Q1 2021 Despegar.com Corp Earnings Call
Good morning, and welcome to the desk, the Gar first quarter 'twenty. Each once you 1 earnings call.
The slide presentation is accompanying today's webcast and is available in the Investor section of the company's website Www Dot investor Dot that's big our dotcom.
There will be an opportunity for you to ask questions at the end of today's presentation.
This conference call is being recorded.
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Now I would like to turn the call over to MS. Natalia Nirenberg Investor Relations. Please go ahead.
Good morning, everyone and thanks for joining.
Joining us today on a discussion on second quarter. Thank you. Thank you wanted to say.
In addition to reporting financial.
Got it on you at Shenandoah.
And free people.
We didn't got placed on non-GAAP financial measures on a breakeven.
Foreign exchange translation.
Investors should read the definition.
And I suppose on metrics included in our press release carefully to ensure that they understand from now on.
Non-GAAP financial measures.
So not to be considered in installation of ticket volume.
Financial measure on that.
Nobody is something that the information on.
Before moving into what would be probably not allow me to remind you that any statements made during the course of the session may constitute forward looking statements, which are based on managements.
Question for me that is subject to a number of free.
Absolutely.
Thank you.
In fact on.
Maybe on the complex construct.
These new builds but I've not seen it to patients.
Patients on a Samsung related to the impact of COVID-19, Brandon on the integration of on spec pharma.
Right.
Including both day uncle.
Or does it keeps your narcolepsy patients first of all what's Heidi.
Or do you keep on I, suppose furniture and our grandchildren.
Speaking on today's call line.
Yield on loans cooking with Maria on already.
Quarter and update you on our price.
So let me ask me our CFO will then discuss the Corp, and finance herbicide.
We opened because you had a question.
So on an equal level.
Thank you Natalia and good morning, everyone. You called that do you have on your families are staying safe on the galaxy.
Last year, our first quarter call was focused on how we will go into whether the biggest crisis our business has ever faced.
Now 1 year after the pandemic on the global low balance began we have demonstrated our operation on but she is while improving our strategic capability.
The first quarter.
We executed well against our priorities.
Now, let me discuss each separately.
Starting with geographic diversification.
We significantly increased our presence in Mexico with the acquisition of best day, and coupled with adhesion of restriction in that country. We saw gross bookings increased 12% sequentially, Mexico in turn I counted for a larger percentage of our gross bookings in the quarter.
Yes.
We also experienced an active recovery in Colombia, and a slight pickup in Chile.
By contrast, Brazilian and Argentina experienced a second wave of COVID-19, dampening demand for travel.
Excluding these 2 markets and infections were up 12% sequentially on gross bookings increased 14 per cent.
As evidenced by the first quarter result.
Balance geographic diversification will generate more sustainable growth going forward and importantly.
Our market share has not been impacted by the volatility across new geographies, where we operate.
Moving next to our focus on profitability.
As you have heard from us before.
Lots of focus on maintaining our leading strike price cost base, we achieved our target level in second half of 2020 as expected.
The first quarter, we were able to maintain these cost in line with prior year quarters.
This focus on profitability comes from Celgene.
Generally high take rates over the past few quarters on we achieved the highest level in 5 new rates in the first quarter 2021.
Also contributing to the high take rates is an increasing share of non air revenue we.
We will talk more about these later in the call.
Mobile accounted for 60 per cent Austerlitz amtrust in the quarter on 200 basis points from the first quarter of 2 pumps on a 19, if pre pandemic period.
Well why is it cost efficient means for us to acquire and market to customers.
Summarizing our first quarter results we.
To achieve share gaffey diversification, which partially offset the slower demand.
Hi take rate, reflecting an increase in non theyre among either by a tight focus on cost controls on successfully non paid marketing programs adjust.
Adjusted EBITDA low.
It's largely in line with the prior quarter on a solid cash position.
Moving next for a discussion of the Latam travel industry on page 4.
COVID-19 has and feel that we shouldn't challenges for our b.
Let me give you some color on how we are seeing travel restrictions in the key Latin American markets.
To begin with.
With seasonal effect on travel are still present, but we believe theyre most likely through the worst of it.
Looking at the chart on the left.
