Q2 2023 Despegar.com Corp Earnings Call
Good morning and welcome to Despagar's second quarter 2023 earnings call. A slide 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 via telephone at the end of today's presentation.
Please note that you can also submit your questions online anytime during the call by using the Q&A function of the webcast platform. The Q&A function of the webcast platform.
Simply type your question in the box and click submit question. This conference call is being recorded, and as a reminder, all participants will be in a list in only mode.
Now I'd like to turn the call over to Mr. Luca Fyfer, investor relations. Please go ahead.
Good morning everyone and thanks for joining us today.
In addition to reporting unauthored financial results in accordance with US generally accepted accounting principles, we discussed certain non- GAAP financial measures and operating metrics.
including foreign exchange and neutral calculations.
Investors should read the definitions of these measures and metrics included in our press to ensure that they understand them.
Non- GAAP financial measures and operating metrics should not be considered in isolation as substitutes for or superior to GAAP financial measures and are provided as a supplemental information on me.
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 results to material differ.
including factors that may be beyond the company's control. These include what are not limited to expectations and assumptions related to the integration and performance of the businesses we acquire, including the stay, stay, Johanet and coin.
For description of these risks, please refer to our filings with the Use Securities and Exchange Commission and our press release. For description of these risks, please refer to our filings with the Use Securities and Exchange Commission and our press release.
Speaking on today's call, it's our CEO Damian Skokin, who will provide an overview of this bigger second-order performance, as well as an update on our strategic initiatives.
I will then discuss the quarter's financial results in more detail.
After which Damian will end our prepared remarks and provide an update on our annual guidance.
We will then open the call for your questions. Damyan will begin from Mars on slide three.
the call for your questions. Damian will begin from March and Slide 3. Damian, please go ahead.
Thanks Luca and good day everyone. Thank you for joining our results call and for your interest in this figure.
As the Quarters X-Han Results show, our strategy to drive Ernie's power continues gaining traction.
In addition to the ongoing recovery in travel demand, our improving product mix and higher ASPs drove a 23% increase in revenues.
which reached yet another quarterly record of $165 million.
Keep in mind that we achieve this in our seasonally weakest quarter.
We also maintained our cost discipline during the quarter. OPEX decreased 18 basis points as a percentage of growth bookings when excluding one time impact and was even lower on a reported basis as we benefit from the reversal of the tax provisions that we explain in the morning's ternis release. The quarter's top line growth couple with our underlying operational leverage drove adjusted Evida 71% higher to just over 20 million when excluding one time impact. That's the highest second quarter Evida that we generated since the company's IPO. Further...
With respect to our many strategic initiatives, we are deepening our omni-channel strategy by employing Genitive AI and also deploying our successful asset liars and tech-enabled offline strategy in new markets. I'll explain both later in our presentation. On this slide, we show the study progress we have been making across our core strategic initiatives to improve profitability and further diversify our revenue streams. Starting with revenue diversification.
higher margin travel packages continue to grow reaching 33% of our growth bookings in the second quarter. That's an almost 600 basin points increased versus last year and has been a key component in our non-air revenue, which is 62% of total revenues.
As we continue to grow in Brazil and Mexico, these massive markets now account for 60% of our gross bookings.
Moving to only channel in the middle of the slide, we continue to effectively leverage our B2B channels in combination with our wide-level solution to increase our market penetration, generating 15% of our growth bookings in the quarter. So, we're going to continue to continue to work with our B2B channels in combination with our wide-level solution to increase our market penetration.
Compared to last year's quarter, that was also roughly 600 basis points increased.
In addition, we continue to leverage our technology platform for our app first approach.
which helps drive customer growth and loyalty while also giving us the opportunity to further cross-al additional travel products to our clients.
As shown on this slide, our portfolio of branded apps accounted for nearly 38% of our online B2C transift volume on the GARD1S holloworia adverse Cl??r?ran
At the bottom of the slide, we can see how we continue strengthening the customer relationship with our brands. Today we have nearly 17 million loyalty program members, while points, redemptions, double over the last year reaching 8%.
