Q2 2024 Mondee Holdings Inc Earnings Call
We will discuss some business trends and Monty initiatives underpinning our results and outlook.
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Speaker Change: Thank you for side and good day everyone.
Speaker Change: Let's start with some market drivers.
Long term growth trend for travel remains intact. However, we did see the beginnings of the industry softening by the end of the second quarter and we expect this to continue into 2025.
Speaker Change: Furthermore, certain regions experienced disruptive events in Q2.
Speaker Change: Such as catastrophic flooding in South America affecting Latam travel.
And the re escalating middle East conflict.
Speaker Change: While a few stronger regional markets remain from the last vestiges of the recovery.
Speaker Change: Overall moderation in demand is being accompanied by a reduction of airfares and decline in lodging rates.
Speaker Change: In addition, <unk>.
Speaker Change: Global inflation and economic conditions are spurring an increase in by our bargain hunting.
Speaker Change: To include higher income consumers.
Speaker Change: Meanwhile, suppliers were already under service related pressure are expected to continue emphasizing product differentiation packaging and more targeted distribution as their teeth to potential growth.
Speaker Change: In light of this we expect more emphasis to be placed on supplier driven programs such as they are expanding MDC and direct connections.
Speaker Change: While the market softness may have a short term impact on the remainder of this year.
Speaker Change: We believe these overall conditions significantly favor monday's b to b marketplace expansion.
Speaker Change: And the deployment of our emerging AI platforms.
Speaker Change: Turning to the <unk> marketplace.
Speaker Change: During Q2, we capitalized on international expansion through our platform delivering a 50% 57% increase in transactions year over year.
Speaker Change: This growth could have been higher had it not been for the working capital constraints mentioned previously.
Speaker Change: Yeah.
Speaker Change: Our strategy of expanding in non air products with higher take rate.
Speaker Change: And growth in transactions in international markets overcame the pricing effect on gross bookings.
Speaker Change: <unk> net revenue growth and solid adjusted EBITDA.
Speaker Change: The strong increase in transactions was accompanied by flat year over year gross bookings as a result of lower average transaction values. This primarily driven by our rapid growth in lower priced international markets.
Speaker Change: We do plan to continue our penetration in international markets through deployment of our global marketplace platform.
Speaker Change: We continued to make progress during the second quarter and initiatives around boosting profitability, expanding our travel marketplace and maintaining a leadership.
Speaker Change: Our ongoing focus is to significantly enhance our content.
Speaker Change: To accelerate our sales penetration in existing and new markets as.
Speaker Change: As well as further streamline our business infrastructure and cost structure as you note on the current slide slide number seven.
Speaker Change: In the area of content enhancement, we continue expanding packages and product combinations.
Speaker Change: While adding new features and options.
Speaker Change: This is expected to enhance the appeal of our offerings and improved sales performance across <unk> growing transaction base.
Speaker Change: In addition.
Speaker Change: And content. In addition, as Jesus will cover later, we expect to ramp up the use of our fintech tools and content to further increase customer engagement take rate and net revenue.
Jesus: Further highlights of our progress include enhanced supplier connect programs.
Jesus: Such as the airline MDC connections direct connections with major hotel chains, and with several and with several other connection projects.
Jesus: Our immediate expansion pipeline.
Jesus: With these in place we are seeing more traffic on our MDC connections with improved product pricing and features as well as material improvement in our hotel take rate and conversions.
Jesus: By the way a more specific example.
Jesus: Of the hotel take rate is the increase in increase of over 50% in our North America Hotel take rates so far this year.
Jesus: In summary, as we look into the rest of the year, we're moving from market planning and development to continued platform deployment and business execution.
Jesus: Our focus initiatives include further input implementation of AI tools and Monday's operations.
Speaker Change: <unk> expansion for greater market appeal.
Speaker Change: Enhanced revenue management.
Speaker Change: And AI automation led process improvement with further cost efficiency.
Speaker Change: In addition, as we position.
Speaker Change: As we are positioned to take full advantage of all our fintech tools and services that will no longer be capacity constrained.
