Q2 2021 Despegar.com Corp Earnings Call
Okay.
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Good morning, and welcome to the best bizarre second quarter 2021 earnings call.
Slide presentation is accompanying today's webcast and is available in the investors section of the company's website.
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There will be an opportunity for you to ask questions at the end of todays presentation.
This conference call is being recorded.
As a reminder, all participants will be in listen only mode.
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 us today for a discussion of our take on board in 2021 because.
You know you shouldn't be reporting financial results in accordance with U S generally accepted accounting principles.
Non-GAAP financial measure celebrating Mickey you doing fortinet think users emulation.
Investors should read the definitions of these measures on that gets included a breakeven exactly when.
Sure Dan.
Non-GAAP financial mentioned pent up breaking metric cannot be called village center.
For beer to GAAP financial measures and have provided that's happening with any department Tanaka.
Before we begin our prepared remarks allow me to remind you that any statements made during the course of the discussion may constitute forward looking statements, which are based on management's current expectations and beliefs and assumption to a number of risks and uncertainties that Google actually.
Has that materially differ.
Including factors that maybe beyond the combined income charges.
These include but are not limited to expectations and assumptions related to the impact of Republic, Nike, but mainly I mean regulation on performance of the business makes me acquire you can invest very important.
What are your description of the Greek pizza.
Turning to our filings with Securities and Exchange Commission and our press release.
Speaking on today's call is our CEO dummy I'm skulking always relied on an overview of the second quarter and update you on our strategic priorities.
Like all of the Haps me, our CFO will then discuss the quarter's financial results.
After that we open the call to your questions.
Please go ahead.
Thank you Natalia and good morning, everyone. Thank you for joining us and for your interest in this regard we are pleased to report the best quarter.
Of the pandemic, thanks to our geographic diversification strategy growth will be income from functions increased 2% and 8%.
Over the first quarter.
Good luck.
If we exclude Argentina, Brazil growth.
Gross bookings were up 64%.
Taxes increased.
44% when compared to the first quarter.
Thank you Juan.
Previous claim recoveries in Mexico, driven in part by debt as well as in Colombia, both of these countries.
The peak summer travel season.
Additionally, covenant restrictions were less significant.
Great.
Pent up demand.
The strong performance.
Moreover.
In the quarter were up 22% sequentially, driven mainly by a 63% increase internationally and infections. Once again, we experienced.
Even more so when excluding Brazil.
Wait a second wave of Covid, which drove its hard to calculate.
Also contributing to this quarter's Ted Greg out a bit.
Investments, we have made in technology.
Which allow us to price more accurately.
Improving algorithms to capture more profit architecture and the contribution from this day would have.
A higher take rate were key drivers.
In turn we.
Also so no net product capturing a larger portion of our second quarter.
Looking at our second quarter financial results.
Our adjusted EBITDA loss in.
In the quarter.
Extraordinary charges was about 4 million lower than the first quarter of what it would be wonderful.
I mentioned previously we believe the company.
Although basis can be breakeven or between quarterly growth.
$400 million.
These excluding extraordinary charges and call center costs, resulting from customer calculations on with GAAP.
Lastly, we will continue to be vigilant about our cash position as a result, our balance sheet remains healthy with over $600 million.
Yeah.
Moving next quarter discussion.
Lockdown covenants on page four.
Almost two years into the pandemic on our business remains disrupted by this COVID-19 crisis.
During the second quarter, we can call out two factors.
The most impact on our P&L.
First countries with lowest restrictions.
Mexico, Colombia, so better carbon footprint by contrast rescue what's seen with.
With a second wave of Covid, while Argentina and Chile.
While impacted by another round of higher morbidity illustrations imposed by their guidance.
Michael our geographic diversification provided the seasonality of SEC.
Following strategic acquisitions, we have generally to remove the seasonality factor for marvell.
Now we have a summer peak.
Peak travel period, all year round and our business model.
Now for a few highlights by country.
Starting with Mexico.
The highlight in the quarter accounting for 33% of transactions up.
700 basis points from the first quarter 2021.
Although the country still has low vaccination rates.
And industry have shown sustained recovery.
There are very few restrictions in place.
Going forward, though was the start of the summer season.
Ton gross bookings were up 49% as compare to the second quarter of 2018.
Moving next to Colombia, where it.
Gross bookings were back 2% above the second quarter of 2019 pre pandemic driven with recovery driven by both domestic and international callers.
Wisely.
Gross bookings increased 19, 9% Colombia.
Colombia, representing 22% of total transaction this quarter and a 100 basis point increase from the first quarter.
One.
Brazil, formerly our largest markets.
Now account for 25% of transactions compared to 38% in the first quarter of 2021.
With the countries facing the second wave of phone and a tightening of Morgan jurisdictions transactions were down 17% quarter over quarter.
