Q3 2020 Despegar.com Corp Earnings Call
Good morning, welcome to the spend that third quarter 2020 earnings call.
Slide presentation is accompanying today's webcast and is available.
<unk> in the investors section of the company's website at <unk>.
W that investors that this big <unk> Dot com.
Opportunity to ask questions at the end of the presentation. This conference call is being recorded.
My mind, all participants will be in listen only mode now I would like to.
To turn the call over to Miss not but again I am Burke Investor Relations go ahead.
Good morning, everyone, I'm, saying gosh I mean, that's a date for discussion of our fourth that's what you've done.
In addition to reporting financial results in accordance with you. It she went on to execute their helping bring people.
We discuss have been non-GAAP financial measures and operating metrics, including quoting accent.
In Asia.
So to read the definitions of these measures summit is included in our press release carefully to ensure that they have some than non-GAAP financial measures and operating mandate should not be considered in isolation.
Well speaking for disappeared, so definitely nice I'm anxious and I provide to somebody like that information <unk>.
Before we you know what for not would not allow me to remind you that sort of any statements made during the course of the discussion may constitute forward looking statements, which are based on management's current expectations on me.
Subject to a number of risks and uncertainties that glucose optimal results to materially differ including fructose and maybe you on the Companys controllers. These include but are not limited to expectations and assumptions related to the impact of the Cobi 19 pandemic of integration and performance of the businesses we acquired.
Going back say uncle and.
Got it could you know each week, please refer to our filings we the Securities and Exchange Commission and our press release.
Speaking on today's call I would feel them, yes, cooking, who will provide an overview of the quarter and update you on our strategic priorities.
Oh.
Philip behalf me, our CFO, we afterwards discuss the quarter's financials.
After that we'll open the call to your questions.
Dan. Please go ahead.
Thank you Natalie and good morning, everyone I Hope you and your families are healthy on site.
We have been able to successfully.
That's about to our Rockies would react to countless called related challenges.
From the start of these fund then we would do decisive action to lead our business an organization through these unchartered waters.
Well, we're up Complishments throughout 20 to Indy hub being that this I'm sorry.
Of our value proposition and resilience of our business model, our ability to be add Doug I mean nobody on.
Central work of our talented and passionate team.
This was further demonstrated in our Q3 results, which showed sequential improvement.
Despite the ongoing they've got the big Bucks Colby on the travel industry.
We have outlined <unk> strategic initiatives on these quarterly calls we have been providing update as to the progress we have made.
Birth.
We have that flexibility.
To support our business.
During the quarter activity levels began to recover from the <unk> box brought about by the bumblebee and execute.
Executing on our growth strategy, let me walk you through some key event.
During the third quarter of 2020 Meg.
On Brazil wedded to me your Latin American markets relatively more open to problems.
The sequential improvement, we saw introductions and gross bookings.
Was driven primarily by these two markets, where we also benefited from successful negotiate.
Patients with our travel suppliers to flexibly lies our product offering.
The favorable mix with a higher share of accommodations and packages contributed to an exceptionally high quarter take rate excluding cancellations.
On the marketing front.
We successfully implemented a series of initiatives.
Mostly undertaking through unpaid channels and industry events.
This in turn enable us to call marketing spend flat when compared with the second quarter, even while our transactional tripled in the same period.
Additionally, we continue to see increased.
In Texas or more light up a 120 basis points from last year.
With a focus on cash generation the actions, we undertook translated into higher levels of profitability per transaction.
Moving next to cost structure, we're intensely focused on right.
Sizing our structural for the new operating environment and shifting to a more variable cost model we.
We put in place a plan to reduce structural costs to a 28 million run rate by the end of the third quarter of 2020, we succeeded in achieving these targets.
Productivity and cost discipline, we continue to be key in our business going forward, along with automation to increase productivity.
Cash is king, particularly in an uncertain operating and economic environment.
Our liquidity was another highlight for the quarter.
As previously disclosed during the quarter, we closed two private placements pricing a bit less than 200 million, giving us a total cash position at quarter end of $380 million.
Additionally, net operational short term obligations.
Relatively stable quarter over quarter.
Chris sales drove up our travel payable position.
Why refunds and cancellations as still pending.
On the other hand, the balance sheet reflects receivables collections effect, partially offset.
Said by the absorption of coins loan book.
