Q1 2023 Despegar.com Corp Earnings Call
As shown in the middle of the table our focus on diversified distribution channels is bearing fruit our beat to weak China, which includes white labeling of our platform accounted for 15% of gross bookings in the quarter more than doubling from 5% in the first quarter.
2018.
Our App continue.
Continued to attract an increasing number of transactions with nearly 37% of all of that would be to see transactions conducted via our app.
Over 24% in the same quarter of 2018.
We also saw a meaningful increase in our installed base, which reached.
$35 1 million downloads up 21, 4% year on year.
Customer Centricity we.
Amazing.
Part of our growth strategy.
The end of the first quarter, we had 14 million members in our loyalty program.
And over the last year bond redemptions by members have doubled two 7%.
Our net promoter score.
800 basis points, bringing us within 20 basis points of our first quarter 2019, Pandemics two cars.
I will now turn the call over to Luca for a deeper dive in our performance starting with revenue and gross profit on slide six.
Thanks, Damien we delivered record revenues of $159 million in the first quarter supported by accelerated travel demand, which recovered to approximately 80% of first quarter 2019 levels.
Revenues grew 41% year on year, and 19% above what we reported in first quarter 2019.
As you can see at the top of the Upper Bar chart, we remained disciplined with the take rate.
At 13, 8%, we kept it well above our long term target of 12% to 12, 5%.
In other words, we maintain our strong focus on profits, particularly in Mexico, Chile and Argentina.
Turning to the bottom chart cost of revenue increased 20% year on year, which was less than half the increase in our revenues in the quarter.
This contributed to record high gross profit of nearly $108 million.
Up 54% year on year and 7% sequentially.
Looking across the top of the chart you can see that we've consistently increased gross profit over the last five quarters.
On the next slide we provide a closer look at our cost discipline and improving operating leverage.
Operating expenses as a percentage of revenues declined 317 basis points year on year, even while selectively stepping up sales and marketing expenses and some key higher margin growth areas.
In the chart on the left you can see that our fixed costs increased 10% versus last year's quarter, but were down nearly 5% sequentially.
Even as we continued to absorb costs related to the integration of the 100, which accounted for roughly half of the 25% increase in our product and technology development costs in the quarter.
That was mainly on boarding <unk>, Brazil based developers, who are augmenting disregard developer team.
The remainder of the increase was due to the FX variations in local currency inflation in Argentina and increased personnel expenses.
Wed like to draw your attention to the Middle chart, which illustrates our improved operating leverage.
As you can see G&A expenses as a percentage of revenues decreased 664 basis points year on year, while technology and product development cost decreased 208 basis points.
G&A declined 4% year on year, mostly due to lower stock based compensation and severance payments.
Moving to the chart on the right. We continued investing in growth initiatives during the first quarter with sales and marketing expenses, increasing 12% sequentially and 555 basis points as a percentage of revenues.
When looking at the 70% year on year increase in sales and marketing recall, we substantially reduced marketing spend in first quarter 2022 due to the Covid Omicron Varian back then.
Approximately half the increase reflects strategic investments in building, our higher margin <unk> white labeling business as well as offline sales channels of note investments in these areas hit <unk> and best day brands increased gross bookings over last year's quarter by over 80% and 50 <unk>.
<unk> respectively.
We also invested more on performance marketing, which included promotional activities for our newly integrated behind that brand in Brazil, among other tactical investments to expand in our largest market.
Now moving on to profitability on slide eight.
Putting it altogether, our improving cost structure combined with strengthening travel demand across our markets drove a 154% year on year absolute increase in adjusted EBITDA together with margin expansion of 483 basis points.
Also noteworthy is our 11% adjusted EBITDA margin our highest since 2019.
And we expect to carry this margin into the seasonally stronger third and fourth quarter.
Let's move to slide nine for a closer look at <unk> performance.
As Damian noted coin is still tracking well to the breakeven point that we are targeting for the second half of this year are buying now pay later business improved one 5 million sequentially and $2 $1 million year on year to a negative $2 5 million.
