Despegar.com Corp (DESP) 2020 Q3 法說會逐字稿

Good morning. Welcome to the Despegar Third Quarter 2020 Earnings Call. A slide presentation is accompanying today's webcast and is available in the Investors section of the company's website, www.investor.despegar.com.

(Operator Instructions)

This conference call is being recorded. (Operator Instructions)

Now I would like to turn the call over to Ms. Natalia Nirenberg, Investor Relations. Go ahead.

Good morning, everyone, and thanks for joining us today for the discussion of our third quarter 2020 results. In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, we discuss certain non-GAAP financial measures and operating metrics, including foreign exchange and calculation. Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand them. 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.

Before we begin our formal remarks, 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 materially differ, including factors that are mainly beyond the company's control. This includes, but are not limited to expectations and assumptions related to the impact of the COVID-19 pandemic and integration of performance of the businesses we acquire , including Best Day and Koin. For a description of these risks, please refer to our filings with the Securities and Exchange Commission and our press release.

Speaking on today's call is our CEO, Damián Scokin, who will provide an overview of the third quarter and update you on our strategic priorities. Alberto Lopez Gaffney, our CFO, will afterwards discuss the quarter's financials. After that, we open the call to your questions.

Damián, please go ahead.

Thank you, Natalia, and good morning, everyone. I hope you and your families are healthy and safe. We have been able to successfully adapt to and rapidly react to countless COVID related challenges. From the start of this pandemic, we took decisive action to lead our business and organization through these uncharted waters. Our accomplishments throughout 2020 have been a testament to strength of our value proposition and resilience of our business model, our ability to be agile and innovative and the exceptional work of our talented and passionate teams. This was further demonstrated in our Q3 results, which showed sequential improvement despite the ongoing negative impact of COVID on the travel industry. We have outlined key strategic initiatives and on these quarterly calls, we have been providing updates as to the progress we have made.

First, we have a flexible tool kit to support our business. During the quarter, activity levels began to recover from the impact brought about by the pandemic, and we executed on our growth strategy.

Let me walk you through some key events. During the third quarter of 2020, Mexico and Brazil were the 2 major Latin American markets relatively more open to travel. The sequential improvement we saw in transactions and gross bookings was driven primarily by these 2 markets, where we also benefited from successful negotiations with our travel supplier to flexibilize our product offering. A favorable mix with a higher share of accommodations and packages contributed to an exceptionally high quarter take rate, excluding cancellations.

On the marketing front, we successfully implemented a series of initiatives mostly undertaken through ante channels and industry events. This, in turn, enabled us to hold marketing spend flat when compared with the second quarter, even while our transactions tripled in the same period. Additionally, we continue to see increased transactions for mobile, up 120 basis points from last year. With a focus on cash generation, the actions we undertook translated into higher levels of profitability per transaction.

Moving next to cost structure. We're intensely focused on rightsizing our structure for the new operating environment and shifting to a more variable cost model, we put in place a plan to reduce structural costs to a $28 million run rate by the end of the third quarter of 2020. We succeeded in achieving this target. Flexibility and cost discipline will continue to be key in our business going forward, along with automation to increase productivity.

Cash is key, particularly in an uncertain operating and economic environment. Our liquidity was another highlight for the quarter. As previously disclosed, during the quarter, we closed 2 private placements, pricing a bit less than $200 million, giving us a total cash position at quarter end of $380 million. Additionally, net operational short-term obligations were relatively stable quarter-over-quarter. As increased sales drove up our travel payable position while we fund and cancellations are still pending. On the other hand, the balance sheet reflects receivables collections effect partially offset by the absorption of Koin's loan book.

Lastly, we have had to adapt to the new normal with the speed and ability needed to stay focused on delivering business results for here now. While advancing our long-term strategic plan for sustained long-term growth.

