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Hello. My name is Chris and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Membership Collective Group Third Quarter 2022 Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and answer-session. Thank you. Thomas Allen, Chief Financial Officer, you may begin your conference.

Thank you for joining us today to discuss the Membership Collective Group's third quarter 2022 financial results. My name is Thomas Allen and I’m the Chief Financial Officer. I'm here this morning with Nick Jones, our Founder; and Andrew Carnie, our President and Incoming CEO. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our most recent quarterly report on Form 10-Q filed today, November 16, 2022. 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 third quarter 2022 earnings release, which can be found at membershipcollectivegroup.com in the News & Events section. Additionally, we have posted our third quarter 2022 earnings presentation, which can also be found in the News & Events section on our site. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from, our GAAP results. Reconciliation to the most comparable GAAP measures are available in today's earnings press release. Now, let me hand it over to Nick.

Thanks, Thomas, and good morning, everyone. I'm talking to you for the first time as just the Founder and not the CEO. It was four years ago, we hired Andrew Carnie to help me deliver the significant growth we had planned. And I'm so pleased to announce that he is now stepping into the CEO role. Well done, Andrew. Having worked closely with Andrew, I'm super confident that the MCG will go from strength-to-strength under his leadership, and I really look forward to working with him and the rest of the team to help support that success. As I step back from the day-to-day running of the company, I will focus on doing what I have loved doing for the last 27 years, designing new houses, keeping members at the heart of everything we do and motivating our people. With my recent diagnosis and successful recovery from prostate cancer, I spoke with our Executive Chairman and the Board and agreed the time was right for me to transition. Since I started Soho House, I've always been obsessed about what our members want, and I'm really proud of what we have achieved. Andrew, over to you.

Thanks, Nick. I want to take a moment to thank you as you head into the next chapter as Founder. You set a really high bar when it comes to creating and scaling a global membership business, and I'm really humbled as I step into the role of CEO, and I'm excited to partner with you, Nick. This is a unique business with huge opportunities ahead of it. It has all come from Nick's original vision for Soho House, and my focus is on enhancing and growing our membership, whilst delivering greater profitability. To that end, I've spent the last few months with our Executive Chairman, Ron Burkle, Nick and our senior team, putting together a plan based upon analyzing our business, how members are using the houses, using focus groups and our first global member survey. I will briefly touch on third quarter results, before I give you a more detailed update on our future plans. So here are the things we continue to be proud of in the quarter. Soho House membership grew almost 30% year-over-year, and total MCG membership grew 46% year-on-year, both reaching record highs. Even with the extremely strong membership growth, our MCG waitlist is at an all-time high and in terrific shape, reaching 85,000 by the end of the quarter, up from 82,000 last quarter. We tend to remain at around 95%, despite concerns of a tougher economic environment, which shows how sticky our membership base really is. Total revenue grew almost 50%, around 75% at constant currency. Unfortunately, while our adjusted EBITDA grew $11 million year-on-year and $5 million quarter-on-quarter to $20 million, our profits are not where we'd like them to be, and we will do better, and it's our highest focus as a public company. Now, getting on to our updated strategy. Going forward, we're focusing obsessively on two things. Growing and enhancing the value of our membership and driving operational excellence to improve profitability, which in turn will drive higher shareholder returns. This will now involve a more streamlined and data-driven approach to reducing expenses without compromising what matters most to our members. On membership, we plan to expand our physical footprint more efficiently by providing members with unique experiences and exceptional service. We need to be more targeted and giving our members what they really want and in the way we invest in the member experience. This will involve a greater focus on the Soho House business as the key driver of future growth and improved profitability. That's not to say, we're not excited about our other existing businesses. Scorpios just came off its best season ever, while Soho Home sales grew around 9% in October. However, more of my time will be focused on the core Soho House business. Secondly, we're really pleased with how we continue to deliver membership and top line growth. We know we have more to do on profitability, and we're announcing a series of initiatives today that will help drive enhanced profitability and more on that shortly. We believe, we can deliver a first-class member experience, while also being relentless on optimizing revenues, improving margins and our profits. We've always been a business that is centered around what members want. In our recent first global member survey, members told us we get a lot of things right. They love getting access to our houses around the world, not surprising given our membership is around 80% every house membership. They love the design of our clubs, the atmosphere we create and the members that we bring together and the events we host. That said, we'll be working through some of the things they'd like to see us improve, specifically in service, programming of greater choice of events and a broader food offering. They also said they love us opening new houses, but opening them well. We have opened five new houses this year and demand has been very strong. Nashville already has over 2,500 members, Brighton 1,500 and Holloway House over 1,000 and Copenhagen and Balama approaching 1,000, all ahead of our typical maturation curves, which has houses starting at 750 members and ramping up to 1,500 at the end of the first year. We're on track to deliver 7 new Soho Houses in 2022, which includes two further openings slated before year-end, Miami Pool house in Stockholm. While this is down slightly from our prior guidance of 9%, we've decided to delay Bangkok and Mexico City to make sure we give members the best possible experience from day one, and we expect both houses to open in early 2023. To give members the best possible experience and to ensure reduced pressure on the organization, we are returning to our previous target of five to seven new houses a year, and this is in line with our already signed pipeline for the next three years. At the same time, our cities at houses offer will continue to provide a clear path for longer-term growth at a minimal expense to the company. As part of prioritizing the right investments for our business and our members, we are no longer pursuing the external digital membership. Now onto driving operational excellence to improve profitability. We are taking some immediate actions to ensure we give our members what they want, but do so in a more efficient way. Let me run you through a few of them. We are reducing our in-house operating expenses. Post COVID, we rush to get all our houses open as quickly as possible in the manner we were used to operating them. In addition, it was a tough and unpredictable labor market, which means our costs increased significantly. What we've learned is our members are using our houses just as much, but at different times, so we're adjusting our cost base accordingly. Our recent global member survey highlights that members place less value on aspects outside our houses. With that in mind, we're refocusing our G&A with targeted reductions on content, digital and other corporate expenses, without impacting the member experience. For example, we are reducing our editorial content spend by about 40% going forward. We can raise prices, but the real opportunity is to run a more efficient business. One fine example, in recent months, we found additional sizeable opportunities across all our F&B procurement. The intention behind these actions is to enhance member value and drive profits for the business. If these do not fill those goals, then we will not pursue them. These changes will take time to feed through and the benefits will principally start to be felt in 2023 onwards. We are confident that this will help us generate stronger, more consistent earnings going forward and achieving above 10% adjusted EBITDA margins in 2023. Now, let me pass it on to Thomas to give you more detail on third quarter results and updated guidance.