Speaker Change: All of our initiatives for rapid expansion for rapid business expansion or further operational efficiency are expected to put mondi squarely in line with our historic growth path and profitability goals by the end of this year. Despite this market softness.
Speaker Change: I will now pass the call over to assist our CFO for a review of <unk> financial performance and outlook.
Speaker Change: Is this.
Is this: Thank you, Jim and Hello, everyone.
That's our goal our Q2 results I would like to point out the all growth rates are on a year over year basis, unless otherwise indicated.
Speaker Change: Let me start with our financial highlights.
During this quarter, we continued to generate strong performance around net revenue EBITDA and EBITDA margin.
Speaker Change: As part of our core marketplaces <unk>, our focus has been to diversify our product offering beyond air which improved take rate expanding internationally and.
Speaker Change: <unk> continued to grow in existing market.
Speaker Change: During the first half of this year.
Speaker Change: We continue to diversify our product offering and accelerating our international expansion.
Speaker Change: We led to a 57% increase in transactions that carry a lower average transaction price.
Speaker Change: At the same time.
Speaker Change: Because of delayed refinancing and working capital constraints, we moderated the growth of our existing business that required working capital to grow.
This resulted in flat gross bookings.
Speaker Change: Lower than usual net revenue growth.
Speaker Change: An improved adjusted EBITDA.
Speaker Change: Our gross bookings were $678 million this quarter.
Speaker Change: In line with last year.
Speaker Change: Our net revenue of $58 million increased 3%.
Speaker Change: After adjusting for acquisitions and divestiture of last year net revenue grew 11, 5%.
Speaker Change: Our take rate of eight 6% was up 20 basis points.
Speaker Change: As with prior quarters. This improvement in take rate was driven mostly by the growth of higher margin hotel and package products.
Speaker Change: It is worth mentioning that the delay in our refinancing impacted our ability to fully utilize our credit limits, resulting in lower fintech revenue, which carries the highest take rate.
Speaker Change: We expect these to be full result, with our refinancing.
Speaker Change: Turning to expenses, our largest expense category. So some marketing keep improving and was down 5% in absolute terms, while it declined from 71% to 65% as a percentage of net revenue.
The main drivers for this improvement continue to be AI, driven optimization of our revenue management and reductions in performance marketing spend in our <unk> business.
Speaker Change: Adjusted EBITDA increased by 38% from $4 4 million to $6 1 million.
Speaker Change: Adjusted EBITDA margin also increased from seven 8% to 10, 5% as we continue to prioritize operating efficiencies and improve profitability.
Speaker Change: On a GAAP basis, our net loss was $25 5 million.
Speaker Change: Wishing $219 1 million of noncash or nonrecurring items.
Speaker Change: Such as $3 7 million of depreciation and amortization.
Speaker Change: 1 million of Pik interest.
Speaker Change: $12 million of our stock based compensation.
Speaker Change: And $2 3 million of amortization of loan origination fees among others.
Speaker Change: Looking at our balance sheet at the end of this quarter, we had $32 million in cash and cash equivalents.
Speaker Change: And $169 million of total debt.
Speaker Change: Compared to $36 million and $162 million, respectively. At the end of December 2023.
We announced today, a comprehensive refinancing of our capital structure with TCW and funds affiliated with Morgan Stanley that is expected to extend the term loan to June 30 of 2028 and the preferred equity to December 31 2028.
Speaker Change: The extended timing for the term loan B on August 31, 2025, and the preferred equity beyond September 32026 are both subject to securing a 50 million letter of credit that the company anticipates finalizing shortly and which could provide additional working capital.
Speaker Change: Operating cash flow was negative $7 6 million for the quarter.
Speaker Change: Compared to negative $2 4 million in Q2 of 2023.
And this quarter, we used or $10 million of cash we serves us working capital to offset credit limit reductions by certain Fintech partners in the face of delays in refinancing our term loan.
Speaker Change: We are working to get some of these could limit reinstated the refinancing has been completed.
Speaker Change: Year to date, both operating cash flow and free cash flow positive.
