TBO Tek Limited (TBOTEK) Earnings Call Transcript

Good evening, everyone. I'm Aashvi Shah from Adfactors PR Investor Relations. On behalf of TBO Tek Limited, I would like to welcome you all to the earnings conference call for Q1 FY '26. Today on this call, we have with us from the management, Mr. Ankush Nijhawan, Co-Founder and Joint Managing Director; Mr. Gaurav Bhatnagar, Co-Founder and Joint Managing Director; Mr. Akshat Verma, Whole-time Director and Chief Technology Officer; Mr. Vikas Jain, Chief Financial Officer; Mr. Anil Berera, President, Strategy; Mr. Pramendra Tomar, General Counsel; Mr. Shreshth Mahajan, Associate Director, Investor Relations. We will begin the call with brief opening remarks from the management followed by a Q&A session. Please note that certain statements made during this call may be forward-looking in nature. Such forward-looking statements are subject to certain risks and uncertainties that would cause the actual results or projections to differ materially from those statements. The TBO Tek Limited will not be in any way responsible for any actions taken based on such statements and undertakes no obligation to publicly update these forward-looking statements. I would like to now hand over the call to Mr. Gaurav Bhatnagar for his opening remarks. Thank you, and over to you, sir.

Thank you, Aashvi, and welcome, everyone, to our Q1 earnings call. Basis past feedback and past experience with these calls, we have changed the format a little bit. So what we've done this time differently is we've created a fairly detailed commentary on our financials and uploaded on our Investor Relations website a couple of hours before. Those of you who had a chance to review the document, you would have seen that we have a lot more disclosure this time, specifically around expenses. So there was a request from several analysts last time that they wanted to understand the nature of our SG&A. So we have gone ahead and made that disclosure. We have also continued to provide region-wise KPIs as well on how various regions are performing. And we've also included a very detailed FAQ. So the idea is to use the hour that we have with all of you more for Q&A and a little bit more color on questions that you may have. So I'll just spend 5 minutes talking about the high level numbers and a couple of things that we want to share in a little bit more detail, and then we'll quickly answer your questions. So just to summarize the numbers in case you had not had a chance to look at the financials uploaded. This was a tough quarter, and that's true for the entire industry. We saw several headwinds through the quarter, starting with the India-Pakistan conflict, then the Iran-Israel conflict and then the very unfortunate Air India crash. This caused repeated disruptions in a very important quarter from a -- in the travel industry's perspective, this is although Q1 is also peak summer season for India. So there was an impact. But the good news is that in spite of these headwinds, the business has shown resilience, and we have continued to grow. Our monthly transacting buyers grew by 5% to touch more than 29,500 monthly transacting buyers. Our GTV grew by 2%. The revenue grew by 22% and GP grew by 19%. Now the faster growth in revenue in GP is because the saliency of the hotels and ancillary business continues to grow at a fast clip. And that helped grow our GPN revenue much faster than our GTV. On a like-to-like basis, the EBITDA was flat. PAT is marginally -- there's some margin growth in PAT, but EBITDA was largely flat. As you all know, we have been investing quite heavily in our international markets for growth and new market expansion. So if that investment was not there, then probably we would have seen positive EBITDA if the headwinds for the past quarter had not been there, then we would have also seen meaningful growth in EBITDA. So having said that, we do want to spend a little bit of time just giving you some color on how are the investments panning out, and these are still early days. You may remember it was Jan, Feb, when we started to accelerate our hiring in international markets. And there are some early numbers that we want to share to give you comfort that these investments are actually playing out well. So as you may remember, monthly active agent is a north star metric for our business. Active is -- the definition is that at least one transaction in that month. Now I'm sharing numbers only on the international business because most of the investment is going over there. And you would see starting Feb, when we started making these investments, there's a very sharp uptick in monthly active agents. And 1 year ago, in the April, May, June quarter of last year, you would see this number was trending between 8,600 about 9,000 monthly active agents. Starting Feb, this number has started to grow very meaningfully, and we are touching close to 11,000 monthly active agents in June. Now this is a very leading metric. This -- because these are the travel agents who over a course of time, become meaning productive. So the way we are measuring growth of our active agencies by 3 important milestones that a new travel agent has to pass to become, what we think of as a sticky customer for us. The first one is T1, which is when -- how many travel agents are doing their first transaction in a month. The second milestone is T5, which is when they get to a fifth transaction. And then a T10 is