Additionally, part of this decrease is also attributable to seasonality factors.
As Brazilian.
Their symptoms were Mexico, and Colombia in peak summer travel months.
Gross bookings were down.
4% when compared with the.
Second quarter of 2018.
And the positive side as we move through the quarter.
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Leasing over symptoms and gross bookings maybe improve each month in the quarter.
Nevertheless, this was Argentina, Argentina, both expiring.
And a tightening of what will be the restrictions with Argentina border basically close that's impacting profit.
You did note Chile has a highly vaccination rates, 63% of the population fully vaccinated, which bodes well with Ctrip travel.
Notably the level of cancellations of some through the peak of the second wave, which comprise the month of April to June of this year was 55% below the one observed in the same period last year, when we experienced the first COVID-19 right.
These results not only reflect better market conditions, but also the measures we have implemented.
Right.
Transaction moving to slide five.
I'm on average continue to cut motto mortgage through efficiency plays than the U S and Europe.
Although there have been some Peter when restrictions worried.
General regional has mostly cartilage problem as.
Borders were closed.
Moving a big portion of the first half of the year.
You can see these more clearly in the chart on page five.
Earlier I spoke about the importance of Mexico towards besides in the quarter.
And as also shown in the chart coverage.
Travel is permitted in Mexico and the borders are open.
Giving us confidence.
When we see similar lift.
In our other key markets travel with one click and pick up.
As mentioned in previous calls we estimate that the recovery path in Latam is lagging six months when compared to a recovery.
In the U S.
Mainly because the vaccination rollout in Colombia.
Generally the pace of backwardation has accelerated across geographies like coming from very low last quarter.
We are well positioned with a broad geographic coverage.
Base to capture.
Pages recovery in our main market.
Now please turn to slide six.
Although COVID-19 has impacted the overall travel industry, we have continued to advance on our strategic initiatives.
We have accelerated our path.
We launched our loyalty program.
Half of 2018, Brazil, followed by the launch in Argentina during the second quarter. This year, we launched this program in Mexico.
Short period that the program has been available approximately 13% of our Mexican VAT.
Signed up.
Also in Mexico, we are almost finished integrating <unk> into our operations with both the D to C to.
We've already integrated into the display.
Now we are working steadily to finalize the integration of the in destination activities by the first quarter of next year.
In Brazil, we have been operating more financing options tobacco volume has been key to this.
That coin, we're implementing a risk based pricing strategy, but the interest rate that we charge depends on the risk profile of each customer based on internal and external search.
We're also adding b to b products.
That we are offering to e-commerce platform based gateway and given the low margins.
So far we have to be from back to guidance first we offered Martin's the possibility to use bullet.
Our buy now pay later payment capacity.
Second we also offer our payments and anti fraud capability into companies from which we're paying a fee per client transaction, but recently, we have begun to work with some peak borrowing loan providers in Brazil, where we are.
As a distribution channel.
For the <unk> transaction is closed.
I will now turn the call over to Russell to discuss the quarter's financial results.
Thank you Amanda and thank you all for joining us today.
Moving on to slide seven.
They are noted Colombia, Mexico posted strong recovery trends, however, demand in Brazil, which is where most of our markets.
And if he can be affected by the second Covid wave.
So a lesser extent these are social vacation, Argentina and Chile.
This resulted in a 76% sequential increase in extraordinary cancellations to easily $8 million this quarter versus $4 million in the prior one.
Excluding these extraordinary cancellations, we delivered a solid take rate of 14, 4%, reflecting the initiatives. We are undertaking several fronts to further support profitability.
Continued improvements in our algorithms are allowing us to make smarter pricing conversion decisions.
Our hersey take rate also reflects the positive impact from best day in Mexico.
Given its higher share of non air products.
As we mentioned in previous calls we believe that these take rate also reflects the industry's currency.
Moving on to revenues, excluding higher customers extraordinary cancellations, we delivered a 26% sequential increase in our top line, which is $1 million.
Although revenues were 39% below pre pandemic levels.
Now please turn to slide eight.
Comparable adjusted EBITDA, excluding extraordinary charges was a loss of $10.5 million.
Presented a sequential improvement.
<unk> 5 million from the lowest quarterly loss since the COVID-19 outbreak.
This compares to adjusted EBITDA losses of $14 million in the prior quarter and $31 million.
In 2020.
One time charges this quarter were nearly $12 million.
Most of them related to extraordinary cancellations, resulting from the surge in Covid cases.
Now please turn to slide nine.
We ended the quarter with a comfortable cash position of $616 million down $10 million.
While the second Covid weight put pressure on achieving higher topline growth.
It also drove extraordinary customer cancellations.
We have been discussing.
As a result, we granted a higher number of vouchers to customers, whose trips were impacted by the virus this quarter.
These benefiting working capital reduce of cash declined nearly $10 million compared to a drop of $25 million from the prior quarter.