Our net promoter score also continues rising as we recover from the impact the pandemic had on customers travel plans. We are nearing our pre-pandemic score, but we don't plan to stop there.
The brand loyalty that customers in Trinity
Fosters remain an integral part of our strategy. That, I will turn the call over to Luca for a more detailed review of our second quarter performance.
Thanks Damian. My review begins with a first card on slide five. Also behind our record second quarter, revenue of 165 million was a take rate that was maintained slightly above the range that we presented during the investor lay last year.
The 12.9% rate in the quarter reflects our discipline approach and emphasis on profitable growth, particularly in Mexico, Chile and Argentina.
Moving to the second chart on the slide, I'll cost of revenue increased 33% versus last year's quarter.
Partly due to one time expenses.
When excluding these one offs shown at the right of the chart, cost of revenue would have increased only 23% in line with our sales growth.
Also, on this basis, our gross profit would have increased 23% to 110 million, another record high.
Let's turn to slide 6.
As Damian noted, we have maintained our cost discipline, which is driving operating on that bridge, as our revenues continue growing.
As the chart on the left indicates our fixed costs only increase 1% versus last year's quarter to just over 49 million when excluding one time impact.
This was mostly due to higher technology and product development costs related to expanding power developer team, as well as to FX and inflation.
Also, keep in mind that 14.3 million of this amount was the one time benefit that we detailed and learned release.
The line chart in the middle of the slide illustrates the operating leverage we've been pointing to.
As percentage of revenue, our GNA costs fell 640 basis points, while technology and product development costs ticked up slightly. And when excluding the 14.3 million one-time impact, GNA decreased 15 percentage points.
Lastly, on costs, our sales marketing expenses increase 22% year-and-year.
The increase reflects offline investments in Brazil, as well as ongoing growth investments, particularly in our B2B and White label channels, which increase third-party commission expenses.
on sequential basis, learning and marketing experiences were flat.
Let's move to slide 7.
The ongoing record re-enteral demand and our improving revenue mix.
Combined with our underlying operating leverage, continue driving profitability.
Our adjusted area increased 183% to 30 million on an as-reported basis, which nets the reversal of the tax provision and the one-times costs incurred under cost of revenues, or $9.8 million.
The corresponding margin was 18%. Our highest since 2018.
When excluding the one-time reversal and costs, adjusted every dime, increased 71% to $20.2 million. Our highest second quarter every does since the IPO. And on this basis, our margin expanded 340 basis points to 12%.
When excluding the one-time reversal and costs, adjust the debit down increase 71% to $20.2 million. Our highest second quarter debit does since the IPO. And on this basis, our margin expanded 340 basis points to 12%. Turning to slide eight. And on this basis, our margin expanded 340 basis points to 12%.
Our profitability also improved with respect to coin, which is nearing the break even point. The $600,000 EBITDA loss in the quarter represents a nearly $4 million a year in year improvement. The $600,000 EBITDA loss in the quarter of the year improvement.
In the chart on the left, you can see that total payment volume was 29% lower than last year's quarter.
This is because we have maintained a conservative approach to lending as Brazil's credit market remains challenging.
Lastly, as shown in the chart on the right, the spread between take rate and coin expected losses continue to widen, which reflects both our prudence and effective pricing.
Back over to Dam Yang, who would like to share our latest strategic initiatives before summarizing the quarter and we begin the Q&A session.
So please turn to slide 9.
Thanks Rooka.
We continually invest in innovation to reinforce our substantial technology mode and to enhance the customer experience.
most recently that has included the application of generative AI which were doing in three primary ways.
First, on the product development front, we refer the leverage into Spigaz large customer base by applying machine learning models to customer preferences.
During the third quarter, we plan to launch a beta version of an AI trip planner to further enhance our product offering and the user experience.