Thanks, Andrew. Total revenue grew almost 50% or approximately 75% at constant currency. Revenues beat consensus expectations despite $10 million of additional FX headwinds, compared to when we last guided. Membership, in-house and other revenues rose 39%, 62% and 41% year-over-year, respectively, or over 60%, 90% and 65% in constant currency. Membership and in-house revenue came in line with consensus, despite additional FX headwinds, while other revenue beat. House level contribution increased 36% year-over-year, but disappointingly margins fell approximately 200 basis points, as we overcompensated on expenses, especially wages as business volumes returned. Other contribution grew 66%, with margins increasing approximately 300 basis points supported by strong results for Scorpios. Giving more details on revenue. Total membership revenue increased $29 million year-over-year, supported by strong growth in new house members, legacy house members and new membership. We also continue to benefit from the price increases earlier in the year, and another reduction in frozen membership. Frozen members as a percentage of total members is now 1.4%, well below pre-COVID levels, highlighting the increased value for our members and having an active membership. In-house revenues grew $42 million year-over-year, benefiting from six new houses, stronger food and beverage demand, an 18% higher like-for-like RevPAR versus third quarter 2021, and 23% higher than third quarter 2019. Despite these increases, our average daily rate indexes suggest that we are still providing significant value to members with our bedrooms. Other revenues were up $25 million year-over-year, helped by strong Scorpios and Soho Home growth, public restaurants and townhouse revenues and increased fees from our management contracts. We also opened The Line, San Francisco in the quarter. Our third quarter reported adjusted EBITDA was $20 million, $5 million higher quarter-over-quarter and $11 million year-over-year, as we benefit from continued strong membership and other revenue growth. However, our adjusted EBITDA was below consensus, which was $26 million and similarly below our internal expectations, versus when we guided last quarter of 2022, FX was approximately another $1 million headwind in 3Q, and we expect a relatively similar amount in 4Q. And as Andrew mentioned earlier, we've continued to have to adjust to the shift in consumer behavior since COVID and in ways we overcompensated. If our Soho House wages as a percentage of revenue had been where we want them to be, we would have generated approximately $7 million of additional adjusted EBITDA in the quarter. On to guidance for the balance of this year, which reflects both the strong momentum in membership and retention we are seeing as well as the challenges we have been having on the cost side. We are on track to deliver our total Soho House members target of 160,000 to 165,000 members by year-end, despite opening two fewer houses than we had previously expected. And looking at 2023, given our confidence from our waitlist and retention, we are introducing year-end 2023 Soho House membership guidance of approximately 190,000 members in line with consensus. We are reiterating our 2022 membership in total revenue targets is despite the fact that when we last set guidance, we assume the pound/dollar exchange rate will be $1.21 for the rest of the year and the euro/dollar exchange rate will be $1.02. We had a $10 million FX hit to revenue in 3Q and basing 4Q FX on bank's forecast, expect another approximately $18 million impact in 4Q using $1.04 per pound/dollar and $0.95 for euro/dollar. On adjusted EBITDA, we are cutting our guidance from $70 million to $80 million to $55 million to $60 million. Our 3Q EBITDA was disappointing. And while we have a clear plan in place, we expect it to take a few months to start to really show results. We expect to reach over 10% adjusted EBITDA margin in 2023. So what would we like to leave you with today? It's been a good quarter for continued momentum in membership growth, recurring revenues and retention with future demand through our waitlist remaining very strong. We have clear strategic priorities in place to generate greater profit and free cash flow and in turn drive shareholder returns. We are laser-focused on delivering for our members and growing value of the membership experience. As Andrew said, we are confident we can deliver a first-class membership experience, while also being relentless on optimizing revenues, improving margins and generating higher profits. With that, we will now open up to questions. Operator, can we take the first question, please? As a reminder, you can either ask your questions over the phone or submit them over the webcast.

