Prologis Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 10, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Pavel Shen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Solar House and Co's Third Quarter 2020 3 Results Conference Call and Webcast. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker 1

23.

Operator

Again. Thank you. I will now hand the call over to Thomas Allen, SOHO House and Co's Chief Financial Officer. You may begin your conference.

Speaker 2

3rd quarter. Thank you for joining us today to discuss SOH House and Co's 3rd quarter financial results. My name is Thomas Allen and I'm the Chief Financial Officer.

Speaker 1

3rd quarter. I'm here with Andrew Kearney, our CEO.

Speaker 2

Today's discussion contains forward looking statements that represent our beliefs or expectations about future events. 3. All forward looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward looking statements. 3rd quarter. Some of the factors that may cause such differences are described in our SEC filings.

Speaker 2

Any forward looking statements represent our views only as of today, And we assume no obligation to update any forward looking statements if our views change. By now, you should have access to our Q3 earnings release, which can be found at sohouseco.com in the News and Events section. Additionally, we have posted our Q3 presentation, which can also be found in the News and Events section on our site. 3rd. During the call, we also refer to certain non GAAP financial measures.

Speaker 2

These non GAAP measures should be considered in addition to and not as a substitute 3rd quarter or in isolation from our GAAP results. Reconciliation for the most comparable GAAP measures are available in today's earnings press release. Now let me hand it over to Andrew.

Speaker 3

Thanks, Thomas, and good morning, everyone. I'm going to start by talking you through the quarter's highlights, 3rd quarter, then provide an update on the progress we've made against our strategic priorities. I'll then hand over to Thomas to talk through the financial performance, 3rd quarter. Give an update on our balance sheet and our guidance before we move on to Q and A. Now let's discuss the quarter.

Speaker 3

We're really pleased to be announcing another strong set of results with further growth in membership revenues and profitability. 3rd quarter. We're delighted to welcome over 8,000 members in the quarter, growing to 185,000 Soho House members overall, 3rd quarter on quarter. Total Soho House and Co membership was also up, 3, growing 21% year on year and 3% quarter on quarter. Our wait list continued to grow, reaching 98 3,000 up from 95,000 in the 2nd quarter and a 15% increase year on year, which again demonstrates the strong 3 appeal of SOH House globally.

Speaker 3

Total revenues grew by 13% year on year to 301,000,000 3, supported by growth in our recurring membership revenues, which were up 31% year on year and 5% quarter on quarter. 3. While overall revenue in the quarter was very healthy, it is also worth calling out that the bad weather we had through the summer 3 did have an impact on our houses performance, particularly given the number of outdoor spaces that we typically get strong traffic across the warmer months. 3rd quarter. Our like for like in house revenue compared to 2019 was up mid teens, but excluding weather, we estimate it would have been around 20% and consistent 3 with the Q2.

Speaker 3

We managed expenses well and grew adjusted EBITDA margins by 6 40 basis points year on year 3rd quarter despite high inflation, which led to Q3 adjusted EBITDA of €42,000,000 with 14% margins, a $22,000,000 or 108% increase year on year. These results have led us again to increase the mid point of our adjusted EBITDA guidance for the year. We have also delivered positive cash flow from operations in the quarter after we achieved that milestone in Q2. 3. Now let me give you an update on the progress we're making against our 2 strategic priorities, growing and enhancing the value of membership and delivering operational excellence to drive profitability and free cash flow.

Speaker 3

As I've said before, ensuring the very best member experience is at the heart of what we do 3, and that remains our key focus. In the quarter, we've continued to roll out our new menus. And in October, we introduced seasonal menu changes at every house simultaneously for the first time. We refurbished Electric House in London during the summer, including a new grill menu. Sales and member feedback have been very encouraging since we launched.

Speaker 3

Little Beach House Malibu had an exceptional summer, 3, benefiting from the introduction of our Scorpius concept. And despite the weather, Soho Farm has had a great summer, 3 benefiting from the high occupancy of the additional cabins we opened in 2022 and the refreshed dining options for our members. 3rd quarter. Paris, Barcelona and Rome also significant growth in performance, partially benefiting from more U. K.