Inorganic growth remains an important part of our strategy. We have been active this year, closing on 2 transactions, Best Day and Koin. And we are accelerating their respective integrations. We closed on Best Day with results to be reflected as of October 1. As you will hear me discuss later, Best Day is already having a positive impact on Mexico gross booking. And as of November 1, Best Day B2C Travel Agency business is running on Despegar technological platform, only 1 month after the closing was announced. This is a significant milestone compared to the 6 months taken to migrate Viajes Falabella B2C platform. In terms of Koin, we strengthened the credit and fraud analysis by leveraging the Despegar credit information, which has contributed to improve Koin's final conversion rate while prudently managing credit risk.

Moving next for a discussion on the Lat Am air market on slide 4. You've all heard the phrase, a picture is worth more than a thousand words. And here on this page, you can clearly see how linker air traffic there is in Lat Am compared with the rest of the world. This is real-time try data from FlightAware as of October 21. This large disparity reflects tighter travel restrictions in most of Lat Am, except for Brazil and Mexico versus other geographies. As a reminder, although Lat Am was the last major geographic region to be impacted by COVID, travel ban was implemented at the same time as Europe. Thus, the limitations to travel have been in place for a longer period, and the recovery is significantly lying behind. It is also important to note that these factors are temporary responses to the pandemic and are not indicative of structural shifts in the market.

I would now like to turn the discussion on the evolving air travel environment in Lat Am. During the quarter, we continue to experience COVID-related challenges in certain geographic markets. Specifically, in Argentina, travel has been done since mid-March and has remained the most restrictive travel market. But we are seeing some signs of opening up. For example, effective October 30, Argentina has allowed international tourism travel for foreigners and Argentines located in nearby countries, that is Chile, Brazil, Peru and Paraguay. By contrast, Uruguay has kept its borders closed. In addition, domestic flights recently opened for work related or emergencies, but not for choosing and subject to the approval of each local government. Overall, air traffic in the country remains restrictive.

Moving next to Chile. In terms of traffic, international flights were only allowed for Chilean resident through the end of July. And since the beginning of August were available from. Domestic flights were open with restrictions and still remained bad in key touristic areas, such as the lake in Southern Chile. With respect to hotels, they closed in April and began reopening in September. In Colombia, domestic commercial air travel restarted gradually in September, with international travel reopening also gradually on September 25. The situation in Peru has been mix. Domestic flights resumed in July, but closes again in August to contain the pandemic, and then we started again in September. International flights were allowed since early October.

As I will discuss more on the next few slides, Mexico and Brazil are leading the recovery with sequential improvement, while still showing significant year-on-year decline. Mexico remained open throughout the quarter, while Brazil had some restrictions in selective municipalities, which were lifted in October. With respect to hotel bookings, we are seeing a similar trend by country as with flight.

Moving next to Slide 5 for discussion of transactions and gross bookings. Our third quarter transactions and gross bookings significantly improved when compared with the second quarter, which we believe represented a low for the company. That was at the start of the pandemic when globally most economies were shut down. Importantly, the level of transactions tripled from the second quarter's low. This sequential recovery is mostly attributable to Brazil and Mexico.

With respect to gross bookings, the recovery is a bit slower, impacted by the mix shift to domestic travel and overall FX depreciation across the region.

Moving to the chart on the right, where we have presented the monthly evolution of both transactions and gross bookings. On a monthly basis, we also observed a sequential improvement. July was the lowest month of the quarter and we steadily improved as the quarter progress. As we enter the fourth quarter, we continue to see the recovery trend in October, which also includes the contribution from Best Day for the full month.

Best Day accounted for 19% of transactions in October and 23% of gross bookings. On a monthly basis, between July and October, transactions and gross bookings increased at a compounded annual growth rate of 30% and 40%, respectively. Of note, Best Day has a very strong presence in the domestic Mexican market, one of the key reasons that make this a very attractive acquisition for us. While we are still operating under the impact and uncertainty of the pandemic transactions and gross bookings were down year-over-year, and while recovery trends are encouraging, there remains uncertainty about the future as we are seeing many countries, particularly in Europe, start to shut down again.