The green boxes going to countries, where restrictions are easing specifically, Mexico on Colombia.
And we are seeing some green shoots.
Although most recent social unrest in Colombia, my effect mobility in the country.
The Red box is going to countries, where there has been there are surgeons they.
The buyers are restrictions have been imposed.
These Argentina, Brazil and Chile.
Impacted by a simple way the crisis in Brazil, with what's our largest market in this quarter, what's the worst moment the west end of March.
We are observing a slight recovery since then.
Vaccine atrium program is rolled out.
Yeah, he's heading into the winter months.
P M slower travel and the vaccine rollout is moving very slowly.
18 per cent of the population having received their first dose the picture on Chile is mixed with the country imposing some select restrictions on certain wages and contract.
Chile has been successful with the vaccine rollout with 48 per cent of the population having received at least 1 dose.
That's a point of reference the U S East Ireland 48 per cent of the population having received its first snows.
As a result, we believe the situation in Chile will be getting better over the next few months.
I would like to call your attention to the chart on the right.
Shows Boston, just trends in Brazil, and Mexico for the past 6 months index to pre pandemic 2019, new levels.
1 per section or at least we can see a significant increase in demand.
I think 18, Mexico, where after 7 months of restrictions travel trends are benefiting not only from a decline in the number of cases by the orders. So from the arrival of the spring and summer season.
Exactly the opposite side is Brazil.
While the industry contracted in light of the very severe restrictions and a significant increase in the number of COVID-19 cases, which started to subside.
Great.
When the pandemic is still with us I'm just some geographic expansion second waves examples like the 1 we see Mexico show us that people are eager to travel again.
As we have commented in the past.
I'm not expecting a linear recovery as restrictions are released at different times in each country.
Also correlated with the vaccines will allow which will be key for consumers to regain confidence income.
Moving next to slide 5 for discussion on how we are positioned to weather this ongoing challenging environment.
As we reflect upon the price yeah, I could not be more pleased with how far a low running stations have come and how well they have responded to market challenges.
As we enter our second year with the current COVID-19 crisis.
We remain diligent in ensuring a solid liquidity position and laying the groundwork propulsion double growth when traveling assumes in a meaningful way.
In turn we ended the quarter with a cash position of $326 million.
Furthermore, due to actions we commenced over 1 year ago winter 2000 into 1 more efficient leaner company on more geographically diverse.
Importantly, the geographic diversification also brought about defense each other on your partners, making us more resilient to both these crises and potential future ones.
As noted in the green checking the double right and as mentioned earlier, Brazil demand was particularly hard with the researchers of the buyers on gross bookings declined each month through the quarter My contract Mexico gross bookings increased each month.
Yeah.
As part of our profit maximization strategy, we are taking our revenue to Q2 of next level.
We have been optimizing our spend allocation to achieve the maximum margin on efficiency across our commercial anyways.
That's on Murphy's installment marketing and loyalty.
This wasn't a result of intense.
These actions have allowed us to further diversify our traffic sources and to use our segmentation capabilities to drive loyalty among higher LTV customers.
We have also made some changes internally in revenue.
New marketing departments, together, which allows for better coordination and driving a higher iron ore white for this transaction.
On the sourcing side, we have been working diligently with our travel partners beyond simple step on data.
The consulting in the offering a better package options for travelling Argentina, Betsy the Andean countries.
On the same time.
Are you able to leverage that in Asia, we hired pegged right in the South American camera Muslim January and February.
Moving next to a product mix low.
The mandated restrictions for international travelers many market along with internal actions coupled with the acquisition of Best Day, Mexico has enabled us to drive a higher portion of non aerospace in the mix.
Net person and the first Corp.
Moving next to slide 6 for a discussion on how we are strengthening our capabilities for the recovery.
We remain focused on our long term objectives, we have been expanding our reach by working with at least not to travel partners. The API connectivity chip Dot com when line on Nathan That's M T.
As a reminder, <unk> com is a leading provider of online travel and related services, we're making available to trip com our day to day accommodation inventory Latin America, utilizing API, which will be available across it associated brown.
2 it's more write ups on Internet website.
And they might be Frank they encourage us to do on the large corp. Does we have been seeing our marketing efficiency and cool on call.