when they have done 10 transactions on the platform. Our data shows that a travel agent achieving 10 transactions on the platform becomes fairly sticky and churn drops quite drastically at that point in time. As you will see in the graph that we shared here, our T1s were trending at about 300 -- between 300, 340 in Jan. This number has more than doubled, and we have hit nearly 750 T1s in June. Similarly, the T5 number has been growing, and the T10 number has also been growing in a similar manner. Now the T10 will always have a lag on T1 because travel agents will take -- these are new travel agents trying out a platform for the first time. So they will take some time before they try and start becoming comfortable with the platform. So you will see that the T10 numbers will start to accelerate over a period of time as these T1s slowly convert to T5s and T10s. So what we wanted to highlight here was that there is a very marked uptick in our T1, T5, T10 numbers in Q1 compared to the previous quarter, which is largely driven by driving sales efficiency initiatives and adding new KAMs or key account managers in different geographies, which is where most of the investment has been going. Now looking at the same data with another lens of saying that how much new business has come in this year. So how much of business is growth -- organic growth of the travel agents who were already active on the platform last year and how much business has been contributed by new travel agents added in the same financial year. So if we look at the numbers for Q1 of last year and Q1 of this year, you would see roughly 2.2% of the business in Q1 last year was contributed by the travel agents added in Q1 itself. So just to be clear, out of the $361 million of GTV that we did in our international business, organic. Last year, $7.8 million came from travel agents, which were also added in April, May and June of 2024. Now looking at April, May, June 2025, out of the $435 million of GTV that we have done, $18 million or 4.2% of the GTV has actually been contributed by new travel agents added in the same year. This is very significant for us because if you remember our cohort in [ LSI ], then you remember how the stickiness grows with time. Typically, travel agents will take time to become fully productive on the platform. And if the 4% of our business in Q1 itself is being contributed by travel agents added within the same quarter, by the time we start to get to Q3 and Q4, these travel agents will start to add significantly more volume to the business. So while you can see that the old cohort, which is the cohort which has been active on the platform until last year, that is also growing at a fast clip. If the cohort that we are adding this year adds meaningfully more business in the same financial year, then you will see significant operating leverage play out in the latter half of the year, probably towards the end of the year. Finally, some on data to give you color on how are we measuring KAM effectiveness and efficiency of new KAMs. So several initiatives have been taken up and investment has been made in making our existing KAMs more effective. And effectiveness here is really how many new travel agents are they onboarding on the platform at this point in time. So our data is showing that existing KAMs, that is KAMs that were hired before Q4 of last year, right? So but till December of last year. In Q1, they have shown 22% higher efficiency in just net new travel agent addition. So if they were adding, say, as an example, 1 travel agent in a quarter, they are now adding 1.22. These are not actual numbers, just to show you the increase in efficiency. Interestingly, the efficiency of the newer KAMs is higher than the efficiency of older KAMs, which does make sense because the newer KAMs are being added in markets where we are underpenetrated. So I showed you numbers on T1s and how many new T1s are happening every month. 41% of those T1s are being contributed by the new KAMs, which have been added since February onwards. So the fact that within 3 or 4 months of adding new key account managers, they are starting to meaningfully move the needle for the organization is very heartening for us. So what this is leading to is on a year-on-year basis, there is a 69% growth in new customer addition. So just to be clear, it is not that total number of customers have grown by 69%, but the rate at which we are adding new customers have grown by 69% and 21% of the business is now being handled by the new key account managers. The caveat here is that this is not necessarily new business because we showed that the new business is about 4%, but we have also been able to shift some of the existing accounts to these new key account managers, which frees up the bandwidth of existing key account managers to farm their large accounts. So these are some of the numbers that we want to share with you to give you confidence that the investments that we've been doing are being very carefully monitored. We are building a strong view and conviction that as the year progresses, we will start to see more efficiency come through both from our existing KAMs and from new customer addition by our new KAMs. Our hope also is that we continue to believe in the previous hypothesis that by Q4, we should start to see a lot more operating leverage flow-through in this part of the business. Okay. With that, we'll take a pause here and open for questions.

