Despegar.com Corp (DESP) 2021 Q4 法說會逐字稿

Good morning, and welcome to Despegar's Fourth Quarter 2021 Earnings Call. A slide presentation is accompanying today's webcast and is available at the Investors section of the company's website. www.investor.despegar.com. There will be an opportunity for you to ask questions at the end of today's presentation. This conference call is being recorded.

(Operator Instructions)

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

Good morning, everyone, and thanks for joining us today for a discussion of Despegar's fourth quarter 2021 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 neutral calculations.

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, a substitute for or superior to GAAP financial measures and are provided as supplemental information only.

Before we begin our prepared 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 may be 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 the integration and performance of the businesses we acquired, including Best Day and Koin. For a description of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and our press release.

Speaking on today's call is our CEO, Damian Scokin, who will provide an overview of the fourth quarter and update you on our strategic priorities. Alberto Lopez Gaffney, our CFO, will then discuss the quarter's financial results in more detail. After that, we'll open the call for your questions. Damian, please go ahead.

Thanks, Natalia, and good day, everyone. Thank you for joining our results call and for your interest in Despegar. Despegar's underlying earnings power became even more evident this past quarter, as consistent execution of our strategy enable us to capture the growth coming from still recovering travel demand across our geographic footprint. That growth flow through our income statement as we will explain.

To start, we achieved the highest level of gross bookings, transactions and ASPs since the beginning of the pandemic. Further, greater demand for more profitable products, such as travel packages and hotels significantly offset currency depreciation in the region.

Although bookings were only 75% of fourth quarter 2018 levels, we grew adjusted EBITDA by 30% to $16 million, when excluding extraordinary charges and Koin our merchant payment solution in Brazil, where we are investing to scale the business. Taking a step back, multiple levers are driving our performance. First, the more efficient cost structure that is now in place. Second, the synergies that we are now able to realize from past acquisitions, which together with our cost cutting efforts resulted in a 37% reduction in operating expenses when compared to the fourth quarter of 2019 levels and excluding extraordinary charges and the impact from Best Day and Koin in both quarters.

Third, more diverse sources of revenue in terms of geography and products. Fourth, a take rate of 13.4% when excluding extraordinary cancellations. And lastly, we are seeing a good result from our marketing efforts with the share of nonpaid traffic increasing 2 percentage points, while the share of gross bookings captured through the app was up 4 percentage points, both when compared to the fourth quarter of 2019.

Looking ahead, as Omicron recedes and more pent-up travel demand materializes, we expect the operating leverage that we have built into the business to accelerate and generate additional earnings. Moreover, we have maintained a solid balance sheet with cash and equivalents of nearly $280 million, giving us the flexibility to invest in technology and in market consolidation, among other growth initiatives.

Let's move to Slide 4 for a closer look at the improving demand conditions in our key markets. Our market gained additional momentum in October and November, as more pandemic restrictions were lifted and travel activity picked up. Although there has been a pause in travel demand since December, impacted by seasonality and the emergence of Omicron, we expect industry travel should resume to its growth trajectory in the second quarter. Our performance was strongest in Brazil, generating 1/3 of transactions. Gross bookings rose 50% sequentially and with 56% of the fourth quarter of 2019 -- as domestic air travel improved and international transactions increased.

Turning to other relevant markets, Colombia and Chile benefited from pent-up demand which drove bookings above fourth quarter 2018 levels by 43% and 39%, respectively. Growth in gross bookings was triggered, not only by an increase in transactions, but also by an improving in ASPs, which rose 19% sequentially to $410 per transaction, at just 9% below fourth quarter of 2019 levels.

Returning to our growth strategy on Slide 5, we will show how our loyalty program Pasaporte Despegar has been gaining significant momentum in Mexico. Particularly in this market, we made adjustments to our website, which make the program more visible to visitors, and we simplify the registration process. All these measures have resulted in a tripling of members and have also increased the level of customer engagement, critical in the context of changes in [IDFI]. With these features 75% of total purchases were done by loyalty program members.

Let's move to Slide 6. With the goal of further enhancing our alternative accommodation proposition, we have just entered into an agreement to acquire 51% ownership stake in Stays. Brazil's leading vacation rental channel manager for a total price of approximately BRL 15.7 million. Founded in 2016, Stays offer a comprehensive solution to vacation property managers and owners in Brazil. The Stays is also a preferred integration partner of alternative accommodations for leading international booking platforms.

In the near term, this latest acquisition will allow us to add new inventory of over 17,000 properties, mainly throughout Brazil, expanding our 400,000-plus total vacation rental inventory. Stays also brings us new digital capabilities and significant segment expertise to expand our vacation rental offerings within Brazil. Longer term, Stays will leverage Despegar's leading position in other key geographies in Latin America to accelerate its expansion. Note, that only 10% of Latin American's vacation property owners use digital channel management compared to 90% Europe with ample growth potential for our partnership with Stays.

