Q4 2022 Despegar.com Corp Earnings Call
Speaker 1: Ladies and gentlemen, thank you for your patience. This call is due to start in a couple minutes time.
Speaker 2: The.
Speaker 2: To.
Speaker 1: Good morning and welcome to Despagar's fourth quarter 2022 earnings call. This live presentation is accompanying today's webcast and is available in the investor section of the company's website www.investor.despagar.com. There will be an opportunity for you to ask questions at the end of today's presentation.
Speaker 1: This conference call is being recorded and as a reminder all participants will be in session learning mode.
Speaker 1: Now I'd like to turn the call over to Mr Luca Pfeiffer, Investor Relations. Please go ahead.
Speaker 3: Good morning everyone and thanks for joining us today.
Speaker 3: In addition to reporting unaudited financial results in accordance with U.S. Generally accepted accounting principles, we discuss certain non-GAAP financial measures and operating metrics, including foreign exchange neutral calculations.
Speaker 3: Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand them.
Speaker 3: non-GAAP financial measures and operating metrics should not be considered in isolation as substitute for or superior to GAAP financial measures and are provided as supplemental information only.
Speaker 3: Before we begin our prepared remarks, please turn to slide 2 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 results to match the original difference.
Speaker 3: including factors that may be beyond the company's control. These include, but are not limited to, expectations and assumptions related to the impact of the COVID-19 pandemic and the integration and performance of the businesses we acquire, including Best Day, Stace, Viahamed and Coin.
Speaker 3: For description of these risks, please refer to our filings with the U.S. Security and Exchange Commission and our press reviews.
Speaker 3: Speaking on today's call is our CEO , Damien Skokin, who will provide an overview of Despigar's fourth quarter performance, as well as an update on strategic initiatives.
Speaker 3: Alberto Lopez Gaffney, our CFO , will then discuss the quarter financial results in more detail, after which Damien will end our prepared remarks providing annual guidance.
Speaker 3: and wrap up before opening the call for your questions.
Speaker 3: Damian will begin his remarks in slide three.
Speaker 3: Damian will begin his remarks in slide three. Damian please go ahead.
Speaker 4: Thanks Luca and good day everyone. Thank you for joining today's Armin call and for your interest in the Spegato.
Speaker 4: We continued executing our growth strategy with focus and discipline, leading to the aspiga's highest EVIDA since the global travel market was hit by the COVID-19 pandemic.
Speaker 4: We achieved this even with expected weak travel demand during the fourth quarter, normally our strongest one.
Speaker 4: Over the last two months, we've seen demand levels rebound strongly, and therefore, we are expecting first quarter revenues to increase around 40% versus last year, and almost 20% versus 2019.
Speaker 4: with an adjusted EVDA in USD for Q1 in the mid-teens area, implying an EVDA above the 2018 levels. With the travel recovery regaining its strength, we are also bullish about the reminder of the year.
Speaker 4: Later in our presentation, we will talk more about the annual guidance that we published with this morning's earnings release.
Speaker 4: The disciplined execution that I mentioned is reflected in our fourth quarter take rate, we draw sequentially and was well above our long-term target of 12 to 12.5%.
Speaker 4: That helps offset weak travel demand, driving revenue significantly higher year-on-year, and keeping them in line with 4th quarter 2018. It also helps us book our 5th consecutive quarter of positive EBITDA, with rows sequentially and year-on-year to 12.5 million.
Speaker 4: Our improving revenue mix and higher ASPs also contributed to EBITDA growth.
Speaker 4: Importantly, as we continue driving profitability higher, we are better able to make the strategic investments that are building at a digital scale and other competitive advantages that reinforce the speakers market leadership in the long term.
Speaker 4: Overall, the operational leverage we built into the business and the growth that we expect to generate this year and beyond are expected to continuously drive our earnings power as we communicated in our last investor day.
Speaker 4: Lastly, on this slide, given our solid 2022 performance, our expectations for 2023, and considering the performance trajectory that we outlined at Investor Day, we think that our shares are grossly undervalued. Please turn to slide 4.
