Selina Hospitality PLC

Good day, and thank you for standing by. Welcome to the Salina Hospitality Full Year 2022 Earnings Release. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen O'Hagan, EVP and Global Head of Strategy. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for Salina's fourth quarter and full year 2022 earnings conference call. Joining me on today's call are Rafael Musseri, Chief Executive Officer, and Barbara Zuberia, Chief Financial Officer of Celina. Before we get started, I would like to remind everyone that our comments today will include forward-looking statements on the federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 20F and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments, Forward-looking statements in the earnings release that we issued today, along with our comments on this call, are made only as of today and we will not update them as actual events unfold unless we are required to do so. In addition, you can find the reconciliation of non-IFRS financial measures referred to in today's remarks on our website at selena.com, under the financial information section of our investor relations link, and in Friday's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn the call over to Rafi.

Thank you, Stephen. Good morning, everyone. Welcome to Celina's fourth quarter and full year 2022 earning call. First, I'd like to thank the 3,000 people, connectors, and members around the world of the Celina family for their efforts over the past year, and everyone here for joining what is our first earning call as a public company. When I look back on 2022 and consider all the strides made by this organization, still what gives me the most excitement is the continuous evolution of our customer experience. We estimate that over 2 million unique people visited Celina last year. Our guests traveled from around the world, represented all ages, with a majority between 25 and 35. And nearly two-thirds of our guests claim to have made a friend during their stay. I personally visited the majority of our location this year and connected with many, many travelers. Most recently, I just encountered a couple who had met in Salina, traveled through Salina for seven months, ultimately got engaged, and now are planning their wedding in Salina. It's just a father evidence that we continue to provide a very unique hospitality experience for an entire generation of travelers, and I couldn't be more proud. 2022 has been a very important year in Celina's history. We completed our listing in NASDAQ in October 2022. And our business delivers strong improvements in our key operating metrics. We entered 2023 with a strong focus on three strategic imperatives. Number one, driving cash flow. Number two, executing our path to profitability. Number three, to continue to build a very strong brand. which provides an appreciated travel experience to our growing number of guests. I believe that the new discipline around growth and cost management, along with a strong product offering, will position Celita as the leader in the hospitality space. In tandem with the NASDAQ listing in October 2022, we put in place a new board of directors composed of five distinguished new independent board members. On top of myself, I'm a co-founder, Daniel Rudasevsky. and a sixth joint in March of this year. Recently, as part of our commitment to corporate governance, the board has established a finance and capital allocation committee to help oversee budgeting, capital allocations, and significant transactions. In terms of our operation, 2022 continues our multi-year trend of growth in operation. We opened 18 new properties while densifying our existing assets which increased our bed spaces by 26%. With that growth and strong performance of our existing properties, we almost doubled revenue. While growing our revenues, our key business metrics experienced growth over the past year, and we believe they have room to go further. With our strategic priorities in mind, in 2023, we plan to exercise discipline and moderation, our new hotel growth plan, while maintaining our focus on targeted expansion in existing markets. We recognize that building a strong brand is critical for our long-term success, and we require an ongoing investment in our people, our culture, and our platform. I want to move now to discussion of our operation performance and initiatives to help our assets to perform much closer to their potential. We have now set up regional commercial hubs that will allow us to further penetrate the local domestic market and increase our B2B clients' business further. This will allow us to better increase occupancy and rates. We have also started to roll out our new revenue management system, Duero, to location with a high demand. In the first month of 2023, we have implemented further reduction at our corporate level, reducing overhead run rate basis compared to the end of 2022. Additionally, At the corporate level, we're working to decrease the amount of leased corporate office space we utilize to reduce overhead in future years and better match the location of our personnel. Closer to the asset level, we've clustered our general manager so they handle more than one property, providing headcount synergies, creating greater accountability, and better utilizing our overall inventory. We have started restructuring our S&P business, in a partnership model where venue managers shared in profit in exchange for lower base fees. This restructuring will help us to lower our fixed costs and to create a sense of ownership and hunger to deliver better results by our managers in the F&B space. As our F&B spaces and business is a large focus for management, we've managed to implement the restructuring in many of our locations and expect to finish the restructuring over the course of the year. We're already seeing a positive trend at the location where I've completed the transition. We continue to actively look at our portfolio to address the turnaround and profitable location. We have not exited any properties today, but remain in active negotiation with a number of properties to determine our long-term plans with them. We have positioned Celina to take advantage of the travel preferences of millennials and Gen Z. These travelers have a specific lifestyle and travel preference that differ from previous generations. Our target travelers generally prioritize experience, value remote working, and travel to meet and make friends. We provide a full service experience at a democratized price point, blending beautifully designed accommodation with co-working, recreation, wellness, and local experience. Celine is custom-built for today's nomadic traveler providing guests with a global infrastructure to travel and work seamlessly. With the model we have designed our properties around, we believe we can show our superior level of customer satisfaction. Celina has an NPS of 45, which is among the highest among our industry peers. We also focus on direct booking to better control our customer experience and to maintain control of the relationships. For the year ended December 31, 2022, Celina experienced high direct booking levels with an approximate 55% of all bookings made directly through Celina channel as opposed to third-party online travel agencies. Ours is a very international lifestyle brand spanning the globe with exposure to international travel and building a community in our location. Our properties are meant to appeal to both guests and locals which allow us to bring in revenue from a larger target audience. Selena's accommodation, especially our shared room, represent an affordable price point for travelers. Even during the past few years when travel was hard and the economy has been tough, we've had strong demand for our co-work and colleague products, allowing people to escape from expensive locations to live abroad inexpensively. Since launch of these products in 2020, Over 8,500 people have participated in our Colleagues Program, spending an average of 55 nights each within the Celina network. We're seeing positive trends and encouraged by our internal metrics in the first quarter of 2023. Although we're still in the process of turning a profit at the corporate level, we believe we're making strides along the path to profitability already this year. We're pleased to report that our cash outflow from operation has decreased every year from the past few years. We anticipate that these positive trends will continue this year and that we will achieve a positive cash flow from operation. Our ongoing efforts to optimize operations, as discussed earlier, are expected to result in meaningful improvement on both the revenue and the cost side. While we have a number of fixed costs at both the unit and corporate levels, We expect to continue to decrease our corporate overhead burden as a percentage of revenue as we grow our top line. Additionally, by focusing on densifying and executing the opportunities within our existing portfolio, we're confident that we can more easily cover our lease liability. In closing, I would like again just to express my gratitude to the Celina team and family around the world for their hard work. and their contribution to an important year in our journey. And I would like to say one more time that Celina is focused on three strategic imperatives. Number one, driving cash flow. Number two, executing our path to profitability. And number three, to continue to build a brand, a very strong brand. Barbara will now provide more details on our operating results. Barbara, over to you.