Lastly, we have had to adapt to the new normal with the speed and agility needed to stay focused on delivering business results for here now we're advancing our long term strategic plan for sustained long term growth.
Inorganic growth remains an important part of our strategy. We have been active this year closing on two transactions best day and coin.
And we are accelerating their respective integrations.
We closed on best day, well results to be reflected as of October onest.
As you will hear me discuss laker based they already having a positive impact on Mexico gross bookings.
As on November the fourth best they beat to see travel agency business is running on the biggest technological platform.
Only one month after the close.
It was announced.
This is a significant milestone compared to the six month taken to migrate the achatz Falabella B to C platform.
In terms of coin, we strengthen the credit and fraud analyses by leveraging the spigot credit information.
We'd has contributed to improved coins finally commercial rate, while prudently managing credit risk.
We next fall.
For a discussion on the Latam air market on slide four.
Youve all heard the phrase a picture is worth more than a thousand words on here on this page you.
Clearly see how little air traffic growth in Latam compare with the rest of the work. This is real time price data from Flightaware as of October 21st.
This large disparity reflects tighter travel restrictions in most of the Latam it.
Except for Brazil, and Mexico, but.
Versus the jogger.
A reminder, although Latam was the last major geographic region to be impacted by kabi covered bonds.
Implement at the same time in Europe.
That's the mutations who travels have been in place.
For a longer period and the recovery is significantly lagging behind.
It is also important to note that these factors are temporary responses to the pandemic.
Not indicative of a structural shift in the market.
I would now like to turn to discussion.
The evolving air travel environment.
During the quarter, we continue to experience Cogs related challenges in certain geographic markets, specifically in Argentina travel.
Travel has to be done since mid March and has remained the most restrictive travel market.
But we are seeing some signs of opening up for example, effective October 30, Argentina has allowed international choosing travel or foreigners and argentineans located in nearby countries that is Chile, Brazil, Pedro and by the way I.
By contrast, you away.
Kept its borders close in addition, domestic flights recently opened for work related among our emergencies, but note for choosing and subject to the approval of each local government.
Overall air traffic in the country remains restricted.
Moving next to Chile in terms of traffic international flights were only allowed for tightly and runs through the end of July and since the beginning of August were available for the.
Domestic flights were open with restrictions and still remain band in key too.
To restate area so.
Such as the legs in southern Chile with respect to hotel they closed in April and because we are opening in September.
In Colombia domestic commercial air travel restarting gradually in September with international travel we.
Reopening also gradually on September 24.
The situation in Peru has been mix.
Domestic flights resuming July by close again, you know us to contain the pandemic and there. We started again in September international flights were allowed.
Yeah.
Early October.
As I will discuss more of the next few slides Mexican Brasil are leading the recovery with sequential improvement, while still showing significant year on year declines.
Mexico remained open for the quarter, while Brazil.
We had some restrictions in selective municipalities.
Which were lifted in October.
With respect to hotel bookings.
We are seeing a similar trend.
By country as with flight.
Moving next to slide five for a discussion of transactions.
And gross bookings.
Our third quarter transactions on gross bookings significantly improved when compared with the second quarter, which we believe represented the low for the company.
That was at the start of the pandemic when globally, most economies were shut down.
What's really been living off some sections tripled from the second quarter slow.
The sequential recovery is mostly attributable to Brazil and Mexico.
With respect to gross bookings that a recovery is a bit lower impacted by the mix shift to domestic travel and overall.
FX depreciation across the region.
Moving to the chart on the right, where we have presented the monthly evolution of both transactions and gross bookings.
On a monthly basis, we also observed a sequential improvement.
July was the allowance.
Last month of the quarter, and we steadily improved as the quarter progress.
As we enter the fourth quarter, we continued to see their recovery trend in October which also includes the contribution from best day for the full month.
Best day account fees for.
Or 19% of transactions in October and 23% of gross bookings on.
On a monthly basis between July and October transactions, and gross bookings increased at a compounded annual growth rate of 30% and 40% respectively.
Okay.
Of note.
Yes, they have a very strong presence in the domestic Mexican market one of the key reasons that may be a baby attractive acquisition for us.
While we are still operating under the impact and the certainty of the pandemic transaction.
On gross bookings were down year over year, where recovery trends have encouraging there.
There remains uncertainty about the future.
As we are seeing many countries, particularly in Europe start to shut down again.
Our geographic diversification serve us well.