Further develop our brown to enhance the perception of trust and I forgot that.
We have also taken steps to further enhance product bundling, which resulted in a 3 percentage points increase in package transactions beside the pre pandemic levels of the first quadrant yourself for Nike.
He initiatives include improving the flow clients go through we're bundling go that's why themselves either on our app or on the website and ensuring they find the best offers based on machine learning predictive technology.
The combination of the inventory from the different brands on the cross selling of on Tvs on car. 1 day are also contributing to drive more efficient by day.
Now please turn to slide 7.
We are well prepared and have the right ecosystem in place to capture the anticipated recovery in our main market.
Talk to you with an update on where we are with the basically the acquisition a key strategic asset for us.
To begin we are.
Already captured synergies in the B to C on line.
The duration of this big IP platform is complete.
In turn.
Net revenue margin improved by 120 basis points, well ahead of our expectations disclosed in our third quarter on plenty good earnings growth.
In addition, the conversion rate increased by 30 basis points.
Progress in the integration process is also observed in the 5.4 percentage point decrease in gross margins of the BTC off line segment.
These good results are driven by the use of this big <expletive>, leading technology integrated into best day.
Thanks to these achievements this past quarter, we presented the first time that the day overall, because he segment achieved profitability.
In terms of the book to be segment.
Coming month, we will complete the integration of the different widened Nathan.
Best Day has a right.
We started working on this project in the first quarter and expect to conclude in the early third quarter.
Lastly, new.
Next quarter, we will start with the tech development and can they choke me day in explanation on T V.
Will allow us to take these back because a different level.
Site is about all the opportunities that this day has brought to us on we are already seeing the benefit on the 2 brands working together and figure out some brand.
Now moving to financing on payments, where we're driving innovation in the Rotterdam payment volume.
Coin, we're expanding these financing solutions to other brands have got to be young Nicola.
Today, Colin is poised really available as I.
The pulse of the other segments of the complete day, 1 of the leading a rapidly growing E learning companies in Brazil.
Regionally, but also on completing the integration of <unk>, a leading player in the REIT to see digital commerce.
Big day.
Instant payment developed by the Central Bank in vaccine and social now available at the Golar.
With only 2 weeks since implementation already 5 per cent Austin, Texas had the collateral were paid to peak and language. Our focus on cost controls peaks allows savings of 95 per cent per transaction when compared to other payment methods.
I will now turn the call Roberto Who's got the quarter's financials on myself.
Thank you that began on thank you all for joining us today.
Starting on slide 8 we turned in another quarter with a significantly high take rate of 14 per cent.
The highest level since 2016.
When excluding extraordinary cancellations that take rate reached $15 2 per cent.
This good performance was driven by a mix of internal and external factors.
On the internal side, we are seeing the benefit on several strategic initiatives implemented to enhance our profitability.
First net.
Acquisition of Best day, which has a better take rate.
Second.
Proven introduced to our revenue toolkit that beyond just noted.
There's a lot of it has to take smarter decision when it comes to capture transactions.
Third we are leveraging our scale.
And by the acquisition on bid day and undertake it better negotiations with suppliers and finally, we have also further enhanced our ability to balance the products more efficiently as we just discussed.
Take rates are also benefited from a couple of external temporary factors triggered.
Yeah.
For example, we are seeing that in today's environment. Many suppliers are faced with lower marketing budget themselves.
I'm, finding it more difficult on or too costly to sell via performance marketing channels on preferred tool for their products and services directly.
Uh huh.
Moving on to the topline.
Revenues were generally unchanged sequentially at $52 million.
Higher take rate offset the drop in gross bookings.
Sure.
Customer cancellations due to COVID-19 was stable at slightly over $4 million.
Now please turn to slide 9.
As reported first quarter 'twenty, 1 adjusted EBITDA has been relatively in line with those on the.
Previous quarter.
When excluding extraordinary charges.
Adjusted EBITDA was a loss of $14 $1 million per score point.
So it's a loss of $9 4 million orders in the fourth quarter 'twenty.
Mainly due to higher fulfillment cost.
On customer service balance in light of COVID-19, second weighted either age.
