lastminute.com N.V. (LMN) Earnings Call Transcript

Good morning, everyone, and thank you for joining us today. It is a pleasure to welcome you to our investor and media conference call. We appreciate your continued interest in lastminute.com, and we will now take you through our Q2 H2 (sic) [ H1 ] 2026 results and strategic developments, followed by a Q&A session. With this, I will hand it over to Alessandro to begin now. Thank you.

Thank you, Julia, and thank you, everyone, for joining us. So before we get into the details of our performance for this quarter and first half, just a quick reminder of who we are and what we do as a company for those of you who might have joining us for the first time. We are a pan-European provider of travel services. We act with 2 different models, agency model representing approximately 1/3 of our revenues, where we sell the individual components of travel in flights and hotels and accommodation mostly. And the principal model in which basically we act as a tour operator, but with a dynamic packaging rather than a static packaging product, which represents approximately 2/3 of our revenues and gross profit. We are active across Europe. The markets that you see in dark pink are our core markets and the markets that you see in light pink are the markets in which we have started investing since 2025. So our 14 expansion markets, which we serve, of course, with the main brand, lastminute.com, but also with some brands, which have a specific importance in certain countries such as rumbo for Spain, volagratis for Italy, Weg for Germany. Now after this quick refresh, what happened in the second quarter, in the first half and what's going to happen, what we expect for the next few quarters. I mean, obviously, if you follow the travel sector, I don't need to tell you how difficult the second quarter is after the start of the war in Iran in March, April and May were the 2 months which were more heavily affected, especially by a concern of people not willing to book travel at that point, waiting to understand how the situation will evolve, especially because there were a lot of media reports about the possible risks of jet fuel consumption and potential scarcity and therefore potential rise in flight costs, but even more, I would say, a perceived risk that if you were to fly on a holiday destination, you might be stranded there and unable to return. So because of all of that, a lot of people decided to postpone their choices regarding especially their summer holidays to forgo Easter holiday completely and to switch from buying flight plus hotel holiday packages to maybe just consider booking a hotel with maybe a refundable rate and drive to the destination. So there's been basically a number of important changes in the way that people have been booking travel, especially in that quarter. It impacted everyone, also us, of course. That being said, I think that it's quite remarkable that we were able to still grow. And basically, towards the end of June and July, considering that now, obviously, we're talking about H1 results, but we're already at the end of July. So we have a view on the latest trading trends. We see that the situation has been improving. Obviously, a lot of uncertainty remains. Every day, we read new reports in the media. But basically, based on those results and the trading that we see, we still think that 2026 will be a year of growth for us, maybe not spectacular growth. Now the expectation is to have mid-single-digit growth for revenues and up to 10% of growth on the adjusted EBITDA, which, to be honest, in a context in which certain providers of package holidays are down 20% year-on-year, I think, is still quite remarkable and a proof of our resilient business model and the importance of having a pan-European presence and multiple product lines. Not less important than this, our operational transformation via AI is on track, and I will give you some concrete examples and proof points of where we are so that it's clearly not just a nice line for PR, but the reality that we're living every single day. Now if we take a look at the results in detail, as I was saying, if we look at the first half, we're still up on revenues 4% and even more up the adjusted EBITDA minus CapEx level. So I would say, the closest indicator of the free cash flow. Obviously, this is happening despite a weaker Q2 in which actually revenues were down, EBITDA and EBITDA minus CapEx were down. But I said and I repeat that Q2 was particularly challenging for everyone and not necessarily an indication of how things are going to be developing in Q3 and in the rest of the year. I think it's particularly important to note anyway that especially at the adjusted EBITDA minus CapEx level, we are growing in H1 compared to last year, which proves the fact that not only we've been able to keep resilience of the top line, but I would say also really have a very tight control on our cost base and therefore, continuing to show operating leverage. Now if we look more in details of the quarter and the first half, I would leave it to Diego to give you some more details about our product mix.