Well in the third quarter. This is reflective in increasing monthly demand for our products in Brazil, and Mexico, which both were generally open to travel throughout the period as shown on these two charts demand was mainly fueled by domestic capes and destination close to nature.
Such us beaches.
Furthermore, additional products and services that we can provide including broad financing alternatives and has bookings flexibility as we adapted our value offer in response to the pandemic help us drive these performer.
Now.
Let me discuss the two key markets individually starting with Brazil.
85% of gross bookings in the quarter were for domestic travel.
And we have been able to capture demand for travel to beaches in north East in Brazil, as we are growing interest to touristic destination close.
To the larger cities.
We're also very pleased with the performance of by product of the collateral our loyalty program launch in Brazil, a year ago today, we have more than half a million loyalty members quite keen on penetrating higher margin hotels, and other travel products and transacting on our mobile app.
Lastly, our recent acquisition of coined a financing platform further reinforces our financing capacity.
Turning next to Mexico.
With the country generally open to domestic travel that we need imagine Concord remain our main destinations. We also observe a high level.
Oh packaging. Some packages were also particularly strong in the first half of October accounting for 50% of gross bookings, which includes 15 days of best day operations Importantly, with the acquisition of Best day, our Mexicali.
Asians now account for a similar share of gross bookings as Brazil will presenting our two largest markets.
Turning next to slide seven for an update on key strategic initiatives.
From a financial and operational perspective, we took bold steps since the pandemic.
Well because in order to reduce cost and leverage our competitive advantages, namely every area of our operations I will highlight a few of these areas today.
To begin with as global travel came almost to how we engage with our travel partners.
To arrive at a win win situation.
This.
Along with the strong performers none their products drove an exceptionally high take rate this quarter of 12.7% in this unprecedented challenging environment.
While were proud of these let me.
My view as we mentioned in our Investor day that more normal circumstances. This the IC company that can achieve take rates within the range of 11.5%.
Shipping back for a moment, let me talk specifically about what we were able to work out with our suppliers.
Yes.
Negotiated flexible inventory good suppliers of mid traveler health and safety requirements as well as the option to reschedule bookings as required.
Indeed, our domestic offering adding over 500, new hotels during the third quarter, we completed a white label.
Premium would be everywhere in payroll and subsequent to quarter end added Argentina and Uruguay in October.
We also drove significant improvement in several other key performance metrics and example of this was our ability to leverage organic traffic.
Over the past year.
We have been able to increase our usage of unpaid marketing talents as.
As you can see on the chart in the center of the slide.
Direct marketing spend Petro section index to the first quarter of 2018.
Declined to 70 in the second quarter of 2020 and further down.
214, this past quarter importantly in the third quarter marketing spend was flat when compared to the second quarter of 2020, even as we deliver a three times quarter over quarter increase in transactions. We have also had market in Texas.
Yes with industry event, where we have worked very closely with our financial and travel partners, who deliver an attractive value proposition to our consumers mobile has also been a key initiative for us and during the quarter, we saw increased transactions via mobile 51%.
In the third quarter of 2020 up from 39% one year ago concern.
Considering the unprecedented impact from covered 18, we have taken decisive steps to reduce costs further simplify our operations I am pleased that we achieved our structural.
<unk> run rate target that we presented to the investment community early this year.
By quarter end structural costs were down 49% year over year.
Our cost actions give us confidence that we will emerge from this crisis as a financially stronger company.
In sum, we will remain focused on ensuring liquidity and optimizing cost including actions to improve cash flow generation.
As we've said before we are confident in our financial position and our ability to manage through this very uncertain times, we've taken actions to be.
Clearly, a strong financial base, including reducing our cost structure and enhancing our financial flexibility and investing where it matters most to our customers as we strengthen our leadership position.
Now, let me turn the call to Alberto to go over our financial performance.
Blank meehan. Thank you all for joining us today.
We delivered improved sequential topline performance this quarter, although still significantly impacted by the pandemic.
As reported revenues returned to positive territory this quarter, reaching close to $12 million from negative.
Nearly $10 million in the second quarter.
Customer cancellations continued to have a strong impact on our topline and amounted to over 9 million this quarter.
This reflects the relaxation of the speakers refund policy as we introduce a friendlier policy that includes refund of customers.
Piece as well as provisions for potential customer cancellations in October and November given the lagging industry recovery.
Payer flexibility in non refundable bookings.