Speaker Change: $11 1 million and $3 3 million respectively.
Speaker Change: Turning now to our 2020 for guidance.
As a consequence of the limitations we described.
Speaker Change: We now forecast, our net revenue to be between $240 million and $250 million.
Speaker Change: Representing an increase of 10% versus 2023 <unk> at the midpoint.
Speaker Change: And adjusted EBITDA to be between 25 million to $30 million.
Speaker Change: Representing an increase of 42% versus 2023.
Speaker Change: At the midpoint.
Speaker Change: Let me now turn it back to Jeff for Q&A, Jeff.
Speaker Change: Yes.
Speaker Change: Thanks.
Jeff: Operator, Carla we're ready for Q&A now thank you.
Speaker Change: Yeah.
Speaker Change: We will now begin the question and answer session.
Speaker Change: I'd like to ask a question. Please press star followed by one of your telephone keypad. If you change your mind. Please press star followed by team.
Speaker Change: It's great to ask your question. Please ensure your device locally.
And our first question comes from Mike Grondahl Northland.
Northland Securities: Northland Securities.
Mike Grondahl: Hey, Thanks, guys and congratulations on the refinancing.
Mike Grondahl: Two.
Speaker Change: <unk> related to that one.
Speaker Change: Roughly how much working capital does that free up for you.
And two what are your priorities.
Speaker Change: Spending that working capital on to kind of reinvigorate growth. If you could just go over those priorities I think would be helpful.
Speaker Change: Yes, Mike Good morning, Thank you so much for it.
Speaker Change: Your question so addressing.
Speaker Change: Your first question in terms of how much working capital, obviously will have a 50 million.
Speaker Change: <unk> as we mentioned in the script right. So that will be to add we expect another 5 million that will be coming in in terms of cash or a total of $20 million that will help us bump our working capital.
Speaker Change: In terms of our priorities to drive growth.
Speaker Change: I think that obviously at this point most of that will be used.
Speaker Change: In our Fintech solutions.
Speaker Change: Because it carries the highest take rate of all of our product mix and that is probably the portion that has been affected the most during these past few months, while we were doing the refinancing.
Speaker Change: Got it and I don't know maybe Jim it seems like Youre, having pretty good success penetrating the.
Jim: The hotel only space.
I don't know a little more detail there might be helpful.
Mike Grondahl: Hey, Mike.
Jim: Appreciate the question.
Mike Grondahl: Yes, we are having good success in hotel penetration I mean, we've picked up some real expertise with some of the companies we've acquired.
Mike Grondahl: But it's not just pure hotel.
Mike Grondahl: Remember there is also some packaging expertise, there, which bring more of that and so as we get to the non air product.
Mike Grondahl: Lot of that is around packaged product, which carries higher take rate. So we're picking that up the other thing is in the hotel program itself. I mean, I think we've mentioned previously we have been emphasizing the hotel program and as we've done that we are significantly improving our agreements with certain hotels, we've added a couple of <unk>.
Mike Grondahl: Direct connections with major chains, so far this year and we have more in the pipeline before the end of the year that will come all of those things help not just the.
Mike Grondahl: The pricing.
Mike Grondahl: The presentation of the product, but significantly the take rate, which is why youre seeing the nice improvement that we saw in our North American hotel take rate so far this year.
Speaker Change: Got it got it okay. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Brad No blocks.
Speaker Change: Fitzgerald.
Speaker Change: Yes.
Speaker Change: Hi, guys. This is Thomas since Jan for Brett. Thank you for taking my questions I guess first.
Speaker Change: Has the traction been for AI related products more specifically I'll be I guess, if you could give us an idea of how many transactions are coming through that virtual assistant.
Speaker Change: And then also internally I know, we mentioned Infinity last earnings call I guess how's progress in there.
Speaker Change: Okay.
Speaker Change: So it'd be is providing.
Good traction but as to.
Speaker Change: How some great.
Speaker Change: And our interactions and transactions so although the numbers seem to be less than 2% of our business.
Speaker Change: However.
