Despegar.com, Corp (DESP) CEO Damián Scokin on This fall 2021 Outcomes – Earnings Name Transcript

Despegar.com, Corp (NYSE:DESP) This fall 2021 Earnings Convention Name March 10, 2022 8:00 AM ET

Firm Members

Damián Scokin – Chief Government Officer

Natalia Nirenberg – Investor Relations

Alberto Gaffney – Chief Monetary Officer

Convention Name Members

Emily Lavin – Cowen and Co.

Alejandra Aranda – ITAU

Karen Kenny – Morgan Stanley

Operator

And welcome to Despegar’s Fourth Quarter 2021 earnings name. A slide presentation is accompanying as we speak’s webcast and is on the market on the Investor part of the corporate’s web site, www.investor. despegar.com. There will likely be a chance so that you can ask questions on the finish of as we speak’s presentation. This convention name is being recorded. As a reminder, all individuals will likely be on listen-only mode. Now, I want to flip the — flip the decision over to Ms. Natalia Nirenberg, Investor Relations. Please go forward.

Natalia Nirenberg

Good morning, everybody and thanks for becoming a member of us as we speak for a dialogue of Despegar fourth quarter 2021 end result. Along with reporting monetary leads to accordance with U.S. usually accepted accounting rules, we talk about sure non-GAAP monetary measures and working metrics, together with overseas alternate impartial calculation. Buyers to learn the definitions of those measures and metrics included in our press launch rigorously to make sure that they perceive them.

Non-GAAP monetary measures and working metrics shouldn’t be thought-about in isolation as substitute for or superior to GAAP monetary measures and are supplied as supplemental info solely. Earlier than we start our ready remarks, enable me to remind you that sure statements made throughout the course of the dialogue might represent forward-looking statements that are based mostly on administration’s present expectations and beliefs and assumptions to quite a lot of dangers and uncertainties that would trigger precise outcomes materially differ, together with elements that possibly [Indiscernible].

This embody however usually are not restricted to expectations and assumptions associated to the impacts of the COVID-19 pandemic and the combination and efficiency of the companies we acquired, together with Greatest Day and Koin. For an outline of those dangers, please consult with our filings with the U.S. Securities and Change Fee and our press launch. Talking on as we speak’s name is our CEO, Damian Scokin, who will present an summary of the fourth quarter and replace you on our strategic priorities. Alberto Gaffney, our CFO will then talk about the quarter’s monetary leads to extra element. After that, we’ll open the decision on your questions. Damian, please go forward.

Damián Scokin

Thanks Natalia and good everybody. Thanks for becoming a member of our outcomes name and on your curiosity in Despegar. The unfold on the worth earnings follower grew to become extra evident this previous quarter as constant execution of our technique makes us who received the expansion coming from the governing journey demand are gross. Our geographic footprint, development circulation by our earnings assertion, as we’ll clarify. The star, we acted the best stage of gross bookings, transactions and ASPs because the starting of the funded, farther better demand for extra worthwhile merchandise that the journey packages and lodge considerably offset Foreign money depreciation within the area.

Though bookings have been already 75% of fourth quarter 2019 ranges, we grew adjusted EBITDA by 30% to $16 million when excluding extraordinary prices and price (ph). Our American (ph) paying options in Brazil the place we’re investing to scale the enterprise. Taking a step again, a number of relievers are driving our efficiency. First, the extra environment friendly value of construction that’s now in-play. Second, the synergies that we at the moment are capable of understand from previous acquisitions, which, along with our value chopping efforts, resulted in a gentle 7% discount in working bills when in comparison with the fourth quarter of 2019 ranges and excluding extraordinary prices and the affect from Greatest Day and Koin in each quarters.

Third, extra various sources of income by way of geography and merchandise. Fourth, the take price of 13.4% when excluding extraordinary cancellations. And lastly, we’re seeing a superb end result from our advertising and marketing efforts with the share of non-paid income rising two share factors, whereas the share of gross bookings captured by the app was up 4 share factors, each when in comparison with the fourth quarter of 2019. Wanting forward at Omnicom receipts, a extra pent-up journey demand materializes.

We count on the working leverage that we now have constructed into the enterprise to speed up and generate extra earnings. Furthermore, we now have maintained a strong steadiness sheet with money and equivalents of almost $280 million, giving us the flexibleness to spend money on know-how and in market consolidation, amongst different development initiatives. Let’s transfer to Slide 4 for a better have a look at the bettering demand circumstances in our key markets. Our market gained extra momentum in October and November as extra pandemic restrictions have been lifted and journey exercise picked up.