Speaker 4: The fourth quarter weakness in industry travel demand that I highlighted was across our markets, particularly for international travel, which contracted approximately 13% sequentially on average, based on air passengers.
Speaker 4: Nonetheless, our gross bookings rose 10% year-on-year to $1.1 billion on higher ASPs, which increased 29%.
Speaker 4: And, as I noted earlier, we are experiencing a strong rebound in demand levels based on January and February's numbers.
Speaker 4: Let's take a closer look at Gross Bookings in the fourth quarter to explain the transitory weakness in the market.
Speaker 4: Starting with Mexico, we observed a sequential industry decline in international passenger traffic of more than 12%.
Speaker 4: This market trend, coupled with our continued focus on profitability, particularly in Mexico, led to a quarter-on-quarter decrease in gross bookings. Nonetheless, our gross bookings increased 5% year-on-year on the back of higher ASPs, which rose 40% in the same period.
Speaker 4: In Brazil, our gross bookings were sequentially stable and up 44% year on year.
Speaker 4: We continued investing in raising the visibility of the Despega brand in this market and gaining additional traction, specifically with international travel which is experiencing a strong year-on-year recovery in Brazil.
Speaker 4: Like Mexico, ASPs rode sharply with airfares due to holiday travel and higher inflation, which in turn impacted prices for other travel services. Overall travel demand in Brazil was 79% of the fourth quarter of 2018 levels.
Speaker 4: in terms of panzersers traffic. In the rest of LATAM our gross bookings decreased 7% sequentially in line with the demand contraction we observed in the region.
Speaker 4: This mostly impacted international travel as in Mexico.
Speaker 4: I'll now turn the call to Alberto for a deeper dive on our revenue and profitability, starting with slide 5.
Speaker 5: Thanks, Damian. Let's move to slide 5 for a closer look at revenue, take rate as well as our cost of
Speaker 5: Despite industry in air travel demand being at approximately 80% of 4th COVID-19 levels
Speaker 5: We delivered the same level of revenues, 145 million.
Speaker 5: and compare to fourth quarter 2021.
Speaker 5: Revenues grew 17% thanks to our disciplined approach to profitability, specifically in Mexico and Argentina.
Speaker 5: As you can see on this slide, our take rate of 13.8% was the second highest of the year, and in each quarter of 2022 was at or above our long-term target of 12 to 12.5 plus percent. We will continue to the bottom half of the slide.
Speaker 5: Our cost of revenue decreased 16% year on year while revenue grew 17% as I noted.
Speaker 5: That drove another consecutive quarter of higher gross profit since the beginning of the pandemic.
Speaker 5: up 6% sequentially and 9% compared to 4th quarter 2019.
Speaker 5: at $100 million.
Speaker 5: It was also the second highest fourth quarter gross profit in our company's history.
Speaker 5: Moving on to slide 6.
Speaker 5: Our operating expenses were relatively stable quarter-on-quarter and since second quarter 2022.
Speaker 5: Note that our fourth quarter costs
Speaker 5: included 2.4 million of one-time G&A expenses stemming from the integration of the AzureNet.
Speaker 5: which we acquired last year.
Speaker 5: Those expenses, in addition to effects and inflation, are what drove a 34% increase in our total operating cost versus last year's quarter.
Speaker 5: Therefore, as you can see in the middle of the slide, GNA increased 52 basis points as a percentage of gross bookings, while our investments in technology and product development increased by 33 basis points.
Speaker 5: Moving to the right of the slide, our sales and marketing expenses were stable sequentially.
Speaker 5: The 34% year-on-year increase reflects inflation as well as the tactical investments that we continue making in certain markets.
Speaker 5: Those investments are primarily aimed at building greater brand awareness in Brazil, our most important market.
Speaker 5: and include performance marketing in that country.
Speaker 5: In Mexico, our second largest market, we invested in expanding our telesales operation and destination management teams.