Our developer teams.
have also been assessing various ways of employing AI to optimize the ultimate code writing. The main objective here is to increase the overall efficiency of our technology teams. We're in addition employing AI to customer care in ways that significantly speed the resolution. This helps lower cost to serve.
and increase customers at this section.
Let's move to slide 10.
Building on our success in Mexico and in the Indian region will deploy our asset line tech-enabled offline model in Brazil and Argentina. There are two main objectives here. One, to further increase our margins and two, increase our market penetration of these two key geographies.
As some of you might recall from our investor day a little over a year ago, offline bookings are roughly 50% of Latin America's travel market.
The two bar charts in the bottom left of this slide also show that the Spigars Core segment, the online travel market, will grow at 13 and 15% in Brazil and Argentina respectively.
The offline segment in both countries will be growing at a figure of 12%.
It is also important to highlight that this is a very profitable market segment as well.
On the right of this slide, we outline the timing, citizen store types, and there are rollout strategies for Brazil and Argentina.
Keep in mind that these mostly asset-like retail outlets will build our market leading brands, the Spigarin Argentina and the Colarin Brazil. Our stores will prioritize providing an exceptional customer experience where our knowledgeable staff will assist our clients with planning
their tailor made holiday travel. Even the size, growth, rights and profitability of the offline segment and considering the sizable cash economies within these countries we expect our outdoors to enhance our omni channels offering and to further strengthen our earnings power.
The strategic initiative is particularly efficient because of the scalability of our technology platform and it will help further consolidate the Spagas market leadership in the region.
Let's now turn to slide 11.
I would like to leave everyone with a few key takeaways from our second quarter results.
The strong recovery in travel demand that continues across Latin America.
Partigla in Brazil and Chile coupled with our still improving revenue mix yielded record revenues for the quarter.
Our close-??
has built significant operating leverage which combined with a strong top line growth led to a 20.2 million in adjusted evidence. Again, that was the strongest second quarter beta post IPO.
even when excluding the one-time benefits in the quarter. But also particularly pleased with the performance of our by-now-pay-later business unit, Collin, as it nears the EBW Q&N point.
and is well on its way to become every day creative towards the end of this year, as we outlined at last year's investor day.
look at the hill
We expect that we cover in trouble demand to continue during the seasonal stronger second half of the year.
Specifically, we expect revenue and adjusted evidda to increase in the mid to high single digits in the third quarter.
In addition to reiterating our full year revenue guidance of $600.40 to $700 million, and adjusted every day between $80 and $100 million, we are confident that we can reach the mid to upper end of our guidance range for the year.
assuming the demand recovery continues. In summary, the Spakers' operational strength combined with the still strong resurgence in travel demand and our focus on improving revenue mix.
Continue driving our profitable gross trajectory.
I will record breaking revenues.
and consistent delivery of increasing adjusted evidence over the past six quarters, at a testament to the dedication of our team and the strength of our growth strategy and business model.
Before taking your questions, we would like to publicly welcome the Spagaz new CFO , Amit Singh. Our senior management team looks forward to working with Amit to see the many profitable growth opportunities that we are pursuing and extend our leadership position in Latin America's growing travel market.
With that, let's open the call for questions. At this time, we'll open the four for questions. To ask a question via telephone, please press star then one on your telephone. Keep that.
And as a reminder, you can also submit your questions online by using the Q&A function of the webcast platform.
Your first question comes from the line of Nubad Khan with B-Reilly securities. Your line is open.
Yeah, hi, thanks a lot and congrats on the results. Just a couple of questions from me. Maybe first one, maybe just on the monthly trends. Can you maybe just describe how bookings growth look like during the months of 2020?
April , May, and June and how July is trending. And then if I have to look at the take rate or the revenue margin.
Given that your package makes continues to increase, shouldn't like a 15% be like a baseline. If I have to think like.
You know, next year and further from there shouldn't that continue to inch up the stops. They will be helpful. Thank you.
