Soho House & Co Inc

Ladies and gentlemen, thank you for standing by. My name is Bhavesh and I will be your conference operator today. At this time, I would like to welcome everyone to the Soho House and Co. Incorporated second quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, Please press the star followed by the 1 once again. Thank you. I will now hand the call over to Thomas Allen, Chief Financial Officer. You may begin your conference.

Thank you for joining us today to discuss Soho Housing Co.' 's second quarter financial results. My name is Thomas Allen, and I'm the Chief Financial Officer. I'm here with Andrew Carney, our CEO. Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in our SEC filings. 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. By now, you should have access to our Q2 earnings release, which can be found at SohoHouseCo.com in the News and Events section. Additionally, we have posted our Q2 presentation, which can also be found in the news and events section on our site. During the call, we also referred 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. Reconciliation for the most comparable GAAP measures are available in today's earnings press release. Now let me hand it over to Andrew.

Thanks, Thomas, and good morning, everyone. I'm going to start by talking through the quarter's highlights, then provide an update on the progress we've made against our strategic priorities. I'll then hand over to Thomas to talk through our financial performance, give an update on our balance sheet and our raised 2023 guidance before we move on to Q&A. We're pleased to be announcing another strong set of results this quarter with further growth in membership, revenues and profitability. We are delighted to have more members be part of SoHouse. In the second quarter, we added over 7,500 members growing to 176,000, a year-on-year increase of 24% and a 5% rise quarter-on-quarter, which was ahead of expectations. We welcomed members in all regions and in particular new houses we have opened in the past few years that are still maturing. Remember more than half our houses we've opened since 2018. Our waitlist reached approximately 95,000, an increase of 6,000 quarter-on-quarter. We're really pleased to see our largest sequential increase since Q1 2022, which demonstrates the strong appeal of Serra House globally. Total revenues grew 19% year-on-year to $289 million, underpinned by continued growth in our highly recurring membership revenues. In the quarter, they grew 35% year-on-year and 7% quarter-on-quarter. Our initiatives to drive better member experience help drive like-for-like in-house sales approximately 20% above 2019 levels. That's an acceleration from the mid-teens growth we saw in the first quarter, as we benefited from improved visitation and spend per visit. Our focus on operational excellence continues to drive profitability higher, with Q2 adjusted EBITDA of $32 million. Since going public, this is the first time we've reached over 30 million of adjusted EBITDA in a quarter and also the first time we've reached over 10% EBITDA margins. We're proud of these milestones and we expect to maintain the momentum we've built. These stronger results let us deliver positive cash flow from operations in the quarter. As we did in Q1, we're raising our full-year adjusted EBITDA guidance to reflect the results of this performance. Given the strength we're seeing in our membership and house performances, We're also raising guidance for our membership and the midpoint of our revenue metrics. More on that later. Now let me give you an update on progress we're making against our two strategic priorities. Growing and enhancing the value of membership and delivering operational excellence to provide profitability and free cash flow. Our focus on rolling out initiatives to improve member experience continued in the second quarter and we're pleased with the results we've seen across our houses. As I mentioned, our like-for-like in-house sales growth compared to 2019 accelerated up to approximately 20% from mid-teens growth in Q1. We saw both spend-per-visit and visitation improve quarter-on-quarter, with the UK and Europe having both their strongest quarters since the pandemic. We're really pleased with both regions' performance, in particular Europe bouncing back. All our houses had a great quarter, and it's really nice to see our recent newer houses, Rome, Paris, Tel Aviv, Stockholm and Copenhagen, their strides and delighting members. While our checking data suggests Europe and the UK are benefiting from Americans travelling overseas again, as we said last quarter, we were quicker to introduce new initiatives in these regions, and that approach is bearing fruit. It's also worth noting our American business growth remains stable. We're now in a good rhythm of implementing seasonal and local menu changes across all houses every quarter, with members being made aware of what's new through communication across all our digital channels. We've also made changes to increase the breadth and variety of our in-house food and beverage portfolio by introducing pop-up experience like Maya, our Mexican-Californian restaurant at Ludlow House, Shoreditch House, and Sew House Berlin, and a Scorpius residency at Little Beach House Malibu. Our members have benefited from increased choice and have been sharing positive feedback. Together, these changes in F&B have driven an uplift in sales and profits. Service standards continue to be a top priority. We've introduced and completed new training across all our houses, which is steadily improving service. Outside our core SoHouse proposition, we continue to see strong growth in Friends memberships, which help grow our other memberships by 40% year-on-year to approximately 72,000 members. One area which has been more challenging is house openings. We are seeing delays in delivering projects on time from our developers. While we were confident at the beginning of the year that we would deliver 5-7 houses, we now expect to open 4 after experiencing construction delays with Soho House Manchester. Soho House Bangkok opened in Q1, Soho House Mexico City is opening next month, and Soho House Portland and Sao Paulo are planned to open through the end of the year. That said, we have still increased our Soho House membership by 14,000 year-to-date and raised our full-year targets for 2023 membership, revenue and adjusted EBITDA. We see the current global state of development as a short-term challenge for new openings, but one that our existing houses can more than offset, and our mid- to long-term target of five to seven new houses remains in place. Turning to our second strategic priority, operational excellence. As a reminder, our strategy here is centred on three key areas. First, leveraging data and member insights to operate and scale efficiently. Second, expanding in-house margins. And third, having operational discipline as we grow. In the second quarter, our teams control wages well, with wages as a percentage of revenues improving by approximately 250 basis points versus Q2 22 and 50 basis points compared with Q2 19. Our in-house F&B margins continue to be strong, up 240 basis points versus Q2 2019 on a like-for-like basis, despite us rolling out new menus on a quarterly basis that we referenced earlier. Overall, our house-level contribution margins improved approximately 400 basis points year-over-year and 150 quarter-over-quarter to 26%. This is the highest level we've seen since going public, a testament to our efforts. Our G&A expenses were in line with our internal expectations. As we alluded to in prior earnings calls, we expect G&A to be up in 2023 year-over-year, given the significant growth of our business, especially in new regions like Latin America. G&A leverage will be a contributor to our high guided adjusted EBITDA margins for the year. We've continued to deliver on driving higher occupancy in ADR, leading to REVPAR increasing 13% year-over-year at like-for-like properties and 36% versus the second quarter of 2019. So all in all, another great quarter delivering against our operational excellence initiatives. Now let me pass you to Thomas to give you more detail on the numbers in our guidance.