Mondee Holdings, Inc.

Good day and welcome to the Mondi First Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I'd now like to turn the conference call over to Jeff Houston, Senior Vice President. Jeff, please go ahead.

Thank you, Operator, and good morning to everyone. Welcome to Mondi's First Quarter 2024 Conference Call. With me today is our founder, chairman, and CEO, Prasad Gundamundala, and Chief Financial Officer, Jesus Portillo. Executive Vice Chairman Aristis Venticulus, and Chief Operating Officer Jim Dullam. We'll present our results and be available for questions and answers. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue, growth of our business, our management and governance plans, and other historical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to Monty's growth. the evolution of our industry, our product development success, our management performance, and general economic and business conditions. We undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to have a material difference from these forward-looking statements are discussed in our reports filed with the Securities and Exchange Commission and in our earnings press release that was issued this morning. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. Listeners are cautioned to not place undue reliance on any forward-looking statements. During the call, we also refer to non-GAAP financial measures. Reconciliations of the most comparable GAAP measures are also available in the press release, which is available at investors.mondi.com. With that, it's my pleasure to turn it over to Prasad.

Thank you, Jeff. Good morning, good afternoon, and good evening, everyone, and welcome to MONDI's first quarter 2024 earnings call to discuss our results and significant developments. We are pleased to have had a strong start to 2024 with a record first quarter, exceeding net revenue, and adjusted with the market expectations. Despite some caution expressed in our latest earnings call, take rate continued to expand with a 10% increase year over year, to 8.2% for Q1 2024. This translated into net revenue of $58 million, representing growth of 16% year-over-year. First quarter 2024 adjusted EBITDA was $5.1 million as a result of continued marketplace expansion in product and geography, driven by our innovative AI tech platform. Based on this Q1 results, we are now increasing our net revenue guidance for the year. To further support this growth trend, we are continuing to enhance and deploy Mondi's AI capabilities in every aspect of our business with exciting innovations in the pipeline. As mentioned when presenting our 2023 year-end results, we remain focused on achieving the near and long-term goals of enhancing profitability, expanding our travel marketplace, and maintaining our AI technology leadership. Let me provide a bit more detail on this. First, enhance profitability and free cash flow. We remain focused on transaction volume growth, improving take rate on our way to achieving sustained double digit levels, as well as implementing cost control measures and the AI supported ecosystem optimization. As Asus will explain in more detail, We were free cash flow positive, which led to our cash reserves increasing by $11.4 million from the prior quarter. Second, we are seeing good early results from expanding our travel marketplace across more geographies while broadening our product mix. With emphasis on packages, events, and activities, we continue to achieve notable diversification in revenue mix. During Q1 2024, Our non-air components such as hotels and packages expanded to 51% from 26% in Q1 2023. This diversification of our product mix supports further take rate improvement. Third, maintain technological leadership in AI. We are continuing to develop, innovate, train, and deploy new AI travel features and comprehensive end-to-end capabilities across our ecosystem. Stay tuned for more exciting and specific announcements in the second half of the year. I now turn the floor over to Jim Dellum, our Chief Operating Officer, who will discuss some business trends and Monty initiatives underpinning our results and outlook. Jim.