[Operator Instructions] We have the first question from Mr. Manish Adukia.

I really appreciate all those detailed disclosures. My first question is on the demand. Clearly, you called out a lot of headwinds in the June quarter. If you can maybe give us some flavor as to how are you seeing things progress post June in the month of July? And the question is specific to the 3 key geographies of India, Middle East and Europe. And maybe a related question is, when I look at the quarter, the June quarter, surprisingly, your Middle East growth was like quite resilient at north of 20%, but Europe was quite weak and Europe actually saw a meaningful slowdown versus what you were growing organically until now. So you can also maybe help us understand that dynamic would be helpful. That's my first question.

Okay. So Manish, you're right. Middle East saw a very improved growth, and this is in spite of the fact that we lost significant days of sales in Q1. Part of it is timing as well. And you know this because when Ramadan happens and when summer holidays start. So a little bit of it is timing. But a lot of it is also just the fundamental initiatives around new customer addition and just improving our customer service. We've been investing in creating a new customer operations setup in Egypt, which has helped us improve our quality of our service. So that's one. Europe, you're right. Europe has slowed down in Q1. Part of that slowdown is because we count Israel as part of Europe and Israel is a top 10 source market for us. And that is one market that went to 0, in fact, negative sales for the period of that time and a little bit of a trickle down happened post the end of the conflict as well. Having said that, at least on Europe and Middle East, July has been very positive. We have seen a very quick recovery, and that is a secular pattern now in travel that we see that while business gets impacted by disruption, it tends to come back very quickly. So our hope is that this quarter is going to be significantly better than last quarter, especially for Europe and Middle East, and demand has pretty much normalized to where we expected it to be if these headwinds had not happened in Q1. Ankush, for India?

Yes. So Manish, I think you all saw one of the toughest quarters probably post-COVID, right? And I must say that in spite of that, if you remember, our GTV growth -- degrowth was about 11% of Q4 FY '25. We actually degrew by about 9%. So we actually gained 2% in spite of what we saw as a real tough quarter. So this actually reflects the underlying strength of our platform and obviously, the early stages of recovery. And also on the good side that we still grew 4% on our hotel business Y-o-Y. And keeping in mind the peak of summer, I think India literally was badgered for about 45 days with the airports being shut in North India and obviously, the Air India crash. So I think to be fair, we did -- I would say, rate ourselves, we did well in the quarter, right, keeping in mind the situation we were all facing. And for this Q2, I think we do kind of anticipate some GTV growth and some turnaround, which we can already see. But obviously, the margin pressure on the airline business still remains from -- yes.

My second question is just on the mismatch between GTV and revenue growth. And I understand the mix shift towards hotel, but even, let's say, within the hotels segment, low teens GTV growth translating to about 30% revenue growth. And I think last quarter also the difference between the GTV and the revenue growth was quite stark. So when we think about, let's say, the TBO business and from a forward growth perspective and let's say, in the past, you've talked about wanting to grow at least north of 20%, 25%. Should we think about that growth in terms of GTV? Or should we think about that from a revenue perspective? And why should those 2 numbers not, let's say, trend in line over the medium term?

