Edited Transcript of SKO.NZ earnings conference call or presentation 23-Jun-20 11:30pm GMT

COVID-19-related travel restrictions were enacted within Australia, across the Northern Hemisphere where Serko expects to grow its business. New Zealand investor travel has now been permitted from in the country, moved to level 2 on the 11th of May. However, travel is still restricted in Australia between states. Northern Hemisphere travel is also restricted but varies between regions.

Booking transaction volumes on Serko’s online travel booking platform generate the majority of Serko’s revenue. Government responses to the pandemic worldwide, including lockdown and the suspension of all nonessential travel, continues to have a material adverse effect on Serko’s booking volumes. For the first 11 months of the financial year, Serko achieved monthly revenue growth over the same month in the prior year. However, in March, transactions fell sharply. December and January are typically the lowest months for travel bookings, which makes February and March really important months for our revenue. This is why the impact of COVID-19 was so material for Serko. In March 2020, daily booking volumes were down in excess of 90% compared to similar days in March 2019. They remained at these levels for April.

Travel volumes had gradually started to recover in May 2020 with the easing of domestic travel restrictions in New Zealand. During the first 3 weeks of June 2020, over 3,200 corporate customers have now made a travel booking as New Zealand moved down to level 1 restrictions. This has resulted in daily booking volumes on Serko’s platforms increasing in June to around 25% of the daily booking volumes in June 2019.

In response to the operational and economic impacts of COVID-19, Serko reduced cash burn and reprioritized the strategic initiatives to reposition the business for the new operating environment. We quickly faced up to the challenge and aligned our initiatives under the 3 broad, strategic imperatives: survive, optimize and thrive. Immediate priority after looking after our people was to implement cost-reduction programs designed to preserve our strong cash balance and target an average cash burn rate of no more than $2 million per month through to the end of FY ’21. This cost-reduction program saw the removal of nonessential expenditure, scaled down our operating expenses such as cost of sales and hosting as well as the rationalization of our contractor resources, including the conversion of some of this resource to full-time employment. Serko has aimed to keep as many people employed during this period as possible as we recognize the personal impact to employees and the cost to the business of losing skilled people, especially as our ambition to grow in new markets remains undiminished. We’ve endeavored to balance cost savings with investment into core areas to maintain our capability to deliver on our key growth initiatives and to ensure we are well positioned to participate into the recovery of corporate travel.

Following our successful capital raising in 2019, we had cash reserves of $42.4 million as at the 31st of March 2020. Although we did not anticipate an event as catastrophic is the COVID-19, Serko has always maintained a prudent and conservative approach to balance sheet management. By raising more capital than the company’s strong cash position has provided — the company’s strong cash position has provided a comfortable level of liquidity, which we had no requirement to raise capital in distressed circumstances.

We believe these cash reserves at the current rate of burn, and based on our current assumptions, are sufficient to support the business. We’ve made good progress. And despite having to work from home, we were able to adapt quickly and ensure we remain productive with 4 offices across 3 continents were — they’re used to work in geographically dispersed workforce. With our platforms in the cloud, we already had the remote security, collaboration and connectivity tools and processes in place that scaled relatively easily. In fact, efficiency and productivity that our teams achieved through the period of lockdown has been truly amazing. And we’ve embraced new ways of working and seeing the benefits of a number of process improvements. We have survived, as I said, and now we are looking at optimizing and thriving.

COVID-19 has changed the model of business travel. We’ve worked hard to reposition our business to make sure we’re well positioned to participate in the recovery of corporate travel.

Now turning to Slide 6. I’ll cover each of our markets (inaudible) and our plans as the travel restrictions ease in each market. However, I think it’s important to firstly remind you of our overall strategy. So please turn to Slide 7.

More than ever, Serko’s three-pronged strategy remains relevant: growing our customer base; increasing our average revenue per booking, or ARPB; and delivering market-leading technological innovation to underpin our platform for global expansion. We partner with global Travel Management Company, TMC, who are resellers of our products. These partnerships continue to extend to enable the role of the Zeno travel and Expense platform into the Northern Hemisphere geographies. We continue to expand our relationship with TMCs in North America with 3 new reseller agreements signed since March 2020 as TMCs ready themselves to come out of the travel shutdown period stronger than before. These organizations serve the managed corporate travel market.

We’re also partnering to target small and medium-sized enterprises to use our self-onboarding functionality to grow our share of the unmanaged corporate travel market. The Booking.com expanded agreement announced in October 2019 is an example of that strategy, which I’ll cover in more detail shortly.