Following our negotiations with our travel partners also contributed to the increase in cancellations.
During these extraordinary cancellations on provisions Red.
Revenues in the quarter would have reached $21 million.
Up from slightly over $4 million in the prior quarter.
But still significantly behind the $132 million reported in the third quarter last year.
As I mentioned earlier, we achieved an exceptionally high take rate of 12.7% this quarter excluding cancellations.
This solid performance also reflects the volatility we are experiencing in our market. These days.
Moving on to profitability on slide.
Nine compare.
Comparable adjusted EBITDA for the quarter improved sequentially to a loss of nearly $17 million from a loss of 32 in the second quarter of this year.
Year on year, however, comparable adjusted EBITDA was down from a gain of over $9 million in the third.
Third quarter last year impacted by the pandemic.
As detailed in our earnings release published this morning.
Comparable adjusted EBITDA excludes extraordinary charges of slightly over 17 million incurred in third quarter 2020 in connection with covenants.
In addition.
And two customer travel cancellations and provisions heating.
It includes severance payments from our cost saving initiatives as well as onetime fees related to M&A and capital raising efforts.
Remember that second quarter 2020 also included nearly $34 million in extraordinary charge.
Just mainly resulted from the kinetic more.
Moving to liquidity on slide 10.
We closed the quarter with a strong balance sheet with cash and equivalents at $386 million, which include proceeds from the recent 200 million private capital raise closed towards the end of September this.
This compares with a Q.
Cash position of $228 million at the close of the prior quarter.
In this challenging context, our operating activities drove a use of cash of $24 million compared to cash generation of nearly 26 in the same quarter last year.
The use of cash this quarter.
Mainly reflected a net loss of 42 million that was partly offset by non cash adjustments in connection with allowances for doubtful accounts and amortization of intangibles.
In terms of working capital new sales triggered an increase into his payables offset by a reduction in accounts payable.
Now please turn to slide 11 for an update on the best day integration.
We are pleased to report that in less than a month following transaction closing we achieved two key goals.
Adam Yan Jack discussed.
We have started to quickly capitalize on the monthly recovery.
We are seeing in the domestic travel market in Mexico and are very encouraged with the progress we are seeing today.
On the tax front.
We have already migrated best day, PTC business to their pick Ares platform Jeff.
Just 30 days after closing the transaction.
Over the next months until.
Early 2022, we will be executing on integration plan of the day.
Advancing on four different fronts, Delaware anticipate will have a direct positive impact on our piano.
First from a topline perspective.
We are now operating through two different brands in Mexico too.
We captured the country's attractive potential as a tourist destinations.
As the second most recognized travel agents in Mexico. After this payout.
And over three decades between the country Wednesday provides us with a deeper understanding of domestic travel the Mexican consumer.
To put this in perspective.
Note that eight of the top 10 destinations booked by Mexicans in 2019, where domestic.
Mexico is also Latin Americans largest travel market at the seventh largest destination worldwide.
The combination of our existing B to B operations.
All together, which will tell the.
Best days, leading hotel service aggregator.
Provides us with the most extensive hotel content in Latin America.
Second we aim to enhance revenue margins through two key initiatives.
On the one hand, we are starting to consolidate source.
Hi, there.
Leveraging our negotiating power.
At the same time.
We plan to cross sell best days in this nation services to this payout passengers traveling to Mexico.
Thus contributing to margin expansion.
Third our plan also calls for additional efficiencies in terms of cost of revenue marketing.
Particularly in best days kiosk model and call Center operations.
We also plan to leverage our marketing capabilities and consolidate back office operations, which are anticipated to drive improvement in costs on installments grey card processing fee as well as in quarter numbers.
Lastly, we also expect to drive higher efficient.
Agencies in terms of DNA as well as technology and content.
To achieve these were working on integrating all of best days business lines, namely its b to C.
In this nation activities on the B to B operation into this big ours IP platform.
This also entails.
On an ambitious restructuring as we merge I'd sourcing operations and administrative roles providing operating leverage.
All these actions combined.
One the Latam travel returns to 2018 volume levels, we expect best days revenue margin to increase around 300 basis point.
Points from 2018 that Intel.
In terms of cost of revenues on marketing expenses, we expect bad day operations to achieve savings of between one to one and a half percentage points as a percentage of gross bookings.
We also see 40% to 50% reductions in terms of Gionee and tech and content.