So I think that's a fair question, Manish. And in the medium term, I think the 2 numbers will trend in line unless we find meaningful unlocks on take rate expansion on the hotels business stand-alone. Right now, what's happening is that a fair bit of saliency mix is changing at a very fast clip, right? Every quarter, there are 3, 4, 5 percentage points improvement in saliency towards the hotels business, and that is disproportionately improving our enterprise margins. And that is the reason you see our hotels, the revenue grows faster than GTV. There are a couple of other unlocks that we did in this quarter, Manish. And specifically on certain parts of our business, there is income that was dependent on a third-party vendor. I don't want to disclose too much detail on that, but there was an income dependent on third-party vendor, and we brought that technology in-house, which had a meaningful improvement in our retention of that revenue within our business. Otherwise, it was sitting as a cost with the vendor. So that is one change that happened. Other than that, anything else, Vikas, that you want to add?

So other than that, primarily, as we highlight that in hotels business also, there is a mix of suppliers. Some suppliers work on the net rate models, but there are some suppliers on the commissionable model as well. So while on the revenue side, when the mix shifts towards the commissionable model suppliers, the revenue increase looks higher. But on -- correspondingly, on the expense side, there is a parting to the travel agent. And that's the reason you will not see similar growth on the GP side, and that's what is reflected on the numbers as well.

Got it. Just my last question on the cost and the margin profile, and you mentioned in the shareholder letter that starting maybe 4Q of this year, revenue should grow faster than the SG&A. So again, when we think about the margin path and of course, the quarter -- June quarter was impacted by headwinds on demand as well. But again, like is there room for margins to deteriorate a little bit more in the near term given just the investments before it starts recovering? Or would you say that now we are broadly at this is a low point of margin from here on, they shouldn't deteriorate further and like by 4Q, we should start seeing EBITDA growth maybe faster than revenue growth?

So Manish, it's a little bit difficult to predict it very accurately because -- and we -- I think we have talked about it, about 2/3 of our investment in hiring has happened. 1/3 is left, which will get timed over the next 2 quarters. There is always -- there was a plan to accelerate and get it done in Q2. But at the same time, because of various reasons, including just the ability to find the right talent at the right time, it can spill over to Q3 as well. So -- but definitely, by Q4, we are hoping that if you were to start comparing our SG&A growth same quarter year-on-year, then you would start to see the growth slowdown. And hopefully, by Q4, we'll have a -- we would have finished our investments, and that is where we should be able to stabilize margins.

The next question is from Mr. Swapnil.

Now my first question is on your GTV that you reported this quarter. I understand there were a lot of one-offs that were there, affecting the GTV. But if I were to just take a guesstimate from you, how much incremental GTV would you have done had none of these one-offs been there?

This is very hypothetical, Swapnil. And I think, look, you also have to bifurcate GTV between airline GTV and hotels GTV because the revenue impact of the 2 is very different. One way to look at it, and I know there's no perfect science to it, is that the Iran-Israel conflict was 12 days of war and probably had a spillover effect before and after. So maybe -- there were like 20 days of serious headwinds in about 40% of our business, right? Thumb rule, I'm just saying. And so that is one way to project and say maybe that is the portion of business we genuinely lost during -- coming into the high season. I think India had a similar issue, right? There was complete a couple -- 2 weeks of clear headwinds in the peak of the season. I think the India saw it was even worse because huge cancellations happened because of it. And then second wave of cancellations happened because of the war as well -- because of the Air India crash as well. So very, very hazardous to guess what it would have been had these issues not happened.

Understood. The second question is with respect to your gross take rates in the hotels business. You mentioned that there were some changes in your -- the technology thing that you've mentioned. And because of that, the take rates have increased now 8.3%. Going ahead, do you see those take rates staying there? Or like will there be any volatility on that side? Because ultimately, your gross margins also took a dip, right? There was an associated cost with that. So I just wanted to get a sense as like what will be the steady-state numbers over there?