Our geographic diversification served us well in the third quarter. This is reflected in the increasing monthly demand for our products in Brazil and Mexico, which both were generally open to travel throughout the period, as shown on these 2 charts. Demand was mainly fueled by domestic trips and destination close to nature such as beaches.

Furthermore, additional products and services that we can provide, including broad financial alternatives and enhanced booking flexibility as we adapted our value offer in a response to the pandemic helped us drive this performance.

Now let me discuss the 2 key markets individually, starting with Brazil. 85% of gross bookings in the quarter were for domestic travel, and we have been able to capture demand for travel to beaches in northeastern Brazil as we are growing interest to touristic destinations close to the larger cities. We also very pleased with the performance of Passaporte Decolar, our loyalty program, launched in Brazil a year ago. Today, we have more than 0.5 million loyalty members who are keen on purchasing higher margin hotels and other travel products and transacting on our mobile app. Lastly, our recent acquisition of Koin, a financing platform, further reinforces our financing capabilities.

Turning next to Mexico. With the country generally opened to domestic travel, the Rivera Maja Cancun, remain our main destinations. We also observed a high level of packages sold. Packages were also particularly strong in the first half of October, accounting for 50% of gross bookings, which excludes 15 days of Best Day operations. Importantly, with the acquisition of Best Day, our Mexican operations now account for a similar share of gross bookings as Brazil, representing our 2 largest markets.

Turning next to Slide 7 for an update on key strategic initiatives. From a financial and operational perspective, we took bold steps since the pandemic began in order to reduce cost and leverage our competitive advantages in mainly every area of our operations. I will highlight a few of these areas today.

To begin with, as global travel came almost to a halt, we engage with our travel partners to arrive at the win-win situation. This along with the strong performance in non-air products, drove an exceptionally high take rate this quarter of 12.7% in this unprecedented challenging environment. While we are proud of this, let me remind you, as we mentioned in our Investor Day that in more normal circumstances, the specialty company that can achieve take rates within the range of 11.5%.

Stepping it back for a moment, let me talk specifically about what we were able to work out with our suppliers. Negotiating flexible inventory with suppliers that meet travelers, health and safety requirements as well as the option to schedule bookings as required. Expanded our domestic offering, adding over 500 new hotels. During the third quarter, we completed a white-label agreement with BBVA in Peru. And subsequent to quarter end, other Argentina and Uruguay in October. We also drove significant improvement in several other key performance metrics. An example of this was our ability to leverage organic traffic.

Over the past year, we have been able to increase our usage of unpaid marketing channels. As you can see on the chart in the center of this slide, direct marketing spends pre transaction index to the fourth quarter of 2019 declined to $17 in the second quarter of 2020 and further down to $14 this past quarter. Importantly, in the third quarter, marketing spend was flat when compared to the second quarter of 2020, even as we deliver a 3x quarter-over-quarter increase in transactions. We have also had marketing success with industry events where we have worked very closely with our financial and travel partners to deliver an attractive value proposition to our consumers.

Mobile has also been a key initiative for us. And during the quarter, we saw increased satisfactions via mobile, 51% percent in the third quarter of 2020, up from 39% 1 year ago. Considering the unprecedented impact from COVID-19, we have taken decisive steps to reduce cost and further simplify our operations. I am pleased that we achieved our structural cost run rate target that we presented to the investment community early this year. By quarter end, statuary costs were down 49% year-over-year. Our cost actions give us confidence that we will march from this crisis as a financially stronger company.

In sum, we remain focused on ensuring liquidity and optimizing costs, including actions to improve cash flow generation. As we said before, we are confident in our financial position and our ability to manage through this very uncertain times. We've taken actions to build a strong financial base. Including reducing our cost structure, enhancing our financial flexibility and investing where it matters both to our customers as we strengthen our leadership position.

Now let me turn the call to Alberto to go over our financial performance.

Thank you, Damián, and thank you all for joining us today. We delivered improved sequential top line performance this quarter, although still significantly impacted by the pandemic. As reported, revenues returned to positive territory this quarter, reaching close to $12 million from negative nearly $10 million in the second quarter.

