Q3 2021 Despegar.com Corp Earnings Call

Okay.

Good morning, and welcome to the desk regard first quarter 'twenty, One earnings conference call.

A slide presentation is accompanying today's webcast and is available in the investors section of the company's website investor <unk> com.

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 listen to audio Nirenberg Investor Relations. Please go ahead.

Thanks Nate.

Okay.

Yeah.

And now they seem to be quite a bit.

That's not fun.

Yeah.

Well, it's tough to tell that number.

Yeah.

Morning.

Sure.

Should we get the finishing up I'm not sure if I missed it.

Anthony we're ensuring that they end up on them.

That's why as I mentioned from them, but it'd be messy she's not because you have to be in isolation accepted as part of a bigger tools up finance are measured and I provided a supplementary information monkey.

Before we begin our prepared remarks allow me to remind you that we're gonna stay.

Because of the discussion may constitute forward looking statements, which are based on management's current expectations.

Nonetheless.

No.

And food costs are fairly fast enough to get 85.

Sometimes that maybe younger companies.

There's been no everybody that knows they need to.

What kind of assumptions related to the impact of the COVID-19 pandemic I think they they cannot start falling off that's the reason why it is doing they say I'm going for it is gets it up with me with respect to our filings with the Securities and Exchange Commission and our press release.

If you don't do this call Sal Appeals.

Cooking always rely on our view of the second quarter and update you on our acquisition criteria.

I went through on our behalf to me our CFO will then discuss the quarters financial results.

And we know we opened the voice to your question.

Please go ahead.

Thank you Natalia and good morning, everyone.

Thanks for joining us and for your easiest industry.

Our third quarter results demonstrate that the strategic initiatives undertaken since the start of the baby and Theres, a pistol execution delivering improved margins when compared to 2019.

Four months this quarter underscores.

The future earnings power of the company I'd like to touch on some high.

Just strong recovery across most of our markets, mainly driven by demand for domestic travel.

Teaching is starting to pick up.

Many countries you can open.

Their borders to fully back naked juice.

Our international transactions increased 120% sequentially coming from baby building.

As a result, we reported sequential increases of 34% gross booking and the 44% in transactions.

This was driven by first of all Kathryn the pickup in Brazil, Argentina, and Chile countries, that's what impacted the prior quarter with the second wave of debate take on another strong quarter in Colombia, where we observed significant pent up demand Mexico was the standout.

In the prior quarter, but had a weaker performance in July and August and some of these stores could not open due to the restrictions that impacted some key touristic destinations and they put it.

Tone, our Mexican operations began to recover in September these.

<unk> has continued into October.

October our geographic diversification has allowed us to capture growth across the region as market recovers.

We continue to closely monitor the key levers of the company, maybe price marketing expenses and installed.

After improvement in our management revenue toolkit, we have.

Been able to report stronger takeaway than pre pandemic, reaching 12, 7% as reported and 13, 7% excluding extraordinary cancellations.

Similar to past quarters, our take rate benefited from the investments we have made in technology and analytics.

Which allows us to price more accurately.

Proving onboarding them to capture more profitable transactions and the positive impact from Big Bang, which has the highest take rate were also key contributors.

At the same time on a quarter on quarter basis revenue growth.

It was more than double the increase in cost of revenues.

Lastly, operating expenses increased only 3% sequentially, even after the investments in selling and marketing during the quarter were 36% up sequentially and in line with increased and gross bookings.

Our business Leverages the actions taken last year to improve profitability.

This has allowed us to be very close to achieving adjusted EBITDA breakeven when excluding extraordinary charges, even with gross bookings at only 56% of the third quarter of two cell phone.

18, a leg.

Importantly for the month of September we achieved positive adjusted EBITDA, excluding extraordinary charges.

This was an important milestone for us.

Main well capitalized with a healthy cash position of $276 million.

Turning to slide four for a discussion on a few of our key markets.

As various geographies have reopened post pandemic consumers have shifted some spend towards travel and entertainment.

On these lines, Brazil, and Colombia posted the highest.

The level of gross booking since the start of the pandemic.

With most states in Brazil lifting restrictions in July.

Bookings in the quarter were up handgun, 36% sequentially and Asp's.

33% in the same period.

By mid September several countries.

The street's at least jurisdictions, allowing fully vaccinated proceeding to travel overseas.