If we turn to now Slide 8. We’ve put a lot of time and effort into the scalability of our platform, appointing Duanne O’Brien as Chief Technology Officer to lead this initiative. Duanne brings over 25 years experience and specializing in building global enterprise platforms. We have also invested in our ability to scale our retailer partners globally. Nick Whitehead was promoted to Chief Marketing Officer to lead these initiatives globally. First, an innovative sales enablement program built around the Zeno partner portal and learning framework. With this program, we can now rapidly onboard new travel management resellers and get them to the point of sales effectiveness much more quickly. Secondly, we’re also focused on developing a model of community engagement through our existing Zeno Labs program. It’s a way for us to gain a deeper understanding of the needs of the corporate travel market while giving buyers access to our product development team. We are leveraging this process to gain learnings on the market changes arising as a result of the COVID-19 pandemic.

These types of initiatives as well as the competitive advantages of the Zeno platform itself are intended to put our travel management partners in a strong position to retain their customers and to gain market share. This has led to a good year for growth in both new travel management resellers and net new corporate customers. As business travel resumes, factors such as cost, risk and (inaudible) management actually be of great importance for organization.

As organizations return from a near $0 spent on travel, each trip and each dollar proposed to be spent is likely to be reviewed with a greater level of scrutiny than before. Risk management is likely to be of increased importance to ensure traveler well-being and to meet employers’ duty of care obligations. Change management is also expected to be a priority, not just to support an organization’s travelers as they navigate a much more unpredictable landscape of disruption but also to ensure that credits are effectively tracked and utilized. The managed travel channel offers a solution for these requirements. Flights or hotels booked directly with suppliers across multiple airlines or hotel website make it difficult for organizations to effectively address cost, risk or change management. Adoption of all of these factors means a corporate booking tool, and the associated corporate travel policy and compliance are likely to become even more important than before. This is the future of business travel that Zeno was built for, and it is for these reasons we expect that Serko is well positioned for the global growth when business travel resumes.

Now turning to Slide 9. As we announced in October, Booking Holdings participated in Serko’s capital raise with a $17.5 million investment into Serko. And at the same time, we entered into an agreement that allowed Booking.com to offer Zeno to their corporate customers. This agreement enables Booking.com to leverage the Zeno platform as a white-label solution under the Booking.com to Business brand with a commercial partnership based on a revenue share model between Booking.com and Serko. Serko appointed Jonathan Starkings to lead the Booking.com initiative. Jonathan was the Managing Director of Groupon travel and Commercial Director for Expedia Group. Despite the challenges of COVID-19 and the need to collaborate across the globe, our teams came together, and were able to achieve significant progress. We have rapidly brought to the market an initial product and is currently being tested in a few key markets.

Turning to Slide 10. The majority of our travel revenues come from domestic bookings in Australia and New Zealand. And during the financial year, we achieved year-on-year booking growth in each month up until March 2020. As outlined at the 2019 Annual Meeting, we had a medium-term target of reaching $100 million of revenue. As part of achieving this goal, we had a target of achieving 5 million transactions in Australasia at a $7 ARPB, and this was in the medium-term. While we made good progress during the year with a peak in February of 24,000 bookings per day, up from a peak of 21,000 in the same month in the prior year, and an ARPB increasing to $6.46 on recurring revenue. The impacts of COVID-19 has had on the industry has meant it’s likely to take a little bit longer to achieve this goal than originally claimed.

Monthly growth appeared despite softer economic conditions in Australia in the first half, followed by the Australian bushfires negatively impacting corporate travel. Over 6,800 corporates now use our booking platform. We continue to grow customer numbers with a number of corporates transacting through our travel platforms increasing by over 700 when compared February 2020 to February 2019. We still have a pipeline of new customers to onboard through partners like Orbit who haven’t yet finalized the migration. We also saw a significant transition to the premium Zeno product from Serko Online during the period. At the end of March, 25% of transactions were occurring on the Zeno platform. In June, this is now 42% of all transacting corporate customers using Zeno.

Serko also saw an opportunity with the way expenses needed to be managed during the period of remote working caused by COVID-19 lockdown. Serko created a life expense product using a direct marketing campaign and activation of a reseller-incentive program across our Travel Management Company partners in Australasia, along with the introduction of a rapid implementation program that materially reduces our setup time to onboard new accounts. This resulted in an increased pipeline of expense opportunities.