Speaker 3

And American members visiting Europe this summer, 3 as well as the natural ramping up of the very attractive offerings. In September, we opened the doors of SOH House Mexico City, 3rd, our first location in Latin America. Formally a private residence that has since been restored and reimagined, 3rd quarter. The house includes several bars, including one entirely dedicated to tequila that showcases local and regional brands, 3rd quarter, an underground vinyl music room on our largest outdoor pool in North America, which is overlooked by a glasshouse restaurant. The house has gotten off to a great start.

Speaker 3

Membership demand has been very high and we are well ahead of our typical maturation curve and forecast for membership revenue and profits. 3. We have Soho House San Paulo and Soho House Portland opening around the end of this year. San Paulo will become our 2nd property in Latin America and 3rd location in South America. It's a natural choice given the city's creative fields of architecture, music and contemporary art.

Speaker 3

3, located on one of the city's principal streets, home to some of the most influential cultural institutions such as the Sao Paulo Museum of Art. 3. The house is situated within the Ciudad Matarazzo project, one of Sao Paulo's most significant heritage site redevelopments. 3. The house will honor and share Brazilian culture and includes 36 bedrooms, a gym, spa, rooftop pool and bar with multiple restaurants and club spaces.

Speaker 3

3. Soho House Portland is our first house in the Pacific Northwest and will open within the historic Troy Laundry building in the city's Central Eastside neighborhood. The house will feature a 2 story gym, rooftop pool and restaurant, a music room and dedicated working spaces for our members. 3. We've been part of Portland's creative community for now over 6 years, hosting pop up events and programming with our Cities Without Houses members.

Speaker 3

3. We feel confident on both these houses' membership potential. With these openings, our total new houses since 2018 reaches 26, given us 44 houses globally. This will enable us to continue to drive strong membership, revenues and adjusted EBITDA growth. With earnings today, we are raising our membership target to over 192,000 members by year end and setting a target for over 210,000 members at the end of 2024.

Speaker 3

3. Turning to our 2nd strategic priority, operational excellence. As you know, our strategy here is centered on 3 things. 3rd, leveraging data to remember insights to operate and scale efficiently second, expanding in house margins 3rd, having operational discipline as we grow. It's been another strong period of progress here, 3rd, allowing us to achieve our 2nd consecutive quarter of positive cash flow from operations, whilst delivering adjusted EBITDA of €42,000,000 3rd quarter more than double versus 2022 Q3.

Speaker 3

At a time of continued pay inflation, we've continued to control wages well, 3rd quarter with wages as a percentage of revenues improving by approximately 300 basis points versus last year. 3rd. In house F and B margins continued to be strong, up 230 basis points versus Q3 2019 and a like for like basis. 3. We've continued to deliver on driving higher occupancy in ADR leading to RevPAR increasing 6% year over year at like for like properties 3rd quarter of 2019.

Speaker 3

Combined with higher membership revenues, these results 3rd quarter revenues performed very well with our Beach Club concept Scorpios having a great season in Mykonos with revenues growing well over 2022 3. Despite what we hear was a tough year for most of the properties in the market. We are excited to be opening 3. We have 2 Life Scorpioses in the next 12 to 18 months in Bodrum and Tulum. These properties will be similar to the original Mykonos property with a large club, 3rd dining areas as well as ritual spaces, but we will also be adding bedrooms for the first time.

Speaker 3

We will also be adding our 4th net in Washington, D. C. In the same time period. Lastly, I'm delighted to announce the promotion of Tom Collings, our new Chief Operating Officer. 3.

Speaker 3

Tom has spent the last 10 years at SOH House and most recently as Managing Director of U. K, Europe and Asia. As we've discussed the past 3 quarters, these regions have really stood out in terms of delivering the change initiatives that we've been focused on and driving our improved results. 3. Tom has been instrumental in this.

Speaker 3

I'm thrilled to be giving him a broader role. Now let me pass on to Thomas to give you more detail on the numbers and our updated guidance.

Speaker 2

Thanks, Andrew. Total revenues for the Q3 grew 13% year on year to $301,000,000 or 8% on a constant currency basis. 3. Membership in house and other revenues rose 31%, 6% and 7% year on year, respectively, 3 or 27%, 2% and 1% on a constant currency basis. House level contribution increased 62% year on year with house level margins up approximately 7 50 basis points to 26.5%.

