Q1 2022 Despegar.com Corp Earnings Call

We also began the year balancing our M&A strategies.

An agreement.

61% of states, leading panel management in Brazil by patient Brendan.

Jenson products.

With significant growth potential.

More recently, we signed an agreement to acquire 100% organic while Brazil's thus Charles.

In a moment I will elaborate on the <unk> acquisition and also discuss the strategic Alliance we have for me with Marguerite in Colombia now.

Now please turn to slide four.

Now Thats only Trump is finally behind us and travel restrictions have been lifted in our markets demand has been recovered.

The variance also coincided with a seasonally slow period.

I'm sorry March April we observed the same recovery trend.

Those last October and November .

As you can see in the dust on the slide gross bookings in March and April reached 85%.

And then two person.

First quarter 2018, respectively.

Of note, though.

Booking activity.

Excuse me first quarter of 2018 by 7%, while international bookings were 51% of that quarters like.

The recovery of international travel represents an important opportunity for us.

It is worth it.

Asset, particularly strong track record.

On the right side of the slide we have highlighted the restrictions that impacted our demand in.

Notably the fifth company about rate were postponed safely, while Mexico and Argentina salary with features.

Slide five we continue to make hydrogen applications.

Avenue of growth and don't have this big <expletive> offering.

More recently, we agreed to acquire 100% of the added.

One of Brazil's leading otas with $7 million in annual rate.

In addition to expanding our presence in that important market behind it breached a loyal customer base, Eric Howard expertise and a profitable business or has it greatly probation when he perforating industry.

Eric powered products.

At the product level.

8% of net gross bookings originates the weakness you said, 12% EBIT.

Today, 98%.

Next bookings are very strong.

So there's a huge opportunity to cross sell this big <expletive> none.

Such as the combinations and travel packages, which also command higher margins.

There are significant synergies that we expect to realize by flagging with <unk> plus <unk>.

First enhanced conversion rates and improved performance marketing capability.

Finally does cycle duration is approximately $70 million.

Let's now move to slide six.

But obviously in a key market for us.

It's large and rapidly growing the NPL market place has established a strategic alliance with one of the country's leading b to C and b to B.

As many of you know, but let me have highly underbanked population with limited access to Greg.

Also as a fast growing e-commerce market.

<unk> NPL market, they're dabbling into a different <unk>.

Our six year the npls on sensors are forecasted to Keith.

5 billion growing 40% per year.

Molly is expected to be an excellent partner for comp.

$3 5 million users.

<unk> has the largest base of active users in Columbia, and we can also cross sell our products.

We also offer some electronic payments and davita discipline, multi payment protector and separate to more than 60000 merchants.

In Brazil.

Continues to expand its merchant base.

Okay.

In the first quarter margin TBD, excluding the Golar increased 17% sequentially accounting.

LNG from 51% of call is TBD.

During the quarter.

<unk> signed agreements with a number of important markets, which we have listed on this slide at.

At the end of March we had agreements with Nike to March across both because now you're chasing integration.

And that's.

That concludes my portion of the presentation available. Please go ahead.

Thank you Amanda and thank you all for joining us today.

Please turn to slide seven to review our topline results.

We deliver the higher gross profit since the third quarter of 2019 at slightly over $74 million.

With the gross margin recovered to the levels reported in the first quarter.

This solid performance was driven by a robust take rate together with lower cost or revenue.

Actually our take rate was exceptionally high this quarter at 14%.

Increasing nearly 100 basis points sequentially.

Note that revenues declined sequentially by 10%.

$112 million.

When growth bookings posted a slightly higher drop down.

<unk>, 16% during the same period, reflecting the impact of Farmington in January and February .

Revenues also benefited from a reversal of provisions, which resulted in positive net extraordinary cancellations totaling $2 million.

Now please turn to slide eight.

We delivered the second consecutive quarter with positive adjusted EBITDA.

Part of the pandemic.

Excluding coin our Fintech operation.

Adjusted EBITDA was slightly above $12 million, reaching 82% of first quarter 90 levels.

<unk> gross bookings, reaching only 69% of pre pandemic levels.

This improved performance reflects that.

Greater earnings power on the back of our leaner operating structure.

Synergies on revenue diversification achieved during the pandemic.

With respect to coins impact on profitability.

And alone adjusted EBITDA at our merchant payment operations was a loss of over $5 million as we.

We need to invest and scale of this operation.

As noted we expect coin to reach breakeven in the second half of 2023.

Now please turn to slide nine.