Turning to Slide 11. During the period, we had invested heavily into the Zeno platform for expansion into the North American market as part of that $100 million medium-term goal with the other part being the U.K. and European markets. Even though travel activity is extremely subdued, we feel positive because since March, Ovation, Balboa and Ascendis and now Radius Travel group joined our group of travel management resellers. We also added expense resellers with OMNIA Partners and Oracle / NetSuite. We added key North American content and integrations that helped us win our first customers in the new market, an example is (inaudible) Associates, and built a pipeline of new channel partners who are now working through pilot programs. However, travel management retailer onboarding slowed materially in the last quarter due to the impact of COVID-19, and we expect further corporate onboarding to be slow until travel resumes in this market. Development work will continue to expand the local air, rail and hotel content as well as completing reseller integration to support the migration of the additional corporates onto our platform for the North America as well as for Europe to support Booking.com for Business platform rollout.

In addition, the development work required to bring InterplX expense platform in line with the Zeno user experience continues, and we expect to launch the new Zeno Expense offering in quarter 3 FY ’21, bringing greater scalability and a richer set of features to our combined travel and expense offering.

Now I’ll pass you over to Susan to cover the financial summary for the year, and she will start on Slide 13.

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Susan Putt, Serko Limited – CFO [3]

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Thanks, Darrin. I’m going to cover off our performance dashboards that we report every 6 months. I will then go into more detail on some items in the following slides.

With our expansion plans and the corresponding increase in operating costs, Serko declined to an overall net loss after tax of $9.4 million. EBITDA was a loss of $6.1 million, down from a profit of $2.6 million in the prior year. Our operating revenue was up 11% at $25.9 million for the year with 93% representing reoccurring product revenue sources. Reoccurring core product revenues were up 16% to $24.1 million. Total income, including grants, was $26.8 million, up 9% over the prior period.

Annualized transactional monthly revenue, or ATMR, historically a forward-looking indicator of reoccurring revenues, reached a peak during February at $27.5 million, up 6% against the prior year compared at $26 million. However, declined to $15 million in March 2020 and subsequently further declined to a low in April and steadily increasing now with the increase in travel transactions since May.

Total transactions across our travel platforms grew 2% over last year. R&D spend was $13.6 million for the period and was up 48% from the prior period, which shows the increased development that was being invested in the product for new territory expansion. Operating costs increased 59% over the prior year to $37.1 million.

Moving to Slide 14. This slide shows the summary profit statement and a reconciliation of net loss after tax to EBITDAF. The reconciliation includes foreign exchange revaluations of $0.7 million included in net finance income, depreciation and amortization of $3.2 million with $1 million being related to the IFRS 16 leases adoption from 1 April 2019; fair value adjustments of $1.1 million related to the contingent consideration for InterplX acquisition with the final tranche of these shares issued in February 2020 when Serko’s share price was reaching its all-time highs.

Slide 15 now shows a revenue breakdown by type of revenue and by geography. As mentioned earlier, reoccurring revenue, which excludes services revenue, at $24.1 million, up 16% on a (inaudible) year. Travel platform revenue grew 2%, in line with the 2% increase in transaction volumes of $4.2 million for the year and where COVID-19 impacted, as Darrin previously covered.

Online transactions, i.e., paid transactions or bookings at $3.72 million, however, were down 1%. More offline bookings took place during the COVID-impacted period. Offline bookings are system-generated bookings, which are generally are at a reduced cost or bundled into the online booking fee. This is due to complex booking arrangement performed by the travel agent directly rather than traveler-led system bookings during the heavily impacted period when travelers were trying to return home or cancel arrangements.

Volume impact for the last few months of the year were only part of the reason for the lack of significant revenue growth. There were other adjustments required due to COVID-19 impacts. Under IFRS 15, Revenue from Contracts, Serko recorded its revenue at — from its portfolio contracts with reference to actual transactions, minimum contracted commitments and forecasted future volumes. Due to COVID-19 impacting the entire travel industry, Serko has agreed to a number of changes to contracts, including changes to schedules of contracted minimum revenue. This, along with declining forecast for the remainder of the term of contracts, has led to the effect of reducing the revenue that Serko expected to record in the current year beyond the impact of the booking shortfalls. Total platform revenue was mainly derived from Australian and New Zealand sources with revenue in the new Northern Hemisphere expansion not significant in the year.