Turning to Slide 7. The heart of our strategy for Koin and another key component in our growth plan is establishing a presence wherever the consumer makes purchases. As a means to effectively scale Koin's platform, we continue expanding its smart ecosystem, mainly consisting of direct merchants, e-commerce platforms and payment gateway, among other distribution channels. As you can see on this slide, some of these merchants and platforms are leading brands in Latin America.

We are encouraged by the strong adoption of Koin's payment solutions for merchants to date. It is now available as a payment option to some 100,000 merchants from a range of businesses and from small to large. The current weight of adoption is setting the stage for Koin to become another key growth driver for our company. By the way of example, Koin's fourth quarter 2021 total purchase volume increased 73% sequentially to nearly $18 million in the fourth quarter of last year.

In January, 23% of volume came from new merchants, reflecting expansion in the customer base. At Decolar, the penetration of Koin's BNPL solutions accounts for 6% of gross bookings, reflecting intensive investments to scale up this business standalone adjusted EBITDA for Koin resulted in a loss of just over $3 million.

I would like to point out that 100% of the solutions engine and risk model are in-house. As a Koin payment solutions we offer are fraud prevention and payments via PIX. The very attractive potential for Koin at its buy now, pay later and fraud prevention services have a total addressable market of between $15 billion and $20 billion in Latin America. That concludes my portion of the presentation. Alberto, please go ahead.

Thank you, Damian, and thank you all for joining us today. For a review of our top line results, please turn to Slide 8. Record levels of gross bookings and ASPs since the start of the pandemic resulted in a 49% sequential increases in as reported revenues.

Excluding extraordinary cancellations coming from the pandemic, revenues would have increased 43% quarter-on-quarter and just 12% below comparable fourth quarter '19 levels. We note that cancellations continued to decline this quarter, down by 39% sequentially, while we expect cancellations to continue in the first quarter due to Omicron disruptions. As the level of cancellations normalized, we should see a decline in fulfillment and (inaudible). Our take rate remains strong at 13.4% when excluding calculations, and it was up by over 200 basis points when compared to the fourth quarter '19. The contribution from Good Day, together we have more advanced price strategy which allowed us to get higher upfront incentives and customer fees were the key drivers behind this improvement.

Now please turn to Slide 9. Delivered significantly higher profitability this quarter. When excluding extraordinary charges on Koin, comparable adjusted EBITDA we will have increased 30% when compared to fourth quarter '19 numbers, up to just over $16 million. We achieved this even though most bookings reached only 75% of pre-pandemic levels. This much improved performance reflects the operating efficiencies, synergies and revenue diversification we have built into the business over the past 2 years that is allowing Despegar to emerge from this pandemic as a company with a more sustainable business model and greater earnings power.

With respect to Koin's impact on profitability, as Damian noted earlier, stand-alone adjusted EBITDA, after our merchant payment operation, was a loss of just over $3 million, reflecting significant investments to scale up this business.

Now please turn to Slide 10. We ended the year with a strong balance sheet, with cash and equivalents of nearly $280 million and breakeven operating cash flow. In turn, our net payable position remains relatively unchanged sequentially at nearly $197 million. During the quarter, Despegar reported net cash flow of $3 million. This compares to use of cash of nearly $40 million in the prior quarter, when customers redeemed a large amount of travel vouchers as demand pick up.

Now please turn to Slide 11. In summary, when excluding extraordinary charges and Koin, adjusted EBITDA was over $16 million, 30% higher than in fourth quarter '19. This is even more impressive when you consider that gross bookings reached only 75% of that quarter's level. This substantial improvement in profitability together with breakeven operating cash flow, make clear the operating leverage we are carrying into the future quarters.

Despite lower travel demand in December, impacted by the Omicron variant, our business had strong momentum in the fourth quarter with particularly robust sequential growth in Brazil, Colombia and Chile. We see that momentum building again during the remainder of this year, a substantial pent-up demand drives travel purchases above pre-pandemic levels.

We also entered 2022 with a strong cash position of close to $280 million, one that allows us to continue investing in our growth levers, such as further consolidation in our industry and scale Koin's payment platform. As market acceptance continues growing, Koin's ecosystems of merchants is expanding, setting the stage for higher purchase volumes in Brazil. And finally, we would like to highlight again the tripling of Despegar's loyalty members who now number 2.8 million customers.

Now moving to Slide 12. While we've observed a slowdown in demand in recent months on concerns around the Omicron variant, going forward, we expect the variant to have a diminishing impact on travel demand. Despite first quarter seasonality and the recent pullback in demand, we nevertheless expect Despegar to be adjusted EBITDA positive in the first quarter when excluding Koin. For the remainder of the year, we expect to continue investing in marketing activities in countries with promising demand trends.

Looking further out, the pending acquisition of Stays, Brazil's leading vacation rental channel, will allow us to expand our vacation rental business in the country as well as in other key markets in Latin America. We also remain focused on further enhancing Koin's value proposition, we are capturing additional clients in the B2B segment and developing new attractive features for our end consumers.