At the same time.
Operating cash needs declined to $1 million down from over $7 million in the first quarter of the year.
In turn total net operational short term obligations stood at $216 million, increasing 3% sequentially.
Now please turn to slide 10, where the key takeaways from the quarter.
Let me pull back a moment to go over the five takeaways of today's call.
First increased geographic diversification continues to drive revenue growth and smooth symmetrical dynamics observed across.
Across our markets.
Both in terms of recovery trends and seasonal factors.
For example.
Anticipating lower restrictions, such as Mexico, and Colombia recovered at a very good thing.
In fact.
When excluding Argentina and Chile.
Fake higher travel bans.
International transactions were up 120%.
The sequentially Similarly, strong pent up demand in markets more open to trial.
In turn.
Demand in Brazil that was very weak in April and May.
Began to improve in June with this positive trend continuing into July.
In summary.
<unk> put in place over the last couple of years has allowed us to grow our business this quarter. Despite the travel restrictions from closing the deal.
The second positively.
As discussed earlier cancellations for this quarter with.
Restricting our topline growth translate into profit at EC.
However, when excluding extraordinary cancellations, our adjusted EBITDA was better than last quarters.
Additionally, the second wave of COVID-19.
The resulting cancellations.
Triggered the issuance of vouchers to customers, which prevented us from Bergen the level of cash that we reported last quarter.
Second.
<unk> remained at solid levels with revenues, excluding Australia cancellations, 39% below pre pandemic.
Levels, beating the 56% decline.
During the same period.
Third.
We continue advancing on our customer engagement initiatives.
Leveraging the consistent adoption of our loyalty program observed in both Brazil and Argentina.
Which reached over 900000 vendors.
This quarter, we successfully launched our loyalty program.
Fourth.
We are expanding coins due to the product offering beyond the litterbox collateral.
Adding new partnerships.
Pickups.
And finally in terms of ESG.
We are pleased to report the launch or in our corporate sustainability report.
Prepared under the SaaS the framework of e-commerce sector.
These quantities that they are the first steps.
ESG journey I will look forward to continuing at Bernstein and esports.
Now.
Please turn to slide 11 for final remarks.
Consolidated gross bookings in July were in line with the levels posted in June which accounted for the highest gross bookings during the first half of the.
During third quarter 'twenty, one we expect the geographic mix to change in line with seasonality as well as a gradual recovery in Brazil.
Demand in Mexico, and Colombia are expected to remain relatively stable.
See you in that demand in the third quarter is seasonally dollar.
We also plan to continue building a new vertical slot coin in strengthening its b to B business. With addition of platforms payment gateways and digital wallets.
We also expect to further benefit from implementation of risk based pricing.
By focusing on expanding to other geographies.
The integration of Best Day is also progressing nicely and we remain on track to complete this process by Q1 'twenty two.
The <unk> migration to this platform is allowing us to beat our internal targets for key kpis.
Such a conversion rate of the margin is that data and digital segments.
The first quarter.
First time, the bad days.
The segment achieved profitability.
Finally, we plan to launch a materiality assessment during the fourth quarter of this year as we continue our goal of advancing our ESG journey.
And this concludes our prepared remarks, we are ready to answer 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 telephone keypad.
You are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from Ed Irma of Keybanc capital markets. Please go ahead.
Hey, Good morning, guys. Just a couple quick ones for me I guess first as you prepare for seasonal recovery in Argentina, and Chile are you anticipating that those travelers are domestic or are you looking at international packages.
Second it seems like you have a very interesting kind of hidden asset in coin and it sounds like you're expanding into growth I guess, what kind of investment is necessary in the business as you're building your vertical.
And then finally, just one housekeeping question on the tourist payable on the cash flow statement, how should we think about that going forward. Thank you.
Okay.
Hi, Ed how are you doing Diane thanks for the question in terms of Argentina, and Chile in particular.
Not only in those countries are in Indiana, we are talking about the evolution of domestic and international passengers in general you can see that domestic cost recover.
Almost twice two three guidance as fast.
As international we expect that to remain as a trend.
And in the future.
To your question, yes, going forward with big in Q3, and Q4 for domestic passengers to continue growing faster than international.
And taking longer for international packages to catch up on reach pre pandemic levels I don't know if that addresses your question.
It does.
ASP coin, yes, we definitely are moving.
You do not only increasing the penetration.
Of course within the data and the Golar in particular, but also moving into other verticals and also we are exploring all chose to take call. It to other geographies. We are this big Ids is very relevant.
As you know we will not disclose.
With specific financial required for that but I can tell you that the way we're managing the expansion underway we're managing.
Payables and receivables with the vendors on the clients.
It has not been significant.
Use of cash and we don't expect that to be in the future.
Hey, Roger joining here for your third question on <unk>.
Clearly in.