In line with our conservative loan origination total payment volume decreased 12% compared to first quarter 2022.
On a sequential basis, we did see a modest increase largely driven by loan origination for travel purchases as coin continues to help us expand our addressable market in Brazil.
Importantly, coin maintain the take rate well above expected losses, reflecting our rigorous risk management and effective pricing strategy.
I will now turn it back over to Damien will walk you through the progress of some of our strategic initiatives and make some closing remarks Damian.
If your takeaways before we take your questions.
The recovery in travel demand remains strong across Latin America.
We continue to maintain our focus on profitable growth.
$17 3 million EBITDA in combination with 41% revenue growth schulte.
Top line growth operating leverage and a more profitable revenue mix generated a hardly a 54% higher EBITDA than the first quarter of 2022.
Collins profitability continuous improving and the unit is on track to reach EBITDA breakeven later this year.
To summarize the gas strong fundamentals, coupled with a still strong demand recovery, meaning we are tracking well to our 2023 and revenue and EBITDA guidance.
Our exceptional financial performance consistent delivery of higher adjusted EBITDA over the past five quarters, our record breaking revenues.
In American tower market continues to recover at a testament to our dedicated team and solid business model.
Given these strong results and outlook, we continue to see considerable upside to our share price.
Thank you for your continued support and we look forward to locate our potential and creating sustainable value for all our stakeholders with that let's open the call for questions. Operator. Please proceed.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason if you'd like to remove a question. Please press star followed by two again to ask a question. Please press star followed by one Alternatively, you may submit written questions via the webcast. As a reminder, if you are using a speaker phone.
Amendment to pick up your handset before asking your question and please to ensure that you are on mute locally.
Our first question today comes from the line of Kevin Coleman from TD Cohen, Kevin. Please go ahead, when you're ready.
Yeah.
Hi, Good morning, this is Jacob in for Kevin.
Thanks for taking my question what are you seeing in terms of macro in Q2, particularly in Mexico, Chile and Brazil.
Also if you could provide any color on the take rate heading into the rest of the year. Thank you.
Yes.
Hi, Dave how are you. Thank you very much for your question.
What we are seeing in terms of demand across Latin America is that the trends of Q1 remained very strong and if you ask us in particular in Mexico, and Brazil, we are seeing strong bookings in both markets.
And in terms of state, Greg our view for the quarter and the remaining of the year is in line with our Investor Day protection So would be.
In the range of between $12 five and seven.
$13 five.
That's all there overall, we see as I said.
Travel demand continue to recover during Q2.
That means that our revenue growth on our EBITDA will continue to grow in trajectory, that's our area of the wheat our annual guidance.
We are totally on track to that annual guidance of 640 to 700 million in revenues.
And on EBITDA between 80 and $100 million.
Got it. Thank you and I also wanted to ask regarding the sales and marketing up 12% Q over Q due.
Due to the increase in <unk> investments is this is this a new trends for the rest of the year or is it just seasonality that we should be looking at thank you.
Thanks Jacob.
Luca speaking indeed, as you correctly pointed out our sales and marketing have increased on a sequential basis, particularly due to our investments in the offline channels and.
And BTB spin.
Specifically, we will maintain.
Certain level of investment in those challenge.
They are very very profitable for us and the positive on operating contribution basis. However, looking into the second quarter I think it's fair to assume that you will see a decrease in.
And that line item when compared when you put it into relation to gross bookings.
Got it thank.
Thank you.
And my last question is regarding the competitive landscape is there any update that you can provide there is also big.
Are you seeing any.
M&A opportunities.
Regarding the competitive landscape as we've been mentioning.
Last few calls we see a much more rationale behavior of our competitors that has been the case in Q1, and that's what we still perceive.
And what's going on in Q2 in terms of M&A opportunities as we are having maybe promising computation with a series of target, but obviously we cannot disclose.
Any of the specifics of those conversations.
Okay. Thanks for taking my questions.
Okay.
Thank you.
Next question today comes from the line Shallowest sovereigns from Citigroup. Please go ahead. Your line is now open.
Thank you and good morning, being under one roof.