Customer cancellations continued to have a strong impact on our top line and amounted to over $9 million this quarter. This reflects the relaxation of Despegar's refund policy as we introduce our frontier policy that includes refund of customer fees as well as provisions for potential customer cancellations in October and November, given the lagging industry recovery data. Higher flexibility in nonrefundable bookings following our negotiations with our travel partners also contributed to the increase in cancellations. Excluding these extraordinary cancellations and provisions, revenues in the quarter would have reached $21 million, up from slightly over $4 million in the prior quarter, but still significantly behind the $132 million reported in the third quarter last year.

As Damián mentioned earlier, we achieved an exceptionally high take rate of 12.7% this quarter, excluding cancellations. This solid performance also reflects the volatility we are experiencing in our market details.

Moving on to profitability on Slide 9. Comparable adjusted EBITDA for the quarter improved sequentially to a loss of nearly $17 million from a loss of $32 million in the second quarter this year. Year-on-year, however, comparable adjusted EBITDA was down from a gain of over $9 million in the third quarter last year impacted by the pandemic. As detailed in our earnings release published this morning, comparable adjusted EBITDA excludes extraordinary charges of slightly over $17 million and current in third quarter 2020 in connection with COVID-19. In addition, to customer travel cancellations and provisions, it includes severance statements from our cost-saving initiatives as well as onetime fees related to M&A and capital raising efforts. Remember that second quarter 2020 also included nearly $34 million in extraordinary charges mainly resulted from the anemic.

Moving to liquidity on Slide 10. We closed the quarter with a strong balance sheet with cash and equivalents at $386 million, which includes proceeds from the recent $200 million private capital raise closed towards the end of September. This compares with a cash position of $228 million at the close of the prior quarter.

In this challenging context, our operating activities drove a use of cash of $24 million compared to cash generation of nearly $26 million in the same quarter last year. The use of cash this quarter mainly reflected a net loss of $42 million that was partly offset by noncash adjustments in connection with allowances for doubtful accounts and amortization of intangibles. In terms of working capital, new sales triggered an increase in tourist payables offset by a reduction in accounts payment.

Now please turn to Slide 11 for an update on the Best Day integration. We are pleased to report that in less than a month following transaction closing, we achieved 2 key goals. As Damián just discussed, we have started to quickly capitalize on the monthly recovery we are seeing in the domestic travel market in Mexico and are very encouraged with the progress we're seeing to date.

On the tech front, we have already migrated Best Day's B2C business to Despegar's platform, just 30 days after closing the transaction. Over the next month and until early 2022, we will be executing on the integration plan of Best Day, advancing on 4 different fronts that we anticipate will have a direct positive impact on our P&L. First, from a top line perspective, we are now operating through 2 different brands in Mexico to fully capture the country's attractive potential as a tourist destination. As the second most recognized travel agency in Mexico after Despegar, and over a 3- decade history in the country, Best Day provides us with a deeper understanding of domestic travel and the Mexican consumer.

To put this in perspective, note that 8 of the top 10 destinations booked by Mexicans in 2019 were domestic. Mexico is also Latin America's largest travel market, are the seventh largest destination worldwide. The combination of our existing B2B operations, together with hotelDO, Best Day leading hotel service aggregator, provides us with the most extensive hotel content in Latin America. Second, we aim to enhance revenue margins through 2 key initiatives. On the one hand, we are starting to consolidate source further leveraging our negotiating power. At the same time, we plan to cross-sell Best Days in destination services to Despegar passengers traveling to Mexico, thus contributing to margin expansion.

Third, our plan also calls for additional efficiencies in terms of cost of revenue market, particularly in Best Day's kiosk model and call center operations. We also plan to leverage our marketing capabilities and consolidate back-office operations, which are anticipated to drive improvement in cost of installments, credit card processing fees as well as in foreign numbers.