Serko Expense platform revenue at $5.8 million was up 115% and includes the revenue from the InterplX acquisition of $3.7 million for the full year compared to $0.9 million included in the prior year for 3 months. The growth related to Serko Expense was 15% for the year.

Supplier commission revenue declined slightly against the prior year to $1.4 million from $1.5 million, and other revenue remained in line with the prior year at $0.5 million. ARPB, our average revenue per booking, on reoccurring revenue was $6.46 for the year, calculated as the total reoccurring revenue dividend by total online travel bookings of $3.7 million. This was up 17% from the prior year comparatives of $5.52, primarily attributable to the InterplX income.

Total services revenue at $1.8 million was down 33% due to the development resources focused on the North American activation and the Booking.com for business platform. At $1.8 million, this is at a similar level to the FY ’18 revenue. FY ’19 revenue includes increased activity in relation to customizing Zeno for Australian resellers, including significant work completed for Flight Centre’s SAVI platform.

In relation to movements in the earnings in various geographies, you can see that the growth is primarily related to North America and New Zealand with Australian sources declining due to COVID-19 impacts as well as other — as well as the softer economic conditions and bushfires mentioned before. The North American revenue is primarily related to U.S. source commission income and the expense revenue from InterplX. New Zealand growth represents the transition of Orbit customers and the minimum of that contracted — contract recognized over the term of the contract in accordance with IFRS 15 revenue recognition criteria.

I’m now turning to Slide 16, operating expenses. This slide outlines the categories of expenditure. Operating cost increased to $37.1 million for the year, up 59%. This was mainly as a result of the increased headcount and costs associated with the expansions in Northern Hemisphere markets and also includes InterplX operating cost for a full year. The most significant cost is remuneration and benefits at 52% of total operating expenses and increased 48% to $19.4 million. The number of full-time equivalents at 31st of March 2020 was 233, representing a net increase of 60 FTEs since the 31st of March 2019. Last year, we increased by 67. And similar to prior year, the increase was in product development being 46 heads. In FY ’19, it was 46. And customer support at 12. In FY ’19, it was 13. We had 120 staff based in New Zealand, 23 in Australia, 48 in China and 48 in the U.S. as at the 31st of March 2020. Subsequent to year-end, the staff numbers were increased to 240 with the onboarding of hires that weren’t trained when COVID-19 hit and the conversion of key contract staff to permanent employees as part of the cost-saving initiatives introduced.

Selling and marketing costs increased 77%, and this was primarily related to an increase in third-party connection costs for technology connection fees but for content by the U.S. global distribution company, [Savior], charges which are new to New Zealand and Australia but common in the U.S.

Hosting expenses increased 74% due to volume increases, infrastructure improvements and to increase the speed and favorability as well as the expansion of databases into new territories for expansion. Administration costs increased 64%, includes depreciation and amortization increases of $2.1 million. Computer licenses increased $0.7 million with increased headcount and increased collaboration tools and system monitoring tools. An increase of professional fees of $0.5 million included $0.4 million related to one-off costs for partnership due diligence activity prior to the share capital raise. An expected credit loss provision of $237,000 was made due to the uncertainty, recoverability of an increased number of debt as a result of the current operating environment, whereas our bad debt position in prior years has been nominal. The fair value adjustment, I have already spoken to.

Now turning to Slide 17, research and development. This slide outlines the development spend for capitalized development and expensed research during the period. During the year, total R&D was $13.6 million, up 40% over the prior year and represents 53% of operating revenue. The portion capitalized at $11 million is up significantly over the prior period and represents 81% of total spend. These capitalized costs are reflective of the investment we are making in development of our product to cater for new territories. While significant compared to the prior years, the assessed future benefits substantiate the capitalization of these costs even in a COVID-19-impacted year with very conservative models. The research costs, which were not capitalized during the period, amounted to $2.6 million. Net of government grants for research, and after the amortization of previously capitalized development, the product development costs expensed for the period were $3.6 million and represents 14% of operating revenue. As Darrin mentioned earlier, the development is expected to continue for FY ’21 for Northern Hemisphere expansion.

I’m now going to pass back to Darrin to cover off the outlook statement on Slide 19.

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [4]

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Thanks, Susan. We consider the business is well positioned for growth when trading conditions improve and travel industry starts to recover based on the following factors: we occupy a strong market position in Australia, so the majority of our transactions being domestic and Trans-Tasman and Australia and New Zealand markets. There remains a pipeline of new customers to be onboarded from our existing travel management partners. We are focusing predominantly on domestic travel within the North American market, where we continue to add resellers to our platform and continue development work to localize content in that region.