Speaker Change: The.
Speaker Change: Employment provided us to have the.
Speaker Change: Knowledge to play in our model, which we are currently doing and also take the feedback.
Improving this product, which we are working on a second version that is delivering.
Speaker Change: Delivering in Q4.
At the same time, we have Infinity project as you mentioned the infinity product.
Speaker Change: Project to deploy.
Speaker Change: <unk> all of our internal operations that includes you know.
Speaker Change: Operations call Center operation.
Speaker Change: Through ODI CRM platform being placed.
Speaker Change: And our sales and marketing and revenue management.
Speaker Change: Functions.
Speaker Change: So we already deployed that at our revenue management function of Infinity, which has resulted.
Speaker Change: Some very good with it.
Speaker Change: Very good.
Speaker Change: Van <unk> deals you were able to reduce our.
Speaker Change: Marketing expenses sales and marketing expenses.
Speaker Change: By 5%.
Speaker Change: And we expect to deploy more onto all of R. R.
Speaker Change: Besides our Florida business will either be improved take.
Speaker Change: Okay great.
Speaker Change: <unk> and reduced our sales and marketing expense or reduce our cost per transaction by.
Speaker Change: By having it in efficient operations function.
Speaker Change: So infinity is.
Speaker Change: Currently under deployment by function by function in our business and we are hoping to completed by end of Q4, beginning of Q1, and we had one two we are planning to be very good results from it.
Speaker Change: Awesome. Thanks, and then one more if I may very encouraging to see the strong growth in transactions.
Speaker Change: Coupled with you now.
Speaker Change: Our continued pressure.
Speaker Change: Pressure on AARP T. I guess, you mentioned strong growth in international contribute today contributing to this end and last quarter. Obviously, we mentioned short haul International Hotel on me I was just wondering have you seen a skewed towards more just consumer weakness contributing to this.
Speaker Change: Just overall decreased travel brand.
Speaker Change: And any visibility into I know you'd see continued weakness into 2024.
Speaker Change: Into 2025.
Speaker Change: Is there any visibility into when we can see this ARPG start expanding again thank you.
Speaker Change: Yeah. Thanks, Thomas it's Jim.
Jim: Yeah look I think we will expect to see.
Jim: That average the average transaction rate moderate here and start to recover.
Speaker Change: Through the rest of the year right Youre right. The biggest influence has been.
Speaker Change: The expansion internationally in markets as they recover they recovered in more regional short haul first which tends to be lower priced.
Speaker Change: Transactions that will continue to expand back to more global and international travel as it does that that we should see even though.
Speaker Change: Airfares and even hotel rates will come down somewhat in our expectations for the next few quarters.
Speaker Change: We will see the mix start to moderate back in our favor so.
Speaker Change: We see that.
Speaker Change: The ticket price all the average transaction rate fall.
Speaker Change: Moderating now to stabilize and then recover as we go into next year is probably the way I would.
Speaker Change: The timing I would put on that so the avenues of revenue.
Speaker Change: And Ah is between 50% to 55% in our business and <unk> and this year last year. It is a high it is.
Speaker Change: Mid seventies.
Speaker Change: But we grew the transactions by 47%.
Speaker Change: And at the same time slot at 57% and at the same time that we are maintaining a good revenue per ticket and also paying the in roads into expanding our brand and in tech and <unk>.
Speaker Change: Ancillary revenues by taking this market shares.
Speaker Change: So we expect to continue to have that revenue per ticket transaction at between 50 and 55 this year and in the following year in 2025, it expecting to convert.
Speaker Change: Roll into 2016 to mid sixties.
Speaker Change: And since this is an important point I would like to add one more.
Speaker Change: Your perspective here.
Speaker Change: They are softening in the market is typically advantageous to the Monte business model because there is more.
Desire for fall towards the consumer.
Speaker Change: A handful of our gains in order to put the suppliers to provide better economics, but in Q2 and Q3, we were not able to fully capitalize on these.