I have a couple of questions you're finding I wanted to dig a little deeper into.
Into Brazil.
I know you don't want to comment on competition for the desert growing double.
<unk> grown so I just wanted to understand.
And there were clear consolidation opportunity. So I just wanted to understand.
Should we expect.
We continue.
Sequential quarters, and you guys are still very confident about.
Consolidating the line, especially in terms of Otas like it seems like you guys.
Yes.
A clear runway there so.
Also on.
That scene.
Some conflicts I went through in this moment.
The relationship with suppliers will margin, but it is improving.
We have seen.
More irrational players.
And a lot of scrutiny.
We're much more rational environment.
Hi, Bob.
Your relationship with suppliers on the last one is on the working capital we saw that receivables.
When you guys sounded a lot of receivables.
This quarter.
Much less so wanted to see when it confirm this.
Hum.
Thinking about the funding working capital above normal I just wanted to hear your thoughts about the margins a little bit tougher for funding so.
What's more important thanks Paul.
Yeah.
Hi, John Thanks for your question in terms of our performers.
We're seeing that.
One of the aspects of the mistakes.
Formatted.
There is a more positive.
Good news so we're really happy with how the business is evolving in Brazil in terms of competitors and we don't comment on their performance.
I can tell you that we will continue to see a lot of opportunities in Brazil, not only in the B to C side of the business, but our b to B is growing particularly well in Brazil.
As the relationship with suppliers and the overall perspective of the Brazilian market I can tell you that relationship with suppliers, particularly airlines.
On a very high note, we are doing a lot of things with the many airlines.
Then they get opportunities for consumers to access travel at better prices and more competitive terms.
<unk>.
What what we see is that the market is.
Becoming more and more rationale.
Or are some of the call.
Companies that offer products that they could not deliver have been.
Bye bye the disclosure of some of those issues.
Also with Brazilian regulators. So we are we are extremely happy not only with our past performance, but with the perspective of the Brazilian market in terms of the working capital dynamics can you repeat the question I'm not liquidity isn't it correctly.
Sure.
Yes sure insurance.
In terms of the working capital looking at your cash flow. It seems that your discount is much less receivables each quarter last year.
So I just wanted to confirm some lines based on what the cash flow statement.
The response.
This will continue as you guys are thinking about.
Resuming discount of receivables so overall about funding.
Working capital.
Joe Thanks for clarifying that there are no changes in our working capital dynamics.
No Brazilian.
Interest rates are very expensive at the moment. So we take advantage of our solid cash position to minimize tied to minimize our interest expense.
There's nothing else.
Beyond that.
Very helpful. Damian in search of one of those things.
Remind us of the deal with.
Cognizant wound and the dividend.
<unk> this quarter and we should see another disbursement related to dividends. So that's fine I appreciate it.
Sure sure no problem just just as a brief reminder, we close the deal without Capex and in September 2020, the size was $150 million and it pays a 10% interest payable semi annually.
No changes there right we paid.
The last dividend, which amounted to $8 million and no changes on that front that the same amount is still outstanding and just as a reminder, the maturity of.
Of that structure is in September 2025.
And.
Thanks.
Thank you Luca Thanks, guys and congrats on the results.
Thanks.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad or Alternatively, please submit the tax question via the webcast I'll now move to our original question and the first question that comes from the line of Andrew Carryon and they say Hello, congratulations on the very strong results there.
A lot of news recently with the rapid development and AI and large language models such as chat GPT.
It has been surprising how much better many of these models.
Then chat box he used by most corporates today.
Is there an opportunity to leverage this new technology to bring down cost of revenue.
Yes.
Yes, certainly cost operating as one of the many opportunities that the.
This AI technology provides us we are already working particularly in customer service and operations.
Training models.
To help us.
Our lives more channels for access and better service started on consumers we've been already working for US I will tell you a.
A couple of years to read sentiment from text to speech to text.
Efforts have been in place for a while so there is a lot of things.
Can be done and a lot of things, we've been doing with AI and now even more.
At GBT.
On the customers have decided but also of the revenue generating side.