This quarter, we certainly benefited.
From.
Again, the bottom line.
We do.
The second wave in Brazil.
It certainly impacted us negatively that actually curtailed our growth rate, having said that again. It also drove our second wave of cancellations.
As already mentioned on the earnings release that second wave of consolidations had a positive impact on working capital from the perspective that we granted either more vouchers or refunds again that allowed us to conserve cash if you look at the burn the prior quarter was around $25 million this quarter.
It was around $10 million.
So we expect that in the future quarters, our cash balance will diminish.
From the perspective of how much how many inbounds vouchers get redeemed in our platform and at the same time, we returned money to clients.
In the in the proper schedule.
Having said that you also compensated because the growth rate of the company.
Possibly working capital, we generate cash from that positive working capital.
All in all we expect the minimum cash balance of the company will be at around yearend I remember discussing these with you in prior calls and the potential was more around this in the second quarter.
Operational keeps on getting delayed and leads to a sale of balance again is not something that.
Need to paid immediately there is a very long cycle that actually our first adjusted nine month lease response gets affected by the different waves of Covid in the region.
Very importantly, very importantly.
Can you know okay, we do pay in in our suppliers. Following checkout. Okay. So in the end the expectation is that our sales recover we regenerate cash that will only need to cancel that down following checkout. So we continue having the positive working capital dynamics that we've seen.
Pre COVID-19.
Great. Thank you guys.
Thank you.
The next question comes from Kevin Kopelman of Cowen. Please go ahead.
Hi, Good morning, this is Emily on for Kevin.
I was wondering if you could help us understand your market share strategy at present and once the market recovers.
What tools, we use to gain share either organically or inorganically. Thank you.
Emily.
It is now.
Yes.
As we mentioned.
In the Brazilian remarks deal was a very positive quarter in terms of share.
And particularly because those share gains we are obtaining we the revenue margins we had described.
What's remarkable is that when the strategy will be sharing with you over the last few quarters trying to maximize profitability.
We were able to gain share because of the revenue management algorithms that we put in place in different markets. So organically, we continue to improve our ability to remain competitive and taking advantage of a specific pricing opportunity.
ASP there inorganically.
Part of the overall strategy of the company.
We know that we are actively pursuing opportunities.
Help us to apply those two weeks in a broader scale.
So.
Basically we are very happy with the results so far and we expect that to increase in the recovering market.
Very helpful. Thank you.
Again, if you would like to ask a question. Please press Star then one.
And our next question will come from Brian Nowak of Morgan Stanley. Please go ahead.
Hi, Good morning. This is Alex Wang on for Brian. Thanks for taking the questions. Just two one in your more are reopened markets like Mexico, and Colombia can you maybe talk to how you may be leaning into marketing spend to capitalize on some of the pent up demand and maybe provide a general update on what you're seeing from a competitive Atlanta.
Gabe.
Second question.
The strong take rate again in the quarter or about a 400 basis point increase versus 2019 can you help us quantify maybe how much of that maybe due to the improved.
<unk> algorithm that you talked about versus geographic mix and versus best day contribution and how durable you think that take rate is.
Okay.
Hi, Thanks for the question.
You know that we do not disclose.
The numbers in Brazil, and take rate by by geography, what I can tell you is that we've been very careful in terms of our marketing spend.
By geography, depending on we believe at different stages of the market in Mexico, and Colombia to your specific question.
<unk> point is where the markets during Q2 have been closer to full recovery, particularly in Colombia. Accordingly, we have been much more aggressive in our investments in those two markets.
Particularly in Colombia.
I can disclose is the general level that we've been gaining share significantly and we receive we start to see a very similar competitive dynamics in those markets or the one prior to the pandemic always.
Lee.
With just one defense not so intense.
Many of our competitors have left the business if you went back.
While Illinois, we will react.
In terms of marketing spend and pricing aggressiveness.
Into the evolution of the different markets.
Mexico, and Colombia, B, the one closest to the recovery ASP.
As far as the sustainability of the take rates I think we mentioned in prior calls that we do not expect these to be the new normal.
This periodic SEC company that has significant growth potential going forward and when the market returns to normal levels, we are ready to invest not only our.
Full capabilities, our financial resources to.
Continue growing aggressively.
GAAP complementing the take rate response.
With our new algorithms with the change in mix improved mix territories have more known and more packages et cetera. The expectation is as you might recall.
Disgusting.
December 2019 that today that we have 11, five plus take rate a horizon in the long run we do believe that certainly with a changing mix on the strategy.
That can be improved and we are looking more now in the 12 plus okay that long term that of course excludes all the noise that we have today with an industry that is operating at less than half of its capacity.
Okay.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Dani and skulking CEO for any closing remarks.
But just wanted to thank you all for joining us today, and we look forward to seeing you in our next call. Thank you very much.
The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
Yeah.
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