Despite the impacts of COVID-19, the addressable market remains significant. Booking.com for Business white-label is now line in the United Kingdom and Ireland. And our agreement with Booking.com presents an opportunity for the Zeno booking tool. We have strong balance sheet and ongoing commitment to investment, which will benefit existing and prospective customers. We’ve retained resource and in capacity on key growth initiatives. Timing of the travel recovery, however, remains uncertain, and as a result, we’re unable to forecast our likely operating revenue for the 2021 financial year with any certainty.

Although the outlook is highly uncertain, we anticipate our core Australasia markets will be operating between 40% and 70% of their pre-COVID activity levels by March 2021. Beyond that, we are taking a conservative approach to growth as most industry reports indicate a slow and largely unpredictable return to full COVID activity levels.

And as noted, 3,200 customers booked during the first 3 weeks of June, and we are currently transacting 25% of our previous year’s daily booking volume. This is an increase from 9% in April, and we hope to see this trend continue. As at the 31st of May, Serko had a net cash and cash equivalents of $39.9 million. We believe these cash resources at the current rate of cash burn will be sufficient to see the company through to cash flow breakeven again should our anticipated recovery scenario be achieved.

We will continue our rigorous focus on cash flow throughout the remainder of FY ’21, targeting an average monthly cash burn of no more than $2 million per month to conserve cash reserves. We’ll keep the market updated with any material changes.

And now turning to Slide 20. And that completes our presentation, and before I turn to Q&A, I do want to draw your attention to the appendix slides, after Slide 20 for further information on Serko, its 8-year performance trends and the definitions of our key measures.

I’ll now hand back to the moderator to facilitate the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We’ll take our first question in the queue.

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John O’Shea, Ord Minnett Limited, Research Division – Senior Research Analyst [2]

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This is John O’Shea from Ord here. How are you doing, guys? Are you well?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [3]

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All well.

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John O’Shea, Ord Minnett Limited, Research Division – Senior Research Analyst [4]

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That’s good, Darrin. Just 2 questions for me. I guess they’re all interrelated. How do you see — in the sort of post-COVID environment, how do you see the role of booking tools and whether it’s changed or not in terms of the post-COVID corporate travel environment? And secondly, to what extent has this changed your — the timing, I guess? Or how has it changed the details of the booking deal, the Booking.com deal?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [5]

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So covering the first point, and I think we covered part of it in the speech around we have managed travel and the focus that it now places. And then, of course, when a business, doesn’t matter what size it is, now with employees, trying to manage cost controls and risk, you really need to do that under a managed travel program. And our technology is designed exactly to do that. And we are working with our suppliers like Booking.com to show the cleanliness of hotels, all of the information that will be needed from whether it’s a hotel or an airline to get that information and that rich information so that the right decision, the right approvals and the right workflows. And so what we see is our travel patterns change, and we’ve seen 3,200 companies already start to travel. Most of these companies are implementing approval processes. They want visibility of that spend, and they want to know that their travelers are staying in safe places and that they have this overarching process of due care that has to be put in place. And of course, you can’t do that without a platform. And that’s what Zeno was designed for, of course, was to bring a connected journey together but to manage risk, compliance, change, credit reuses. Some of our resellers are managing over $60 million of unused credits from cancellations due to COVID. And you need technology that like ours that auto reuses that, so it manages not only the process, but it manages the risk of these large corporations, which have millions in credits that need to be reused, that could just be normally lost. And so technology is what we do, pay for themselves through this sort of process of managing that risk and compliance.

And so talking about the Booking.com, as we mentioned, we’ve started the initial pilot phases in a couple of the markets in Europe. And again, that focused around people wanting to connect them to a platform to manage that visibility across small or large businesses. And I think that’s the fantastic part about the Zeno platform. And the 2 teams have worked incredibly well together, the partnership and whiteboarding and doing everything remotely and still delivering the platform that we’re doing in this case is a real testament to the 2 teams, and are working incredibly well together for the common goal.

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Operator [6]

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And we’ll then take the next question in the queue.

