Q3 2022 Despegar.com Corp Earnings Call
Hello, everyone and thank you for joining that this barack third quarter 2022 on its coke. This caused you to begin three minutes. Thank you for your patience.
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Good morning, and welcome to the desk work towards Cold till 2022 earnings call. A slide presentation is accompanying today's webcast and is.
As available in the investors section of the Companys website, www dot dot dot dot dot com.
Opportunity for each ask questions at the end of today's presentation. This conference call is being recorded.
As a reminder, all participants will be in addition, only mode now I would like to turn the call over to <unk>.
Mr. Luca Pfeifer Investor Relations. Please go ahead your line.
Good morning, everyone and thanks for joining us today.
In addition to reporting financial results in accordance with U S. Generally accepted accounting principles, we discuss certain non-GAAP financial measures and operating metrics.
Foreign exchange neutral calculations.
Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand.
non-GAAP financial measures and operating metrics should not be considered in isolation or substitute for or superior to GAAP financial measures and are provided as supplemental information only.
Before we begin our prepared remarks, please turn to slide two and allow me to remind you that certain statements made during the course of the discussion may constitute forward looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual.
<unk> materially different.
Including factors that maybe beyond the Companys control. These include but are not limited to expectations and assumptions related to the impact of the COVID-19 pandemic.
Integration and performance of the businesses we acquire.
<unk> first day stays.
And corn.
For a description of these risks please refer to our filings with the U S Securities and Exchange Commission and our press release.
Speaking on today's call is our CEO , Danny Ensco Keene will provide an overview of <unk> third quarter performance as well as an update on our strategic initiatives.
Better Lopez Gaffney, our CFO will then discuss the quarter's financial results in more detail.
After that we'll open the call for your questions.
Damian will begin his remarks on slide three Damian. Please go ahead.
Thank you.
Everyone. Thank you for joining our earnings call I'm, sorry, our interest in the space.
A focus on balancing growth and profitability across the geographic markets allows us to deliver our highest EBITDA since the onset of COVID-19.
Revenues and higher operating leverage.
Gross bookings increased nearly 70% to just.
7% below what we booked in the third quarter of 2018 as demand for travel continues to recover.
The strength of our bookings coupled with a take rate 60 basis points above the upper range of our long term guidance drove revenues, 75% above the third quarter of 2021.
Operating expenses increased 39% year on year, well below our 75% top line growth.
Opex stood at eight 5% of GB compared to 10, 3% in the third quarter of last year.
At the same time, we said to take advantage of higher demand levels to expand our share in certain markets, including Brazil, where we continue to make market inroads.
The net result, this big Guy reduced cost structure combined with strong revenue growth enabled us to deliver our fourth consecutive quarter of positive EBITDA.
At Boeing we stepped up our conservative approach to credit approvals have slowed down our origination.
Predominantly with respect to third party.
Transactions at the same time, we have been effectively pricing credit risk.
A word about innovation on slide four we always put the customer at the center.
All our efforts as we innovate on each step of their journey from researching the best from it options to make it.
With the aim of continuously improving the customer experience.
Implementing various initiatives to drive innovation across several of our brands and product categories.
To mention a few we are customizing the landing page and tailoring. The my two sections of our site reflects.
I would ask how much purchase history and travel needs. This quarter. We also launched a pilot Whatsapp channel.
Basically.
And it's already showing very promising results.
In an effort to provide customers with the most competitive prices were.
Currently working on the launch of <unk>.
In selected markets, which allows us to access vital products operating travel takes us.
Allies names.
Reveal one month prior to the impact.
This allows for aggressive sourcing options.
Turning to our loyalty program. We are excited to report that membership growth accelerates.
Quarter on quarter.
Reaching a total of 19 million members.
This allows us to establish an even closer connection to our customer base any kind of the way we are able to tailor travel solutions.
Specific preferences they.
Already 5% larger transactions across our platforms, including <unk> point redemptions.
Gross bookings by region on the next slide in Brazil, our largest market gross bookings rose, 9% sequentially as we capitalize on a recovery in international traffic to build on our market position.
Industry International passenger traffic in Brazil reached 68% of the third quarter of 2018 led.
Continuing to recover sequentially.
Year over year gross bookings more than doubled.
Driven by taxes, and average selling price asp's, both of which increased in the high forties.
In Mexico gross bookings supposed to the Hudson Pacific financial distress due to seasonal effect that's recovered 9% from September to October .
<unk> increased 25% year on year as we continue to increase sales of high embarking packages hotels and other.
<unk> products.
The relative mix of lower margin domestic aerospace continued to decline this drove it.
84% increase in bookings year on year.
Compared to third quarter 2019.
28.
As we continue to focus on driving higher profitability.
Across our other markets gross bookings were flat quarter on quarter.
Although international traffic continued to gradually recover.