Furthermore, as of November the eighth fully vaccinated Brazilian are now allowed to travel to the U S showing proof of vaccination.

In Mexico, Although BARDA has remained open.

For flight activities in the main cities, where particularly restricted to control an increase in Covid cases.

Restrictions effective best day offline stores performance in July and August.

On a positive note gross bookings have been increasing month over month since all of us and international.

Well, it's stable on a sequential basis.

Regarding the rest of Latam.

Worthy, Colombia, well, 32% above.

The third quarter of 2019 pre pandemic levels reflect the pent up demand.

Travel restrictions were lifted.

It's early in the year.

Dana will serve a sequentially, 150% increase in gross bookings.

Finally in Chile, gross bookings nearly doubled sequentially and the significant growth trend continued into October as well.

We entered the fourth quarter October.

Continue with these positive trends across the region.

Just to summarize our geographic diversification has been key in providing a more consistent overall performance for the company.

Turning to slide five we have two really strong initiative that we continue.

<unk> to deliver them and that I will discuss today first our loyalty program has been widely accepted and we have reached the 1 million member milestone today.

Part of this periodic available in Brazil, Argentina and Mexico.

We are we've recently signed an agreement.

Leaving lots of co branded credit card in Mexico in partnership with Mastercard.

Okay.

Also capitalizing on increased travel demand, we launched our first offline marketing campaign since joining planet signs to travel again and can be seen across all media and in Latin America and Brazil.

We have been offering more refinancing options to customers.

We have further deepened penetration in the Golar I counting for six 5% of all transactions in the first week of October with a record total purchase volume. Additionally, $5 five per cent of the collapse of infectious and October.

We're basically peaks would result in much lower cost of revenue for the Golar given that these transactions are processed and covenant.

We also completed implementation of risk based pricing in the traveling back together, which allows us to match the interest rates charged to their risk profile.

We think gossip.

I'm going to be to be business, we continue expanding the number of merchants and the e-commerce sector.

Which we now provide alternative means for customers who place their vote later part to everybody.

They buy now pay later payment solution.

We now have 30 merchants signed up.

But it's for new Martin's in payments and fraud.

Total number of Americans to 10 year to date, notably call. It total purchase value for the quarter tripled sequentially. As we look ahead, we expect to be adding more industries slower too bad because in the very near future.

We see immediate.

Attractive potential for calling services buy now pay later on fraud prevention.

Which have a total addressable market of between 15 and $20 billion in Latin America.

I will now turn the call over to talk about it though.

This quarter's financial results.

We also incurred a man and thank you all for joining us today.

Turning to page six as reported revenues increased 32% sequentially to 37% below third COVID-19 pre pandemic levels.

Compared with 39% below second quarter's 19 levels in the prior quarter.

Excluding extraordinary cancellations, who connect in connection with the COVID-19 pandemic.

Revenues would have been 32% below third COVID-19 levels.

Note that this quarter, we also saw lower cancellations.

The ratio of cancellations to gross bookings decrease.

43 basis points quarter on quarter.

Importantly, our take rate remained strong reaching 12, 7% as reported and $13 seven when excluding extraordinary cancellations.

Key factors in this development were the contribution from.

From Bad day, and improvements in revenue management implemented C blocked here, which have allowed us to further optimize pricing through more advanced algorithms.

Now please turn to slide seven.

Moving onto profitability, we achieved the.

The best quarterly adjusted EBITDA since the start of the COVID-19 pandemic in second quarter 2020.

Despite posting gross bookings, 44% below third COVID-19.

We were very close to breakeven when excluding extraordinary charges.

This is proof.

<unk> of the initiatives launched new in this period, particularly in terms of cost reduction.

Excluding extraordinary charges comparable adjusted EBITDA near breakeven, reaching a loss of $3 6 million.

Improving from losses, so that's not happening in any prior quarter.

Our knee.

$17 million in third quarter 2020.

This compares with a comparable adjusted EBITDA gain of over $9 million in third quarter 90.

Note that a one time charges were nearly $7 million in the quarter.

Mainly <unk>.

<unk> with extraordinary cancellations, resulting from the surge in COVID-19 patients.

Compared to nonrecurring charges of $12 million in second quarter 'twenty.

2021.

We are confident that this figure will be coming out of the pandemic has a more profitable company.