All combined we anticipate this integration initiatives will contribute between $20 million to $30 million in annual EBITDA investing.
Recapping quickly on the key highlights for the quarter.
While we saw sequential improvements in Brazil, and Mexico, the travel industry in Latin remain highly impacted by the restrict.
Thats in place.
Commercial air travel in Latam was down 70% year on year in the third quarter.
This compares with declines of 15, the U.S. and 56 in Europe in the same period.
Our win win value proposition for customers on travel partners contributed to a particular high take rate excluding cancellations.
Tricks organic channels continued to perform well supported declining per transaction paid marketing.
Importantly, mobile accounted for 51% of transactions.
We are running a lean operation after meeting our goal of cutting structural cost by 49% this quarter.
The combination.
All of these efforts allowed us to cat adjusted EBITDA losses in CCOP sequentially.
We're also advancing rapidly on the integration of betting.
And finally, we have further strengthened our balance sheet through the recent capital raise to support the execution of our gross profit.
Now please.
Turn to slide 13 for final remarks.
Looking ahead, we continue to operate in an uncertain environment with external factors still impacting consumer behavior on the travel industry.
In this context, we remain focused on the four key goals established earlier in the year.
We expect to continue.
East benefiting from the adjustments made across the company to navigate in this new market conditions and integration of the state.
First focusing on the business activity.
Brazil, Mexico remain our key growth markets in particularly we expect to see continued recovery hotels and packages in Brazil.
At the same time, we anticipate a slight.
Recovery in Argentina, Chile, Colombia as restriction. These markets are gradually lifted in Mexico as you can see from the total data points per share.
Fourth quarter results are already benefiting from the contribution of best date, I think leverage is a strong focus on the Mexican domestic market.
Prioritizing unpaid marks.
Britain sources is also a key element of our strategy.
As we have successfully done this quarter.
The next few months are quite relevant in our two most important markets.
In Mexico, we have one team, which.
Which is the biggest national marketing campaign of the year in the country and Black Friday.
Yes.
Leveraging our relationship with financial partners with the goal of providing an attractive value proposition that includes discounts on financing.
We continue to enhance our domestic offering on prioritizing the personal health of our customers.
We're working on progress strengthening our 320.
In vacation rental offering.
We have achieved significant cost reduction over the last two quarters, which provide an indication of how we expect to see or PNM dependent on recovery levels.
Although unclear on the timing.
As if they are navigate through this pandemic environment, we are encouraged with the future.
The performance of the disregard business.
To share such a view, we will be excluding the impact of both best damn coin with their respective integration efforts and the impact of cancelled tickets rescheduling of the servicing due to Covance 90.
Under these assumptions, we understand this payout could be EBITDA.
Breakeven as we get to gross bookings per quarter in the 400 million area.
Which is approximately 35% of this figures 2019 gross bookings.
Third we have a strong cash position there.
The recent capital raise has provided us the hardwood resources to continue advancing on our growth.
Frontage.
At the moment, we are screen on evaluating several M&A opportunities at the same time, we continue taking care of our customers and processing refunds request on cancellations menu.
Many of these require among our response that it's taken us time and efforts to complete by we're moving forward on this front.
Finally, we continue making progress on the integration of recent acquisitions.
During the following quarters, we expect to make working capital investment at best day in connection with the struggle pay.
According to the revised terms of acquisition disclosed last June 11th these.
These working capital adjustments together with indebtedness.
Are included in the base considerations of $56.5 million.
As such consideration to be paid 36 months following closing.
Will be approximately 26.6 million.
Earn out payment performance dependent you only.
Only 48 months following set closing.
At this point, we're working on integrating this business into our best in class fraud and arrows platform.
Are progressing in completing the API connectivity both on the up while launching the picks project in line with Central Bank.
Development aimed at fostering capex.
In conclusion, the pandemic a challenge our business model and we have demonstrated agility and operational efficiency as we leverage and digital technology, we've been investing in four years.
We also continue to focus on developing our longer term studies.
Intended to ensure we maintain our leading position.
While further strengthening our financial performance and creating ongoing value for shareholders.
This ends our prepared remarks, we're now ready to take your questions. Operator, Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We are using a speakerphone please pick up your handset before passing the keys to withdraw your question. Please press Star then too.
Please ask only two questions and then.
Go back into the queue at.
At this time, we will pause momentarily to assemble our roster.
Our first question is from AD from June.