Thanks Prasad, and hello everybody. Turning to some business drivers and marketplace enhancements. Maundy remained very well positioned in the volatile and rapidly transforming travel environment throughout the first quarter. We anticipate good demand growth from the emerging market trends despite post-pandemic pent-up demand peaking and some headwinds from regional armed conflicts. On a macro industry note, the strong travel demand from last year continued through the first quarter of this year. with the international consumption led very handily by Asia Pacific. Bondi's strong position in international travel, which emphasizes LATAM, Asia, and the Middle East, is expected to continue benefiting us into 2024 with these macro trends. Amid this growing demand, there remain supply-side challenges for airlines, hotels, and other suppliers. who are facing high cost capital constraints for renovations and upgrades while trying to solve for labor shortages and aircraft delivery delays. As we have highlighted previously, Mondi's ecosystem and business model flourishes in such conditions of volatility. Travelers seeking effective options for full service support align very well with Mondi's offerings, while on the supply side, These volatile conditions can create more perishable capacity, motivating suppliers and travelers to work through full service B2B channels. These are outcomes which are all well suited to Mondi's AI driven marketplace. Looking into the future, the macro trends, these macro trends benefit, they provide benefits for Mondi. that are complemented by the emerging consumer trends, which are being driven by the younger traveler demographic and persona sets. These trends include the emergence of inspiration travel, such as entertainment, music, tourism, and hybrid work or leisure travel. These new age persona requirements and trends are a great fit with Mondi's AI platforms and expanding new age distribution channels. From an AI perspective, as we interact with these new cohorts at scale, we gain additional valuable feedback, allowing us to refine our platform, monetization, and content localization strategies. We also continue enhancing our marketplace. As Prasad described, with our continually expanding marketplace, Mondi is steadily increasing its market share within the 1 trillion plus assisted and affiliated travel market by focusing on our added content and distribution expansion. You may recall that just four short years ago, Maundy almost exclusively offered discounted airfares. In the first quarter of this year, air only net revenues accounted for only 49% of total net revenue as previously mentioned. Let's break down the non-air components a bit further. Packages were 28 percent, up 13 percent from Q1 23. Hotels were at 13 percent, up 4 percent from Q1 23. FinTech was at 6 percent, and all other, which included SAS, insurance, ground transportation, and other ancillaries, were at 5 percent. These adjacent products and markets not only significantly expand Mondi's total addressable market, but also contribute to the impressive rise in take rate. As we continue deploying this content with more personalized and localized experiences through our AI technology platform, Mondi will more effectively grow its distribution channels, such as the new age distribution partners. Moreover, Beyond this growing expert led distribution, we continue to see transactions and net revenue increases year over year with our enterprise and membership organizations, closed user group customers. This is a result of our pleasure friendly platforms, packaged offerings and the trends in corporate travel growth, such as hybrid work, travel and cultural exploration trips. Turning to our end to end business ecosystem, During the quarter, we continue to make progress in a number of areas that benefit profitably and profitability in operating cash flow. These included further automation-led optimization of pricing and transaction flows, additional deployment of NDC connections with our airline and other distribution partners, and implementing some hotel direct connections with major brands with immediate positive effect on our pricing and take rate. On the synergies and integrations front, finally, during the first quarter, we focused on achieving further synergies with our five acquisitions in 2023 through seamless integration and lucrative cross-selling opportunities. Along these lines, the integration of financial settlement processes has yielded strong early cost savings results, while the consolidation of all hotel content under one global content hub is advancing. We also made good progress on integration of our cross-border air content, and, indictively, on May 2nd of this year, 2024, Monde Brazil has launched flight-only distribution in the country, levering our air-carrier relationships and superior air content. For the balance of this year, we're focusing on realizing organic growth and synergy benefits. I now yield the floor to Jesus, our CFO, for a review of Mondi's financial performance and outlook. Jesus?

Thank you, Jim, and hello, everyone. As I go over our first quarter results, I would like to point out that all growth rates are on a year-over-year basis, unless otherwise indicated. Let me start with our financial highlights. We continue to generate strong performance throughout this first quarter around net revenue, EBITDA, and more noteworthy free class flow generation, which was materially positive, as I will detail. Our gross bookings were $708 million in this quarter, up 6%. This growth was driven by a 62% increase in the number of transactions, with a big share of that coming from an expansion in our short-haul international flights, which carry a lower price point per transaction. Our net revenue increased 16% to reach $58 million. This growth in net revenue is the result of higher gross bookings combined with our continued improvement in tech rate. Our tech rate of 8.2% was ahead of our expectations for this first quarter and up 10%. As with prior quarters, this improvement in tech rate was driven mostly by the growth of higher margin products and the diversification of revenue streams. including FinTech and ancillary services. Turning now to expenses, our largest expense category, sales and marketing, was up 8% in absolute terms. But as a percentage of net revenue, sales and marketing improved from 75% to 69%. The main drivers for this improvement continue to be AI-driven optimization of marketing credits to our B2B distribution network and reductions in performance marketing spent in our B2C business. Adjusted EBITDA improved by 27%, from 4 million to 5.1 million. Adjusted EBITDA margin also improved from 8% to 8.7%, as we continue to prioritize operating efficiencies and improve profitability. On a GAAP basis, our net loss was 19.5 million, which included $20.7 million of non-cash and or non-recurring items, such as $5.6 million of depreciation and amortization, $5.5 million of peaked interest, $5.3 million of stock-based compensation, $1.9 million amortization of loan origination fees, $1.2 million change in fair value of earn-out liability, and $1.2 million of acquisition and financing-related costs. among others. Looking at our balance sheet, at the end of this quarter we had $47 million in cash and cash equivalent and $166 million of total debt compared to $36 and $162 million respectively at the end of December 2023. The increase by $11.4 million in our cash balance quarter over quarter is a result of the company achieving the important milestone of being free cash flow positive for Q1 2024. Free cash flows were $13.8 million, a $25.7 million improvement from the same quarter last year. This improvement in free cash flows included certain timing related working capital and cash management initiatives. We have advanced further on the refinance of our term loan to increase duration and improve terms. We expect these to optimize our capital structure, adding value to our shareholders. In the meantime, we have executed an amendment with our current lenders, extending the existing loan's maturity to June 30th, 2025. Returning now to our 2024 guidance. Based on our improved financial performance through this first quarter, we remain optimistic about this fiscal year 2024 and now forecast our net revenue to be between $250 million and $260 million, representing an increase of 14% versus 2023 net revenues measured at the midpoint. We reiterate our adjusted EBITDA guidance of $30 million to $35 million, representing an increase of 67% versus 2023 adjusted EBITDA measured at the midpoint. With all of this, let me now turn it back to Jeff for Q&A. Jeff?