Lastly, we also expect to drive higher efficiencies in terms of G&A as well as technology and content. To achieve this, we are working on integrating all of Best Day's business lines, namely its B2C in destination activities and the B2B operation into Despegar's IT platform. This also entails an ambitious restructuring as we merge IT, sourcing operations, and administrative roles, providing operating leverage. All these actions combined, once the Lat Am travel returns to 2019 volume levels, we expect Best Day's revenue margin to increase around 300 basis points from 2019 levels.

In terms of cost of revenues and marketing expenses, we expect Best Day operations to achieve savings of between 1 to 1.5 percentage points as a percentage of gross bookings. We also see 40% to 50% reductions in terms of G&A and tech and content. All combined, we anticipate these integration initiatives will contribute between $20 million to $30 million in annual EBITDA investing.

Recapping quickly on the key highlights for the quarter. While we saw sequential improvements in Brazil and Mexico, the travel industry in Lat Am remains highly impacted by the restrictions in place. Commercial air travel in Lat Am was down 70% year-on-year in the third quarter. This compares with declines of 15% in the U.S. and 56% in Europe in the same period.

Our win-win value proposition for customers and travel partners contributed to a particularly high take rate, excluding cancellations. Organic channels continue to perform well, supporting declining per transaction paid marketing. Importantly, mobile accounted for 51% of transactions.

We are running a lean operation after meeting our goal of cutting structural costs by 49% this quarter. The combination of these efforts allowed us to cut adjusted EBITDA losses in half sequentially. We're also advancing rapidly on the integration of Best Day. And finally, we have further strengthened our balance sheet with the recent capital raise to support execution of our growth strategy.

Now please turn to Slide 13 for final remarks. Looking ahead, we continue to operate in an uncertain environment with external factors still impacting consumer behavior and the travel industry. In this context, we remain focused on the 4 key goals established earlier in the year. We expect to continue benefiting from the adjustments made across the company to navigate in these new market conditions and integration of the state.

First, focusing on the business activity. Brazil and Mexico remain our key growth markets. In particular, we expect to see continued recovery in hotels and packages in Brazil. At the same time, we anticipate a slight recovery in Argentina, Chile and Colombia, as restrictions in these markets are gradually lifted. In Mexico, as you can see from October data points per share, fourth quarter results are already benefiting from the contribution of Best Day as it leverages its strong focus on the Mexican domestic market.

Prioritizing unpaid marketing sources is also a key element of our strategy, as we have successfully done this quarter. The next few months are quite relevant in our 2 most important markets. In Mexico, we have (inaudible) which is the biggest national marketing campaign of the year in the country and Black Friday in Brazil. We are leveraging our relationship with our financial partners with the goal of providing an attractive value proposition that includes discounts and financing. We continue to enhance our domestic offering and prioritizing the personal health of our customers.

We are working on further strengthening our 320,000 vacation rental offering. We have achieved significant cost reduction over the last 2 quarters, which provide an indication of how we expect to see our P&L dependent on recovery levels. Although unclear on its timing, Despegar navigates through this pandemic environment, we are encouraged with the future performance of the Despegar business. To share such a view, we will be excluding the impact of both Best Day and Koin with our respective integration efforts and the impact of canceled tickets with scheduling other servicing due to COVID-19. Under these assumptions, we understand Despegar could be EBITDA breakeven as we get to gross bookings per quarter in the $400 million area, which is approximately 35% of Despegar's 2019 gross bookings.

Third, we have a strong cash position. The recent capital raise has provided Despegar with resources to continue advancing on our growth strategy. At the moment, we are screening and evaluated several M&A opportunities. At the same time, we continue taking care of our customers and processing refunds requests and cancellations. Many of these require a manual response that is taking us time and efforts to complete, but we are moving forward on this front. Finally, we continue making progress on the integration of recent acquisitions.

During the following quarters, we expect to make working capital investment at the day in connection with the strong payables. According to the revised terms of the acquisition disclosed last June, these working capital adjustments together with indebtedness, are included in the base consideration of $56.5 million. As such, consideration to be paid 36 months following closing, will be approximately $26.6 million. (inaudible) payment performance-dependent is due only 48 months following set closing.