1 time charges this past quarter. It was mostly in connection with extraordinary cancellation due to COVID-19.
They stay on on a standalone basis reported an adjusted EBITDA loss of $15 5 loans.
Best day on coin contributed.
Adjusted EBITDA loss.
Uh huh.
Yeah.
These metrics still have not capture the full potential on the synergies from the deterioration on the recently acquired companies.
Additionally, on just a second.
The 20-F report.
Adapted our definition of adjusted EBITDA to the current circumstances.
On excluded restructuring charges on acquisition transaction cost.
These results are based on these new definitions.
Now please turn to slide 10.
We closed the quarter with a strong cash position of nearly the kind of on 20.
$26 billion.
A sequential decline of $25 million.
At the same time total net operational short term obligations stood at 200 on $1 million up 4% on compared to the prior Corp.
We obtained a positive contribution of nearly $7 million on working capital as we continued collecting on receivables.
We granted vouchers to customers whose trips.
By the second wave of COVID-19.
At the same time.
Operating cash needs declined quarter on quarter by nearly 28 million to $70 million per quarter.
This compares to use of cash from operating activities of $68 million in the same quarter last year.
Now please turn to slide 11 to wrap up the key takeaways of the Corp.
Our greater geographic diversification contributed to smoothing top line volatility and the recovery trends on different seasonality across the region.
Mexico, Colombia experienced the strongest recovery in demand driven by domestic leisure travel.
Contrast, Brazilian and Argentina, so the sharpest contraction.
They take a research on the bottoms.
The same time, our recent acquisitions together with enhancement to our revenue toolkit on AR.
Higher share on non air revenue allowed us to keep a significantly higher take rates on the second consecutive quarter.
On the highest in the past 5 years.
We have been successfully navigating this pandemic since its onset and believe that our strong cash position streamlined operations.
Consistent focus on profitability.
Position us well as we face the second wave of the pandemic.
Integration of Best Day is also moving along nicely.
The beat to see migration to this big on this platform.
It's allowing us to beat our internal targets for key kpis, such as conversion rates on revenue margin and best day segment.
The first quarter was the first time that best day B to C segment achieved profitability.
Importantly, this big orders.
On a standalone basis remains breakeven from a new.
Excluding 1 time items on a leash on costs related to COVID-19.
During the first quarter, we also completed the API connectivity with our travel partners.
Finally, our marketing strategy that prioritizes unpaid channels to drive direct traffic continues to deliver good results.
Now please turn to slide 12 for final remarks.
The past year has been 1 of the change.
On the opportunity.
Which we have shown incredible resilience creativity and focus as 1 team from navigating the pandemic to generating momentum as we execute on our strategic priorities.
We know we have both headwinds until which this year.
On some degree of which isn't clear.
On the year progresses, we hope to get more clarity around box he'd rollout.
Gail on duration of the economic recovery and demand for travel.
Despite uneven travel recovery trends in early 2021.
But it by resurgent of day buyers as we go through the year, we expect Mexico to continue on its recovery path on other countries to eventually flow.
We know that non environment that is changing as fast on this 1 demand recovery and it will be choppy.
Nope.
That we were hit by the second wait 1 quarter later than the northern hemisphere.
But due to seasonality it should take us 1 more quarter to begin to recover as we are now entering the winter season.
We would expect that.
By the third quarter, Latam will be in a better position.
In summary.
Even the seasonality patterns on the lag impact on the second wave of COVID-19 were lagging the non that can be recovered by 6 months.
Yeah on seasonality.
Relative deployment of vaccination programs should be considered as we contrast, Latin America within northern Hemisphere.
Building on the work we began in 2020, we will continue to drive near term cost on operational improvements.
Protect our bottom line what else could taken actions to strengthen the company's long term position.
Included don't go on integration of best day on.
Further rollout or enhancements to our loyalty programs, which has also benefited from a record level.
Branded credit cards.
While some uncertainty remains in our markets, we have positioned the company well in terms of future potential growth.
This concludes our prepared remarks, we are ready to answer your questions operator.
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 1 on your telephone keypad.
If you are using a speaker phone please pick up your handset before pressing the keys.
If at any time your question has been addressed.
And you would like to withdraw your question.