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Wassim Kisirwani, Jarden Limited, Research Division – New Zealand Technology and Software Analyst [7]

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Wassim Kisirwani from Jarden here. Just a question on your P&C channel and what sort of indications you’re getting back from that channel. What trends are you seeing at this sort of early stage in terms of any likely business closures or consolidation, just how you’re thinking about the health of that channel at the moment?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [8]

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Yes. No, that’s a very good question. And we’re seeing — like you’ve seen a lot of new resellers sign up to our platform. But from our existing resellers, one of the things I wanted to highlight is that companies like Flight Centre are investing into their customers. And so the — we are looking at new features such as solving those multi-stop or really complex international travels and investing in — with us to build some of those features out. And the other part, we are seeing some of the mid-market travel management companies consolidate together under the buying groups that existed in Australia as well. So we are seeing the natural consolidation that appears through any of these types of processes as well. But then the big brands that are looking to really take advantage of the crisis and help businesses and actually build technology out of this are also investing at the same time.

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Wassim Kisirwani, Jarden Limited, Research Division – New Zealand Technology and Software Analyst [9]

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Great. And just a second question for me. With regards to the target or expectation around our agent bookings being back to 40% to 70% of BCP levels by March, but just interested in what you’re basing that on. Is it sort of the early — the trend that you’ve seen so far? And I would sort of love to see any trends within that, but we’re also noticing where that sort of booking recovery is coming from any particular segment, more so than others.

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [10]

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Yes. It’s the government — I think what we’ve seen is that governments are setting a lot of the policies around early travel as well and reengaging to make sure that economies recover. We’re also seeing that once competitors of life companies start traveling face-to-face and people switch from Zoom to actually traveling because they need to match, and that pattern’s occurred previously through other models that have occurred in our history as well. And so what we — 93% of our revenue is really related to domestic travel, so domestic within New Zealand and domestic within Australia. Another 3% to 4% is Trans-Tasman. And so when you look at that volume, once the Australian states start to travel even between, say, New South Wales and Queensland, then you start to get that natural uplift, and once it hits into Victoria. So the intercountry travel for us is actually our biggest part of our volume. So based on New Zealand’s controls and Australia trying to get to that same level, that’s how we run our models. And so because we’re starting from a pretty low base in Europe and the U.S., and we’re an emerging technology platform gaining market share in there, really, that we start, again, looking at the domestic volume and then the interregional volume and start to model that sort of side of it forward as well.

And then the other side of our business is expense, which isn’t impacted because people still need to manage the expenditure, if not more, and to put those controls in place. So we have always got to remember, we’ve got 2 parts to our business. We are a travel and an expense platform company as well.

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Operator [11]

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(Operator Instructions) We’ll move to our next question in the queue.

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Christopher Byrne, Craigs Investment Partners Limited, Research Division – Senior Research Analyst [12]

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Darrin and Susan, can you hear me?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [13]

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Yes.

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Christopher Byrne, Craigs Investment Partners Limited, Research Division – Senior Research Analyst [14]

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Great. It’s Chris Byrne from Craigs Investment Partners. Just wondering if you could just give us a couple more markers, if possible, in terms of a couple of your interests in growth options in terms of — ATPI is probably one of the more mature ones in terms of offshore, you’ve sort of been rolling out within now for well over a year. You had your pilot schemes here in the U.K., and you’ve been doing a bit of work for them. Can you just sort of — it’s hard when they’re not sort of showing up in the geographic spreadsheet, et cetera. Can you sort of highlight how those are going and give us a couple of markers and feel for sort of how customer numbers are going post pilot scheme and you’ve been gaining momentum there?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [15]

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Yes. I mean it’s a good point. And Europe has been probably in a harder lockdown process than probably a lot of the other regions and probably very similar to New Zealand, but it’s taken longer to come out of those lockdown restrictions. So we haven’t seen a very — we’re still seeing a very soft trend in Europe at this point. And we hope to get better markers on that as we start to go through that sort of trend coming out of there. With the ATPI group, which includes the direct travel there and the onboarding phases of using this time to get ahead in Canada and the U.S. to get their first lot of customers up and live in both of those regions as well. So they are using that capacity and time to look at how they implement new customers. Some of the TMCs have had pretty — in Europe have had pretty heavy furloughs and redundancies. And we are — we’ve adapted our selling approach to also be able to assist in selling to those corporates directly and also to be able to help with the implementation and onboarding phases. And we’re definitely doing that in the North American markets with those new resellers that we’ve signed as well in there. So it’s pretty — we’ve got a better idea where we’re close and where we’re starting to see volume. When you’re looking at Europe and the U.S., it’s still pretty hard in those markets until we start to get a few of those markers of recovery starting to tick through. And we’re seeing similar trends in the early lockdowns where as essential services and actually the mining and resource companies still travel. But we are seeing trends in different types of accommodation do and that through those types of influx as well just due to the types of businesses that are traveling in that sector.