Speaker Change: Because of working capital constraints. So we simply Didnt have the working capital even though the demand was there to capture it so as we look to the towards the end of the year into 2025. Following the completion of the refinancing we should be able to take advantage of that market dynamic which is <unk>.
Speaker Change: In such times of softness are favorable to our business model.
Speaker Change: Okay.
Speaker Change: Awesome. Thank you guys for the color.
Speaker Change: Thank you.
Darren <unk>: The next question comes from Darren <unk> from Roth.
Darren <unk>: Hey, this is Dylan on for Darren Thanks for taking my questions first.
Dylan: With the revised guidance could you talk a little bit about.
Dylan: What some of the expectations are in there like how much of that is driven from lower fintech in <unk> and then it seems like at least for a portion of <unk> until the financing secured for.
Dylan: Some of the softness that Jim was talking about.
Yeah. So.
Speaker Change: At this point I would say probably around 50% 50%.
Speaker Change: Given by our Fintech are rare.
Speaker Change: Revenue that is down as.
Speaker Change: As well as some of the opportunities that we had to let pass because all of our capital.
Speaker Change: Capital restraints.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Got it okay.
Speaker Change: It's always been talking about that tier two figured out an impact there, but I because it's not just a matter of securing the financing, but then it takes time to open these credit limits. So some of this impact.
Speaker Change: We expect it to be on Q2 and Q3.
Speaker Change: Okay got it thank you.
Speaker Change: And then as a follow up.
Speaker Change: You are going into.
Some of these other markets and expanding.
Speaker Change: Where some of the rates are lower.
Speaker Change: Do all of those markets have the same sort of.
Speaker Change: Guess offerings as you're in more established markets I'm talking sort of all the ancillary here those are some of the things you are looking to add.
Speaker Change: Yes, so that is precisely one of the opportunities. So at this point in time, we are capturing the market share and the market share is most of the times just a low price transaction that you mentioned with very limited brand that they're having right.
Speaker Change: Right. So so the strategy here.
East to capture this market share we don't show it was favorable in the last few quarters, because it has been quite a bit less so.
So we could take advantage of it with the constraints that we have and then on the back of that we kind of patch that <unk> noted the fintech, which is the easiest one patch, but then negotiate but have been to that patchwork of climate revenues.
Speaker Change: No significant growth in gross volume because that is the lower price, particularly the humana, Sean without the full capacity and capability of the of the additional revenue that attaches to watch one of each one of these transactions.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: And even with <unk>.
Speaker Change: Clearly, it's a high EBITDA.
And our EBITDA margins.
Speaker Change: Okay. Thank you guys. That's it for me I'll pass it on.
Leland: Thank you Leland.
Speaker Change: As a reminder to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: And our next question comes from Nick John from Citibank JMP Securities.
Speaker Change: Hey, guys, it's Tim on for Nick Here This morning.
Tim: Just a couple from us so I appreciate you taking our questions can you just talk a little bit about what youre seeing kind of terms of.
Speaker Change: Is there a competitive dynamic or the intensity within marketing.
Speaker Change: A lot of your cutting competitors have called out reaching out in the new channels just wanted to see how the competitive landscape.
Speaker Change: From your guys' point of view and if you have any plans to change your strategy moving forward in the second half.
Nick It's Jim let me start.
Jim: First of all we think the strategy is working great in the current market.
Speaker Change: And again the transaction increase.
Speaker Change: The rest is just described.
Speaker Change: This is all.
Speaker Change: Taking share of wallet, we're taking market share.
Speaker Change: Fully position now to both capitalize on the best transactions as we've penetrated those markets to.
To improve things, but also.
Speaker Change: Capitalize on the deployment of our platform or more and more internationally.
Speaker Change: And as we do that.
Speaker Change: We think that allows us to continue to grow.
Speaker Change: Very strongly in this market.
Speaker Change: We we have what we certainly believe as a lead position in the deployment of AI into this space.
Speaker Change: Which gives us great differentiation in the market.
Speaker Change: So so we think we stand in a strong position to grow with we've had some we had a little bit of headwinds with this capital issue that constrained us from <unk>.