Finally, how are you, the Hizamian?
Thanks for your call. I'll take the first part regarding bookings. As you saw in the numbers, the trend during the Q4, the Q4 were very strong and they were evenly.
This really is a process three months. Keep in mind that the second quarter is our weakest quarter in terms of seasonality and what we've seen in July and the first day of August is a sustained trend in the same level of slightly higher than during Q2.
Not only as a result of CISABI, CISONALIT, the SMMESION, but also we see the market continue to rebound heavily in all geographies.
and ask for the date rate.
Keep in mind that on our investor, the last year, not yesterday, since yesterday, but it was last year, we pointed out to a take rate in between 12 and a half percent.
will show that that's the target range
which we should operate longer term.
Okay, finally we will deviate from that, but that's not our target.
God it's God it and then maybe a quick follow up if I may. Maybe this
You were at a high level on the competitive landscape when you were in the core markets in Brazil and Mexico, what are you seeing in terms of competition?
We haven't seen any major change in the trends that we've been discussing over the last few months. We continue seeing a more rational approach from all players, domestic local ones. I wouldn't say domestic local ones. The different markets will compete.
have reduced their investments mostly that trend has continued and has spread in the national players. It applies to where I mentioned before regarding being much more rational in marketing investments and their pricing behavior.
Thank you.
Thanks for your note. The next question is from Andrew Rubin with Morgan Stanley . Your line is open.
Great. Thanks very much for the question and congratulations on the results. I wanted to dig in a bit on transactions. It looks like there were divergent trends between Brazil and Mexico. I'd be curious to hear about the differences, whether based on strategy or perhaps market conditions for each country. Thank you.
Thank you, Andrew, for your question. Two things. We are doing particularly well in Brazil and given the market situation in Brazil we decided to invest heavily in Brazil. That's also a very key market for us. We saw a market discontinuity that...
justify our investment and we see that trend continue in Q3.
And we see that trend continue in Q3. In terms of Mexico,
Two things there, first of all, keep in mind that Mexico was the market that rebounded first from pandemia. So the baseline is much higher than in Brazil. And if within the quarter and even in...
July and August we have seen a much stronger acceleration of our bookings in Mexico.
So, nothing out of the ordinary and strategic decisions to invest in Brazil in particular.
Great, it's very clear. And then just follow up with my on point. Curious what drove the faster path to break even and now looking for a free to in the back path?
So this is a combination of two things. We are very pleased with the performance and the prospects of coin based on being able to obtain higher margins per transaction. As a result of our ability to obtain higher margins per transaction, we are very pleased with the performance and the prospects of coin based on being able to obtain higher margins per transaction.
to score clients in a much granular and detailed way. So our performance has improved significantly. And also we've been very efficient in terms of cost.
So we are very well positioned for the moment the Brazilian market in terms of credit.
So we are very well positioned for the moment the Brazilian market in terms of credit performance improves.
Great, very clear. Thanks again for all the color.
The next question is from Kevin Koppelman with TD Cowen. Your line is open.
Hi, this is Jacob. And for Kevin, thanks for taking my questions. So B2B is up in the mix versus 22%, 50%, GBB versus 9%. Can you talk about how that is impacting margins for the overall business and where you see growth for B2B going forward?
And then maybe could you also touch on where you see growth for the overall business in 24 as well? Thank you
touch on where you see growth for the overall business in 24 as well. Thank you.
Thank you, Jacob. The B2B is one of the things we are particularly happy about because the growth performance has been in line with our expectations, but it's a different platform from the ones we had in the past. That's a result of the...
the integration of best day B2B operation into our technological platform. And the growth obviously comes with a lower margin, given that that's the nature of the B2B business.
So we expect that to continue growing and gaining share within our portfolio and expanding as we expand it to other geographies. We are growing particularly fast in Brazil, we are in Argentina in a very intense way in the last quarter of the year so we are very excited about the prospects.
and how much it adds to our scale and competitive advantage.