Lower base than other markets.
<unk> increased 45% year on year exceeding pre pandemic levels by 17%.
To summarize the slide we continued to effectively respond to and tactical explode the recovering international traffic in Brazil.
The other capture a greater share of this market.
And that's Mexico, our second largest market and how you're traveling.
Travel season.
Our mix of higher margin tailored products continues to improve.
The quarter substantially higher asp's reflect this as well as our focus on prioritizing profitability over growth in Mexico during the quarter.
Our discipline combined with a much lower cost structure.
Given that you guys added empower and building on the profitable growth trajectory. We have established with this I turn the call over to playback.
<unk> great to be with you all once again.
As we can see in the chart in the upper left of slide six.
75% increase in revenue pool does 10% above the level, we reported in third quarter 2019.
The year on year increase was even more pronounced on an FX neutral basis at 94%.
Nearly doubling during the period.
In addition to a strong demand levels that drove gross bookings, we benefited from a higher take rate of just over 13%.
Benefiting from normal travel conditions driving fewer cancellations.
Rates in Mexico, and Argentina, while we focus more on profitability over growth.
As you can also see in this chart, our take rate improved 191 basis points compared to third quarter 2019, when it was at 11 point too.
Cost of revenue rose 33%.
But this was well below the 75% increase in our revenue.
And as a percentage of gross bookings.
Decreased a 100.
24 basis points to form.
Thanks to improved operating leverage together with lower cost related to customer care, which had ballooned during the pandemic.
As a result.
Gross profit more than doubled year on year.
With gross margins expanded almost 170 basis points to eight 6% on over 100 basis points when compared to third quarter 2019.
Let's move to operating costs on slide seven.
We are very pleased with how our fixed cost structure has evolved specifically.
Initiative on technology and product development expenses.
In absolute terms fixed cost only grew 15% year on year and 13% since 2019.
After successfully integrating several companies.
This favorable trend becomes more evident when analyzing our fixed costs as a percentage of gross bookings.
In the second crop of this lag.
Our technology and product development expenses declined 90 basis points, while our G&A expenses decreased 113 basis points.
Sequentially, we see a slight increase in <unk>.
And product development expenses as we brought on the team from the edge of it.
You can also appreciate how our operating leverage has been kicking in when comparing our fixed cost as a percentage of revenues.
Moving to the third graph, you'll see an absolute increase in selling and marketing expenses, which are more tactical in nature. They.
The increase was mainly driven by our decision to favor market share gains in certain geographies, particularly Brazil as we sought to take advantage of rice in travel demand in this regard.
On slide eight we present, our EBITDA evolution.
The operating leverage we have built into the business drove 28% increase in adjusted EBITDA when compared to third quarter 2019.
We just also its highest level since then.
Year on year.
EBITDA improved by $22 4 million.
In summary, our earnings power continues to strengthen.
In addition.
Thanks to the gradual recovery in travel demand, we generated $10 3 million in operating cash flow and closed the quarter with a strong cash position of $263 million.
This allows us to maintain our financial flexibility to make strategic acquisitions, such as our recent investments in the other states.
Which not only expands the.
Travel ecosystem, but also reinforce the core competencies behind our market leading value proposition.
Best in class technology platform.
Both of which serve as a strong and sustainable competitive advantages. This quarter. We would also like to provide an update on coin.
As well as share some additional information about this business on slide nine.
<unk> maintain a strict focus on asset quality remains vigilant, given the complex and volatile economic environment in Brazil.
On this slide we share a number of key operating metrics that reflect our prudent approach.
As you can see in the Bar chart on the left we took an even more conservative approach to origination.
With a stricter credit approvals, resulting in a 25% sequential decline in total purchase volume.
In the chart on the right.
You can see that we're sustaining high levels of take rate, while expected losses have been declining.
Another indicator of our cautious approach of origination.
Also it's important to remember that most of this portfolio is comprised of short duration loans of approximately five months on average, which allows us to make rapid adjustments to effective.
<unk> price risk.
In addition, most of the consumer verticals that coin serves a relatively low risk nitrile.
For the quarter coin produced an EBITDA loss of $5 2 million.
For those of you on this call who are new to this big growth strategy.
Let me remind you that we acquired.
As it expands our addressable market and increases conversion rates.
Take rates as well as average tickets among other distinct advantages.
That concludes my review of the quarter, but to the demand for some closing remarks, thanks, Eduardo we'd like to wrap up our comments with a few key takeaways first.
Continue to be a gradual recovery in travel demand in laptop generating sustained growth in gross bookings, which finished the quarter shaft, 7% below the third quarter of 2019.
The strong growth in bookings and a higher take rate drove revenues, 75% higher and finished the quarter at 10% above third quarter 2019.
Our top line growth combined.
Greater cost efficiencies continue increasing the island's power and drove EBITDA substantially higher versus last year, making it our fourth.