Nearly a diversified both from a geographic and product mix perspective backed by a more sustainable business model.

Now please turn to slide eight.

We closed the quarter with a solid cash position of $276 million.

Australia.

Travel conditions improved use of cash during the quarter increased to nearly $40 million.

Recall that in the second quarter, we had granted a higher number of vouchers to customers, whose travel plans were impacted by a spike in COVID-19 cases, mainly in Brazil.

While this resulted.

But in a lower use of cash of close to 10 million in second quarter to put anymore.

With better travel conditions in this past quarter, we saw pickup in demand with customers redeeming travel vouchers.

The redemption of these vouchers added 15 million to the cash burn.

That we have been posted recently of 25 million.

In turn our net payable position decreased nearly $20 million in the quarter.

Now please turn to slide nine for the key takeaways for the quarter.

First we delivered a strong sequential recovery.

Is it driven by better performance across our key markets, except for Mexico This quarter.

Brazil led the recovery with gross bookings up 26% sequentially.

But still 60% below 19 levels.

Colombia also showed a strong pent up with.

Cover bookings exceeding.

Third quarter 90 levels by 32%.

Second EBITDA, excluding cancellations near breakeven.

Even with gross bookings still 44% below 19 levels.

As the initiatives implemented since the start.

Gross endemic.

<unk> significantly strengthened the earnings power of the company.

This positive trend in profitability continued into September with adjusted EBITDA, reaching breakeven levels when excluding extraordinary cancellations.

Fourth we continued to deepen.

The kind of engagement with our loyalty program, reaching the 1 million member milestone in Argentina, Brazil, and Mexico combined.

As demand has picked up we also launched our first offline marketing campaign since second quarter last year.

Finally on the ESG front.

We launched our materiality survey last month.

And look forward to sharing the results in our next ESG report.

Now please turn to slide 10 for final remarks.

Despite ongoing volatility and some macro murkiness our long term vision is.

If anything and sharpen our focus.

The initiatives required to realize it are fully underway, even as we work through near term macro challenges and consumer behavior continues to adjust.

Looking at the fourth quarter, the strong recovery observed in gross bookings in September.

Continued into October reaching 72% of 19 will condense.

In addition, we expect November and December to continue with these positive trends benefiting from industry marketing events.

Such as the one theme campaign in Mexico, and Black Friday and.

In Brazil.

December also marks the start of the summer season in Latam, which would also contribute to higher demand in <unk>.

Jim.

In this context, we are stepping up our marketing efforts, while keeping our heightened focus on affordability.

We illustrate the point.

On a weekly basis, we are launching a minimum of four and beautiful deals by country.

Carefully balancing the price financing perception.

With respect to that date.

We're on track with integration of the in destination activities segment.

And expect to fully finance.

Finally, the integration of this acquisition as planned by first quarter next year.

We are also making steady headway in expanding coins acquisitions operations.

In addition to adding new logos in the B to B business segment in Brazil, where.

<unk> taken the first steps to launch calling in.

Pardon me next year.

Finally, we are in conversation with several suppliers across the region to expand our vacation rental inventory to meet current higher demand in this part of the segment.

In summary, our continued focus on execution on our improved performance.

In Mexico.

Together with a positive progression in demand.

Quite encouraging.

We believe that while podcasting future performance still presents some challenges due to the ups and downs of the pit.

<unk>, we expect that the development seen vaccination front would generate the confidence to go back.

That's two different platforms.

The third quarter and year to date results reinforce our confidence in our strategy and represent focus on discipline in executing our long term strategic plan.

This concludes our prepared remarks.

We're ready to answer your questions.

Victor Please open the line for questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you were using a speaker phone we ask you. Please pickup your handset before pressing the keys.

It's unfortunately, it's been a.

Operating Roe to remove yourself from queue. Please press Star then two.

Once again, ladies and gentlemen that stars and warm if you have a question.

And today's first question comes from your room out with Keybanc. Please go ahead.

Hey, good morning, Thanks for taking the question and nice to see the sequential Im.

And then I guess a couple of things for me first I think you guys have done a really good job as you know right sizing the business during the pandemic and making yourself more efficient is there a way that we should think as bookings rebuild from an incremental margin perspective, and how they shape may differ than what we've seen previously and second.