Alexandria around that Premier power go ahead.
Hi, good morning.
Just one question if I may I wanted to have a little bit more clarity on how much working capital will be demanding the best day operation.
Okay sure good morning, Alexandra how you doing.
Pair addressing your question.
I would like to point on two aspects one is what's the actual burn rate venerate in 2020, and we expect that to be to go down significantly next year.
It is around $10 million.
Then what you have is that is already included in what will be will.
That will end up being the final payment here too.
Due.
To the selling shareholders on bid day analysis reminder, that will take place 36 month only in September 2023.
Great.
We do have to inject capital when it comes to.
Really paying down supply us debt that they had okay.
That amount.
In 2020 and 2021.
It's around slightly above $30 million, okay, but importantly going back to the.
The final consideration to be paid to do.
So the shareholders. Okay remember that we announced that the final price for best date, excluding the earn out was $56 million.
Okay, and so the remaining value to be paid to the selling shareholders is around $26 million. Okay. So does a 30 billion reduction that at the end equates night.
Obviously with what is that supply is that that will need to pay down in 2020 and 21.
Okay, Thats clear okay perfect.
Yes, very clear thank you.
Our next question is from Edward Yruma from Keybanc capital markets.
Go ahead.
Hey, good morning, Thanks for taking the question just as you start to contemplate what a post covered environment look like just trying to understand how quickly can you we add capacity, particularly on packages and is there a lagging and given that I know many are packaged consumers do installment payments is it is the person that that will lag.
You know a general reopening thank you.
Hi.
How are you. Thanks for your question there.
There was some notional the line, let me make sure I understood. The question is mostly how fast can we add capacity.
To the package aspect of our business and they do.
In terms of capacity we.
We don't have any constraints. Moreover, we're increasing capacity as we integrate based day and consolidate our sourcing.
Teams. So therefore at the moment, we not only have the same buyer will say significantly more capacity, though we've had last quarter the cost.
Turning at this moment is more demand and as we measure our remarks demands for packages.
Im showing growing at a certain sank in both Mexico and.
Brazil, and as a percentage of total sales are increasing.
But we expect the remaining geographies.
To catch up and continued positive trend in the quarter, but there's no capacity constraints at this moment.
Yes.
Today the profit whatever.
Yeah, and I'm going to follow up to that is yes, do people think prospectively about vaccination reopening or did you think that they want to wait and actually see the market's real.
Prior to purchasing some of these packages. Thank you.
Well, that's hard to sell how to say in a sense.
We what we've seen for example, in Brazil, and Mexico, where government restrictions have been much milder is that people.
Do not.
Wade.
Significant portion of lease of the population of consumers do not wait until.
Vaccine type of solution is in place and they are reacting nightly on continue showing strengthening demands and so our expectation is that as other countries.
Relax their restrictions will see some ramp up in demand even before any vaccination is available.
Thank you.
Our next question is from Eric Sheridan from you, but yes go ahead.
Thank you so much for taking the question hope.
Hi, everyone on the team is Jason well.
Just give an update on the broader competitive environment. What are you seeing in terms of taking market share visa beat your competitors and is there any sense of country by country, where you might see opportunities to maybe grow inorganically and take advantage of some of the market dislocation during this period.
The way in which you've had you've talked about on prior calls. Thank you so much.
Hi, Eric how are you the time yen in terms of competitive dynamics, we what we see is obviously a significant reduction in overall marketing investment.
Compared to other more potent.
Normal quarters.
We now our strategy as we described we are less focused on market share because we value.
Percentage point of market share in over a market that's 82.
To 75% smaller than would normally as a logical much less.
Valuable as we say, we're focusing in a strategy to maximize.
Our margin and generate cash to preserve cash in this context, so what do we see it in the financial a less.
Less intense competitive pressure.
Pressure.
A significant portion of our offline competitors are having financial trouble and we.
We are happy with the balancing between the recovery and marketing we are we are getting.
In terms of inorganic growth.
Hi.
As you heard from US several times, we continue having a set of.
Conversations with a lot of potential.
Nurse.
Obviously this is a good time to.
To consolidate given the situation.
Our industry as you.
Spectating, we cannot get into details and into the specifics but.
The combination of the market context, and the strength of our balance sheet.
Obviously make this a very attractive moment for us to to speed up those conversations.
As you evaluate jessa another touch point, we're focusing in the in the key markets of Brazil, and Mexico, but we've been saying over time.