The positive court.
I had a better for you Scott.
<unk> finished the quarter with a strong cash position generating $10 3 million in operating cash.
We're executing our strategic investments.
We are now fully integrated into our technology platform with respect to further benefit from the cost and revenue synergies that we're achieving with this business.
Simple.
Really seen significant improvements in conversion rates and average take rate.
Across all be 100 transactions.
We're also very encouraged with the success, we're having in.
Cross selling higher margin packages.
Got it.
Would it have been predominantly focused on saying Eric protections with respect to state. It is our expanding beyond Brazil, its home market as we seek to increase our presence in the vacation great. Okay.
We hope the additional information about coin is helpful to your analysis more importantly, you can expect us to remain disciplined with the case approvals and continued pricing risk effectively to improve the margin of this business overtime.
Looking ahead, we expect travel demand to gradually approach pre pandemic levels based on current market trends.
Therefore, we expect to maintain our positive momentum in EBITDA in the fourth quarter of this year. However, we cannot predict how inflation will trend noted impact on our businesses in the Congress of Chinese demand and cost.
Notwithstanding near term uncertainties, we remain optimistic about the long term potential of our business.
This concludes our third quarter review.
Greater please open the call for questions.
Thank you. So if you would like to ask a question. Please press star followed by 1 million tangible feedback now you'd be Changyou mind Pizza pushed also led to when pet parents, who ask a question. Please ensure your phones on mid to low teens.
Thoughtful by one in central Keypads.
First question comes from Kevin Kopelman from Cowen. Please go ahead Kevin.
Okay.
Great. Thanks, a lot just a couple of questions.
The first one is you gave a lot of helpful color on kind of how things are trending into the fourth quarter could.
Could you summarize those and.
Maybe give us a better idea of what you expect.
In terms of our bookings recover recovery revenue recovery in it and a little more clarity there on the fourth quarter, where it stands today.
Okay.
Yes, Kevin Alberto here.
Morning.
Okay, and with regard to the fourth quarter, Okay, we actually see even travel demand to be very stable and similar to third quarter levels.
In addition, we also see that profitability will follow the same course okay.
So what we're seeing is at the end of the day.
Is it a business that's pretty stable.
We have gained in past quarters.
From advanced purchases in the case of Argentina. Therefore, the previously program that was.
Our program is incentivizing the local customers to advanced purchases, particularly in on their transactions. So that's how we see the fourth quarter shaping up.
Okay.
So is that just to just to clarify there is that stable.
On an absolute dollar basis or are you thinking relative to 2019 stable because typically typically you have a bit of a Q over Q uptick in the fourth quarter.
Sequential quarter over quarter Kevin.
Okay got it got it so volume kind of volume in and.
Booking and revenue dollars similar Q over Q.
Youre right.
Okay perfect.
Correct.
And then and then one other one could you talk about.
And you did you did you had a share repurchase program earlier in the year can you give us an update on how youre thinking about share repurchases.
And whether you would consider instituting a new program.
Okay.
As you pointed out we finalized the program in mid August ended up purchasing.
The equivalent of $10 million worth of shares okay.
That too.
Additional capital allocation, Okay. We're certainly very pleased with our liquidity position.
It actually provides us with financial flexibility to actually reinvest in the business or to proceed and organic growth.
Today.
We want to preserve that flexibility as we are evaluating different.
Opportunities that may require the payment or funding to grow such operations.
So at this stage, we continue advancing our agenda and we are not planning on restarting our share buyback program. Despite the fact that we do appreciate that our shares are grossly undervalued.
Okay understood and then just a follow up.
Could you give a little maybe a little bit more color on.
How do you see the macro environment right now in your key markets, particularly.
Brazil, and Mexico, I'm, just what's the latest that you're seeing there. Thank you.
Hi, Jamie this is <unk>. Thanks for your question.
We've been pointing out over the last few months, we see the macro situation in Latin America slightly different one in the.
The U S or Europe , although inflation has picked up in the early stages of the year are if you see Brazil as the deflation that asked a couple of months and Mexico remains most David So our view is a more optimistic on the macro in the region.
When compared to what we see for the U S and Europe keep in mind. That's what did we say that Latin America has been used to dealing with inflationary situations very effectively. So we will remain more optimistic on these markets and what we are for the.
The U S and Europe .
Okay got it thanks.
Alright.
Yeah.
As a reminder, so absent any further questions. Please press star then your telephone keypad.
Oh, so about one in 10 point keep that.
It appears we have no further questions at this time, so I'm going to hand, it back to David for any final remarks.
Okay.
Yeah.
Thanks to all of you for your interest in this figure out on your participation on the call. We look forward to seeing you on our next earnings release, Thank you very much and stay safe.
Yeah.
This concludes today's call. Thank you for joining and have a new recipe day.
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