Speaker 2

Other contribution was up 42% with the margin climbing approximately 6.50 basis points to 27.5%. Giving more details on revenue. We saw continued strong revenue growth year over year, increasing revenues by $35,000,000 This is despite what we estimate to be around $5,000,000 negative impact from weather. 3rd quarter. Highlighting some more weather stats between New York, LA and London, our 3 largest markets, rainfall more than doubled year over year in the 3rd quarter, Up 130%.

Speaker 2

For a business that has a lot of outdoor space that has a real impact. Membership growth in pricing drove a $22,000,000 In addition, membership revenues, good training in our houses especially in the UK and Europe led to a $7,000,000 increase in in house revenues with stronger growth offset by weather. 3rd quarter. And other revenues were up $6,000,000 We saw strong growth at Scorpius in design and development and Soho home sales 3, offset by lower public restaurant sales, partially driven by closures. Our 3rd quarter adjusted EBITDA was $42,000,000 of $22,000,000 year on year as we benefit from the profitability initiatives we have outlined and continued membership and revenue growth.

Speaker 2

3rd. We did benefit from $2,000,000 of non cash rent moving from 3Q to 4Q. We even excluding our adjusted EBITDA for the quarter beat consensus of $38,000,000 3rd. Now discussing our balance sheet. We ended the quarter with $163,000,000 of cash and cash equivalents and $607,000,000 of net debt.

Speaker 2

3rd quarter. Supporting our cash position, we generated $42,000,000 in adjusted EBITDA during the Q3 and had a $1,000,000 of non cash rent. 3. Offsetting, we had approximately $8,000,000 of cash interest expense, dollars 2,000,000 of cash taxes and $22,000,000 of net CapEx. 3.

Speaker 2

On the financing side, we repurchased $12,000,000 of stock in the quarter at $6 a share. Moving to guidance for fiscal 2023. We are raising our guidance for total SOH House members to now exceed 192,000 at year end, benefiting from the very strong demand we saw in the Q3, including Mexico City outperformance. 3rd quarter. On total membership revenues, we have narrowed the range from $360,000,000 to $367,000,000 to $366,000,000 3.

Speaker 2

On total revenues, we have narrowed the range and lowered the midpoint slightly, now expecting $1,130,000,000 to 1,160,000,000 3rd. As we have discussed, 3rd quarter revenues were hurt by the wet summer weather. The temporary closing of our house in Tel Aviv Also impacts our prior expectations. On our adjusted EBITDA, strong cost control and continued progress on our profitability initiatives 3. We're raising the midpoint of our guidance, moving from a range of $126,000,000 to $134,000,000 to $130,000,000 to $135,000,000 We have factored in Tel Aviv impacting our adjusted EBITDA guidance by about $2,000,000 For 2024, we believe it's too early to give operating guidance.

Speaker 2

3. However, we have clear visibility into our membership growth, which we expect SOHO House to surpass 210,000 members by year end. 3. The majority of this growth will come from the houses that have opened since 2018 that are still in their ramp phase. We have been prudent about our expectations for new houses, 3, which while we still expect to be between 5% to 7% next year remains uncertain given the development backdrop.

Speaker 2

3. Thanks, Thomas. It's been another strong quarter for

Speaker 3

the business with good growth in membership and revenues underpinned by our record waitlist. 3. Our operational excellence initiatives continue to drive profitability and adjusted EBITDA was ahead of expectations for the Q4 in a row, 3, helping us raise the midpoint of our EBITDA guidance range again. We continue to make great progress in our cash flow as we ramp up cash flow from operations and remain disciplined on CapEx, which will continue in 2024. We remain focused on delivering for our members 3rd quarter and further driving membership value.

Speaker 3

We are more confident than ever on growth opportunities ahead for SOH House and Co. 3. I'd like to take this opportunity to thank all our teams around the world for their hard work and dedication in the quarter. 3rd quarter.