Thank you, Alessandro, and good morning, everyone. When we last spoke, we highlighted a strong start of the year with January and February showing solid momentum, followed by softer March as geopolitical situation in the Middle East started to impact travel sentiment. This trend continued into the second quarter, particularly in April and May, as increased media coverage around fuel availability and potential travel disruption affected booking behavior. Overall, Q2 revenues reached EUR 91.4 million, down 2% year-on-year. Excluding the impact of the discontinued cruise operation reported under other, like-for-like revenues were down only 1%. Flights and Hotel continued to perform well, delivering quarterly growth of 5% and 11%, respectively. And both segments recorded double-digit growth in the first half of the year. Packages was the segment most impacted by the temporary uncertainty as consumers showed a preference for single travel products over packages, seeking greater flexibility in their booking decisions. The situation started to improve from January -- from June onwards. We observed a shortening of the booking window across the industry, while travel demand remained resilient, confirming that holidays continue to be a priority for customers. If we now look at gross profit, it was down 8% year-on-year in the second quarter as all segments were impacted by softer trading conditions. Looking at the first half, the reduction was limited to 2%, reflecting the strong start of the year and the resilience of the business model. Gross profit was the metric most impacted by the temporary geopolitical uncertainty as consumers became more cautious and delayed booking decision, reducing the effectiveness of marketing investments compared with previous quarters. The impact was mainly concentrated in early Q2, and we responded quickly to changing customer behavior by adjusting marketing investments to protect return on investment as we will discuss in more details in the next slide. Despite the short-term pressure, the underlying economics of the business remains solid with gross profit trends expected to benefit from the normalization of booking behavior in the second half. On Slide 11, you can see a more detailed breakdown of our cost structure split between variable and fixed cost. Despite higher IT costs and continued investment in key strategic areas, total cost in the quarter remained broadly in line with last year, reflecting the flexibility of our work base and disciplined cost management. As you might recall, variable costs increased 16% in Q1, including a 19% increase in marketing spend. Market conditions changed in Q2, reducing the expected return on our marketing investment. We responded quickly by bringing marketing spend broadly back in line with Q2 last year. Looking at the first half, the positive trend in gross personnel costs before capitalization continued with personnel costs down 5% versus the same period last year. In June, we announced an organizational restructuring driven by the adoption of AI across the company. This is not simply a cost reduction initiative. It reflects a structurally different ways of operating with AI improving productivity and enabling a simpler, more efficient organization. The associated savings will start to come through in the second half of the year with approximately EUR 6.5 million expected in the second half and around EUR 16 million on an annualized run rate basis. Overall, the actions taken during the first half demonstrate our ability to adapt quickly to changing market conditions while continuing to invest for the future. This slide provides a more detailed view of the profit and loss and bridges to the items we have just discussed. In Q2, adjusted EBITDA reached EUR 11.2 million, down 23% year-on-year as the lower gross profit resulting from softer booking trends flow through the profitability. As mentioned earlier, adjusted EBITDA excludes 2 nonrecurring items, a EUR 10.8 million provision related to the organizational restructuring in June. This represents a one-off investment to simplify the organization and accelerate the adoption of AI across the business. It compares with expected annualized savings of approximately EUR 16 million, implying a payback period of around 9 months. A further EUR 2.1 million of cancellation and reprotection costs related to the Middle East conflict, bringing the total impact for the first half to EUR 4.1 million. Excluding those nonrecurring items, the quarter primarily reflects the impact of geopolitical headwinds on trading during Q2 rather than any structural deterioration in the underlying profitability of the business. As a result of these nonrecurring items, EBIT was negative EUR 9.3 million compared with a positive EUR 3.9 million in the same period last year. If we exclude the nonrecurring items, EBIT would have been EUR 4 million. Net profit benefited from lower net financial expenses compared with last year. Nevertheless, the quarter closed with a net loss of EUR 7 million, bringing the loss for the first half to EUR 0.6 million. Looking ahead, we expect profitability in the second half to benefit from the progressive realization of the restructuring savings. Our outlook assumes no further cancellation-related costs associated with the Middle East conflict in the second half. We are here providing more granular detail on a rolling 12-month basis to better understand the underlying drivers of cash generation and smooth out the impact of seasonality. Free cash flow over the last 12 months was negative at EUR 13.3 million, improving from negative EUR 18.7 million in the previous 12-month period. The improvement was mainly driven by stronger adjusted EBITDA generation with a EUR 7 million higher contribution compared with the previous 12 months. Net working capital absorption was slightly lower compared with the previous 12 months. During the first half, we saw an earlier than historical shift towards prepaid card, supported by our stronger financial position. This temporary timing effect is expected to progressively unwind during Q3 and Q4. Excluding the change in net working capital, free cash flow would have been positive at EUR 13.7 million. Free cash flow generation was impacted by EUR 8.9 million of cash costs related to nonrecurring items compared with EUR 3 million in the previous 12-month period. The total nonrecurring impact amounted to EUR 19 million, of which EUR 10.1 million remains provision and will be mainly paid in the second half of the year. Finally, net financial position stood at EUR 19.2 million. Overall, excluding temporary working capital movement and nonrecurring items, the underlying cash generation of the business remains strong and continues to be a key focus for the group. With this, I'll pass the word to Alessandro, and I'll be happy to take any follow-up questions during the Q&A.