We closed the quarter with cash and equivalents of nearly $286 million.

At quarter end, while our net payable position stood at 220 million learners.

11% sequentially.

During the quarter as they are generated operating cash flow of nearly $30 million.

Including 11 million provided by working capital.

All in all we're at.

<unk> net cash flow of nearly $7 million.

From both fourth quarter 'twenty one.

First quarter same year, when we generated $3 billion.

Had a use of cash of close to $25 million respectively.

Note that given the anticipated resurgence in travel we expect an increase in the use of open vouchers, which would have an impact on our cash balances in the following quarters.

Now please turn to slide 10 for a summary of important aspect or what it was a strong quarter.

EBITDA expanded faster than gross booking and we advanced our M&A strategy with two important acquisitions.

First our results reflect the increase in earnings power in a recovering market.

Again, it was our second quarter of positive adjusted EBITDA.

Although on the growing impact of travel in January and February our gross bookings recovered to october's level in March and April .

We also achieved our highest gross profit with a corresponding margin at our third quarter.

19 level, we benefited from an exceptionally strong revenue margin of 14%.

And lower installment cost decreased our cost of revenue.

Excluding coin adjusted EBITDA was $12 3 million and expanded faster than gross bookings, reflecting greater operational leverage.

Regarding organic growth.

We'll expand the Brazilian presence with agreements to acquire <unk>, a leading otas that offer significant cross selling opportunities among our synergies and states are leading channel manager in Brazil fast growing vacation rental market.

Point itself is expanding in Brazil, as more merchants adopt its famous solutions.

Says that we expect to replicate in Colombia with a new movie partnership.

And finally, we finished the quarter with a solid cash position of nearly $286 million.

Now onto slide 11 for some quick remarks on our views for the coming months.

First as travel recovers in the region.

We expect to build on our solid performance over the last two quarters supported by the strong underlying fundamentals of our business.

We expect to maintain our positive EBITDA trajectory, while gaining additional operating leverage we also expect travel to recover to pre pandemic levels by year end.

And plan to continue capturing the greater upside potential of international charter market, where we are strongly positioned.

For the remainder of the year, we will continue to invest in marketing activities that support the sprouts brand market position on overall basis.

Particularly in countries with promising.

Recovery levels.

Second.

Building on past M&A successes.

We intend to complete the acquisition of <unk> in a timely way and to effectively integrate the business achieved the various synergies that we highlighted Tony.

And finally, a coin we're excited about further expanding our network of merchants and partners not just for the NPL, but also fraud prevention, which is essentially 20 <unk>.

The solution.

Before opening the call for questions. Let me remind you that we will be holding our second Investor day on June 14th in New York City.

Look forward to sharing with you.

More color on our markets operations business strategy and mid term outlook.

We are ready to answer your questions. Operator, please open the line for questions.

Thank you for our Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now did you change your mind. Please press star followed by two.

When preparing to ask a question. Please ensure your devices on mute locally.

Our first question comes from Alejandro Aranda from <unk>. Your line is open. Please go ahead.

Yeah.

Thank you hi, good morning, congratulations on the results.

Three questions. If I may the first one is on gross margin for this year and if you could give us a little bit of color on what to expect going forward to be a normalized level.

Then my second question is.

What should we expect for coin in time in terms of breakeven when that is.

When are you expecting that to happen and what's the potential EBITDA level coming from from that operation.

The last question that I have if I may.

When do you expect maybe 100 acquisition to be completed and if you could walk me through what you expect in terms of the P&L and working capital demand coming from this.

Okay Alejandro ill.

Relatively speaking.

I believe you continue well, so I will try to address.

Three questions.

Monthly campaign anytime.

On gross margin okay.

We have finalized the fair.

First quarter of 'twenty, two with a gross margin slightly above 9% as a percent of gross bookings.

While we are seeing is going forward, we certainly see markets that have recovered the most and this is very much in line with the strategy.

Okay.

The principle of investment.

Getting out of COVID-19.

What we see we see opportunity to increase marketing expenditure and to increase.

With lower margins to gain additional share in those markets. So that will translate into a gross margin in the upcoming quarter of around losing between 125 to 100 basis points vis vis the 925% so going to approximately a.

Gross margin of around 8% okay.

Following that okay. Clearly these margins are much higher vis vis the margins that you have seen pre pandemic. Okay. We believe that they will be having our gross margin.

And also including sales and marketing.

More of an operating profit that would be much higher given all the synergies that we expect to capture from the recent acquisitions on the streamlining of the cost structure, we are looking into.