Speaker Change: Knocking everything out of the park, but.
We took advantage of everything we could we were taking advantage of this platform.
Speaker Change: Where we are.
Speaker Change: Pretty.
Speaker Change: Jazzed about the position we have going forward in this market.
Speaker Change: Sometimes the softness is actually great for Mondi strategy and to continue to deploy it.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, so much for all that color just one more if we could please.
Speaker Change: And in terms of kind of airfares kind of looking out into back half of the year in 2025.
Speaker Change: The airlines had kind of called out taken corrective action to.
Speaker Change: Reduce capacity, which should kind of help drive stability and errors.
Speaker Change: I know you guys kind of talked about your guidance, taking down your guidance due to some of the softness you're seeing in the impact from.
Kind of on the working capital.
Speaker Change: In terms of airfares kind of for the back half of the year. How are you guys thinking about that are you guys expecting continued softness any kind of improvement or any kind of color on what's baked into the guide there. Thanks.
Speaker Change: Tim Your point's a great one right you're absolutely right the airlines actually reduced capacity slightly.
Speaker Change: During the or didn't increase capacity certainly not in keeping with what was the the demand the strength of the demand during the first half of the year.
Speaker Change: And they did see.
They did see their load factors increase right, which is in general good for the airlines. However in the face of that even even there because they have such service issues because some of the constraints coming out of coal that still remain for them with those service issues.
Speaker Change: Still struggled too to continue to compete.
On the routes.
Speaker Change: I'll work on so.
Speaker Change: They are using pricing now as they appear to be using pricing as a strategy going forward.
Speaker Change: We think they will use targeted distribution channels.
Speaker Change: More more strongly so we see them using several different levers price is going to be one of them. So.
Speaker Change: Right now we would expect prices to continue to.
Speaker Change: Be a little soft.
Speaker Change: Through the remainder of this year maybe into early next year.
Speaker Change: We think that the little bit of inflation fares in some of the general economics globally are causing a little bit of customer sentiment to back off so I think as the airlines look at that yes. They make some decisions on because they are trying to price so far forward and make some decisions.
Speaker Change: Create some of the softness in price so.
Speaker Change: We think that that.
Speaker Change: We will see a little bit of movement.
Probably still downward slightly on airfares, but a stabilization here before it starts picking up hopefully in the early part of next year.
Speaker Change: That's sort of a general trend that we would expect.
Speaker Change: Do we expand that advantage of all the time.
Speaker Change: Yeah.
Speaker Change: It maintained its from market to market there are certain markets that are performing very strongly.
Speaker Change: Being a global platform and expanding into and looking into these opportunities very closely. So we are using our platform as a vehicle for us to expand into the area that really.
Speaker Change: Auto growing and they expect it expect it to grow.
Stu: Using our platform Stu.
Speaker Change: Receiving the transactions and optimize it.
Speaker Change: At the same time you know.
Speaker Change: Managing the debt.
Speaker Change: The softness of had been.
Speaker Change: Segments of the business.
Speaker Change: Other markets in other than a product mix that we have in our plans so being a market place.
Speaker Change: Although it is literally the stress in the market.
Speaker Change: On the airline and inventory and AR.
Speaker Change: And toughness of the price.
Speaker Change: But we see some great opportunities that fit very well in that environment. So.
Speaker Change: Looking on our plants and hopefully that's all going to see that we had wanted to see that it deserves in the next few quarters.
Speaker Change: This does conclude the question and answer session.
Speaker Change: And I will.
Speaker Change: Hand back over to Jeff for any final remarks.
Jeff: Hey, Thank you Carlo and thanks to everyone, who tuned in for our second quarter 2024 earnings call whether it was live that replay of the transcript. If you have any questions or would like to learn more about mondi. Please.
Speaker Change: Please don't hesitate to schedule a call with US you can get more information on our IR website, which is investors dot <unk> dot com or you can send us an email at IR at <unk> Dot com. Thank you.
Speaker Change: That does conclude Monday's earnings conference call have a nice day you may now disconnect from the call.
Speaker Change: [music].