Though there was a pause in journey demand since December, impacted by seasonality and the emergence of Omicron, we count on business journey ought to resume to its development trajectory within the second quarter. Our efficiency was robust in Brazil, producing a 3rd of transactions. Gross reserving development, 50% sequentially and with 56% on the fourth quarter of 2017 stage, as home air journey enhance and worldwide transactions elevated. Turning to different related markets, Colombia and Chile benefited from pent-up demand, which drove bookings above fourth quarter 2018 stage by 43% and 39% respectively.

Development in gross bookings was fairly good not solely by an rising transactions but in addition by an enchancment in ASPs, which rose 19% sequentially to $410 per transaction at simply 9% beneath fourth quarter of 2018 stage. Returning to our development technique on slide 5, we have to present how our loyalty program about this regard has been gaining vital momentum in Mexico. Notably on this market, we made changes to our web site which makes this system extra seen to guests, and we simplify the registration course of.

All these measures have resulted in a tripling of members and have additionally elevated the extent of buyer engagement essential within the context of adjustments in [Indiscernible] [Indiscernible] [Indiscernible] options 75% of complete [Indiscernible] have been performed by loyalty program numbers. Let’s transfer to Slide 6. The purpose of additional enhancing our various lodging proposition, we now have simply entered into an settlement to amass 51% possession stake in states. Brazil, main trip [Indiscernible] for the full worth of roughly 15.7 million [Indiscernible] based in 2016, State provide a complete resolution to purchase vocation property managers and house owners in Brazil. State can be a [Indiscernible] integration associate of different lodging for main worldwide bookings platforms.

Within the close to time period, these newest acquisition will enable us so as to add new stock of over 17,000 properties, primarily all through Brazil, increasing our 400,000 plus complete trip rental stock. Stays additionally brings us new digitize functionality and vital section experience to broaden our trip rental choices inside Brazil. Longer-term, Stays will lever disregard main place in different key geographies in Latin America to speed up its enlargement. Word that solely 10% of Latin American trip property house owners is digital channel administration in comparison with 90% Europe with ample development potential for our partnership with Stays. Turning to Slide 7.

The guts of our technique for calling one other key part in our development plan is establishing a presence wherever the patron makes purchases. As a that means to successfully escape Koin platform, we proceed increasing its service provider ecosystem, primarily consisting of guided retailers, e-commerce platforms and fee gateway, amongst different distribution channels. As you are going to see on these slide, a few of these retailers and platforms are main manufacturers in Latin America.

We’re inspired by the robust adoption of Koin’s fee options for retailers as we speak. It’s now accessible as a fee choice to some 100,000 retailers from a spread of companies and from small to giant. The present price of adoption is setting the stage for Koin to develop into one other key development driver for our firm. By the way in which of instance, Koin Fourth Quarter 2021, complete buy quantity elevated 73% sequentially to just about $18 million within the Fourth Quarter of final 12 months. In January 23% of quantity got here from new retailers reflecting enlargement within the buyer base.

And the collateral the penetration of Koin through Npl’s resolution accounts for six% of gross bookings. Reflecting insensitive investments to scale up this enterprise, stand alone, adjusted EBITDA for Koin resulted in a lack of simply over $3 million. I want to level out that 100% of the options engine and threat mannequin are in-house. Below Koin fee options, we provide retailers are fault prevention and funds through APIC. The very enticing potential from Koin at its Purchase Now Pay Later and fraud prevention providers have a complete addressable market of between $15 billion and $20 billion in Latin America. That concludes my portion of the presentation. Alberto, please, go forward.

Alberto Gaffney

Thanks, Damian, and thanks all for becoming a member of us as we speak. For our evaluation of our top-line outcomes, please, flip to Slide 8. Report ranges of gross bookings and ASPs because the begin of the pandemic resulted in our 49% sequential will increase sufficient to reported revenues. Excluding extraordinary cancellations stemming from the pandemic, revenues would have elevated 43% quarter-on-quarter and simply 12% beneath comparable for quarter ’19 ranges. Word that cancellations proceed to say no on this quarter, down by 39% sequentially.

Whereas we count on cancellations to proceed within the first quarter resulting from Omicron disruptions, as the extent of cancellations normalize, we should always see a decline in entrance funds and switch prices. Our take price stays robust at 13.4% when excluding cancellations and nearly up by over 200 foundation factors when put next with fourth quarter ’19. With contribution from Greatest Day, collectively we now have extra superior costs technique, that are allowed us to get increased upfront incentives, and buyer charges have been the important thing drivers behind this enchancment. Now, please, flip to Slide 9.

