Thomas Allen

Thanks, Andrew. Total revenues for the third quarter grew 14% year-on-year to $333 million accelerating from 3% growth in the first quarter and 5% growth in the second. Membership revenue rose 17% year-on-year to $107 million, while inhouse revenues rose 5% and other revenues up 22%.
House level contribution was up $9 million or 17% year-on-year. With house level margins of approximately 150 basis points to 28% despite the short-term impact of new house openings. Other contribution was up $5 million or 24% year-on-year, supported by a strong summer for Scorpios Mykonos and continued growth in Soho Home sales.
Giving more detail on revenues. Year-on-year revenues were up $40 million driven by increases in recurring membership revenues, inhouse and other revenues. Membership growth and pricing grew a $15 million increase in membership revenues. Inhouse revenues were up $5 million year-on-year, supported by new house openings. While other revenues were $90 million higher driven by very strong growth in Soho Home and Scorpios.
Like-for-like inhouse revenues for the quarter were up slightly year-on-year, an improvement from the approximately flat growth year-on-year we saw in the second quarter. Europe that the world saw the strongest like-for-like growth in the quarter, followed by the UK then the Americas which was down slightly. Note we exclude Tel Aviv from our like-for-like calculation.
Our third-quarter adjusted EBITDA was $48 million up 38% year-on-year with margins increasing approximately 250 basis points year-over-year. However, while margins increased year-over-year, they weren’t as strong as we hoped.
FX had an approximately 2% or $5 million benefit to revenue, but had only approximately 1% or $500,000 benefit to EBITDA as the pound strengthened significantly in the quarter. While this is helpful, the benefit to EBITDA is smaller than for revenue as our inhouse costs are the same currency as revenue and the greatest share of our support costs are in the UK.
In addition, as Andrew touched on, we are taking steps to roughly ensure our back of house performance matches the strength and operational excellence of our front of house. As you know, we have been investing in our finance team, adding additional expertise.
We are making investments to try to replace our current Finance Enterprise Resource Planning or ERP software with a new industry leading cloud-based system, led by our new Chief Transformation Officer who we hired last month. The investment will overhaul how we manage finance, procurement reporting and compliance, payments and staffing, and more seamlessly connect to our membership and operations. It will allow us to scale more cost effectively, which is important for a company that is in over 20 countries today with plans and more in the next few years.
As part of our overall investment to improve our back of house, we have also hired consultants to support the company to create a comprehensive plan and assist with the review of our books to make sure the data that would go into the ERP system has been checked over. The consultant costs this quarter were over $1 million.
One other thing that came out of this was that we would continue investment in our finance team and the help of consultants found that through manual errors or systems not interfacing properly, there were misstatements in our prior period financial statements. These were from historical costs that had not been expensed or revenues that had not been accounted for properly. This includes items previously found to be an error which should have been deemed inaccurate, not material to adjust for until now.
More correction of these adjustments is out-of-period corrections would be material inaccurate to the current period. We determine the impacts of these misstatements were not material to the financial statements for all prior periods identified. As a result, we have revised our 2022 through first half 2024 financial statements with adjusted prior periods and revisions in our earnings with AK and (inaudible) with detailed explanations around the misstatements.
The largest driver of the misstatements came from a review of our North America segment balance sheet work that we have carried out ahead of the RP. North America is our largest region and handles over 150,000 sales invoices, over 100,000 vendor payments per year for over 60 corporate entities. This has generally been a manual process which is therefore more prone to error. We have been investing in this area to remediate these issues. We have been adding other technology fixes that are helping the team until the new ERP system is fully up and running. We replaced our North America corporate controller with someone who has a lot of experience in remediation situations like this and are increasing the size of their accounting team by around 50%.
Now, discussing our balance sheet, we ended the quarter with $147 million of cash and cash equivalents, $5 million lower than the end of the second quarter and $686 million of net debt. We repurchased $13 million of shares in the quarter. We ended the quarter 5 times net debt to adjusted EBITDA, down from 6 times to the end of the third-quarter 2023.
Moving on to guidance, we continue to see strong momentum in the core drivers of our business. We are reiterating our guidance for reaching over 212,000 members at the end of the year and delivering membership revenue of $410 million to $420 million.
However, we are lowering our total revenue again to the low end of the previous range, around $1.2 billion from $1.2 billion to $1.25 billion previously to down approximately $25 million from the midpoint. You have heard from some other companies exposed to food and beverage spend and accommodation revenue the demand has not been quite as strong as hoped heading into the end of the year.
While we enjoy the benefit of resilience that membership revenue gives us, we are tempering our expectations for inhouse and other revenue. We’ve had a choppy end of the year. In October inhouse revenue saw the weakest month for like-for-like year-over-year growth we’ve seen since the first quarter down mid-single digits. However, November was much stronger with like-for-like growth roughly flat.
We’ve also had some unique factors impact us, such as significant flooding that has closed some of our facilities so our farmhouse across October through to December, as well as the recent Malibu fires which temporarily closed that property down. FX has also gone against us as the dollar appreciates significantly opposed to US elections. It’s worth reiterating here that while we do feel the impact of macroconsumer discretionary trends, our membership loyalty and growth, which are the foundation of our business, continue to meet and exceed expectations.
We are also cutting adjusted EBITDA guidance to approximately $140 million from $157 million to $165 million. Approximately $21 million below the midpoint of our prior guidance, but still approximately 21% higher than our revised 2023 result.
Q3 margins did not come in as strong as we had hoped. And our revisions lowered first half ’24 by about $1 million. We continue to have costs associated with the ERP which will weigh on results in the fourth quarter and the time and the restructure that we started in the second quarter, and we will finish in the fourth has also slightly lagged our prior expectations.
$21 million lower EBITDA, $25 million lower sales is not the typical (inaudible) we would expect from lower revenue if it was just business as usual. But we see approximately half of this as well as unique factors that we do not expect to recur going forward.
With that, let me hand back to Andrew.