At Koin, we are working on integrating this business into our best-in-class fraud and errors platform by progressing in completing the API connectivity, both on the app while launching the fixed project, in line with Central Bank development aimed at fostering interest.

In conclusion, the pandemic has challenged our business model, and we have demonstrated agility and operational efficiency as we leverage a digital technology we've been investing in for years. We also continue to focus on developing our longer-term strategies intended to ensure we maintain our leading position, while further strengthening our financial performance and creating ongoing value for shareholders.

This ends our prepared remarks. We are now ready to take your questions. Operator, please open the line for questions.

(Operator Instructions) Our first question is from Edward Yu -- from Alejandra Aranda from Itaú.

Good morning. Just one question, if I may. I wanted to have a little bit more clarity on how much working capital will be demanding the Best day operation?

Okay. Sure. Addressing your question, I would like to point on 2 aspects. One is what's the actual burn rate. Burn rate is, in 2020, we expect that to be -- to go down significantly next year, okay? It is around $10 million. Then what you have is that it's already included in what will be -- will end up being the final payment to the selling shareholders at the day and sorry, reminder, that will take place 36 months only in September 2023. And we do have to inject capital when it comes to paying down suppliers debt that they had. That amount in 2020 and 2021 is around slightly above $30 million. But importantly, going back to the final consideration to be paid to the selling shareholders, remember that we announced that the final price for Best Day, excluding the earnout, was $56 million. And so the remaining value to be paid to the selling shareholders is around $26 million. So there's a $30 million reduction that, at the end equates nicely with what is the suppliers debt that we need to pay down in 2020 and '21. Hope that's clear.

Our next question is from Edward Yruma from KeyBanc Capital Market.

Just as you start to contemplate what a post COVID environment would look like. Just trying to understand how quickly can you re add capacity, particularly on packages? And is there a lagging, given that I know many of your package consumers do installment payments, is it different from that, that will lag a general reopening?

This is Damián. Thanks for your question. There was some noise in the line. Let me make sure I understood. The question is mostly how fast can we add capacity to the package aspect of our business.

Let me do that. In terms of capacity, we don't have any constraints. In other way increasing capacity as we integrate Best Day and consolidate our sourcing team. So therefore, at the moment, we not only have the same, but I would say, significantly more capacity than we had last quarter. The constraint at this moment is more demand. And as we mentioned in our remarks, demands for packages is showing growing and strengthening site in both Mexico and Brazil and as a percentage of total sales are increasing, but we expect the remaining geographies to catch up and continue a positive trend in the next quarters. But there's no capacity constraint at this moment.

Got it. Yes. And really, the follow-up to that is, do people think prospectively about vaccination reopening? Or you think that they want to wait and actually see the markets reopen prior to purchasing some of these packages?

Well, that's hard to sell. Hard to say, in a sense, what we've seen, for example, in Brazil and Mexico, where government restrictions have been much milder is that people do not wait a significant portion at least of the population and consumers do not wait until vaccine type of solution is in place, and they are reacting nicely and continue showing strengthening demand. So our expectations is that as other countries relax their restrictions, will see some ramp-up in demand even before any vaccination is available.

Our next question is from Eric Sheridan from UBS.

I hope everyone on the team is keeping well. Can I just give an update on the broader competitive environment? What are you seeing in terms of taking market share vis-à-vis your competitors? And is there any sense of country-by-country where you might see opportunities to maybe grow inorganically and take advantage of some of the market dislocation during this period, the way which you've had when you've talked about on prior calls.

This is Damián. In terms of competitive dynamics, what we see is obviously a significant reduction in overall marketing investments compared to other more "normal quarters." We -- our strategy, as we described, we have less focus in market share because we value percentage point of market share in an overall market that's 80% to 75% smaller than what normal is as logically much less valuable. As we say, we are focusing in the strategy to maximize via margin and generate cash to preserve cash in this context.