We delivered considerably increased profitability this quarter. When excluding extraordinary prices and cash, comparable adjusted EBITDA would have elevated 30% when in comparison with fourth quarter ’19 numbers, as much as alter over $16 million. We’re maintain is — although U.S. bookings reached solely 75% of pre -pandemic ranges. This a lot elevated efficiency, replicate the working efficiencies, synergies and income diversification we now have constructed into the enterprise over the previous two years that’s permitting this determine to emerge from this pandemic as a compound with a extra sustainable enterprise mannequin on better earnings and extra.

We count on to Koin ‘s affect on profitability, as Damian famous earlier, standalone adjusted EBITDA that have been service provider fee operations, was a lack of simply over $3 million, reflecting vital investments to scale up companies. Now, please flip to Slide 10. We ended the 12 months with a robust steadiness sheet with money and equivalents at almost $280 million on breakeven working money circulation. In flip, our web payable place remained comparatively unchanged sequentially are almost $197 million.

In the course of the quarter the [Indiscernible] reported web money circulation or $3 million. This compares to make use of of money of almost $40 million the prior quarter, when prospects redeemed allowance quantity of journey vouchers in demand. Now, please flip to slip 11. In abstract, when excluding extraordinary prices on Koin, adjusted EBITDA was over $1.6 million, 30% increased than in fourth quarter 19. That is much more spectacular when you think about that gross bookings attain solely 75% of that quarter [Indiscernible] stage.

This substantial enchancment in profitability along with breakeven working money circulation, clarify the working leverage we’re carrying into the long run quarters. Regardless of decrease journey demand in December, impacted by the Omicron variant, our enterprise minimize robust momentum within the fourth quarter, with significantly strong sequential development in Brazil, Colombia, and Chile. We see that momentum constructing once more within the the rest of this 12 months. A considerable pent up demand drives journey purchases above pre -pandemic land (ph).

We additionally entered 2022 with a robust money place of near $280 million. One that enables us to proceed investing in our development [Indiscernible], began as additional been equally aided in our business and scaling Koin’s funds platform. As market acceptance continues rising, Koin’s, ecosystems of retailers is increasing, setting the stage for increased buy volumes in Brazil. And at last, we want to spotlight once more, the tripling of debt payout, loyalty members who now quantity 2.8 million prospects.

Now shifting to slip 12, whereas we noticed a decelerate in demand in latest months when considerations across the Omnicom variant going ahead, we count on the variance to have a diminishing affect on journey demand. Regardless of first-quarter seasonality and the latest pullback in demand, we nonetheless anticipated the [Indiscernible] to be adjusted EBITDA constructive within the first quarter when excluding Koin. For the rest of the 12 months, we count on to proceed investing in advertising and marketing actions in nations with promising demand traits. Wanting farther out, the [Indiscernible] acquisition of Stays, Brazil’s main vocational rental channel will enable us to broaden our trip rental enterprise within the nation, in addition to in different key markets in Latin America.

We can even stay centered on additional enhancing Koin’s worth competitors, the place the capturing extra shoppers within the B2B section and creating new enticing options for our finish shoppers. Lastly, we count on gross sales to proceed to recuperate all through this 12 months and past so long as Latin America will not be impacted by the present world state of affairs. Within the meantime, we proceed executing on our technique that has confirmed to ship strong outcomes, regardless of demand ranges having not totally recovered but. This concludes our ready remarks. We’re prepared to handle your questions. Operator, please open the road for questions.

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] We kindly ask that you simply stick to 1 query and one follow-up. Thanks. Our first query as we speak comes from Kevin Kopelman from Cowen and Co. Kevin, please, do go forward. Your line is now open.

Emily Lavin

Hello. Good morning.That is Emily, on for Kevin. Congrats on a robust This fall. I used to be simply questioning, to what extent do you consider the advance in gross bookings you noticed within the quarter to minus 25% mirrored market share features versus pent-up demand? After which, I’ve a follow-up. Thanks.

Damián Scokin

Hello, Emily. That is Damian. Thanks very a lot on your query. As , we observe market share BD completely, and we achieve a slight market share in This fall. So it is a mixture of two issues: the pent-up demand and market share features, in most nations.

Emily Lavin

Obtained it. Thanks. And my follow-up is, how do you propose to handle your gross sales and advertising and marketing spend all through 2022? And requested one other means, at what stage of gross bookings would we see advertising and marketing ranges improve? Thanks.