Operator

3rd quarter. Thank you. 3rd quarter. Our first question comes from the line of Sharon Zackfia from William Blair. Please go ahead with

Speaker 1

your question. 3. Hi, good morning. I guess a question on profitability because it has been much better than expected at least relative to my expectations on the 3rd quarter and also on the other contribution. It looks like you'll end this year ahead of kind of your goal, which I think was 11% 3.

Speaker 1

Adjusted EBITDA margin, I think you'll be about 50 bps ahead of that. I mean, how do we think about the pacing of what you can leverage on an ongoing basis? 3. You've had a lot of expansion year over year. You've obviously been coming out of the pandemic.

Speaker 1

What's like a normal run rate of annualized margin expansion

Speaker 4

3. Hey, Sharon. Good morning.

Speaker 3

3.

Speaker 4

So like we're really pleased with the margin performance we've seen this year. Obviously, we 3. Set out at the end of last year, 2 strategic priorities, 1, growing enhanced membership and then 2, operational 1st to drive greater profitability and we're delivering on both of those. As we think about the margin growth in the future, 3. We have a medium to long term target of 15 plus percent EBITDA margins.

Speaker 4

3. We're not committing to when we will achieve that target, but we definitely expect to continue to improve margins next year and on a go

Speaker 1

3. Thanks for that. I guess on the house level, if you're doing on a consolidated basis, you've been kind of in the mid 20s. All year now you're bumping up on the high 20s. I mean how your more mature houses, how high can those house level margins actually get?

Speaker 1

3.

Operator

Hi, Sharon.

Speaker 3

Hiya, for sure. Like Thomas 3. Said, Honi's prepared comments, we have a lot of houses that have opened since 2018, nearly 26. 3. That's what you're as they ramp up and they hit the maturity care is where we continue to increase our membership, we can control our costs, 3.

Speaker 3

We deliver great member experience. We improve our margins. That's where we're going to really see a ramp up 3. Our house contribution. So that's what you're seeing.

Speaker 3

You're also seeing our teams execute really well, I would say. I think we've improved significantly over the last year on how we run our houses and balancing delivering a great member experience whilst improving those margins.

Speaker 1

3. Thanks. And then last question for me. You explained well what was going on within house revenues, but Just curious if you're seeing any kind of pullback at all in the U. S.

Speaker 1

Consumer? Thanks.

Speaker 3

3. No, we look, we had a really good quarter. We are a membership club. Our membership B And we've raised our membership guidance today. And we've also provided 24 guidance on membership.

Speaker 3

So that shows the strength of our business and that's across all regions and that's who we are with Soho House for a membership club. Look, we had some lumps and bumps in the quarter. You wouldn't believe the weather patterns that we were seeing. Thomas has got all sorts of stats that we can talk about on weather. We also had entertainment strikes West Coast Houses.

Speaker 3

The good news is our full and our revenues have bounced back in October back to what we were seeing in Q2. 3. So we feel good about that. And I just think again, I think one of the messages we want to land today is what I'm really pleased with is we did have lumps and bumps In the quarter that we can't manage, we can't manage the weather. But what you heard on the call is we improved our member experience.

Speaker 3

We doubled our profits. So that for me shows that we're operating really well when things get thrown at us in curveballs like weathers and strikes.

Speaker 1

3. Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Shaun Kelley from Bank of America. Please go ahead with your question.

Speaker 5

Hi, good morning everybody. Thank you for taking my questions. Andrew, I wanted to pick up on that last point and I appreciate there's 3. A lot going on here, but could you just give us or unpack the sort of behavior that you saw a little bit on the consumer side, be it 3. Covers or visits or how you look at it.

Speaker 5

And then, Thomas, I'm sure you've adjusted for your best shot at weather. So any sense on 3. We kind of looked through all the noise, just how you think like for like member spending proceeded as we move through the quarter? And maybe most importantly, How does October

Speaker 3

feel? Sure. Great question. So we if you think about our houses, we have a lot of houses, a lot of roofs 3rd quarter. So that's our peak season, predominantly in July August across all our major I would say the 3 big cities, LA, London and New York.

Speaker 3

3. So when we're weather impacted or when we're having to close, if I think of New York, Dumbo and also have New York because of the Canadian fire, it's about 50 3. At the time through that period, that's just that our members just spend less. What we've seen, which is that what we're excited about is 3. We rolled our new menus.