Thank you. Thank you, Diego. Now I've been informed that there was a problem with the connection while I was presenting the first 2 slides of the presentation. So Slide 5 and Slide 6. So I will go back to that and repeat what probably you were not able to hear. So just a quick outline of who we are for those who are connecting to this call for the very first time, we are a pan-European provider of travel services, acting in over 30 countries in Europe with 2 models, agency model representing approximately 1/3 of our revenues and gross profit and principal model representing approximately 2/3. On the agency model, we sell as an online travel agency, various components of travel, flights and hotels, for example, on a stand-alone basis, whereas as a principal, we package flights, hotels and other services and act as basically a tour operator, but with a dynamic packaging approach rather than with static packages. Our revenues come from the 5 core markets that you see in dark pink on the left-hand side of the slide, but also from 2025 on the 14 expansion markets that you see in light pink, mostly served with the main lastminute.com brand, but also with some important local brands such as rumbo for Spain, Weg for Germany and volagratis for Italy. Now what's the story that we're seeing here today? I mean, you've heard the detailed number from Diego already, so I'm not spoiling anything here. Obviously, if you follow the travel industry, you don't even need me to say how difficult the second quarter was, how difficult the months from March when the war in Iran started, not just for the direct effect on the Middle East as a destination or as a hub of long-distance travel from Europe, but especially, I would say, for the psychological effect of the perception that jet fuel cost might increase and therefore, there could be scarcity in flights that flight prices could go up. But even more importantly, the perception that if I was booking a flight and a package today, I might have stranded at the destination and be unable to return home. Because of those -- all of those concerns, a lot of people basically decided to forgo entirely their Easter holiday or to trade an international Easter holiday going to places such as Egypt and Turkey to more of a domestic trip maybe than driving to a destination and just booking a hotel rather than a package. And then the other effect was that a lot of people delayed their summer travel choices. So we saw definitely more of a last minute booking window that obviously you might think that for a brand like us, could even be a good news. But obviously, in Q2, it was not in the sense. But basically, we saw a trend that if we're looking at bookings made for the same months, April for April, May for May and so on, we were up compared to last year, but we were completely missing the bookings that normally people in certain countries, especially thinking about Germany and Italy, people were doing in April and May for July and August. These were basically not showing up. Now obviously, we are in July, and so the situation is different. We're seeing, I would say, already in the second half of June and in July, a different trading trend, also supported by seasonality. The perception is that obviously people are saying, well, I waited until the very last minute to book something, but then I'm not going to give up my holidays just because I'm concerned about the overall geopolitical situation. It's also true that when people tend to book at the very last minute, they tend to book shorter holidays and therefore, potentially average order value is not so high as when they plan family vacations 4 or 6 months ahead of time. So in this context, to be honest, the fact that we had -- we were able with a very positive January and February with which we started the year to still have growth in both revenues and adjusted EBITDA minus CapEx in the first half to me is quite remarkable in the context of a sector in which a lot of package -- holiday package providers, especially in Italy, Germany and France, are down 20% year-over-year. This is not our case. And I think this is a proof of the importance of being not exposed to just one market and to just one product line, but to have a broader product portfolio and a broader geographical presence. Because of that, we still think that 2026 will be a year of growth for us. Obviously, not the spectacular growth that we were expecting at the beginning of the year because, of course, macro is impacting us as well, but still mid-single-digit growth on revenues and up to 10% growth on adjusted EBITDA. To be honest, I was quite surprised when I saw that there were some expectations of us having a great Q2 and basically a linear behavior of year-over-year comparison of Q1, Q2, Q3 and Q4 to get to the levels of guidance that we had initially indicated. To me, it would be pretty obvious that Q2 would be the