Damián Scokin

The advertising and marketing spend as is the results of our [Indiscernible], evaluating the profitability of the subsequent invoice. So, it is not only a strategic resolution which can come by way of investing extra however we consider that the related side [Indiscernible] the rising by natural visitors, our non-paid visitors usually will maintain throughout 2022. So although we’ll improve investments as markets recuperate, our portion of natural visitors will stay at increased stage than pre -pandemic.

Emily Lavin

Thanks.

Operator

Thanks. [Operator Instructions]. The subsequent query as we speak comes from Alejandra Aranda, from ITAU. Please go forward your line is now open.

Alejandra Aranda

Hello. Good morning and congratulations on the actually good outcomes that you simply simply present. I am questioning if you happen to may share a bit bit the breakdown between the revenues coming from PIX, some Koin and the remaining from what ought to we count on there going ahead by way of value financial savings?

Damián Scokin

Hiya, Alejandra. Good morning. Yeah. As Damian identified, in what we’re seeing Koin as we speak is roughly as we speak, 20% of the exercise comes from third-party shoppers. After which the remaining 80 or barely decrease than that’s associated to the decolar.com captive shoppers. On that entrance, what you are seeing is on a penetration foundation for now, quite a lot of transactions as a result of seemingly the precise income at the moment is far, a lot low relating to the mounted product. You really see that you’ve roughly over 6%, that’s the penetration on our web site. After which when it comes PIX, that is a further of 4% for a complete on Ag price of roughly 10%.

Alejandra Aranda

Okay, thanks.

Damián Scokin

You might be very welcome. Thanks.

Operator

Thanks. Subsequent query as we speak comes from Karen Kenny from Morgan Stanley. Please, go forward. Your line is now open.

Karen Kenny

Thanks and congrats on the good outcomes. First, may you speak a bit bit about bookings in 1Q and whether or not you count on bookings relative to 2019 ranges to enhance versus the 75% in 4Q? After which second, may you simply speak a bit bit about, the way you’re pondering of gas prices and whether or not or not you count on these to negatively affect demand over the brief to medium time period? Thanks.

Damián Scokin

Certain. Good morning. On the primary piece of your query concerning to illustrate visibility on Q1. Importantly, we’re really experiencing or we are able to describe the scenario similar to what our rivals in area or globally had that’s actually reserving exercise got here down within the final weeks of December that trailed into January, after which by February began little by little arising. And we even have a perspective that, that enchancment will proceed up till the top of Q1. In order we have been in GB, round minus 25% Vis -a – Vis 2019.

Okay, we really see that our bookings total will come barely down from what we really noticed in This fall. However — and that’s vis -a – vis Omnicom. On prime of that, you add the seasonality issue. As , Q1 is in relative phrases, the weakest quarter for the corporate. So that you really — you will note that as a p.c of 2019, you even have to illustrate from between 5% to 10% lower vis -a – vis ’19, after which on prime of that, you could add the seasonality in an effort to perceive what would be the stage of exercise. However most significantly, as you look into how far out into Q2, Q3, and the remainder of the 12 months, we consider Omnicom will find yourself impacting the business in Latin America.

We’re very constructive on that entrance in order that the affect will likely be principally contained to Q1. In your second query. The geopolitical developments, sure not very, very unhappy information for all, shouldn’t have a direct affect within the area, or significantly for this payout. In materials, the quantity of income or transactions that we really are associated to journey to Japanese Europe, in order that’s actually excellent news. With reference to the affect on jet gas costs that would probably push ASPs up as a result of our suppliers would really, significantly on the air aspect, will seemingly push costs up.

I believe the important thing factor to have a look at there, is the steadiness between overseas alternate within the area, as a result of Latin America may probably profit from excessive commodity costs and the on such shoppers by their jobs may benefit. So the steadiness will likely be between, jet gas costs, ASPs going up, possibly that much less transactions but when FX within the area really appreciates that must be constructive. So, it is nonetheless too quickly to inform however that is the way in which to, from a framework perspective, how one can analyze it.

Karen Kenny

That is actually useful. Thanks.

Damián Scokin

You might be welcome.

Operator

Thanks. There are at the moment no additional questions registered. [Operator Instructions]. There aren’t any extra questions ready presently, so I would prefer to cross the convention over to Damian Scokin, CEO, for closing remarks. Damian, please, go forward.

Damián Scokin

We thanks once more on your curiosity in Despegar and we hope you all stay wholesome and protected. Thanks for becoming a member of us as we speak and on your curiosity within the firm. Goodbye and have a pleasant day. Bye.

Operator

That concludes as we speak’s Despegar fourth quarter 2021 earnings name. Thanks on your participation. It’s possible you’ll now disconnect your strains.