Thank you. Our first question is from Shaun Kelley with Bank of America. Your line is open.

Hi. Good afternoon everyone. Thank you for the color. And Nick, obviously, you've been an inspiration to an entire generation here. So thanks for all your efforts and continue to look forward to see some of your vision coming together in some of the houses here. If I could, I'm not sure if this is for Andrew or…

Sure.

...I'm not sure if this for Andrew or for Thomas, but could you just give us your -- maybe your broader thoughts as we think about the impact at the house level of some of the operating changes you're contemplating here. Really, what I'm thinking about is contribution margins, which clearly were a little disappointing with some of the headwinds in the third quarter. Help us think about just sort of how you think about the four-wall model as we move out to 2023 and you start to optimize some of the things you want to do. But if labor is the key linchpin, help us balance that with obviously not compromising on service, which we know is pretty paramount here to the model.

Yeah. So I'll take that one, Shaun, and good to hear from you. So if you think about coming out of COVID, we -- we wanted our houses to be super prepared for our members when they came back, so we -- in a very tough labor market. So what we've realized over the last couple of months is that our members are using our houses differently. The footfall is still the same, if not greater than 2019, but they're slightly using them differently coming out of COVID. And what we can be much more focused on and improve upon is optimizing our house wages and expenses based on when members visit our houses, the most. That's one of our biggest things that we control. And we can do better on our rotoring, our forecasting, optimizing when we open our houses and close our houses. And each house is different. So we've analyzed each house in quite a lot of detail to come up with a plan that we're implementing. Second, -- if you think about our G&A, we've been investing heavily over the last few years in our content platform, in a lot of our digital initiatives. And like I said on my prerecording, we've spoken to a lot of members now, and they're less interested in that. So that's the one area that we can really pullback on, which will help again on our costs and becoming more streamlined and efficient. And then secondly, or thirdly, as Thomas mentioned, we're going back to five to seven houses a year. And the reason we're doing that is we want to take some pressure off our organization. We want to take -- we want to be streamlined. We want to have the right cost base and 8% to 10% was putting too much pressure on for. So those three things combined are meaningful for us. And that's where -- that is forming the basis of our plan going forward into 2023.