most difficult quarter of the year and then the possible targets would be reached by a stronger Q3 and a stronger Q4, obviously, assuming that the macro uncertainty at least subsides a bit. Now obviously, uncertainty is still with us. We see that in media reports every day, but obviously very different from March and April. Last but not least, the operational transformation is on track. AI is really already part of our day-to-day lives, and I will give you some practical examples of that to prove the fact that it's not just a nice line for PR, but it's really our daily experience. Now because of that, I will then skip to the numbers, which Diego already commented in detail. Maybe one -- just one minor thing that I will add on Page 13 when we talk about cash flow is you've probably seen this call out saying that the change in net working capital would have been positive considering the same usage of credit cards that we had in the previous 12-month period. This is something we've been commenting on already in the past few quarters, but it's important to stress it again. Basically, it's our choice precisely because we are in a solid cash-rich position to repay a lot of our cost with virtual credit cards. especially cost to airlines. And the idea here is that considering that the conditions that we can have from card providers are better if we choose to pay with prepaid cards rather than credit cards. And obviously, prepaid cards means accessing directly and using directly our cash balance, we decided to do that. And so obviously, you see a negative effect on working capital, but actually a positive effect on the P&L. And again, entirely our choice, if we had kept the same payment mix that we had in the previous 12 months, the minus 23% would have been plus 3%, and therefore, the overall free cash flow rather than minus EUR 13 million would have been plus EUR 13 million. Again, completely our choice coming from a position of strength. Now some of the qualitative developments here that underpin the performance that we are expecting in the next few quarters and years as soon as the situation goes back to normal. As you all know, travel is always subject to a lot of fluctuations because of geopolitical headwinds, but then it's also travel a sector that always bounce back because ultimately, the underlying demand for travel services is very resilient, very strong and growing. In this context, just a quick reminder of the 4 key pillars of our strategy, strengthening our market presence also in the expansion markets, keeping the evolution of our dynamic packaging product, making sure that we are a companion to our customers, not just when they book, but when they are on holiday as well with our app and making sure that each brand in our portfolio has a very clear mission. All of that underpinned and enabled by AI and scalability, which basically make all of this more efficient. By the way, lastminute.com has been a company and with volagratis with the companies that created the group by merging over time at the forefront of innovation for the past 25-plus years. So from the very early days in which advantage was just having the possibility to book something online to the first years of 2000 in which SEM was becoming widely adopted. And the first companies who would embrace it would have a technology -- basically a competitive advantage to the 2010s when mobile-first booking became the norm and now the AI-first era. And I think that strategically, being quick, choosing to lead, being bold, making ambitious choices before other companies in the sector is what can allow us to be at the forefront and actually have a competitive advantage in this moment of disruption. Basically, I would say AI allows us to punch above our weight, if you want. As a smaller OTA compared to Booking.com or Expedia, we can be faster in the implementation. And I think that if we're good in this, we can definitely end up in a stronger position in the next few years. AI is reshaping the whole sector, not just how travel is discovered and booked, but also how companies work. And that's why we have decided to move first. Now in practical terms, I would say that the 3 main initiatives that we have in terms of way of working inside the company are the creation of a shared intelligence layer. So basically having a connection with LLMs, especially internally, we use Gemini Pro and Claude, giving them access to everything that constitutes the company, who we are, the documents that represent our choices, not only our numbers, but really all the projects we're following so that every single project can basically be augmented by the support of AI. AI automation is happening company-wide in 2 different ways. There is a central automation team, which supports the automation of workflows for teams who are not process experts but also enabling each and every team to develop to automate their own