Thank you, Rafi, and good morning, everybody. My commentary today will cover key drivers of our performance in 2022 and the expectations that I can share for 2023. For those of you that are new to the story, we have different names for our key metrics, but they're basically the same as our lodging peers. We use Total Revenue Per Occupied Bed Space, also known as TREP Hobs, instead of ADR, which uses bed spaces versus rooms, and total revenue, not just rooms revenue. Since we generate only 59% of our revenues from rooms and instead focus on an entire travel experience, we benchmark how much we are yielding from the total experience. Similarly, we use annualized total revenue per bed space, also known as TREVPAB, instead of REVPAR, which again uses total revenue and bed spaces. For the full year 2022, TRF pub increased by 55%, driven by a 44% increase in occupancy and a 9% increase in TRF pub. Our occupancy increases represent the continued stabilization of our newly opened properties, recovery from industry challenges over the past few years, and our operating focus. In the fourth quarter of 2022, TRF pub increased by 36%, as compared to the fourth quarter of 2021. This was driven by a 27% increase in occupancy and an 8% increase in TREC pubs. As we move through 2022 and 2023, the comparable periods in the prior year are expected to get stronger from an occupancy standpoint. In every market we operate in, we increase total revenue per bed space, We did that by increasing occupancy in all markets at one. Our newest market, Asia Pacific, for instance, is showing stronger occupancy and revenue per bed space than our property average. All of our regions reported positive unit level EBITDA in 2022. Two of our regions, Mexico and Central America, had positive unit level operating profit or loss defined as unit level EBITDA, less rent for the year. This demonstrates part of our turnaround story at the asset level as more of our units begin to cover rent and generate profit. Although we still had a loss of negative $14.5 million at the adjusted EBITDA level, we made great strides towards getting closer to our target of achieving adjusted EBITDA positives. In 2022, we decreased our loss at the adjusted EBITDA level by over $10 million. We have also introduced a new metric, free cash flow before debt service, to more clearly show the cash needs of the business before servicing debt and interest. Our free cash flow before debt service in 2022 declined compared to 2021 due to a number of factors. Free cash flow in 2021 benefited from rent deferrals and overfunding of capital expenditures from local partners, with part of those proceeds coming from local partners being invested in 2022. During 2022, we completed many of the new locations that were under development in 2021, impacting growth capex, and we also returned to a more normalized burden of these liabilities. Over two-thirds of the decline in free cash flow in 2022 can be attributed to the swinging capital expenditure funding. In terms of our balance sheet, we closed December 31st, 2022, with $47.7 million of cash and cash equivalents after completing the business combination with 96% redemption. This transaction, as we all know, ultimately did not result in the original expected recapitalization of the business, and significant fees on both sponsor and target were incurred, part of which we're carrying over into 2023. As we have previously indicated, we are working on a number of initiatives related to our balance sheet and cash position. We are working to restructure certain liabilities and payables into equity and are considering some non-core asset sales to drive further liquidity. We are also working on accessing some remaining available credit lines with one of our main banking partners. And while we expect our business will continue to improve, we expect to access the capital markets to support our cash needs over the next year in order to complete the recapitalization that was intended to take place in our IPO. As Rafi discussed, we continue seeing positive momentum in our operations so far in 2023. Thus, Celina is pleased to reaffirm our previously stated goals, which for 2023 include annual revenue growth of 30% to 40%, and achieving positive adjusted EBITDA and positive operating cash flow. I would just like to note that, due to IFRS consideration, our adjusted EBITDA definition does not include the impact of lease liabilities, and our operating cash flow doesn't include lease payments or interest. I will now turn it over back to Stephen Ohayon for some closing comments.

Thank you, Barbara. And thank you to everyone for joining us this morning. In closing, we encourage our investor community to reach out to us with any questions or to request individual meetings where we can address our business performance in more detail. We definitely look forward to speaking with you all in future meetings, and thank you once again for today's call.

This concludes today's conference call. Thank you for participating. You may now disconnect.