness, how has sort of member growth or member spend.
During those times.
And just with respect to what Youre seeing from your end customer and client base is the major industries.
Showing signs of weakness or for example, stuffing at trying to come down or anything of that nature that would give you any sort of forward indication as to how trading may eventually move and then finally, Thomas obviously, you've joined and what are your sort of priorities as you sort of come out as part of the organization and Youre sort of key learnings. Please thank you.
Thank you.
Hello.
Nick.
I'll start.
Good luck in around the longest.
<unk> has seen quite a lot of recessions and I would tell him about 27 years.
We always go into obviously apprehensive.
I notice in the times before.
What we've always seen.
You bet.
AUM away from us.
Giving up about 11% because there is a very long queue to join to get back in.
And they also love the fact.
But there is.
If I can get into.
Get away from.
Day to day World, the resection, which might be going on as far as that spend is concerned.
Hi.
Even though it's beating.
Inflation generally on all of our prices that have been globally everywhere.
Very keen to keep both offering our members value for money.
Brett.
The combo.
<unk>.
<unk> fell to 10 pounds will come in October.
So there is a lot of value going on at our houses, which also drive members to the houses and there's a lot of activities, which go on in the housing.
Moving member.
Members events.
Music.
Good things are going on in the cloud. So we don't find during we havent found during a recession people were dropping off their memberships or dropping off using the cloud.
Yeah.
Just to add just to add a few stats on what Nick said is different than hotel business certain hospitality because if you remember we bought 50% of our revenues every Kevin so our membership so that.
Greenhouses do any lumps and bumps.
We might have from a macro perspective and as it stands we have not seen any dramatic spending shift of propulsion.
July trucks similar to the previous quarter for the revenues and as we look ahead to occupancy.
We're actually improving our occupancy in our bedroom globally from teaching looking at bookings on August September.
But we're always cautious as Nick said, we're always focused on being proactive on our members value.
And so that alley answering your second question I'm not sure it's kind of one of my first impressions and priorities.
Three things I feel I really under appreciated until I got to Mcg.
First one is really the strength of the design team and really delivering on next gen.
I don't think people really Ken appreciate quite how important design is in the quality of the houses are to the members and youre attracting new members.
And so much time and effort and I've been really impressed by the design team.
Second is the strength of their membership platform membership is really in the company's DNA something that Scott.
It is often.
A lot of time and effort goes into making a macro shifts more and more attraction.
More and more attractive as the reason why we keep on Brian the waitlist despite record intake.
And then Thats Alright, and final thing is just the operational expertise in house every detail has looked at that as a lot of value engineering to deliver a great product for our members and our guests, but also to make sure that we really are profitable and the team has a lot of experience and are very agile.
Good thing there changes all the time.
To drive to drive greater profit one of my strategic priorities strategic priority as it relates to deliver the growth.
And in this company.
And to make sure that we are.
We are best positioned to do that and make sure that we are focused on generating the highest profits and the highest ROI.
Got it thank you.
And there are no further phone questions alright ill turn the call back over to Thomas Allen for any web questions.
Yes. So this widespread net net how will you maintain membership quality given the rapid growth.
We have never ever seen such a high demand for applications of ammonia globally in the 2017 years I've been doing this.
Really good quality applications coming in and then I will talk about over new markets, we're going into like last year, we went into Paris, Rome television C. Nashville.
Nashville.
What youre looking for in these cities is the most interesting relevant nice time to be sold people.
Yeah.
All ends up in the 142000 members that we have a moment is a brilliant global group.
All of our people.
Sure.
The quality of our membership as we expand in the new and interesting cities.
Only getting better.
I would point that I've made for a lot of people.
And internally is that if you think about the UK, which is our oldest market and likely our most penetrated market you can see in the release, we have 55000 members and I think the population in the U K.
Thanks, Brian.
Alright.
Our eight basis points of the total U K population.
And there are concerns.
Already tapped out on growth.
Okay.
Asset quality.
Deteriorate I think people just have to think about how small a definitive we are of the overall population.
Okay.
I mean just to finish.
The big population.
After a very small amount.
And over white space with new systems are going into that already with <unk>.
Really fascinating.
Got it.
So that was the last of our web question. So thank you everyone for joining.
And we look forward to talking to you in the future.
This concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
Okay.
Yes.
[music].
Sure.
coler and and bership L earning comflishall right. Last name then gr numberber, company that a are a and can you be me that a? I are a? A, all right, I would have. ilgood morning. My name is and I' be your conference operator today at this. I would like to welcome ever one to the membership collecttiive group being second courarter 2022 financial results conference call. All I have been pleased on you. Vent any back. gr ICE after the speakers marks will be a question. Any ciwer session. If you like to ask a question during this time, simply press star allfollow by the numberber one on your telephone key pad. If you like to draw your question again, press the Star one Thank you, townom she financial officeryou may begin your conference. Thank you for joining us today to discuss the membership colactive groups second courcortter 20 20- two financial resul. Today statements may be fourward lookinging and actual results made different for herely do to a memberof risks and and certain days inincluding those discuss in our most recent courtterly report on for 10 you F on meeighteenth 20 20- two any for looking statements RE abw only of today and we no liglegation update any four lookinging statements if our abws changeby. Now you access our second cour 20 twent two earnings ase, which can be found membership colactive group com in the news in events section. Additionally, we are post our second cor 20 20- two earnings presentation, which can also be found and's in events section. On our stateuring a call we also for nine GAAP financial measures. The nine gap measure should be in to in a edition to two and not as a Sou itute for or and ation from our gap resultsre ation to the most car G measures one today earnings press. With that our my every one during our last call we our six strategic priorities. They are: first, expansion of our housesecond and hand ING the value of our membership. thir house foundations, our yes G part Form. Fourth, our operation once while liing proofts and F? Cash, growing new membership brand and propert stream and sixdving a great dig experiancei now pass on a nextick Jos, our Founder, and C to discuss how we progress. And first, three PS then and your carney, our President, was discuss in nextary before again to results guidancegood morning and thank you very much for joining us today. 'd like to welcome toomas to the team, excited to have your on board and very pleaseed to be reporting another good courtter of growth in a very complicated operating environment. The let's St we the expansion of the housesyou know we talked about nine new has this year. We are on track to deliver that. So far we have open five the first one we open was national il in North America. Very strong membership to mand on really pleaseed to say we ready got around two thousand members. We then open the bright and beach house, our first ever So house on the Coast in in briten. Bright is a very CRE city and already a lot our members liver. We then open hol way house which is in West holy wood Cal for ia fourth's in. A reason where we open is our members for more around the world say we want room in West holywo and we've been able to deliver and been a great response to a back in July we open So house open Haan, which is our first house in scand and aavia and and crediably exciting, mar for such a great City open full of great people and the membership plations a really fing inalso in July we open little house and balan. I see you going West bal will Balam is and South London and the reason why we the little house and is a lot of our members live in the area and this was in respon to a lot of people sort the workking from home more and wanting to just do. Our members wanted and we expect to expand more in to local neighborhood in the futurethe four remaining houses to open this year: the Miami PO house. We ready have the beach house, myiami which is one of our talk performing houses. We have a huge de and more more people of moved to myiami since the pand emic located in a great created neighborhood, the. We really excited about our opening and also we have second house and scand opening to Wards end of the year. In sto we already have a huge of cityities with our ouses members and is in convered church world end of RE opening in nextx city, a really exciting time for because this is our house and last in America.