So what we see is in Anatel, a less intense competitive pressure, a significant portion of our off-line competitors are having financial trials. And we are happy with the balancing between the recovery and margin we are getting. In terms of inorganic growth, as you heard from us several times, we continue having a set of conversations with a lot of potential partners. And obviously, this is a good time to consolidate given the situation of the industry, as you expected we cannot get into details in the specifics. But the combination of the market context and the strength of our balance sheet, obviously, make this a very attractive moment for us to speed up those conversations.

As usual, just another touch point, we are focusing in the key markets of Brazil and Mexico, as we've been saying over time.

Our next question is from Brian Nowak from Morgan Stanley.

This is Alex Wang on for Brian. Just 2 questions. First, I think you rolled out the loyalty program in Brazil last year, had around 100,000 members. That's grown nicely to over 500,000 now. Can you talk a little bit about the early learnings and type of engagement you see, whether it's repeat rate or conversion rate and whether there are any plans to roll this out to additional markets?

Second, you talked about obviously leaning in on unpaid channels like e-mail and push notifications. How do you see the mix of unpaid evolving as demand normalizes? And what are you seeing on the competitive front on the paid marketing side as well?

Alex, this is Damián. I'll start by the loyalty question, in the part of geographic extension, obviously, we have plans to roll out our loyalty program into new geographies. The priorities are Argentina and Mexico. As per the evolution and the performance of the of the program in Brazil. Obviously, we had to adjust our target in terms of performance, given the context of the industry. But I would say that after you take that into consideration, the performance in terms of repeat rate, in terms of our ability to sell credit cards, and other indicators like the average selling price, the ticket price is much higher, the penetration of mobile, in all those dimensions, the program has exceeded our expectations when we adjust those, as I said, the situation in the overall travel industry. So we're very happy with that performance. And we are very excited about this rolling into other geographies. Obviously, that rollout on the launch of the program will be done according to when marketing investment like the one required to launch a program makes sense in the context of the travel industry.

The second portion of your question about traffic, as we said, we believe this is a great time to leverage our brand and use our organic traffic. We do not expect that to be the situation on an ongoing basis. Having said that, remember that Despegar has traditionally high a very high portion of nonpaid traffic in normal conditions. So we'll step up our investment in paid traffic, but we expect to return to normal levels on a pre-COVID situation.

As I mentioned before, overall investment, to your point of competitive intensity has been reduced significantly in the region.

(Operator Instructions) Our next question is from Kevin Kopelman from Cowen.

This is Emily DiNovo on for Kevin. Thank you very much for providing us with the monthly gross bookings progression throughout Q3 and October for Brazil and Mexico. I was wondering if you could help us understand what those numbers imply on a year-over-year basis for October? And if you're continuing to see sequential improvement in November?

Okay. And sure, Emily. I think the performance, first and foremost, as we have highlighted on the opening remarks on the call, they differ very much by market. As we stated, Brazil and Mexico are clearly the engines behind the recovery of our business. And what you're seeing on -- year-on-year, both Brazil and Mexico, are currently, let's say, around minus 70% vis-à-vis last year and Mexico, minus low 70s. Brazil over the past -- up until October, I think the trend is clear on our presentation what we have seen, and again, I think it's important just to always consider the amount of uncertainty every travel player is currently operating today. And in that context, what we're seeing is Brazil continued in November in a nice way. But we started to see some signs -- early signs of fatigue, that again, I think we need to be particularly prudent in Mexico. So there was a bit of explanation vis-à-vis the October trend, in November, in Mexico.

Midweek week is for the next 10 days, on aggregate, from beginning to end. There will be the Buen Fin. Buen Fin is a big sale, travel sale in Mexico. And in our rental portion of the November numbers will be actually obtained through what happens in this -- in the upcoming week.

Then when it comes to the other countries, clearly, Argentina is the one that is the most, let's say, subdued. Argentina, to give you an idea, is minus 90% vis-à-vis last year. And this is all -- all the savings in gross bookings in dollar terms. And then what we're seeing is that the Andean region, let say, Colombia, Chile, Peru, where they're starting to recover. They have recovered a lot more slowly than Brazil and Mexico, but they currently are in, let's say, in the high 70s, minus relative to last year.