workflows, to create their own apps with a vibe coding approach and to deploy agents across the business. This is governed at scale by, again, enabling having a foundational layer that enables teams to build and deploy agents safely across the organization. Some early results of what we've been doing. We've already been talking about the integration of our MCP server to make our inventory of flights and hotels bookable in Claude and ChatGPT interface. That was more for, let's say, customer-facing innovation. In terms of efficiency within the company, we have internal tools that are now being built in days with Claude directly by the team without any involvement of the tech teams and the developers so that basically business teams can be quicker and more autonomous in their needs. In certain development teams from up to 90% of the code that they generate -- the code that they generate has been developed with Claude Code. And again, in some of these teams, the number of backlog tasks completed in a unit of time has gone up 3x, not 10%, not 20%, but 3x. Workflow automation, we also have a platform with n8n live in production. So if this still feels a bit too theoretical for you, just 3 examples of things that are currently live within the company. We created -- you might remember that we have started selling our hotel inventory on a B2B basis with the brand MomoRooms. And we created, obviously, this division needs a back office. It's being created by the business team with vibe coding in -- with no designers and no front-end engineers in 15 days for something that normally might require up to 1 year and a lot of teams involved. Another example is the fact that we connected directly the MCP server on top of our database to the possibility to not only query our database directly in natural language via Claude, but also the possibility for teams to build, publish and share across the company, interactive reports and dashboards, again, in an autonomous way by passing all the typical bottlenecks so that you go from raw data into shareable dashboards and applications directly without any need, for example, to know how to do an SQL query or to develop a dashboard in HTML. Another example is the fact that every single time that we want to add a local payment system to the PSPs that we already use. There are some developments that need to happen. Typically, we need to make changes across 7 separate systems and with 3 different engineering teams. So normally, that's something that would take weeks. And thanks to AI, we've been able to shorten that to 2 days with real business impact because, of course, this means that we can have a much broader variety of local payment methods integrated in our platform. So after having given you these examples, I think the key takeaways is, yes, Q2 has been difficult for the whole market. But at the end of the day, in such a difficult condition, we were still able to limit the damages, I would say, and have growth in H1 and see growth in the full year. The fact that we have an asset-light model and a very proactive cost discipline obviously helped us. And it's important to note that everything that we're doing to execute this very strong embracement of what AI revolution because AI is nothing short of a revolution. It's something that we're doing to make sure that we have a better product and better service to our customers and a more efficient and productive way of working. It is not a cost-cutting exercise. That being said, obviously, it also has an impact on the reduction of cost, which you will already see for approximately EUR 6.5 million in the second half of the year and that you will see for a total value of EUR 16 million from January 1, 2027. So here, you will -- you might have also noticed that the payback time of the extraordinary restructuring cost that Diego was mentioning earlier on is definitely quicker than a year, approximately just a bit over 7 months. So thanks to all of this, despite the difficult and uncertain macro situation, we're still seeing a 2026 of growth. And frankly, I think that this is quite remarkable considering the context in which we operate and the performance of some of our peers, especially those selling holiday packages, which was the product line in general, which was most affected by customer perceptions. We were also talking about this with Google and in Q2 and the beginning of Q3. Searches, the year-on-year trend was for a decrease in searches for holiday packages and an increase in searches for hotels, which again was reflected in our product mix as part of a broader shift within the sector, which looks temporary, but it's what happened over the past few months. Now all of that being said, we're almost ready to take your questions and dive deeper in whatever topic you might want. Before that, I just leave the floor to Julia to remind the next occasions of our financial calendar.