Please press Star then 2.
Please limit yourself to 1 question.
And 1 follow up.
And then you can return to the queue.
At this time, we will pause momentarily.
To assemble our roster.
The first question comes from Ed Roma with Keybanc capital markets.
Please go ahead.
Yeah.
Okay.
Mr. <unk>. Your line is open. Please go ahead with your question.
Okay.
Okay moving on to the next questioner.
The next question comes from Kevin Kopelman with Cowen and company. Please go ahead.
Yeah.
Great. Thanks, a lot.
I wanted to ask about structural costs.
The structural costs on the run rate and the key trends there basically how do you see those playing out.
For the second quarter and then if you can also give us an update on how you would expect us to to develop once you're into the bigger part of the recovery over the next a year plus thanks.
Yeah.
Kevin Good morning, Albert below book.
Here on addressing your question.
So on the structural cost.
We continue with the same and pieces that we have discussed on prior calls that is that is structural cost.
We'll be gain will be constant indeed, let's say 2000 $930 million level, okay until transactions.
Our close to let's say a 50%.
Between.
<unk> 45, who reported to 50%.
2019 next okay. Following that the expectation is that overall structural cost should grow.
Approximately 50 to 60 per cent.
On a transaction growth demonstrating the operational leverage.
The company Okay.
Just 1 moment there has been an interruption.
Yeah.
Please standby.
MS Nierenberg, if Mr. Alberto would like to continue please.
Okay.
Yes. Please go ahead, yeah sorry.
I think I think we got disconnected on just switching to the backup line. So what I would say, yes and structural cost in there.
George a $30 million area, Okay, and following on that structural cost will grow let's say at around 50 per cent.
Of transaction growth.
Gets to the level of around let's say 40 to 50 per cent of transactions of 2019 transaction.
In addition, Samsung and it remains on hold as humans and dogs and salary increases okay in the region.
We operate in dollar terms okay.
And do not affect overall structural cost unless you know that is a function of inflation rates in the country.
The different countries and of course in nominal FX rates, okay, but that is how we need to think about structural cost overall.
Yeah.
Got it that's very helpful. Thanks, and then I'm just.
A couple of other quick ones. So as you look to the the second quarter here on your you're talking about gross bookings volume as being a similar ablaze Q over Q.
Is that how does that compare to what you're seeing in the overall markets is that is that in line with our with what you're expecting for the overall market.
And do you have.
Some share gains built in or perhaps some share losses no.
I think importantly, the structure of the company.
Students choose to kick off day, 1 of the pandemic effect has been that the company is.
Running the company for profitability for cash flow generation on a cash preservation.
And but again the limit each for the company not to erode its market share. Okay. So so those are the 2 key guiding principles, okay with regards to the actual performance.
Performance in bookings, Okay, you might have seen that in.
And some of the either the airlines are competitors on that.
Chile, and expecting a strong performance of Latin America by the summer, Okay, and but at the same time. We also believe that we need to be very prudent when it comes to provide M. D. C. D would you what would be day. The sector performance expectation is that second quarter is gonna be not very dissimilar to not very different.
And from from Q1, and but again after vaccination programs rollout on.
Also on the South American, particularly I get out of the fall and winter season, Okay.
Compounding do like I said before we'd vaccination, although not the expectation would be that we should have it.
Good summer season, Okay, and as a comparison on I'm not saying that we would have the same levels of travel activity clearly they know they can see years benefited from the 2 factors that I have just highlighted okay and on.
1 extreme do you actually have the day North American market.
Thank you very much that's very helpful.
Youre very welcome.
Once again, if you have a question.
Please press Star then 1 on.
On a touchtone phone.
And I see that we have a follow up from Mr. Kopelman.
Mr.
Go ahead with your follow up work them.
Thank you very much.
Yeah could you could you just give us a quick update I'm on.
On any acquisition activity or or that you may be pursuing or the current environment there.
Yes, Hi, Gary This is got me on a as a.
Usually we keep very active conversations with a lot of potential targets on partners.
Obviously, we remain prudent in terms of pricey and aggressiveness in the.
We're willing to pay but the conversations a E.
Intensifying and see who usually say when we have concrete news, we will share them with you.