Our Investor day.

On June 14th to discuss what are the long term prospects. So they bought.

The 8% applies to.

To provide some visibility on to the second quarter of this year.

Second with regards to your question on coin.

As we as we noted on the remarks, Okay, we expect coin to reach EBITDA breakeven.

By 2023, Okay.

Along the same lines as we present more of the medium and long term perspective for that business.

Then let midway for the for the Investor Day, just to look at the overall group results in that context, let me say for a longer term perspective.

Short term you should think that by the second half of 2023, maybe data point it should be at breakeven levels. Okay.

Then with regards to the iron it okay.

We expect the closing of the deal to occur.

By the end of Q2.

At the very beginning of Q3, so thats the timeframe that we're working on our integration teams are already very focused on and start extracting synergies well in advance of the closing.

That is why we are thinking about and closing with regards to <unk>.

In cash needs for the business. Okay. There will be some working capital levels, we don't expect that to be that material and last but not least in line with the way that we have been doing the payments for different transactions. This the payment of the <unk> acquisition also cost.

Payment installments.

Out of which 60% will be.

We'll be we'll be required at closing so hopefully.

<unk>.

I understand that I have addressed your questions.

Yes, Thank you Alberto.

You're very welcome.

Our next question comes from Karen <unk> from Morgan Stanley . Your line is open. Please go ahead.

Great. Thanks for taking my questions.

First a couple on take rate could you talk about the underlying drivers of the stronger take rate in <unk> and then how you think about the sustainability of those going forward.

And then on the back of that could you just comment on the impact take rate from the <unk> acquisition. Thank you.

And hi, Karen Van Bergen here.

So and.

Clearly, we did we did percent up and a very strong take rate okay.

We were benefited marginally by by cancellations cancellations levels for this quarter first quarter of 'twenty, two we're actually at a much more lower than much lower than actually expected. Okay with regards to the long term okay. What we're seeing is.

And we will also discuss that at the Investor Day remember why we have been discussing so far is a take rate that has expanded vis vis the pre pandemic levels remember that we were discussing about take rate of 11, 5%, we're seeing a take rate expansion.

$350 75 to 100 basis points from that level.

And we feel very comfortable that we can continue growing.

With that pricing level.

That will allow also to have a much better much higher earnings power of the business growing going forward.

I don't know if there was a second question Kerry.

When it comes to take rate.

Yeah and then.

What's the impact take rate from the <unk>.

Acquisition.

Have you decided that yet.

And yes and.

Again.

As you know we do not look for competitive reasons, we do not disclose it take rate information at a business line perspective, or even Idaho for each one of the targets you should assume that we have done and that is a 98% <unk> business.

Has a lower take rate than the average figure that they stay at house, Okay, but of course okay.

We are looking into obstructing strong synergies by improving the product mix that has a net consumer of customer have today, okay, and we will address that.

At the Investor day, when we look at the overall integra for the company going forward, Okay, but we see ample ample opportunities to increase take rate as we integrate it isn't it.

Got it thanks a lot.

Youre welcome our next.

Our next question comes from Kevin Kopelman from Cowen and company. Your line is open. Please go ahead.

Good morning. This is Emily on for Kevin I, just wanted to thank you for the ft on monthly gross booking trends for April .

But I was wondering if you could provide us with an update on the latest trends in may to date.

We noticed some of the large global Otas and hotel companies, noting our strong April but.

Stabilization of trends from there and I was wondering how demand trends are looking in Latin America. Thank you.

Emily Hi, how are you. This is <unk> for your question.

What we have seen in may.

<unk>.

Sustainability of the April trends.

What does it do remain strongly.

And that cost.

A lot to do with the way we've been talking about over the last earnings.

Earnings calls.

Regarding Latin America lagging behind.

The image here in terms of recovery to pre pandemic levels.

Our expectations are.

The daily Max too.

The market will continue catching up.

And we.

We expect.

And our forecast in terms of as I've got just got to be fulfilled completely me.

<unk>.

Okay. Thank you.

We have no further questions I'll now hand back to payments <unk> CEO for closing remarks.

Thank you operator.

Thanks, everyone for joining our call today as always if you have any other questions. Please do not hesitate to reach out to us we'll be happy to follow up with you.

We look forward to speaking with you again in our next call, but hopefully we'll speak sooner at our Investor Day next month.

Wish you a good day, thank you very much.

Today's call has now concluded. Thank you for your participation you may now disconnect your lines.

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