Hey, thanks, Jesus. Operator, we are ready for questions now.

Thank you, Jeff. If you'd like to ask a question, please press star 4 by 1 on your telephone keypad now. If you change your mind, please press star 4 by 2. When preparing to ask your question, please ensure your device is unmuted locally. That's star one to ask a question. Our first question today comes from Nick Jones from JMT. Please go ahead.

Hi, good morning. Thanks for taking the questions. I have two. I think last quarter you spoke to revenue per transaction coming down, you know, just by kind of transaction lines up on kind of increased short haul flights. How should we think about the dynamic that you guys drive really great kind of transaction growth? You know, what's the trajectory of revenue per transaction? And how should we think about that traffic? And then I have a second question.

Hey, Nick, it's Jim. Thanks for the question. Yeah, first of all, there is somewhat of a continuation of that, right? We've had continued good growth. in those international short-haul flights, which do bring revenue per transaction down. A couple other factors as well. The hotel-only transactions and even some of the packages have a higher take rate but are also lower price per transaction. So, with that lower price per transaction, that will also blend down that metric. And then the third component of it is there's overall been some moderation. If you look at some of the IATA numbers that were recently published as an example, you'll see a general moderation in flight pricing across most markets and most regions, particularly those we serve. So we've had sort of that trifecta that has caused the average transaction rate to come down. all be it at a higher take rate because of the blend that we talked about during the announcements.

Great. And then, you know, Avi's been out for a while. You guys are, you know, focused on a lot of AI and kind of product enhancements across the platform. Can you speak to the engagement, the impact it's having on the business? It's been out for a little bit now. Is there any way you can quantify the impact, either on top line or margin?

It's too early to do that, Nick. We have had great experience with Abhi in the marketplace today. the good engagement and good learnings and changes that we are making. So we are in the process of releasing our next version in the second half with all the great feedback that we received from our customers and marketplace. At the same time, we are using the AI platform with Abhi to the external world and while we are working on this transforming the industry with these disruptive technologies, but we are also working on a project called Infinity internally to focus and deploy AI platforms within our current departments and things such as sales and marketing, contact center and everything to achieve cost savings and revenue uptake. So we expect that to be positively impacting our financials sometime in second quarter, second half of the year. So at this point of time, we are focusing on deploying and focusing on making this system better and great. And then we expect to see the results and some good metrics being published at that point of time.

Just adding to that, if you want also some metrics and part of what Prasad was referring to, a big part of our improvement in our sales and marketing ratio is actually driven by these internal AI solutions.

Yeah. So that's the first area that we deployed and as we continue to deploy in the other areas. So we already see that. the reduction in marketing expense through, you know, proper marketing, you know, and pricing information being offered by our AI platform.

Great. Thanks for taking the questions.

Thank you. The next question is from Darren Aftahi from Ross MKM. Please go ahead.

Yeah, good morning. Can I follow up on the question you were commenting on about AI and performance marketing? I'm just kind of curious how you're using machine learning and your performance marketing objectives and just kind of what your target payback periods are for those. And then second, your comments about short haul flights and kind of the delta between transactions and Bookings. I'm curious, as you look into 2Q almost halfway over, how long is the short haul kind of impact going to be with your business? Is this kind of a terminal thing? And then lastly, maybe for Jesus, really nice cash flow from ops number. I appreciate there's some working capital nuances. It's a pretty big delta from what you reported with EBITDA. So, how do we think about normalization of cash flow from ops going forward? Thanks.

So, as far as the AI involvement in marketing campaigns and effect of that on the sales and marketing. So, we are using this for two major areas. One is for the revenue management optimization using ML. We are having a great... you know, information being feeded into the platform which is helping us to set the right prices at the right times and as well as the promotions. So the pricing and the rating algorithms are being fine-tuned with the AI that helps us to set a proper revenue management, you know, levels for our, you know, sales and marketing for both B2B and B2E businesses. And we also placed our AI platform, which is connected with our marketing platforms or marketing tools, that helps us to analyze the performance of these campaigns and how and what corrections to be made real time through our AI platform being in the middle.

