Operator
Good day and welcome to the Monday second quarter 2024 earnings conference call. Please note this event is being recorded. I will now like to turn the conference call over to Jeff Houston, Senior Vice President. Jeff, please go ahead.
Jeff
Thank you, Carla, and good morning to everyone. Welcome to Monday's second 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, who will 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 non-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 and 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 not to place undue reliance on any forward-looking statements. During this 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 is my pleasure to turn the call over to Prasad.
Aristis Venticulus
Thank you, Jeff. Good morning, good afternoon, and good evening, everyone, and welcome to Mondi's second quarter earnings call to discuss our results and significant developments. We are very pleased to report a strong second quarter with growth in net revenue, take rate, and adjusted EBITDA, the later by 38% year-over-year. We also announced the much-anticipated refinancing of our term loan and preferred equity at favorable terms that will position the company for long-term success. Looking more closely, we are encouraged by our improved take rate, which increased 20 bps to 8.6%, reflecting the positive impacts of our product mix expanding into non-air. During Q2 2024, our non-air net revenue mix increased to 47% from 42% in Q2 2023. Mondi's growth in transactions, net revenue, and adjusted EBITDA, along with our platform-driven expansion in global markets, positions as well for continued market share penetration. We are confident that the ongoing integration of acquired businesses and the growth of our international markets will contribute to faster, sustained revenue increases. We are refinancing our capital structure with favorable terms that position the company for long-term success. With a longer duration to both the term loan and preferred equity, Monty anticipates having the flexibility and financial resources to execute on its transformative plans. These plans are expected to increase revenue, profitability, and free cash flows while continuing to lead AI innovation in travel. I now turn the floor over to Jim Dellum, Chief Operating Officer, who will discuss some business strengths and Monty initiatives underpinning our results. and outlook.
Jim Dellum
Thank you, Prasad, and good day, everyone. Let's start with some market drivers. Long-term growth trend for travel remains intact. However, we did see the beginnings of industry softening by the end of the second quarter, and we expect this to continue into 2025. Furthermore, certain regions experienced disruptive events in Q2. such as catastrophic flooding in South America affecting LATAM travel and the re-escalating Middle East conflict. While a few stronger regional markets remain from the last vestiges of the recovery, the overall moderation in demand is being accompanied by a reduction of airfares and decline in lodging rates. In addition, global inflation and economic conditions are spurring an increase in buyer bargain hunting, this to include higher income consumers. Meanwhile, suppliers, who are already under service-related pressure, are expected to continue emphasizing product differentiation, packaging, and more targeted distribution as their keys to potential growth. In light of this, we expect more emphasis to be placed on supplier-driven programs such as their expanding NDC and direct connections. While the market softness may have a short-term impact on the remainder of this year, we believe these overall conditions significantly favor Mondi's B2B marketplace expansion and the deployment of our emerging AI platforms. Turning to the Mondi marketplace, during Q2, we capitalized on international expansion through our platform, delivering a 57 percent increase in transactions year over year. This growth could have been higher had it not been for the working capital constraints mentioned previously. Our strategy of expanding in non-air products with higher take rate and growth in transactions in international markets overcame the pricing effect on gross bookings, producing net revenue growth and solid adjusted EBITDA. The strong increase in transactions was accompanied by flat year-over-year gross bookings as a result of lower average transaction values, this primarily driven by our rapid growth in lower priced international markets. We do plan to continue our penetration in international markets through deployment of our global marketplace platform. We continue to make progress during the second quarter in initiatives around boosting profitability, expanding our travel marketplace, and maintaining AI leadership. Our ongoing focus is to significantly enhance our content, accelerate our sales penetration in existing and new markets, as well as further streamline our business infrastructure and cost structure, as you note on the current slide, slide number seven. In the area of content enhancement, we continue expanding packages and product combinations while adding new features and options. This is expected to enhance the appeal of our offerings and improve sales performance across MonD's growing transaction base. In addition, in content, in addition, as Jesus will cover later, we expect to ramp up the use of our FinTech tools and content to further increase customer engagement, take rate, and net revenue. Further highlights of our progress include enhanced supplier connect programs, such as the airline NDC connections, direct connections with major hotel chains, and with several other connection projects in our immediate expansion pipeline. With these in place, we're seeing more traffic on our MDC connections with improved product pricing and features, as well as material improvement in our hotel take rate and conversions. By the way, a more specific example of the hotel take rate is the increase of over 50 percent in our North America hotel take rate so far this year. In summary, as we look into the rest of the year, we're moving from market planning and development to continued platform deployment and business execution. Our focus initiatives include further implementation of AI tools in Mondi's operations, product expansion for greater market appeal, enhanced revenue management, and AI automation-led process improvement with further cost efficiency. In addition, as we are positioned to take full advantage of all our FinTech tools and services that will no longer be capacity constrained, all of our initiatives for rapid business expansion or further operational efficiency are expected to put Mondays squarely in line with our historic growth path and profitability goals by the end of this year despite this market softness. I will now pass the call over to Jesus, our CFO, for a review of MONDI's financial performance and outlook. Jesus?