Andrew Carnie

In closing, Q3 was a solid quarter for the business as we grew performers meaningfully compared to last year. It was also a quarter of continued transformation as we took further steps to simplify and strengthen the business, especially in our back of house operations. While this has created a lot of noise, its positioning is better for the future. And I believe we’ll continue to see the benefits of the transformation in 2025 and beyond. Finally, as always, I would like to thank our teams globally for their hard work and passion, and our members for their continued support and loyalty. With that, we will now open up for questions.

Operator

(Operator Instructions)
Steven Zaccone, Citigroup.

Steven Zaccone

Great, good morning. Congratulations on the offer. Maybe, Thomas, could we just talk through some of that part, the last commentary you gave there about the guidance change. So, it sounds like $21 million reduction in EBITDA, approximately half of that. We should think it is one time in nature as we think about next year. And then just on the cadence of like-for-like sales, when you talked about some of that weakness in October and then things got better in November, was there notable differences by region? Like, was it primarily continued weakness in the US underperforming? Any geographical comment would be helpful there.

Thomas Allen

Hey, Steven. So, I’ll start with the first part of the question and then pass it on to Andrew to talk about the recent trends. So, like as we send the prepared remarks, we continue to see strong momentum in the core driver of our business, which is membership. However, we are lowering total revenue guidance.
You’ve heard from other companies exposed to food and beverage spend and accommodation revenue, the demand hasn’t been quite as strong as hoped heading into the end of the year. We are no different except that we have membership revenue so we’re tempering our expectations really for inhouse and other revenue.
We’re also cutting our EBITDA guidance. Our third-quarter margins came in slightly below where we expected them to. We will continue to have costs associated with the Finance ERP, which will weigh on results in the fourth quarter and the timing of the restructure was slightly lagged to our prior expectations.
As I said, about half of the guidance change was unique and we do not expect to recur going forward such as the flooding impact of the farm. We had about a million dollars in the first half while we also invest in the future with the time to restructure the PERP work and some other financial consulting costs and just other unique items.

Andrew Carnie

Hey, Steven. And just on the trends, I think what we said in our preferred remarks, we saw a slowdown in UK and America in October, both impacted by pretty sizeable macro events. Well documented UK budget that we saw a slowdown in UK and then on the buildup to American elections, we saw a slowdown. In November, both those regions bounced back, so Europe was pretty consistent, and Asia is actually doing okay. So, it was mainly UK and USA that we saw that the change.

Steven Zaccone

Okay. That’s helpful. And the last question I had is the opening of Mews House this quarter. Can you just talk a little bit more about the strategy there? You know, you already have Malibu, but when you think about the opening of the Mews House, do you see the opportunity to do more of like an elevated tier of houses or elevated tier of membership going forward?

Andrew Carnie

Great question. We couldn’t be more happier with the Mews House and I think our members could be more happy. So, it’s got off to a phenomenal start where we’re providing a more elevated house, what we would normally do both in the design aesthetic and for both the menu, the British grill menu. And then the events that we put on, as I mentioned in my pre-recorded remarks are pretty special artists.
And at the moment, it is — we are looking at New York as a potential Mews House. And also, we have a beta coming as well in the summer next year, which will be in similar vein. So, we’re really happy with how it’s worked. And yes, we are looking at other ways that we can roll that concept out.

Steven Zaccone

Okay. Thanks very much for the questions. Happy holidays.