Yeah, Darren, it's Jim on the your 2nd question on the impact of short haul flights. You will see, you'll continue to see actually on all 3 fronts that we mentioned that are part of that dynamic between the reducing average. Average ticket price, you'll see that dynamic continue for a little while. If you think about it, right, what's driving a lot of that short haul traffic, it's, it's a lot of the Asia Pacific recovery and think about when that kind of started and picked up steam and so forth. And we started to see the effect of it. That's going to be toward the back half of the year. That that the, the comparisons were more normalized, but right now we're still, we're still looking at, you know, that that they're, they're being a comparatively. higher rate of those short haul flights impacting our ATPs, our average transaction prices.

And Darren, I'll address your question. Good morning and thank you so much for your question. So, yes, I mean, as you pointed out, obviously, first quarter, our free cash flow was very positive. We were working in different factors during this quarter. We anticipated collections of our receivables. We also improved certain supplier payment terms. as well as we also picked a bigger part of our interest, and that contributed enormously. We don't expect every quarter to remain the same. We expect some fluctuations on how the free cash flow is going to behave. But overall, we maintain our expectation to provide positive free cash flow for the full 2024. Great. Thank you.

Thank you. Thank you.

As a reminder, if you'd like to ask a question, please press star four by one on your telephone keypad now. The next question is from Mike Grondahl from Northland Securities. Please go ahead.

Hey, guys. Any regions to call out for travel, you know, above plan or below plan? Like where are you kind of seeing the strength and what's softer?

Hey, Mike, it's Jim. Well, again, as I mentioned a little bit ago, obviously, good strength in the whole Asia Pacific market, and that is continuing. And as, again, just mentioned, you should see that comparatively continue for the time being this year. We've also seen a very good pickup in Latin America. That market has remained pretty robust and expected to do so. The markets where it's actually been an interesting bifurcation of both positive uplifts somewhere and then some pressure in other places is the Middle East, because there's a lot of that conflict in that area of the world that causes a bit of disruption in travel. But there are still segments of that market that are very strong, and the outlook is very good for those. I can't think of any markets where we're really seeing a lot of softening of any kind. The general trends are certainly up, and we expect that to remain for the remainder of the year.

Got it. Second question, just non-air or non-flight net revenues.

know went from 26 to 51 were you guys surprised by such a large increase um or is that kind of you know fully part of the 24 plan yeah i mean uh it was a little bit uh ahead of what we expected which is also why our tech rate in this quarter was also you know ahead of that expectation and when you look at our every time that we talk about our future we always say you know we expect area to be around 50%. So we already achieved that a little bit ahead of our expectations a little bit better than we thought.

Got it. And what's kind of your outlook for air? Um, kind of in terms of net revenue, you know, as you look out a year or two, do you see that growing or just kind of kind of continuing on the same trend?

Right now, we continue with that same perspective of around 50% of our business being in air. So we're investing, as we say. We're pushing forward and strong in our short haul international flights. So there will be a component that will be categorized as air. And we continue to push in hotels, packages, and cruise lines, as you know.

And Mike, you had one more point there. As we are giving to our customer the package option, many of them are choosing to book their flight and the hotel through a package. So basically, some of what was classified before as air now goes inside the package component, which is positive because we are giving another option to our customers and also for us, because this is a higher take rate business, the same transaction through a package.

Got it. Got it. That's fair. And I guess the reason I was asking is, it would be interesting, that 28% that's in packages, you know, it really increased, you know, putting that in the non-air category, if you just look at what net revenues would have been from air a year ago to this quarter without considering that package revenue you know it's kind of a steep drop so what you're just saying is part of that package is kind of really could be characterized as air and then we wouldn't have seen such a large drop yeah yeah i mean that's that's a reason yeah that's it that's a um

It's one of the reasons. Also, as we continue expanding in other more lucrative businesses, we've been also very critical on the profitability of some of our customers, and we've been reducing some of those as well. So we prefer to continue growing in the most lucrative and profitable way possible.

Fair enough. Okay. Thank you.

Thank you. We have no further questions, so I'd like to hand back to Jeff to conclude.

Hey, thank you, Operator, and thanks to everyone who tuned in for our first quarter 2024 earnings call, whether it was live, replay, or the transcript. If you have any questions or would like to learn more about Mondi, please don't hesitate to schedule a call with us. You can get more information on our IR site, which is investors.mondi.com, or send an email to ir at mondi.com. Thank you.

Thank you everyone. This does conclude today's call. You may now disconnect your lines and enjoy the rest of your day. Thank you.