Speaker 5: Before moving to the next slide.
Speaker 5: I like to point out that due to operating leverage, OPEX as a percentage of gross bookings will trend downward as the business builds scale and the top line grows.
Speaker 5: Now, let's take a closer look at our profitability on slide 7.
Speaker 5: Despite a weak market and the one-time bump in our GNA, we delivered our fifth consecutive quarter of positive EVDA.
Speaker 5: which was 51% higher than Q4 2019 and 39% above Q4 2021.
Speaker 5: Behind the growth in our profitability was a 29% increase in ASPs and the robust take rate that we highlighted, as well as a more profitable revenue mix. The graph at the bottom of the slide shows our full year EVDA.
Speaker 5: which went from a negative 43.6 million in 2021 in the midst of the pandemic to a positive 41.9 million in 2022. That reflects not only the recovery and travel demand, but also our substantially lower cost structure and the operating leverage we built into the business.
Speaker 5: when excluding coin where we continued investing last year.
Speaker 5: When excluding coin, where we continued investing last year, IBITDA was just over $60 million.
Speaker 5: As an update, we now forecast coin reaching breakeven in the second half of this year.
given the challenging microeconomic environment that remains in Brazil.
we maintain a prudent approach at coin, which is reflected in asset quality that continued to improve in the fourth quarter.
As a reminder, COIN plays a vital role in providing financing that is integral to travel purchases in Latin America, but making them more affordable.
And as we expected when we acquired coin.
It continues helping expand our addressable market.
raise average ticket prices, and increase customer conversion rates.
That concludes my review of the quarter. I will now turn it over to Damian who will walk you through our progress with some of our strategic initiatives and who has some closing remarks as well.
Thanks, Alberto. We've been emphasizing our improving revenue mix.
and how it's one of the ways we've been generating profitable growth. On this slide, we take a closer look at how the composition of our business has been evolving.
As you can see at the top of the table, higher margin standalone travel packages as a percentage of gross bookings were 31% in the fourth quarter of last year versus 22% in the fourth quarter of 2019.
You can also see that our geographic diversification continues to increase as Brazil and Mexico now account for 56% of gross bookings at 8 percentage points year on year. We have also diversified our business from a distribution standpoint. In the middle of the table you see that our B2B channel
which includes wide labeling of our platform, accounted for 12% of our gross bookings in the fourth quarter of last year.
compared to 5% in the same period of 2018.
And as mobile devices are increasingly becoming the preferred means for consumers to transact, our award-winning app has also accounted for more of the Spiga's transactions last year.
It represented nearly 34% of fourth quarter 2022 transactions versus roughly 28% in the same quarter of 2019.
Our app continues to gain in popularity.
with the install base increasing 25% year-on-year to 23 million downloads.
Customer centricity is an integral part of our growth strategy.
It strengthens customer loyalty and ultimately leads to repeat business as well as referrals. With that in mind, we have been cultivating point redemptions among the 12 million customers who join our loyalty program. La ha por Lee,
Last year, on average, 5% of transactions included point redemptions. However, when looking at Mexico, our second most relevant market, we are pleased that 10% of transactions were already executed through our loyalty program.
As the fallout from the pandemic increasingly subsided last year, we also saw a big improvement in our NPS score. We jumped to 65.6%, not far off our fourth quarter of 2019 score. We expect it to improve even further.
as we enhance the customer experience more and more, having made the booking process significantly easier and faster through our app.
We have also been introducing new travel features.
to enhance the SPEGAL's value proposition. A more recent one is pre-selected travel packages that we know will appeal to certain customers based on travel preferences that we continually track and analyze. Please move to slide 9.
As our 2022 results make clear, we have been effectively exploiting favorable near-term dynamics in our market. At the same time, we have also been continually strengthening our leadership position and called competency.
Our focus remains on our customer-centric strategy that centers around offering affordable and complete travel opportunities through the sales channel of choice of our clients.