Speaker 3

We rolled out for the first time plus 42 houses at the end of September. 3. We've improved member experience in the houses. We spent a lot of time on that. And our light to light now are back 3.

Speaker 3

In October back to where we saw them in Q2. So member spend and footfalls come back, which is which shows that the team is doing a great job 3. On delivering no member experience in the houses.

Speaker 4

Yes, Sean, look, I'll just echo what Andrew said is that when we look at October, 3. Both the visitation and the spend per visitor trends have gone back to what we were seeing in the Q2. 3. The Q3, just some stats to throw out. There was the 1st tropical storm in 84 years in California.

Speaker 4

3. That hit us on a weekend, not exactly what you want to see. We had the rainiest July since 3. 2009 in the UK. And so things like that obviously negatively impacted our performance on the top line, but we're able to control Got it really well and delivered by the way.

Speaker 5

Great, great. Thank you for the color. And then second question would just be, 3. As we think about your comment, Thomas, on the financing environment, as you start to look forward to openings 3. In 2024.

Speaker 5

Can you just comment a little bit more on maybe what you're seeing from possible partners and then what that could impact or what we should 3. In terms of time line for some of those openings, if they do end up skewing a little bit more towards the second half, just maybe help us think about Member cadence or member growth cadence just so we kind of account for that, if you will.

Speaker 3

3. Great question. So we're membership club and we hit all our membership numbers. So the most important metric for us even ahead 3. Opening new houses is us achieving our membership goals.

Speaker 3

So we feel super confident on membership. 3. Development is tough, high interest rates, high inflation. The good news is we have great partners 3. In development, we've got I think we've got a bit of the USP at SOH House that were very, very attractive 3 to our partners and they we have a lot of partners wanting to open new houses with us.

Speaker 3

We have great terms, which are highly attractive 3. And we've got a really strong pipeline for the next 3 to 5 years that we're super excited about. So we're not changing our guide of 5 to 7 3. Just yet, we've opened Mexico City. We've got San Paulo in Portland coming at the end of the year.

Speaker 3

They are 3 large 3. Amazing houses that's going to really add to our membership. And what we do when we open houses, Especially new regions like Mexico City and Sao Paulo, we have fantastic new members. So at the moment, like I said on the last call, 3. We're very confident on achieving our membership goals and we'll continue to open new houses, which delight our members.

Speaker 3

But for sure, there's some lumps and bumps, but I think we can 3. You know, ride them out and make sure that we deliver great houses over the next 3 to 5 years.

Speaker 5

Great. And last question, if I could 3. Speak one more in would be just retention. We haven't talked about this in a while and I don't know if there was a stat in the deck. If so, I may have missed it.

Speaker 5

But Could you give us kind of the latest on member retention, either percentage or direction? That would be helpful. Thank you.

Speaker 3

3. Great. You've managed to get 3 questions in here. So you're a 2 question guy. I like it.

Speaker 3

3. Retention remains really strong. It's one of our key metrics for driving our recurring membership revenues. 3. As we previously highlighted, our attention dropped a bit from 21 levels, but we've still got our highest retention we've had for the last 7 years.

Speaker 3

3. We continue to focus on it. It's actually slightly improving, which is a nice trend to see again. And 3. It just shows the strength of what we're delivering for our members in our clubs.

Speaker 3

So at the moment, we feel really good about our member retention. 3. Sean, let me

Speaker 4

just add. So in 2021, we had 95% retention. It was the highest level 3. So we've been at in the prior 7 years. In 2022, it dropped a bit to 93.4%.

Speaker 4

21, we benefited from members were just coming back post COVID. So they were less likely to leave. 3. The other thing that if you just look at our total number has changed as 3. We have a lot more new members than we've ever had before.

Speaker 4

And if you look at our kind of retention curve, the longer you're a member, the more likely you are to stay. 3. So on an absolute basis that would bring the number down. But if you look at it by cohort, it continues to be very, very strong. And we typically we disclose that metric at the end of the year on our 10 ks.

Speaker 5

Super. Thank you, everyone.