So Swapnil, just to clarify, the take rate is looking higher mostly because of the fact that there are suppliers who are commissionable in nature. And if the share of business increases for these suppliers, the take rate goes up. But like Vikas mentioned, correspondingly, gross profit will not grow in a similar manner because of the fact that once we receive the commission, we share part of that commission with the travel agents, right? So the take rate that you're seeing -- increased take rate is largely driven by the fact that we share shifted some of the business to commissionable supply vis-a-vis net trade supply. Am I right, Vikas?

And also I would like to add, Swapnil, is that if you see the overall gross profit of the hotel business is at around 5.56%. So while versus last year same quarter, it may look high versus 5.06%. But if we take out iron out the things and we see the yearly average, we were at 5.5%. So as it has been a stated strategy as well that whatever benefits we will try to get on the supply side, we will try to pass on the agency side that we are able to grow business faster. So basis that only if you see that the improvement on the GP compared to the yearly average is nominal only.

Understood. So will it be fair to say that instead of looking at the revenue growth, one should focus on your gross profit growth because that is where...

Absolutely.

Absolutely. GP is the number to focus on.

Right, right. Cool. And just 2Q is typically a very strong quarter for us because Europe since holidays are in 2Q generally is my understanding, if I'm -- correct me if I'm wrong there. So anything to call out here given that we are already 1 month down? Any trends that you would like to highlight? And how should we look at this quarter trending for you in terms of GTV as well as your gross profit?

Swapnil, it is trending in line with our expectations for the European and basically Northern Hemisphere summer. We would expect it to be in line with what we were hoping to do in this quarter. What is hard to say right now is that will we be able to do some sort of catch-up on Q1? Unlikely given that the impact in Q1 is quite significant, right? But if you were to look at Q2 stand-alone, irrespective of what happened in Q1, Q2 is pretty much in line with what we were budgeting for.

So will it be fair to say that your GTV growth at least should come back to double digits this quarter Y-o-Y?

Look, we don't want to do specific guidance on this, Swapnil, especially given that we are in the midst of this quarter. But it is -- it would be fair to say that we should see GTV growth in line with what we were expecting it to be before all the headwinds in Q1 happened.

Next question is from Mr. Mann Maru.

I wanted to know that the fees which you received from airlines or hotels is like how many days commission?

When you say how many days, what does it mean?

As in you get like the fees, which you get from airlines or hotels, the take rate.

Yes.

So is it like 5 days, 10 days, like how many days you receive your commission?

So airline commission is -- there will be multiple type of commission that we receive from the airlines basically and other stuff. So one is basically the commission which we get on cut and pay basis, which is on a transaction basis, which generally will get paid for at the -- get reduced from the gross amount of the ticket as well, so which is received at the time of the booking itself because we'll make the net payment to the airlines. But there could be some performance-linked incentives, et cetera, which is based on the targets. The targets will be quarterly, yearly. And those would be only be received after the year is completed and the airline has completed the working for the calculations of the PLP incentives, et cetera.

Okay. So it is like a combination of both?

Yes.

Okay. Got it, sir. And what growth do you expect further on revenue side?

We don't provide specific guidance on revenue.

The next question is from Mr. Moez Chandani.

My first question was on your monthly active agents in the international market. So that's seen a sharp growth this quarter. So is there a particular geography that has driven this sharp growth?

Moez, the good news is that the growth is fairly secular. And in fact, I think we have given monthly transacting buyer numbers by region as well in the commentary. Yes. So we have not given growth numbers, but broadly, it is very secular. And the reason is that the playbook is pretty much the same that we run in every market, which is getting new sales team on the ground in cities or in countries where we were not present before and then start activating through a very tight sales efficient process, right, with strong governance on it. So we've seen growth come pretty much in every geography. And really, there are no exceptions to it actually.

All right. Understood. And the next question is on North America. So that's grown at about 11% year-on-year for you this time. And you've mentioned that this is probably the largest source market in the world. So obviously, there's a lot of room to grow here. Can I understand how your progress has been in the American market? Because last quarter also, you were talking about hiring a leader to lead this North American growth sector. So just your thoughts in terms of growth in that particular geography.