In terms of the overall growth perspective, I would again refer you to our investor day in which we set our growth aspirations at 25% year on year.
And we reiterate that view at this moment. We think that overall we're on the right path in all key variables of what we said last year and the investor day. Both at the top line and the operational leverage that we are achieving.
Got it. Thank you. And also a follow-up. So you have loyalty members now. That is 17 million. So that is a few million Q for Q. Are you able to quantify any sort of benefit you are seeing from these members related to EFIDH? Yes, very much.
We obviously monitor and manage that benefit from all the different impacts that the loyalty program of that site has from acquisition costs to increased repeat rates and things like that. This is why we will not disclose damn well what they see.
those at the moment. Got it. Alright, thanks for your time.
Okay we will transition to the webcast questions. The first is from Bruno Goldstein asking can you please give us more detail on the decrease of the current contingent liabilities on the second quarter?
Absolutely Bruno, thanks for your question. This is Luca Fyfe for speaking. Just to put it into perspective, the contingent liabilities essentially have increased due to the increase in provisions of legal claims in the Brazilian market. That has been the...
by effects variations but it's marginal. The biggest impacts comes from the adjustments to claims. Thank you and our next webcast question is from Alejandra Aranda asking
What should we expect for 2H considering the latest currency softness seen?
Hi Alejandra, how are you? Thanks very much for your question. As we stated in our earnings release, Argentina currently represents slightly less than 15% of our bookings. We are exposed on the revenue side and on the cost side.
bookings is even less than the total exposure to Argentina and given our cost base that is denominated in peso we have a natural cage
in between the revenue stream and the cost base. So the impact on the P and L of any type of margin that the valuation is close to zero.
On the other hand...
In terms of the balance sheet, we split our strategy in two. As we mentioned in several occasions before, we actively hit our working capital and current balance exposure. So again, no impact whatsoever there.
and we explicitly do not hedge our long-term assets and liabilities. So if there's a relevant devaluation in Argentina, you will see a non-cash, again, non-cash accounting impact.
from the long-term assets that we have in Argentina. Those are, for your reference, those are morally tax credits that we have with the Argentine authorities that are reflected in obviously Argentine pesos. So those tax credits will be worth.
less dollars, but again, it's non-cash impact.
Thank you and we have a follow-up from Alejandra. What should we expect in terms of marketing costs for 2H23 and also could you expand a bit more on recovery trends of domestic versus international travel? Yeah, I will start with the second part, Alex. As I said, we've seen in Q2 and actually in Q3.
a recovery trend towards pre-pandemic levels. But the interesting thing is that when you look at the domestic...
travel market is fully recovered, slightly above pre-pandemic levels in passenger terms.
When you look at the international, the international market is still below the pre-pandemic level. So there is still room for further growth and recovery on the international market.
As per your question regarding marketing costs, we expect to continue investing heavily in marketing but gaining the efficiencies we committed to in the investor day.
There's a clarification to make here which when you look at selling and marketing, not marketing standalone, in selling some of our channels, the ones who are investing in, for example, B2B, generate additional…
cost that go into selling and marketing. That was the commissions, for example, of B2B. So that's a clarification I have to take into account. The pure marketing will be...
in line with our investor days and will reflect economies and scales and efficiency. We may –
spending be spending a little bit more on the sales side of it given the growth of the B2B and some offline growth that again will be a positive in terms of contribution, but the growth will be reflected there too.
Thank you. Our next webcast question is from Santee Jaratan. It says, hi Damien, can you please talk about your plan to grow in countries like Colombia, Peru, Panama, and Costa Rica. What's your perception of the profit pool potential in these geographies?
Hi, Mateo. How are you? Thanks for the question. We have obviously aggressive growth plans that are country by country specific. The ones you mentioned, Colombia is particularly relevant to us. Last week we werepowering each other on Tuesday. What does video mean?
the third to fourth country in terms of size and we believe there's a significant opportunity there. In Peru, again, we have a very strong position.
opportunities to grow there but not as big a market as Colombia for example.