Operator

3. Thank you. Our next question comes from the line of Steven Zaccone from Citi. Please go ahead with your question.

Speaker 6

3. Great. Thanks very much for taking my question. I had a brief follow-up on the questions around the quarterly performance of in house. 3.

Speaker 6

Did you quantify, I may have missed it, the Tel Aviv revenue impact? I heard it on EBITDA, but just on revenue. 3. And then the question I had just following up on this commentary about developments being a bit tougher. If you were to see 3.

Speaker 6

The growth profile dropped to more like 4 openings per year. What's the implication for the EBITDA margin of the business? Would that slow the potential for EBITDA margins to grow? Do you feel like you still have enough within your power to improve how you run houses? Just talk through that, please.

Speaker 3

3. Yes. So I'll let me start with the second part of the question. 3. If we lowered our house openings, it wouldn't have an impact on our membership growth.

Speaker 3

And that's the most important thing 3. In our growth, it's membership. So it wouldn't impact our membership growth. It wouldn't impact our membership revenue because we've got so many new houses that we've opened over the last 3 years. 3.

Speaker 3

Our EBITDA will actually go up because as you know and we've talked a lot about this with you all is 3. When we open a house for the most part of the 1st year, we make a negative impact as the membership ramps. So 3. What you would see is EBITDA enhancement, but no real effect on membership revenues. So we would actually improve our margins if that was 3.

Speaker 3

The case that we dropped to less houses each year.

Speaker 4

And then, on the Tel Aviv question, 3. So as we said, we expect about a $2,000,000 EBITDA impact versus our prior expectations. 3. Yes, all that will obviously be in the Q4. On the revenue side, it will be a little bit higher, 3.

Speaker 4

But not meaningfully higher. We're continuing to pay the staff at From the house, but we've obviously we've allowed our 3. Existing Calvary members, they're all free, their membership, we're not charging them. And so that obviously has an impact.

Speaker 6

3. Yes, understood. Could we shift to pricing and just thinking about membership pricing as you look 3 to 2024. This year you implemented the different architecture with existing members versus new members, different pricing growth. 3.

Speaker 6

How do you think about that for next year?

Speaker 3

We're still working through on pricing. 3. So I don't really want to disclose what we're thinking about on membership pricing. I'm going to give you a short answer on that. Our goal is to always deliver value for members 3?

Speaker 3

Every opportunity. So we're still working through that at the moment.

Speaker 6

Okay. Fair enough. Thanks very much. Best of luck in the 4th quarter.

Operator

3. Thank you. Our next question comes from the line of JP Walliam from Roth MKM. Please go ahead with your question.

Speaker 7

3. Good morning and thanks for taking the questions. Maybe kind of following up on one of Sharon's questions about 3. When we think about kind of the in house contribution margin, I know you pointed out for a couple of quarters now 3. Some meaningful improvement on the F and B side.

Speaker 7

And I'm just kind of curious, A, where are we in terms of 3. Improving the food and bev margin. And then B, as we think about really kind of the legacy houses, the ones that aren't having this huge member ramp, 3. What's kind of the next step for improving house contribution margin there? Thank you.

Speaker 4

3. Great question.

Speaker 3

So we have been in a very high inflationary period over the past 3 years, in particular in the UK. I think the UK was running double digit for most of last year. So I think the teams have done a terrific 3 job on improving margins in that environment. And we did a lot of work on our supply chain, a lot of work on efficiencies 3. And just sharpening up those elements.

Speaker 3

That's why we can grow our margins. We feel confident that we can continue to grow our margins 3 across all our regions through being brilliant procurers, fantastic operators and as inflation drops, which You read the report last week in the U. K. Is now dropping. We will benefit from that.

Speaker 3

So we are very confident on our margin performance and improvement 3. Going into 2024.

Speaker 4

And then just the second question is how are we going to keep on improving margins that are more mature houses. 3. Yes, it's all about operational excellence still, right? We as we've talked about over the past few calls, 3. We're offering new things for our members.

Speaker 4

We're doing seasonal menu rotations, which we hadn't done in the past. 3. We're serving our members more to understand what they really want. And so by giving our members a better offering, 3. That's right, higher spend per visit and all the other initiatives drive higher profitability.