And maybe just as my follow-up, Thomas, it might be for you, but just thinking about some of those G&A changes, does this -- is this significant enough that G&A dollars could actually decline year-over-year? Maybe help us put some guideposts around what this can mean for the broader organization may be a little preliminary for guidance, but just any sort of ballpark or magnitude of what this could mean at the G&A level?

Yeah. Shaun. So our actions are definitely being put in place to streamline SG&A or G&A. The problem that you have from looking at it on a consolidated basis is, the support offices broadly that are included in our consolidated numbers. So if you think about next year, we're expanding in Latin America, so that's going to be included in G&A. But we are seeing meaningful savings there and expect good number of savings in G&A.

Thank you very much.

The next question is from Sharon

Hi. Thank you.

Hi.

I guess, I'm curious, given the state of the U.K. economy, if you could kind of touch on trends in the U.K. specifically, how the wait list looks there, if you're seeing any change in kind of in-house behavioral patterns in the U.K. And then, a secondary question. I was a bit surprised that revenue guidance wasn't narrowed for the full year, given we have just 1 quarter left. Can you kind of give us your thoughts on that reiteration of what kind of implies a really broad range for the fourth quarter?

Yes. Well, I'll take the first part of your question, Sharon. So regarding the UK, so -- we -- in Q3, we -- our members in our houses are higher than they were in 2019. We have not seen any change in our member behavior. So, we're not seeing any recessionary behavior as it stands in our membership in the UK. In fact, we actually grew quarter-on-quarter on our revenues and our spend. What we focus a lot on that we can control, which is making sure we have the best service in our houses that we have value options for our members if they want them. So, regarding our waitlist -- UK waitlist is actually one of our strongest waitlist. We've got super great waitlist on every single house across the UK. Our applications in Q3 are at record levels, pretty much in all our regions, but in particular, the UK. So, as we stand, where we feel cautiously optimistic about our UK and our members. But as always, we want to make sure that we're delivering the best value, the best service, and the best experience for our members when they do come into the houses. Thomas, do you want to answer the second part?

Yes. So, Sharon, our key messages from the quarter is that membership and revenue continued to have really strong momentum and we continue to be on track to our full year guidance. I mean I think on the revenue side, remember, we guide to two things, we guided total revenue and membership revenue. Both of them are feeling FX impacts. But as you can imagine, we feel good that we're performing well there. And I would say that we are going to be well above the bottom of the ranges.

Thank you.

The next question is from Steven

Great. Morning. Nick, best wishes in the new role, and congrats to you, Andrew. I had a question on the change in strategy of the unit growth going back to five to seven per year. How do you think about that in terms of differences by region? And then also in terms of smaller houses versus the bigger properties that you -- like a farmhouse for example, how do you think about that in terms of the differences?

Yes. So, I'll go first. Our strategy hasn't changed on the types of houses we're in. That's all based on our CWH members that we have in each city that kind of define what type of house you put in there, be it a small or mid or a large house. So, that's fundamental to our growth. The only change that we've put in place, Steven, is we just want to slow down. We want to go back to the five to seven, which we articulated at the IPO because a part of generating more profits is that we want to streamline things. And what we found this year is that given all the challenges in the macro, be it supply chain, be it labor, even on opening houses, it was -- it just makes sense just to go to five to seven. Five to seven houses is still a lot of houses each year for our members to enjoy. And we will continue with our tried and tested strategy of CWH and then figuring out what configuration of a house is suitable for that city.

Yes. Just -- wanted to give a couple of additional comments on the updated house guidance. I mean if you think about it, we've delivered seven -- we're on track to deliver seven houses this year and we delivered six houses last year. And the five to seven is in line with our signed pipeline for the next three years. As we think about next year, a lot of those projects are already underway. And so this is really relieving the burden on the company and giving us -- allowing us to deliver on a plan that's really already set. To give you a little bit more geographical color about next year, there's going to be a lot -- there's going to be a big increase in the Americas. What we found, and as you know, we -- one of our largest segment is North America now. We're expanding into Latin America with Mexico next year, and we're going to continue to expand in the region.