Costa Rica, less so, I would say. As we mentioned on several occasions before, Latin America is a very different mosaic of markets that are very peculiar and our priority markets are Brazil, Mexico in the first year and in the second year.
Thank you. Our next question is from Joao Suarez asking, Damien could you please give an update on how much penetration of B2B do you expect in Brazil?
at least some medium short-term idea of how this should represent. Hello, we are not ready to share the specific penetration of business line by a country was I can share with you is that
Brazil is the market where the B2B is growing the fastest and we are starting for a very very small base and we are positively surprised by the reception of the Brazilian market to our technology platform.
We believe it's the best in the market and also our commercial offering there. The results have been very surprising for us in Brazil.
That implies in part the big growth in Brazil. Thank you. The next question is from Alex Gorino asking...
Talk more about the offline strategy. Does Desquiouire have existing stores in other markets? Are you going to be opening more stores than originally 15 planned? And what is the impact to CapEx?
Alex, thank you very much for your question. I'll take the first part. First of all, yes, we do operate stores in different regions within Latin America, just for your reference, under our Villajes Falarilla brand. We operate approximately somewhere between 80 to 90 stores in the Indian region.
And as well under our Best Day brand, we operate around 120, 130 stores. But those stores are very asset like stores and you should probably think of them more in their majority as sales booths that are actually operating in shopping malls. So we do definitely have experience with regards to operating.
under our Best Day brand, we operate around 120, 130 stores, but those stores are very asset-like stores, and you should probably think of them more in their majority as sales booths that are actually operating in shopping malls. So we do definitely have experience with regards to operating offline stores.
With regards to our strategy in opening stores in Argentina and Brazil, this is certainly our initial
rollout strategy at this point in time. And with regards to CapEx, we're looking at somewhere around $100,000 per store, give or take.
Thank you. We have another question from Bruno Goldstein asking, do you have any updates regarding the preferred shares A, Katterton?
Any strategy to address this liability in 2025?
Yes, the tremendous liability comes during September 2025. We are assessing several options and looking for the most cost efficient to be preparing time for that transition.
Okay, just one moment for the next question.
So, the next question is from Alejandra Aranda asking, why roll out in Argentina versus Chile or Colombia? That has to do with particular market conditions. As I mentioned before, the conditions of the...
as you know, has the one of the largest portion of the GDP is cash driven and that's a portion of the market that is very hard to capture using online transactions and you see a flourishing
business of cash transactions that are choose-related in Argentina, for example.
That's one of the reasons that we are looking into that opportunity.
Maybe if I can expand one more variable here. Keep in mind that within Chile and within Colombia, we already do operate our Viages Falabella offline strategy, right? We do already have an offline stores in those specific markets that you referenced. Thanks for your question.
And Alejandro is also asking what should we expect for 2H considering the latest currency softness seen? Sorry, would you mind repeating the question?
Certainly, what should we expect for 2H considering the latest currency softness seen?
So we...... Sorry, presenters, are you still there? We're not able to hear you. Yeah. No, what I was saying is that we reiterate our guidance...
we hit the upper range of the two variables we provided as guidance. Thank you. We have another question from Joao Suarez.
how much this impacts your take rate and working capital.
Just to clarify, are you referring to the offline stores when you say how much this impacts? If it's the offline stores, we would say that the take rate of offline stores is slightly higher.
that online and working capital is the same dynamic of the rest of the business. That doesn't change in a major way.
Thank you. We'll pause for... Oh, it appears there are no further questions at this time, so I'll turn it back over to Mr. Skulkin for any closing remarks.
As usual, I would like to thank you all for the interest in the company, and we are looking forward to seeing you again when we announce the third quarter results. Thank you very much.
This concludes today's conference call. You may now disconnect.
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