As we repeatedly said.
We see here is a key component of the company's strategy.
But absolutely proving the possibly reminbi prudent.
On what that would go into validate that.
Price.
Got it thanks, a lot man.
Again, if you have a question. Please press Star then 1.
The next question comes from Brian Nowak with Morgan Stanley. Please go ahead.
Hi, Good morning. This is Alex Wang on for Brian. Thanks for taking the question first 1 Alberto you talked about some of the internal and external factors driving the take rate improvement and in particular I was wondering if you can focus on the revenue.
Revenue yield management side on the internal fine and then you talked about sort of suppliers rely more on desk book are given.
Marketing challenges just wondering.
<unk> do you think that that day.
As we progress through the recovery.
The second question is I think you called out some improvements in marketing our ROI I Wonder if you could provide some color there whether that's mostly driven by a continued shift to mobile or are there other factors.
<unk> sort of better rois on our performance marketing channels.
Yeah.
Okay sure Alex.
Yeah.
M.
And then recovered.
With.
Yes.
And marketing clearly.
No.
Why not.
We are on course, and the company marketing.
Expenditure strategy on marketing investment strategy.
It is more weighted on on more on Oh on.
On over mobile.
He is a direct connection okay. So what we're seeing is that the share of Eric on extra Corp continues to be very much in line.
With what with the targets we set for the company back then.
Or what on the targets there what the figures that we disclosed back in.
On 19, reaching close to 70%.
Over the over the road traffic on our website. It actually goes through the app or would that rectangle or other unpaid channels. Okay. So we'll continue with that idea and on we believe that even at the I'll do a GAAP.
The App continues to solidify day when it comes to the product offering.
We reduced I think.
We're in a strong position.
On that point.
Going to your very first question on take rate Okay.
Clearly M.
On take rate I think I would like to maybe deconstruct the answering and at least 2 points. The first 1 is importantly in your day.
They are.
And delivering on extraordinarily high take rate on that extraordinary high take rate of course Katz various factors.
That drive it but 1 factor that we should not lose hype is that the company is running that strategy not flow market share gains I think was in the past, but given the pandemic in order to preserve cash and on.
I'm thinking like losses, Okay. The companies.
Our higher a higher price strategy in relative terms to the ones. We used to have on that that that is a contributor to a higher take rate.
Secondly, what we're seeing is clearly argue all pointed out suppliers relying on this big on.
2 to sell their inventory.
We continued to solidify our relationships, okay, we have strengthened our sourcing power through M.
On the integration of the day day activities on it prior to that to the integration of the consolidated effective.
Okay. So clearly I think we have a more robust success set of sourcing partners that we are benefiting from on at the same time given the.
Capillarity, we have in the region and David and I will come back on how we market our suppliers' inventory. Okay. We believe on supplies also benefited from us.
Okay with regards to revenue revenue yield or revenue management, Okay. I think on the loyalty program continues to.
We continue.
<unk> continued to expand itself, we already have over 800000 members in the region with limited marketing activity of these loyalty program given COVID-19, the COVID-19 situation okay.
There are 4 levers that work you do.
Into the take rate cognizant that all into the profitability function.
Our.
Marketing expenditure and financing pricing on now the loyalty program. So we believe that 1 day. When we are looking at this thing out operations. You've got we are building in the context of COVID-19, I'm much better company a much more solid company.
On the core competencies that it should pretty much bring to bear in earnings power for the company. Once we get back to 2 5 M. M. 2 levels, but we have not seen it leaving.
Leaving aside on how your pricing level for cash conservation purposes, we are not seeing that day that that the current situation that this that the different factors.
At work in the current anemia.
It will not be that would not be there for the spring or in the future I E. We should be able leaving pricing aside to deliver and a stronger play groups and we have you will recover in 2019 M C.
Great. Thank you.
Youre welcome.
Once again, if you have a question. Please press Star then 1 on a touchtone phone.
This concludes our question and answer session I would like to turn the conference back over to Tommy on Skulking for any closing remarks.
Alright, Thank you very much operator, SASSA to close at least 2.
All of you remain healthy and safe on thank you for joining yesterday on we look forward to talking do you again.
The next earnings call. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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