So again, we have seen a good comeback of the market. Still, we are hopefully away from the metrics that this company posted in 2019. We need to be particularly prudent on providing a longer-term perspective on this. That's why we're just sticking to what the history has been up until October. But importantly, we're running today, a company that is on a per transaction basis, a lot more profitable, and with this strategy of that increasing profitability on cash preservation and cash creation.

Our next question is from Michael Tanger from Talloway Capital.

I wanted to say congratulations on the capital raise and shoring up your balance sheet in a time of uncertainty. And part of the financing was done at very attractive rates. So as a shareholder, I want to say we appreciate the mindful consideration for dilution and cost of capital.

And my question had to do with your guidance earlier, or let's not say guidance, but the notion that you would be roughly operating cash flow breakeven, something like 35% of 2019 gross bookings. And while its uncertainty that you're facing about the picture of demand, I guess my question would be as to how we should be thinking about the cost structure going forward as demand ramps up closer to 2019 gross bookings or some level they're up. And should we think about the structural costs that you're currently running as fixed?

And then how should we think about the, let's say, incremental variable costs as levels of demand return to 2019 levels. Is it structural costs will stay relatively fixed and, let's say, demand should be at 50% of the market increase or something like that. Could you maybe help us out with that?

Michael, Alberto speaking here. Thanks for your question, and thanks for your remarks. With regards to the cash flow breakeven, specifically, our statement was that we were seeing that this company could be EBITDA breakeven. EBITDA breakeven with a gross booking level of -- on a quarterly basis of around $400 million gross bookings. So again, it's not operating cash flow, that is EBITDA.

Having clarified that point, on the structure, clearly, the statement is also excludes what our -- what's the impact of the day not only from the perspective of the P&L of the beta P&L, but also from the perspective, as you might imagine, that we are not including those structural cost, the integration to. It takes some resources to integrate the target companies or the new partner companies efficiently. And a proof of that is that in just 30 days, we transferred the B2C business of Best Day, and now that is operating under our power platform. However, in order to do that in the way we're doing it, it does take some resources.

In addition, importantly, as you might imagine, with the current context, given the amount of bookings that have been put on hold, we have a number of open tickets vis-à-vis our air travel suppliers. So clearly, from a customer service perspective, the cost structure today is -- it is heavier than what we will be -- what we understand will be once the COVID backpack, let's call it that way, like the COVID backpack is taken off our shoulders.

So again, the $400 million needs to be considered for a gross booking for -- $400 million of gross booking for an EBITDA breakeven, then consider those 2 key assumptions. Then how will the current cost structure of $27.8 million achieved in Q3. Move forward, the focus of the company, that is one of the key priorities that the company, is to increase the standardization of the internal processes and automation of those processes. So that we can reach for the fixed cost, okay, we can reach from that level of around what will be close to $2 billion of gross booking on a yearly basis. We can then only grow, let's say, with an operational leverage of around 50%, meaning that if orders go up by, let's say, for item and say 10%, our fixed cost structure will only go up by 5%.

And I think that's the beauty of the business as we continue to automating our back-office processes, all the support areas, et cetera. So hopefully, with that, to understand what's included in the EBITDA breakeven numbers. How will that cost structure start growing, with the amount of operational leverage? And we expect that construction are growing from at around a gross booking number of $2 billion. We believe that we currently have a cost structure that up until around $2 billion of gross bookings, we do not need to add material cost to the structure.

Understood. Well, I mean, that's very helpful, both on, as you say, the COVID backpack and also the way that the cost structure should scale and that the business should be very profitable as you kind of leverage your fixed cost and the variable costs grow at a significantly lower rate than the demand picture. And so I appreciate that, and thank you for clarifying.

You're welcome.

You're this concludes our question-and-answer session. I would now like to turn the conference back over to Damián Scokin, CEO. Go ahead, please.

Thank you. Thank you all for joining us today. We look forward to speaking with you again next quarter. In the meantime, we will remain available, as usual, to answer any questions that you might have. Stay safe. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.