Speaker 4

3.

Speaker 7

Okay. Yes, that's very helpful. And then I'll just squeeze 2 others. The frozen members number, 3. Anything you can point out there?

Speaker 7

And then just the stock buyback, any kind of capital allocation thoughts, that would be 3. Highly appreciate it. Thanks, guys.

Speaker 3

Yes. Just on frozen, frozen members is just normalizing. 3. It continues to normalize. We're still below pre COVID levels.

Speaker 3

It's just part of our business. We're super flexible with members. 3. Most of our frozen members are moving city, changing lifestyle, having children. It's just so I wouldn't worry about frozen members.

Speaker 3

It's just part of 3rd quarter of our business and it's still below what we used to see pre COVID.

Speaker 4

Then 3. In terms of capital allocation, as you see as we've talked about the past few quarters, we've now had positive cash flow from operations, and we expect that to continue in the Q4. Our priority is to invest back second of the business given the long term growth opportunities we see with SOH House. Next year, we're also investing in opening 3. Two new Scorpioses, which we talked about on the call.

Speaker 4

We feel even more confident in that following how good Scorpios Mekonos' results were this summer. 3. We also like to have a healthy cash position to bolster financial flexibility. And so 3. Investing in the business and also reducing leverage are our main priorities.

Speaker 4

Buybacks are not our top priority, 3. So when we see opportunities, we have the balance sheet to be flexible and to and so our buyback in the quarter 3. Yes, we're at a discount to where the stock was trading and so we saw it as a good opportunity.

Speaker 7

3. Understood. Thanks for the time and best of luck moving forward.

Operator

Thank you. Our next question comes from the line of Stephen Gambling from Morgan Stanley. Please go ahead with your question.

Speaker 8

Grambling, Ramsey gambling. 3. Quick question on one of the comments you made about earlier or sorry, I said, a greater percentage of new customers 3. Sorry, new members versus history. Is there any specifics you could provide around what that mix looks like now versus where it's been?

Speaker 8

And then also just any color on what spending looks like for new customers in house versus 3. Folks who are maybe several years into their membership.

Speaker 4

3. Hey, Steve. So I don't have the stat of percentage of new members 3rd. But you can back into it 3. Based off of our earnings presentation, we give net paying members by cohort house.

Speaker 4

And so 3. That can help you. I know we just give net numbers, but that can kind of give you a guide. In terms of spend 3. Per spend per member and based off of their lifecycle, 3.

Speaker 4

It's pretty consistent. Age can have a factor. So we 3. The older our member is, typically the more they spend. But based off the life cycle, 3.

Speaker 4

It's pretty consistent on a per business side.

Speaker 1

3.

Speaker 8

And then maybe a higher level question. Do you target a certain level of in house spend per person as you're thinking about it? And do you view that as either a sign of the 3. Health of the consumer or the health of the membership or other your efforts to be more profitable potentially going to impact spend in house 3 as we look out next year and over the next couple of years.

Speaker 3

Yes. So I would say 3. It's probably one of our biggest initiatives is increasing member spend, average check value. I think you'll hear a lot more about that from us 3. Over the next 12 to 18 months, we've got a whole heap of initiatives around delighting our members more.

Speaker 3

We know our members better than ever before. We are much more sophisticated in how we treat our members, 3. Which then will either drive our members to our houses or when they're in a house to actually spend a little bit more with us. 3. So it's a combination of use being inspired by our data, understanding what our members want more from us, Giving it to our members in the right way and that's going to drive member spend.

Speaker 3

So we do have member spend goals for sure. 3. And we'll probably talk a lot more about that on our March earnings because it will be a you'll see it's going to be quite a big strategic initiative for us.

Speaker 8

3. Look forward to it. Thank you.

Operator

Thank you. There are no further questions at this time. Thomas Allen, I turn the call back over to you.

Speaker 4

Thank you, Bhavesh. So I'd just like to thank everyone for joining the call and

Operator

3rd quarter. Thank you. This does conclude today's conference call. We thank you for participating and you may now disconnect.

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Earnings Conference Call
Prologis Q3 2023
00:00 / 00:00
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