Kind of as expected you you're going to draw down on the cash a bit I guess is people redeem vouchers, how should we think about the cash usage progression over the next couple of quarters and when will that trough. Thank you.

Okay.

Ed Alberto Good morning, Yeah. Thanks for your question.

<unk>.

On cash I think we Lytton, let me allow me to reiterate what we discussed in prior calls actually recall. Your question. Okay. We are looking at the similar levels to what we have discussed, let's say like a minimum cash balance for the year of around $250. Okay.

Our client driven.

For the same reasons that you that you highlighted.

With regards to with regards to margins. Okay. Clearly we are in the trajectory that we're actually reaching breakeven point okay.

It already is.

In the month of October.

In fact, we are closing those figures okay. We're seeing.

Already a blue lines when it comes to at an EBITDA level that is particularly encouraging.

In.

When you start looking at margins, let's say top to bottom okay. We are seeing.

Take rate at.

At similar levels to.

The ones, we have been discussing okay, let's recall, what we have mentioned in prior calls about having let's say a long term trajectory on take it at around.

12%, Okay, 12% plus that is higher in around 50 basis points, we will discuss it pre pandemic.

In regards to.

Structural cost what we why we have said is that as structural cost issues.

Should actually benefit from let's say.

Around 60% operating leverage meaning that if orders were to grow around 100, okay structural costs should be growing no more than 40.

Clint.

And that we I would say points to a picture on what could be the profitability of the company going forward that it should be in excess of why we were discussing pre pandemic in the long run.

Got it and maybe one other follow up you indicated youre looking to kind of.

Rebuild inventory for packages given some of the demand signals you're seeing.

I guess, how quickly can that happen and do you expect that youll be able to.

To have enough capacity for the peak travel season. Thank you.

We currently see.

I think the answer has maybe two.

222 different ideas number one is the company.

<unk> continues to be let's say on the sidelines when it comes to.

Let's say securing inventory.

As we have done pre fund pre pandemic, okay remember that we.

We were actually at around lets say, 5%.

No.

Between 5% to 10% no more than that.

Of all the gross bookings, we're setting we're actually secured or debating advance on capacity at the hotels or airlines okay.

The pandemic struck we were completely on the silent on that and we are not thinking about starting to push into that arena.

So let's say the next few quarters and we do not see a reason to do it given number one the ups and downs of the business and number two we see we see capacity. So there is no need to do it. Okay of course, we see that as a profitable business on that.

That will be we'll put data.

Our food on the gas pedal us Dave we are fully recovered because we see there is there are there is opportunity to gain extra margins, but for the time being we will not do it.

Yes.

In general inventory, what we are seeing.

Usually that airlines are.

Increasing network significantly Latin America, Florida.

Two to three months, so everything that.

The level from the airlines and the hotel is going to be in this play out.

Increased levels of.

Inventory almost area. So we are confident that the pace of the recovery will be sustained over the next few months.

Very good thanks, so much.

Ladies and gentlemen, as a reminder.

So a question. Please press Star then one.

Next question comes from Kevin Kopelman.

Men with Cowen and company. Please go ahead.

Hi, Good morning. This is Emily on for Kevin Thanks for taking my question.

And you mentioned, a new marketing campaign launching in Q4 focused on affordability.

Was just wondering if you could help us understand how that will affect.

Revenue take rate installments in sales and marketing expenses in the quarter. Thanks.

Hi, Lee Thanks for your question because I'm young.

The new campaign was extremely.

Extremely extremely.

That's really particularly still money and what we are pointing towards.

Getting back to travel and be able to afford to travel.

As we always have been positioned in the macro question.

We do not expect that these will represent or even kicking in any lower take rates remember that we mentioned during the prepared remarks.

We have a healthy michigan wherever they might be.

So we're being much more effective in the past you increasing.

Increasing.

Demand without having to give up.

Significantly on the take rate so the numbers that I have.

<unk> referred to in the previous question.

She'd be sustained over the next few months.

Very clear thank you.

Yeah.

And ladies and gentlemen.

And this concludes our question and answer session I'd like to turn the conference back over to the management.

It's been painfully final remarks.

Thank you very much.

I just wanted to thank all of you.

Your participation and interest in this regard we hope you all.

Healthy and safe and thank for joining us today looking for you see you on our next call.

Hi.

Thank you. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.