Our ability to offer.
Detailed information in terms of destination recommend.
Our recommendations to the customer when you combine these technologies with our knowledge our insights.
Latin America and consumers is a game changer for us and we're investing heavily both in.
What's better service on back office, the revenue data and obviously, the social some offset in terms of.
<unk> PBT.
As you know.
Thank you.
The next question today is not the rest of your question from Alejandro <unk>.
And they say good morning, Damian Luca and congratulations on the results could you. Please comment on the gross profit margin trend and also what to expect in terms of marketing expenditure per transaction.
It's slightly higher than pre pandemic.
Yes.
Thank you Alejandro for submitting your question.
With regards to the gross profit margin. Indeed, we expect to maintain current levels and carry them on certainly into the next quarter and the seasonally stronger second half of this year. So we're quite content with how things are developing on that specific line item with regard.
The second part of your question on sales and marketing.
Very much in line with a question that we've received from from Cowen.
Again, we see a downward trend for for the second quarter. This year in Venezuela for the remainder of the year you should see.
Lets say our numbers to trend.
Into into a positive level in line with the operating leverage that we generate.
Thank you.
Our next question comes from David <unk>.
They ask congratulations on reaching 14 million loyalty members can you tell us how having 14 million members changes business. This is how you conduct business prior to having this membership program.
Is this 14 million membership basis impact on your business something major that the consensus is missing. Thank you.
Well.
David Thanks, a lot for your question.
This is for us a tremendous.
Tremendous opportunity.
In baby pivotal dimensions, one is acquisition cost.
As you know we hired.
In terms of our organic traffic our lower dependence on.
Traffic, but this is another tool to keep reducing our acquisition costs.
Second it is obviously a component of the.
Growing value proposition to our consumers and as a reflection of how strong the brand how long has it gotten with <unk>.
Finally, it opens up a lot of opportunities in terms of.
That building better offers to our consumers we are extremely happy with how the enrollment of new member has been evolving and we are growing.
More and more redemptions keeping in mind that at <unk>.
Moment, only 7% of our transactions involve some type of bond redemption, and we expect that to be much higher.
Just as an example.
We have the ability to offer our consumers a payment mix in between points.
And cash or credit card that makes.
The consumers access to Catherine products uniquely flexible. So we are extremely excited with how this has evolved but are much more excited of what lies ahead of us.
Thank you.
Switching questions today come from Santiago Harrington.
And they say hi, two questions.
One.
What's the total now what's the total.
Cumulative negative EBITDA do you expect to have in coin until it gets to breakeven and to can you. Please talk about what's run rate cash conversion from EBITDA one should expect.
On $100 million of EBIT how.
How much cash would you generate thank you.
Okay.
Thank you Santiago for submitting your question with regards to coin. We're currently eyeing a an impact on cumulative negative EBITDA around 23 $24 million.
Please.
Sure.
It's worldwide.
Since we acquired of course since since acquiring the right.
And for this year.
We are looking at a substantially reducing the negative EBITDA impact versus what we've seen in second.
2022 with regards to your question on cash conversion as we have guided the market before.
We're looking at a cash conversion from EBITDA of around 60% in the future.
And the long term.
Okay.
Thank you.
Next Mr. <unk> question, we have is from Shaw Suarez from Citibank, what are your plans on physical presence in Brazil. Thank you.
Well thanks for your question.
As we already said, we offer a multi channel omni channel value proposition and we are exploring all options.
Certainly physical stores are not out of the questions for the second half of 2023, when perhaps test the waters.
How's that.
With a limited number of outlets.
Thank you as a reminder, if you would like to ask a question.
Thank you.
There are no additional questions waiting at this time, so I'd like to pass the call back over to Damien <unk> for any closing remarks. Please go ahead.
Thank you very much operator, and we'll monetize just wanted to thank everybody for your interest in this big item. We're looking forward to seeing you again.
We released the Q2 numbers, thanks, a lot and take care.
This concludes today's conference call. Thank you all for your participation you may now disconnect your lines.
[music].
Okay.
Yeah.