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Christopher Byrne, Craigs Investment Partners Limited, Research Division – Senior Research Analyst [16]

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Okay. Have you given any consideration to potentially another pretty low-volume start with that? Is there — have you thought about potentially starting out sort of transactions by geography in terms of just giving some visibility on how those geographies decline maybe, I guess, revenue will show a similar trend? But have you thought about slowing out to give a little bit more visibility in terms of how those — because it’s obviously currently a difficult period for the travel industry in terms of visibility and how those growth options are going over the next 18 months.

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [17]

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Yes. And look, that’s definitely some of the stuff that we’re looking for, what markets we can help with the stakeholders inside our business to understand how they would like to look at it. Of course, any time they become significant and material, we nearly always break that out as well. So — but definitely, we want to help people be able to follow us and understand how we are actually executing and we are that’s actually triggering through into this. So as we start to get wider across those markets and start to get those trend lines, we can start — definitely start to break some of those metrics out.

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Susan Putt, Serko Limited – CFO [18]

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I think the airline channels are the best indicator, like more than us. So like from a forward-looking point of view. So…

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [19]

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As the airlines load the — so what Susan is talking about, as the airlines start to load those schedules and we start to see the recovery patterns occurring as well. And it takes 30 to 40 days for every airline or airport slot to recover as they internationalize. So there’s normally a lead in time when and the airlines are trying to get faster and faster at doing that, and that’s how we start to follow. So we look at what’s being loaded to start to see how those trends are appearing as well.

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Christopher Byrne, Craigs Investment Partners Limited, Research Division – Senior Research Analyst [20]

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Okay. And just on those increased selling and marketing expenses due to third-party connection charges. I mean are you getting anything from (inaudible)? Are you getting anything on the term for those? I just — why would they introduce (inaudible) that those charges have been introduced by the likes of (inaudible)?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [21]

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We do pass those charges on at any time we’re getting third-party charges. And it does depend on how our resellers are using those global distribution systems. So depending on the content that they are plugging into those systems, they may get third-party charges that are applicable for using that service. And so yes, they change from time to time, depending on the movement around that and that side of it.

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Christopher Byrne, Craigs Investment Partners Limited, Research Division – Senior Research Analyst [22]

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Okay. And just finally on your customers. I know you added 700 over the period or anything. Have you lost any customers or major customers through this COVID routine or sort of all pretty…

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [23]

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Yes. I mean from our resellers, we haven’t heard of any through that sort of sign, but it’s pretty hard to tell until some of these clients start actually transacting. So it’s — and those are things that we’ll be monitoring through into there. But we’re seeing — we’ve changed our quarterly business reviews to monthly with our key customers, and they’ve — and we’re in constant contact to see what risks and everything everybody is managing. But at this point, there’s been no significant ones that we’ve been made aware of.

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Operator [24]

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We’ll take the next question in the queue.

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Unidentified Analyst, [25]

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This is [Raveen] from [ICE Investors]. I just had a question on the amendment of contractual obligations you’ve done to support your customers. Could you give us more color on that and whether that creates a bank of goodwill that would put us in a good position in a recovery?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [26]

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Yes, definitely. And I think Serko’s success to date has been on the back of our resellers and our suppliers. And so when they ask for help in a crisis, we’re going to lean into that and take a view — and it’s balanced. We will give on one side but rebalance that normally on the end of contracts or make it up some other way. And so it does create good role because our brand around how we’ve worked with our retailers, we’ve never lost what we class as our customer in our history. And so we’ve only ever progressively gone forward. And we treat those partnerships with our TMCs, or travel management companies, as very important because they’re dealing with the benefit of their customers who are also hurting through the COVID period, and that flows on to our supply source as well. So we have taken an approach to create some benefit so those people impacted during the COVID period. And then to pick that back up, we may recover and to recover potentially some or all of that loss by either contract extensions at the other end. So we make that value at another point. So I would expect it has goodwill. The commentary that we’ve had from the resellers has been incredibly appreciative of Serko being able to do that. And yes, like Susan mentioned, it does have a slight impact on our final revenue numbers. But in the scheme of where we’re trying to get to from a global business, that short-term impact is nothing compared to the long-term relationships that we’ve worked on over the last decade.