Okay. Great. Then to go back to the other question about potential recession impact, I think you made the last time we had the call, you talked a bit about how the business has performed in recessions in the past. And I'm curious if you could just opine on that topic. What do you see in terms of member engagement during weaker economic environments? The rate that they visit the houses less? Do they actually visit a bit more? Just like -- just talk through that impact would be very helpful.

Hi, Stephen. Well, yeah, I've been doing this for 27 years, and we've seen a number of slowdowns and recessions. And what we've seen in the past is members actually go back to the houses even more because it's a home away from home. And I think people look at their subscriptions at times like this and go to the ones which they feel that they don't need so often or don't use so much. And Soho House is one of those subscriptions. And we are a membership business. So we care deeply about our member. And I think they look at it and say, "Oh, I'm going to use that more". And when they come into the house, we're always sensitive to the economic conditions outside, so as value items on the menu, et cetera. So we -- in the last 2008, 2009, we saw growth in our membership and no increase in people resigning our membership. And I really think the membership side of this business is -- they're so loyal to us. They're so good to us. We've never seen more people on our wait list. We've never seen applications higher. And I think whatever the economic conditions are over the 12 months that in the past, it hasn't harmed us and I don't think it will harm us this time.

Great. Thanks very much for the detail. Best of luck.

The next question is from Stephen Grambling with Morgan Stanley. Your line is open.

Thanks for taking the questions. Congrats, Andrew and Nick happy to hear about your recovery and wish you continued health. You all mentioned some record trends from Scorpios and you didn't really spend as much time on some of the other categories. How should we be thinking about future growth and investment in some of these other areas, whether it's HOME+ digital works, et cetera?

Hi, Stephen, we expect to continue to see growth in the other revenue. We're continuing to expand in our management contracts. As we said, we opened up the line to San Francisco in the quarter. We recently opened up another net this week actually. Home is continuing to grow -- and so we're going to continue to see that other revenue line grow. I think our key message, though, is that we're trying to be more focused and really simplify the story. And so more of our more of our focus and efforts are really going to be on the core Soho House business.

Got it. And then one other follow-up. I guess, you mentioned the reduced editorial. I guess, how did you generally think about the value of content historically? And how do you anticipate the reduction will either impact the number of member touch points, or is it more about pruning in effective content?

Yeah. Great question. So following our global member survey, what our members told us is that they -- we spend a lot of time recapping our events globally. So when we have like Kendrick Lamar, who recently played in our houses, we would record it professionally, edit it and then put it on our app. That's quite a big cost for us. Our members don't want that. They -- let’s just say, we're less fussed about that. We actually won event programming going forward and you too actually personalize it on our app, which is just written. Just tell us what events coming up and what ones I should like based on what you know about me. So there's other things like that that we can do that will actually help us streamline a lot of our expenses in our support offices. We made the decision recently to stop pursuing digital membership. After speaking to our members, they want us to focus on them. They want -- they do want connectability, but actually, they want connectability more in the physical spaces and more in our houses, more than ever before. So that's what we're going to focus our efforts on. So it's all based on what our members are telling us and what they're selling is that they like some of the stuff that we're doing and some of the stuff we're not doing. And that's great news because that's what we should be doing. I hope that makes sense.

Yeah. Helpful. Thank you.

We have no further questions over the phone at this time.

We have one question that's send in over the survey. What did you learn through the surveys and focus groups? Andrew?

We learned a lot. So the first thing that we learned is our members love us. They love what we're doing. They really value when we open new houses. They want us to open more around the world, which is -- reflects on 80% of our members being every house members. They love the events that we put on, both in houses and out the houses and want us to be better about communicating that to them in the future, like I said. They're really satisfied with our app that we've obviously put a lot of investment over the last three years, but they want it out to be fantastic at booking and paying, booking events, spa classes, bedrooms and dining room reservations globally. They care less about the connectability and the content that I just mentioned. So it was really positive survey. The things that they want us to try and improve is service around all our houses, the speed of service, the quality of service, and they want us to have more diversity of food and differentiated food offerings across the different houses, which is great news for us, and we're already working on these bands.

So thank you, everyone, for listening. And if you have any follow-up questions, please feel free to reach out.