Our next question is from Brian Nowak from.
Morgan Stanley go ahead.
Hi, This is Alex Wong on for Brian. Thanks for taking the question just two questions first I think you rolled out the loyalty program in Brazil last year at around 100000 members. That's grown nicely to over 500000 now can you talk a little bit about the early learnings on.
And type of engagement, you see whether it's repeat rate or conversion rate and whether there any plans to roll this out to additional markets.
Second you talked about obviously leaning in on unpaid channels like E mail and push notifications, how do you see the mix of unpaid evolving as demand normalizes and.
You are seeing on the competitive front on the paid marketing side as well.
And Alex Hi, This is Dan.
I stand by the loyalty loyalty, let's see.
Into but the geographic extension, obviously, we would have planned to rollout Delaware.
Well, yes, the program into new geographies.
The Brady said, Argentina, and Mexico as part of the evolution on the performance of the of the programming Brasil.
Oh.
Obviously, we had to adjust our target in terms of performance given the context of the industry.
But I would say that after you take that into consideration that the performance in diesel does have repeat rate in terms of our ability to sell Cape Cod and other indicators like the average selling price ticket price is much higher than penetration of more like you know those they mean shows the program has exceeded.
We did our expectations when you adjust those by as I said, they see division. The overall travel industry. So we're very happy with that performance and we are very excited about this rolling into.
Into other geographies obviously.
Obviously that a roll out on the launch.
Of the program will be.
Be time, according to when a marketing best men like the one required to launch a program makes sense in the context of the Charlie.
The second portion of your question about traffic.
As as we said we believe this is a great time to leverage our.
Brandon use our organic traffic, we do not expect.
At that to be the situation on that.
An ongoing basis.
Having said that remember that this figure has traditionally high a baby height portion of non paid traffic in normal conditions.
Or will step up our investment in paid traffic.
But we expect to return to normal levels on a great coverage situation.
As I mentioned before overall investment to your point of competitive intensity has been reduced significantly in the region.
[music].
Thanks, Dan.
Again, if you want to ask a question. Please press Star then one.
Our next question is from Kevin Kopelman from Cowen go ahead.
Hi, Good morning. This is.
As a Emily lab in on for Kevin.
Thank you very much for providing us with the monthly gross bookings progression throughout Q3 in October for Brazil, and Mexico.
I was wondering if you could help us understand what those numbers imply on a year over year basis for October and if you're continuing to see sequential.
Hi, Truman in November thank you.
Okay Im sure Emily.
I think the performance first and foremost.
We have highlighted.
The opening remarks for the call they differ very much by market.
As we say.
Hi, Good, Brazil, and Mexico are clearly to the engine behind the recovery of our business. Okay on what you're seeing it on a year over year, Okay, both both Brazil, and Mexico and they are currently on lets say around minus.
Minus 70, VW last year okay.
They get some Mexico might have might have might have low seventys.
Brazil over the past up until October I think the trend was what is good on our presentation. What we see on again I think it's important just due to always consider that the amount of uncertainty every truglia was gonna be operated today.
Okay.
Stayed in that context, when we see these Brazil continued in November in a nice way, okay, but we started to see some signs early signs of fatigue. Okay that again, I think we need to be particularly prudent, particularly in Mexico. Okay. So there was a bigger and bigger vaccination, we have either the October trend okay.
In November in Mexico.
This week is that for the next 10 days. Okay is on aggregate from beginning to end it will be the one thing one thing is the big sale Air travel sale in Mexico.
On and I think are relevant portion of the November numbers will be actually.
Finally in okay.
Okay and through what happens in this in the upcoming week.
Then when it comes to the other countries. Okay. Clearly Argentina is the one that is the most detailed subdued okay. Argentina to give you an idea is minus 90.
Heavied up here.
And this is all in.
Oil, although I'm, stating these in gross bookings in dollar terms and then what we're seeing is that the Andean region, the say, Colombia, Chile, Peru.
They're starting to recover they have recovered a lot more slowly than Brazil, and Mexico, but.
There are currently are in the say in the in the in the high Seventys, Okay minus relative to last year. So.
So again.
We have seen a good and come back of the market still we are awfully away from that.
Metrics that this company posted in 2019, we need to be protected.
Be prudent.
On on providing a longer term perspective on this that's why we just stick into what this what the history has been up until.