Overall, this is allowing us to leverage our superior value proposition to effectively capitalize on medium and long-term growth opportunities. In other words, upgrading fat's money toSpeakhimdata leads to chancellors of closure in their sportswaters and Oy Knock Health mucus.
The world strategy that we laid out during last year investor day, which targets approximately 5.7 billion in gross bookings and 130 million in adjusted EBITDA by the year 2024 is working.
Moreover, it's been gaining additional traction along with the market's recovery.
With that and the strong rebound in travel demand observed in the first two months of the year, we decided to initiate annual guidance. For 2023, we expect to generate revenues between $640 and $700 million and deliver an adjusted Avida!
between 80 and 100 million dollars.
As we've noted in the footnote of this slide, these projections assume the region's travel market would recover to approximately 90% of its 2019 level by the year-end.
Let's now turn to slide 10. To summarize, the fourth quarter of 2022 was a period of transitory weaknesses in the market which has quickly rebounded.
A day grid well above our target level along with higher ASPs drove revenues 17% higher in the quarter.
During the quarter, we maintained our focus on profitable growth and, thanks to still improving revenue mix, we delivered adjusted EBITDA that was 51% above the fourth quarter to CIFON 1911 and that was our fifth consecutive positive quarter.
Taking another step back, our fourth quarter and fuller results.
demonstrate that we have the right strategy in place that has increased our confidence in achieving our long-term targets.
With those targets in mind, we are cementing the SPEGAS leadership position as we build additional scale, make target
tactical and strategic investments, innovate more, and further diversify our business.
In the near term, we fully expect to maintain our first quarter momentum and hit our revenue and evidence guidance for the year. I would like to emphasize that given the results were achieved in 2022 in combination with a strong outlook for 2023, we continue to see a rise in the number of new
considerable upside to our share price. Before moving to the Q&A, as previously announced, Alberto is leaving us and I'd like to take this opportunity to publicly thank him.
for his many strong contributions at the Sperado.
which he leaves on a very strong footing. We all wish him the very best in his next role as head of M&A at Evertac.
Operator, please open the call for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.
When preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Kevin Koppelman from POEN. Your line is open.
Thanks a lot.
Could you talk a little bit about the gross bookings that you're seeing for the first quarter and what's implied also in that 2023 revenue and EBITDA, what level of gross bookings? Thanks. It is not astrophysimated that the FBI does not have evidence of an augmented reality which sensory is a subject.
Hi Kevin, this is Damian. Thanks for your question. As we mentioned in the remarks, we are seeing a very strong rebound in Q1. And as we mentioned both in terms of revenues and the Vida, we expect a very solid Q1.
And our annual projections that we share our guidance for the first time are based on those numbers. So we see strong market reaction in the main market and we expect the rest of the year to remain on that trend. For more information, visit www.fema.gov
Okay, got it. And then maybe another way of looking at it is –...
Is just the take rate, how you see the revenue take rate playing out through the year just to help us with the models a little bit. Thanks
The take rate you should usually model in line with what we share in our investor day. We mentioned that in Q4 was slightly higher and that's a result of our strategy in the software market, but we will evolve towards what we said in the investor day, which is in between 12 to 12.5. Thank you very much for your attention.
reaching those levels from the higher situation we just briefed on the Q4. But we will evolve towards the investor-based guidelines. Okay, great. And then a separate question. Can you talk about the M&A landscape, what kind of opportunities you see out there and how...
of them at least, but Kevin, you know we cannot get into any further details. Just to refer to the previous point, you have to keep in mind that our projections…
guidance and the long term protections that we share in the best of our without any significant M&A transaction those are based on organic growth. So all the conversations are currently happy will add up
on top of that. And as I say, we feel pretty confident that our target of one to two main relevant transactions will take place along 2023. Okay, fantastic. Well, thank you very much.
Now this concludes our QA and a handbacks and daming and scoken CEO of any possing remarks.
Well, I just wanted to thank everybody for your interest in Despeggar, and we are looking forward to seeing you again when we release the Q1 numbers. Thanks a lot. Take care.
Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.