Operator

Shaun Kelley, Bank of America.

Shaun Kelley

Hi, good afternoon, everyone. Thanks for taking my question. You know, Andrew, Thomas, just first on the — I know it’s always difficult to comment on the strategic alternatives piece. But anything you could do to outline one or two areas, one would be just sort of next timeline or milestone when we know a little bit more or at least on the public side about what’s occurring here? Either is there a timeline for the review, is there milestone or additional filings that need to be provided? And two, any, obviously, it’s a third-party consortium, but just any clarity or when we might receive a little bit more clarity about who that is or what the financing sources may be?

Thomas Allen

Hey, Sean. I’m going to give you a pretty disappointing answer. As we said in the prepared comments, we’re not going to comment on the offer. Sorry.

Shaun Kelley

Okay. Got to try, you know, the game. Second question, maybe just digging in a little bit. So, here kind of all the — thanks for the bridge and we hear sort of all the different pieces moving together here. But as we think about just like purely fundamentals, we’ve heard more and more about some uptick in the travel world post-election, especially here on the America side. Probably some component of pent-up demand, a little bit of a excitement around just sort of probably some certainty moving forward.
So, have you seen that in your business? Can you talk a little bit about bookings? December? Just give us a little color because, again, we passed everything from data to a lot of the airline commentary that’s put out there. Things actually look pretty rosy after the election and appreciate, it was a tough October. Thanks.

Andrew Carnie

Yeah, great question. Yes. So, we’ve seen something similar. If you remove all the noise of the one-offs like the farm and fires at Malibu and all the things that Thomas has mentioned, we’ve seen in the last few weeks an uptick, but in more particular which I think is much more of a positive is Q1. So, our bedroom business in Q1, the bookings we have on now looks very strong in Q1, very strong, which is a great sign of what you’re describing on a more of a positivity around 2025.

Shaun Kelley

Great. Thank you very much.

Operator

Stephen Grambling, Morgan Stanley.

Stephen Grambling

Hey, thanks for taking the questions. I’m going to take one more stab on the deals which, I guess, without having to comment explicitly on anything. Is there anything you could maybe provide in terms of comparing and contrasting? It sounds like you had a strategic review earlier in the year with a separate offer. So, I’m just wondering if there’s any framework that makes looking at this one different or if there is any takeaways from the original review that you could share.

Thomas Allen

Hey, Stephen. I mean, given the fact that this is really a Board decision, we’re going to stick with not commenting on it. Sorry.

Stephen Grambling

Got it. And then, I think I heard this has come up a couple of times that you made a comment that the third quarter like-for-like in North America was weaker than it’s been choppy in October, November time frame. And I think you touched on this a little bit, maybe I missed it, but just is there — are there specific houses in the third quarter or like when you put on a broader lens? What do you think has been driving some of that choppy behavior?

Andrew Carnie

We candidly — we saw it across the board, in the run up to the election in America. And then post-election, we’ve seen the more positive bounce back in New York, Central, Miami, West Coast lagging a little bit. But it was mainly across the board of what we saw in Q3, which we could, and it was only slightly down. But I think to my early point, if we look at Q1 and our bedroom business in America, it’s up versus Q1 at 2023 which is a positive sign.

Stephen Grambling

Got it. And one other one, I’ll sneak in quickly just on the cost side. Thomas, I think you said that the accounting team has been increased by something like 50%. You also commented that the flow through in the quarter is below what you would normally expect. But I think we’ve seen these kind of ERP processes sometimes take longer than people anticipate. Should we be anticipating that 2025 may still be a bit of an investment year behind some of these initiatives, and then we’ll get the more normalized flow through there after even better flow through beyond 2025 because of some of what’s being implemented?

Thomas Allen

Hey, Stephen. So, the cost of the ERP and some of the other transformation stuff, yeah, will have an impact. But as we talked about in the prepared remarks and as you can see from our financial statements, we took pretty significant seven charges over the past two quarters. And we’ve really shifted focus within the company. And so, if you look at the size of the seven charges, I mean, it could give you a good sense of the savings that we’re going to make out of other parts of the business to invest in getting our forecasting and our controls and our core tech operations into a better place.

Andrew Carnie

But just I’ll give you a bit more color on the ERP yet. Yes, it will be a transformation to through 2025 and then we see once that’s done, we would see significant savings, like in a Phase 2 of our efficiencies within our teams and efficiencies with running the business. So yes, you will see a better flow through once the ERP is in and what you’re seeing today.

Stephen Grambling

Got it. That’s helpful. Thank you.

Operator

And that concludes today’s question-and-answer session and today’s conference call. We thank you for your participation. You may now disconnect.