Dover, but importantly, we're running today a company that is.
On on us on when a person central basin, a lot more profitable.
Okay on with this a strategy of that thats, increasing profitability and cash preservation and cash creation.
Thank you very much.
There were.
Our next question is from Michael Tangguh, some kinda where capital.
Go ahead.
Hi, guys I wanted to say congratulations.
Congratulations on the capital raise ensuring up your balance sheet in a time of uncertainty.
And Ah you know part of that the financing was done at very attractive rates.
So.
I thought you know as a shareholder.
I want to say a week we appreciate.
The mindful consideration for dilution than cost of capital.
And you know my question had to do with your guidance earlier, or let's not say guidance, but.
But the notion that you would be roughly operating cash flow breakeven.
It's something like 35% to 2019 gross bookings.
And you know while it's uncertainty.
Or that you're facing about the picture of demand I guess my question.
Would be.
As to how we should be thinking about.
The cost structure going forward.
As demand ramps up.
Closer to 2019 gross bookings or some level there Sarah and Ah you know should we think about the structural cost.
We're currently running as fixed and then.
You know how should we think about the let's say incremental variable costs as levels.
Levels of demand return to 2019 levels.
Is it structural costs will stay relatively fixed and let's say demand should be at you know.
Ah, yes, 50% of the you know.
The market increase or so.
Something like that.
Could you maybe help us out with that thank you.
Hi, Michael Ive got to speaking here.
Thanks for your question I'm thankful for your remarks.
With regards to.
And then get to breakeven okay. What specific any other statement was God. We were seen Dod These company could be you'd be down breakeven EBITDA breakeven without Ross Muken never Oh, we're not quarterly they should go wrong $400 million gross bookings Oh, so again.
Our operating cash flow that is that is it.
Okay, and having clarified that point okay.
On on on the structural clearly.
The statement is also excludes what our what the what's the impact of the day not only from the perspective of.
And then they had BNL date BNL, but also from the perspective as you might imagine that we are not including those are structural cost integration teams. They take some resources to integrate this and that target companies or they upon the new partner companies efficiently on a proof of that is not in just 30 days okay.
We transferred the DTC business of the day and now that it's operating hour under our profit our platform. However in order to do that they were doing it it does take some resources.
In addition, importantly.
As you might imagine okay with the current context, given the amount of bookings that have been put.
On hold we have.
A number of open tickets.
Vis-a-vis, our our air travel suppliers. So clearly there from a customer service perspective, the cost structure today. It is a heavier than what we will be why we understand will be once the goal.
Backpack, let's put it that way like the Cobi back, but it's taken off our shoulders. Okay. So again, the $400 million need to be considered for gross booking for a $400 million of Ross Muken for an EBITDA breakeven they can see the dose to key assumptions okay.
Then how will how will that.
Current cost structure of $27.8 million in achieved in Q3.
No forward, Okay. The focus of the company and that is one of the key priorities for the company is to increase their.
Standardization of their internal processes on automation of those processes. So that we can.
And reach for the fixed cost okay. We can reach from that level of around what it will be close to $2 billion of gross booking on a yearly basis. We can then only grow let's say with an operational leverage of around 50%, meaning that if orders go up by and let's say.
Before I wouldn't say, 10% our fixed cost structure would only go up by 5%, Okay, and I think thats the beauty of the business as we continue to automating our our back office processes all.
Well the support areas et cetera, so hopefully with that you understand what's included in them in late.
EBITDA breakeven numbers okay.
How will that cost structure start growing we'll get with the amount of operational leverage and we expect that cost structures to growing from on around our gross booking number of 2 billion. We believe that we currently have a cost structure, okay that up until around $2 billion of gross book.
That's okay, we do not need a lot.
Material cost to the structure.
Understood.
Well I mean that that that's very helpful. Both on.
See the cobot backpack and also the.
The way that the cost structure should scale and that the business.
It should be.
Very profitable as you kind of leverage here.
Yes, fixed cost and the variable costs grow.
At a significantly lower rate than the demand picture.
And so I appreciate that and.
Thank you for clarifying.
You're welcome.
Yes.
This concludes our question and answer session I would now like to turn the conference back over to Tom Mens cocaine CEO go ahead. Please.
Thank you. Thank you all for joining US today, we look forward to speaking with you again.
Next quarter in the meantime, we will remain available a few from to answer any questions that you might have.
Okay. Thanks Bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.