Finally, we expect sales to continue to recover throughout this year and beyond, as long as Latin America is not impacted by the current global state of affairs. In the meantime, we continue executing on our strategy that has proven to deliver solid results despite demand levels having not fully recovered yet.

This concludes our prepared remarks. We are ready to address your questions. Operator, please open the line for questions.

(Operator Instructions)

Our first question today comes from Kevin Kopelman from Cowen and Co.

This is Emily on for Kevin. Congrats on a strong Q4. I was just wondering to what extent do you believe the improvement in gross bookings you saw in the quarter to minus 25% reflected market share gains versus pent-up demand. And then I have a follow-up.

Emily, this is Damian. Thank you very much for your question. As you know, we track market share very thoroughly, and we gain slight market share during Q4. So it's a combination of 2 things: the pent-up demand and market share gains in most countries.

Got it. And my follow-up is, how do you plan to manage your sales and marketing spend throughout 2022? And asked another way, at what level of gross bookings would we see marketing levels increase?

Well, the marketing spend, as you know, is the result of our evaluating the profitability of the next bid. So it's not just a strategic decision, which will come in terms of investing more, but we believe that the relevant aspect to consider is that the increase in our organic traffic, our nonpaid traffic in general will some -- will sustain across 2022. So even though we would increase investments as market recovered, our portion of organic traffic will remain at a higher level than pre-pandemic.

(Operator Instructions)

The next question today comes from Alejandra Aranda from Itaú.

Congratulations on the really good results that you just show. I'm wondering if you could share a little bit the breakdown between the revenues coming from PIX and Koin and the rest? And what should we expect there going forward in terms of cost savings.

Alejandra, yes, as Damian pointed out, what we see in Koin today is approximately today, 20% of the activity comes from third-party clients, okay? And then the remaining 80% slightly lower than that is related to the decolar.com captive clients. On that front, what you're seeing is on a penetration basis on a number of transactions, okay, because like the actual revenue comes is much, much lower when it comes to the PIX product, okay? You actually see that you have approximately over 6%. That is the penetration on our website. And then when it comes to PIX, that's an additional 4% for a total on aggregate of approximately 10%.

Next question today comes from Kieran Kenny from Morgan Stanley.

Congrats on the great results. First, could you talk a little bit about bookings in 1Q and whether you expect bookings relative to 2019 levels to improve versus the 75% in 4Q? And then second, could you just talk a little bit about how you're thinking about fuel costs and whether or not you expect those to negatively impact demand over the short to medium term?

Sure. On the first piece of your question regarding, let's say, visibility on Q1. Importantly, we are actually experiencing -- or we can describe this situation very similar to what our competitors in the region or globally had that is certainly, booking activity came down in the very last weeks of December, and that trailed into January, and then by February started a little by little coming up. And we actually have a perspective that, that improvement will continue up until the end of Q1.

So as we were in GB around minus 25% vis-a-vis 2019, okay, we actually see that our bookings overall will come slightly down from what we actually saw in Q4, but -- and that is vis-a-vis Omicron. On top of that, you have the seasonality factor, okay? As you know, Q1 is, in relative terms, the weakest quarter for the company. So you actually -- you will see that as a percent of 2019, you actually have, let's say, from between 5% to 10% decrease vis-a-vis '19. And then on top of that, you need to add the seasonality in order to understand what will be the level of activity. But most importantly, as you look into how far out into Q2, Q3 and the rest of the year, we believe Omicron will end up impacting the industry in Latin America, we are very positive on that front so that the impact will be mostly contained to Q1.

On your second question, okay, the geopolitical developments, certainly not -- very, very sad news for all, do not have a direct impact in the region or particularly for Despegar. It's immaterial, the amount of revenues or transactions that we actually are related to travel to Eastern Europe. So that's certainly good news. With regards to the impact on jet fuel prices that could potentially push ASPs up because our suppliers will actually, particularly on the air side, will likely push prices up.

I think the key thing to look at there is the balance between foreign exchange in the region because Latin America could potentially benefit from high commodity prices and such consumers through their jobs could benefit. So the balance will be between, okay, jet fuel price ASPs going up, maybe that less transactions. But if FX in the region actually appreciates that should be positive. So it's still too soon to tell. But that's the way to -- from a framework perspective, how to analyze it.

There are currently no further questions registered. (Operator Instructions)

There are no additional questions waiting at this time. So I'd like to pass the conference over to Damian Scokin, CEO, for closing remarks. Damian, please go ahead.

We thank you, again, for your interest in Despegar, and we hope you all remain healthy and safe. Thanks for joining us today and for your interest in the company. Goodbye, and have a nice day. Bye.

That concludes today's Despegar Fourth Quarter 2021 Earnings Call. Thank you for your participation. You may now disconnect your lines.