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Unidentified Analyst, [27]

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Right. Okay. So it’s more about potentially contract extensions rather than a higher revenue per booking? One…

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [28]

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I mean in some cases, we’ve adjusted — in some cases, adjusted pricing up or extended it. So where there’s been a give, there’s also a take. We do try to create a balance, so it’s not just completely one-sided because they also know that we’re affected under the same model. And — but we’ve definitely taken a balanced approach to them. But sometimes we change that — our transaction saving because of minimums aren’t there or we’ve changed how — into — other things can be put into the mix, and going through the education process about how they can actually become more productive and more profitable out of this as well. So we’re doing a multi-pronged approach, depending on the level that each of those retailers are at.

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Unidentified Analyst, [29]

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Right. Okay. And looks like we are quite collaborative and supported with our customers. Just with regards to our Booking.com agreement. Just given the crisis, how have we been tracking to those KPIs obligations? And have they been able to change that because of the environment?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [30]

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Yes. So we can’t really comment too much on that, but just to say that we did achieve the milestone that was agreed between both parties of launching in May into 2 of the markets in Europe. And we’re progressively working together. We have a fantastic working relationship with the Booking team. And yes, both teams are working incredibly well together, and we’ve got a clear objective that we’re running through with that platform, and what we’re doing through there, we’re making a significant investment in our side to make that a success as well. But we’re also operating in COVID, which is pretty — Europe has been pretty hardy, pretty badly hit at the moment. And so we’re working to give us — to choose the right things that will be the next steps of how that recovers and how that mix looks as well. So it’s something that we’ll give more color on as we become more clear around each of those next steps. So we’ve met our first milestone.

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Operator [31]

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And we can take the next question in the queue.

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Unidentified Analyst, [32]

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Just a quick question. Sort of with technologies like Zoom and Webex is playing more and more of a mainstream role, and corporates realizing that quite a bit of work can be done remotely, how has that sort of expected to impact Serko’s revenue streams, especially in a world where business travel might be one of the prime candidates during a cost-cutting today?

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [33]

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It’s a very good point. And as we all know, we’ve had to use tools that we’ve never used before to collaborate and to do that. At the same time, a lot — it’s one off — there’s a lot of behavioral stuff around travel. You saw in New Zealand that as soon as the lockdowns relieved, the flood — and New Zealand had to put on more schedules just because everybody wanted to go to Queenstown and travel and to get out of the space of being locked down. So technology, it serves a certain purpose, and it may change some of the way that, that business makeup has done, and it may change some of the travel patterns to be closer into regional to start with the 4 people, expand out into the wider globalized markets. They’ll definitely start to choose between — into regional areas that their risk profile — every person has a way that they manage their risk. And that means they may be more comfortable to travel between countries before they travel to, say, the U.S., which they might consider has a higher risk. And so as competitors transact and as deals are closed, there’s a natural tendency to want to have — this face-to-face contact becomes even more important when you have to make that decision to fly there. So that level of engagement becomes just as important.

And you could say I was quite surprised that 3,200 companies have already taken up that opportunity in the first 3 weeks of June. That’s almost half the normal customers transacting in a given month. They’ve actually chosen to do that in June. So we’ve seen that trend on follow that, although they have the tools, so they are still choosing to engage face-to-face and that importance of turning up into those meetings and picking up the body language. So I think there will always be a balance, and so that’s going to be true to say that there wouldn’t be a rebalancing of that. But that doesn’t mean that travel didn’t occur. That still won’t occur and it may occur to different levels, and that’s yet to be determined.

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Operator [34]

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That does conclude our question-and-answer session. At this time, I’ll turn the call back over to our speakers for any final or additional comments.

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Darrin John Grafton, Serko Limited – Co-Founder, CEO & Executive Director [35]

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Thank you. I just want to take the opportunity to thank our people for their continuing dedication and hard work during the 2020 financial year and also, most importantly, since the COVID-19 pandemic dramatically changed our industry and our way of working. Thank you, everybody, for joining us on the call today. We look forward to talking with you over the next few days for those who are scheduled an investor meeting. In the meantime, if you have any questions, then please do not hesitate to come back to either Susan or myself. So thank you once again.

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Operator [36]

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This does conclude our conference call for today, everyone. Thank you all for your participation. You may now disconnect your lines.