Thank you, Alessandro. Here on the next slide, you will see our upcoming conferences until the end of the year and our next financial update, we will release to the market on the 29th of October. With this, we will now begin our Q&A session, starting with the live questions first, followed by those submitted via the webcast. Please note, as usual, we might have regrouped similar questions. In line with our privacy and data protection policies, we remind participants that stating your name is optional when asking a live questions. With this I hand it back to Matilda, our Chorus Call operator, to begin with the first live question.

The first question comes from the line of Volker Bosse from Baader Bank.

Volker Bosse of Baader Bank speaking. Thanks for all the information so far. I would like to start with the AI transformation. You mentioned EUR 16 million cost savings on an annualized basis from '27 on. Is this will be mainly personnel costs? That's my first question. And also related to the costs from the AI transformation, how many one-off costs should we take into account for implementing the reorganization? And am I right that this is not part of the guidance? So I think you guide for adjusted EBITDA, so the one-off costs are not included in the guidance, right? Second question or second part of my question would be the guidance. You are now in EBITDA minus 2% after H1, you achieved -- you guide to achieve 5% to 10% EBITDA growth full year. Could you build the bridge? You mentioned EUR 6.5 million in the second half already coming from the reorganization. Is that's the main part why, yes, earnings should outperform sales performance in the second half? And last but not least, on current trading, you mentioned June, July picked up nicely. Am I right to assume that you are back to mid-single-digit growth then in June, July or even higher? Some indication would be helpful here.

Thank you, Volker. I'll take this one. So yes, in terms of the savings that you see, they are 100% related to personnel cost. We have basically reduced a number of roles in -- especially in areas which are particularly impacted by AI, meaning that the majority of the work of certain roles in some cases, already today, in some cases, not today, but for sure, in the foreseeable future will be doable by AI. Now obviously, there will also be a slight increase on the token cost, basically as the more we embed AI in every single process, the more tokens we will consume from the LLMs. And then obviously, we will have a slight uptake in that, but this is very marginal fraction of the savings. So in terms of the costs related to that, they are already fully provisioned for in the first half. So you can already see them in the results that we just published and they equal.

Yes. And the other question was if they were included in the guidance or not? No, they are below the adjusted EBITDA. So those costs are not included in the guidance.

And in terms of trading, yes, I mean, we've been seeing single mid-digit growth as we were seeing varied across markets. So not all markets obviously are behaving in the same way. And obviously, we will need to see how the situation evolves over the next few months. But in general, I would say that when you -- we were wondering how do we bridge that, obviously, keep in mind that Q3 always for seasonality is much more, I would say, impactful on the overall results of the company than Q2. So because of that, even a percentage decrease that might sound big in terms of EBITDA for Q2. In reality, if we're talking about absolute numbers, we're talking about a few million euros that we are confident can be compensated by a good performance in the second half of the year. We're not assuming anything particularly positive. We've been assuming what we've been seeing over the past few weeks and obviously taking into account the EUR 6.5 million of savings as you were mentioning.

Just for a clarification, EUR 6.5 million are already part of the EUR 16 million, which you guided on an annualized basis.

Correct. Yes. Correct. Do we have more live questions? I would remind you that...

[Operator Instructions] The next question comes from the line of [indiscernible] from AWP.

I have a question also regarding the reorganization. You have announced a headcount cut by 25%. And I would like to know in which segments and in which regions will this be? And also has this already started?

Yes. I mean we have not given the specific details because as you can imagine, there are collective procedures happening in a lot of European countries. And so local legislations doesn't allow us to get too much in detail. But what I can say that geographically, yes, almost all the European countries in which we are present were impacted. So it's been relatively widespread, talking about Switzerland, Italy, Spain, France, Germany, the U.K., Portugal, Poland, with collective procedures in most of them, as I was saying, and the processes are almost completed. So -- which is why you already see the effect of EUR 6.5 million out of EUR 16 million booked for the year precisely because we are now at the end of July and most of this has already been completed and we'll be implemented in the next few weeks and even days. In terms of the company teams, which were impacted, I would say, again, it's been quite widespread. There's been a reduction in certain teams for software development, some certain areas of business analysis and then various teams as well in terms of design, in terms of -- it's been quite far reaching, also including customer service, but it's not meaning if that was, I would say, the implicit assumption of the question, whether it was particularly related to customer service operations, not necessarily. Those were part of that, but not the lion's share.