Yes, Moez, we hired Valerie to lead that region for us. It's been only a few weeks, so very early days. We are restrategizing that market right now. We have also redone some of the sales team and brought in some new more sales feet on street as well. We do acknowledge that we should be growing faster in that market. At the same time, it is a tough market because of the way it is consolidated. But we remain very, very confident that we will find a solution for it within this year. And by -- towards the end of this year, we are hoping to show more growth in that market.

All right. Great. And then just lastly on LatAm. So again, I think there were some one-offs, particularly with Brazil, which you mentioned where there were new rules and regulations that came in. So again, is that market going to be somewhat structurally challenged given that those taxes are typically permanent? Or do you think that there should be some growth recovery even for Q2, Q3 and Q4?

Moez, there is -- in the short term, there is a structural challenge in that market because this is a new tax. As you know, currencies are volatile right now. Foreign exchange is getting expensive for most of the developing world. So there are some structural challenges in that market. We are reacting to it, taking various actions to see how we can bring the cost of sales in that market to a lower number so that we can pass on the benefits to the customers and reduce our pricing in that market to gain a bit more demand share. I just want to be clear that this is specific to the market per se. I don't believe that we have lost share in that market. But the market itself has seen a bit of a headwind come in because of this very unexpected tax that came up. There may be -- in the short term, there may be a little bit more pain especially in Brazil. But having said that, in the medium to long term, it is a very large, very important high-spending travel market. So we remain hopeful of full year growth on that market. But yes, I think for the next few months, there is a structural challenge which we'll have to overcome.

The next question is from Mr. Chirag.

Sir, I have a question on this SGA expenses bifurcation, which you have provided in the shareholders' letter and press release. So if you can throw some light, like if you look at the year-on-year change, that is other expense up by around 31% and mainly this hosting and bandwidth. But if you look at the revenue growth, that is not in line. So when can we see that it will go down or -- and it will be in line with the revenue growth? And what pose this increase disproportionately are the other expenses here?

Akshat, do you want to take the hosting bandwidth cost?

Sure, sure. So essentially, what we have seen in this quarter is a very significant increase in what we call a search traffic, especially for the wholesale business. So we have seen close to more than 100% kind of growth in search traffic, and that essentially ballooned the cost. Plus we essentially made significant investments as far as the AI infrastructure is concerned. So these 2 are the major factors that have increased the cost. We have also -- we essentially been looking -- in fact, May, when we started to see this trend, we've essentially been looking at essentially optimization in terms of how we serve this traffic. And that has led to what we call as a metric called cost per search, how much cost we pay for every search, and that we have seen meaningful decrease. And we essentially are going to work on this going forward as well. And I think we started to see a little bit of moderation. So while the traffic is increasing, actual cost now on hosting are essentially now moderated, trending slightly lower as opposed to going higher.

So in H2, it will be lower than H1?

See, that is, again, very hard to really see, we don't know how much -- again, right, the business may grow faster, the traffic may increase a lot. The metric that is completely in our control from an infrastructure perspective is, again, what I call cost per search. There, we do expect to see meaningful improvement. So if more traffic comes in, we -- in some ways, we consider that as a good thing. And we'll try to serve that traffic as efficiently as possible. And there, we will make meaningful change. But if the overall traffic increases significantly, then that -- that may or may not -- we may not be able to offset with just the efficiency improvements.

And Chirag, just for the benefit of everyone, I would like to explain that the business support services, which is part of the other expenses, this is primarily the expense being incurred for the sales of the contracting personnel who are not on our roles because we don't have legal entities all across the world. So they are working as a board as a consultant or retainers with us. And that cost, obviously, as we have explained, we have been making investment on this field. So that cost has grown by around 24% year-on-year.

The next question is from Mr. Karan Uppal.