Jesus
Thank you, Jim, and hello, everyone. As I go over Q2 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. During this quarter, we continue to generate a strong performance around net revenue, EBITDA, and EBITDA margin. As part of our core marketplace strategy, our focus has been to diversify our product offering beyond air, which includes take rate, expand internationally, and continue to grow in existing markets. During the first half of this year, we continue to diversify our product offering and accelerating our international air expansion. we led to a 57% increase in transactions that carry a lower average transaction price. At the same time, because of delayed refinancing and working capital constraints, we moderated the growth of our existing business that required working capital to grow. This resulted in flat gross bookings, lower than usual net revenue growth, and improved adjusted EBITDA. Our gross bookings were 600 and $78 million in this quarter, in line with last year. Our net revenue of $58 million increased 3%. After adjusting for acquisitions and divestiture of last year, net revenue grew 11.5%. Our take rate of 8.6% was up 20 basis points. As with prior quarters, this improvement in take rate was driven mostly by the growth of higher margin hotel and package products. It is worth mentioning that the delay in our refinancing impacted our ability to fully utilize our credit limits, resulting in lower FinTech revenue, which carries the highest tech rate. We expect these to be fully resolved with our refinancing. Turning to expenses, our largest expense category, sales and marketing, keep improving and was down 5% in absolute terms while it declined from 71% to 65% as a percentage of net revenue. The main drivers for this improvement continue to be AI-driven optimization of our revenue management and reductions in performance marketing spend in our B2C business. Adjusted EBITDA increased by 38%, from 4.4 million to 6.1 million. Adjusted EBITDA margins also increased from 7.8% to 10.5% as we continue to prioritize operating efficiencies and improve profitability. On a gap basis, our net loss was $25.5 million, which included $19.1 million of non-cash and or non-recurring items, such as $3.7 million of depreciation and amortization, $1 million of peaked interest, $12 million of stock-based compensation, and $2.3 million amortization of loan origination fees, among others. Looking at our balance sheet, at the end of this quarter, we had $32 million in cash and cash equivalents and $169 million of total debt, compared to $36 million and $162 million, respectively, at the end of December 2023. We announced today a comprehensive refinancing of our capital structure with TCW and funds affiliated with Morgan Stanley that is expected to extend the term loan to June 30th, 2028 and the preferred equity to December 31st, 2028. The extended timing for the term loan beyond August 31st, 2025 and the preferred equity beyond September 30th, 2026 are both subject to securing a 15 million letter of credit that the company anticipates finalizing shortly and which would provide additional working capital. Operating cash flow was negative $7.6 million for the quarter, compared to negative $2.4 million in Q2 of 2023. In this quarter, we used over $10 million of cash reserves as working capital to offset credit limit reductions by certain FinTech partners in the face of delays in refinancing our term loan. We're working to get some of these credit limits reinstated as the refinancing is being completed. Year-to-date, both operating cash flow and free cash flow were positive, $11.1 million and $3.3 million, respectively. Turning now to our 2024 guidance. As a consequence of the limitations we described, we now forecast our net revenue to be between $240 million and $250 million, representing an increase of 10 percent versus 2023 measured at the midpoint. and adjusted EBITDA to be between 25 million to 30 million, representing an increase of 42% versus 2023, measured at the midpoint. Let me now turn it back to Jeff for Q&A. Jeff?
Jeff
Thanks, Jesus. Operator Carla, we're ready for Q&A now. Thank you.
Operator
We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is muted locally. And our first question comes from Mike Granda from Northland Securities.
Mike Granda
Hey, thanks, guys. And congratulations on the refinancing. Two questions related to that. roughly how much working capital does that free up for you and two what are your priorities spending that working capital on to kind of reinvigorate growth if you could just go over those priorities i think it'd be helpful yes uh mike good morning thank you so much for uh your question so uh addressing first your your first question
Jesus
In terms of how much working capital, obviously, we'll have a 15 million LOC, as we mentioned in the script, right? So that will be to add. We expect another 5 million that will be coming in, in terms of cash, or a total of $20 million that will help us revamp our working capital. In terms of priorities to drive growth, I think that, obviously, at this point, most of that will be used in our FinTech solutions. because it carries the highest take rate of all of our product mix. And it's probably the portion that has been affected most during these past few months while we were doing the refinancing.
Mike Granda
Got it. And I don't know, maybe Jim, it seems like you're having pretty good success penetrating the hotel only space. I don't know, a little more detail there might be helpful. Yeah.
Jim Dellum
Hey, Mike, I appreciate the question. You know, we are having good success in hotel penetration. I mean, you know, we've picked up some real expertize with some of the companies we've acquired. It's not just pure hotel. Remember, there's also some packaging expertize there which bring more of that in. So as we get to the non-air product, A lot of that is around package product, which carries higher take rate. So we're picking that up. The other thing is in the hotel program itself. I mean, I think we've mentioned previously, we've been emphasizing the hotel program and as we've done that, we are significantly improving our agreements with certain hotels. We've added a couple of direct connections with major chains so far this year, and we have more in the pipeline before the end of the year that will come all of those things. help not just the pricing and the presentation of the product, but significantly the take rate, which is why you're seeing the nice improvement that we saw in our North American hotel take rate so far this year.
Mike Granda
Got it. Got it. Okay. Thank you.
Operator
Our next question comes from .
spk07
Hi guys, this is Thomas Shinsky on for Brett. Thank you for taking my questions. I guess first, how's the traction been for the AI related products? You know, more specifically, Abhi, I guess if you could give us an idea of how many, you know, transactions are coming through that virtual assistant and then also, you know, internally. I know we mentioned Infinity last earnings call. I guess how's progress been there?
Aristis Venticulus
So Abhi is providing good traction for us to you know have some great you know interactions and transactions so although the numbers seem to be less than 2% of our business however the you know employment provided us to have the knowledge to train our models which we are currently doing and also take the feedback and in, you know, improving this product, which we are working on our second version that is due on delivering in Q4. At the same time, we have, you know, Infinity project, as you mentioned, Infinity project is our project to, you know, deploy for our AI-nizing all of our internal operations that includes, you know, operations call center, you know, through our AI CRM platforms being placed, and our sales and marketing revenue management functions. So we already deployed that at our revenue management function of Infinity, which has resulted some very good results where you are able to reduce our marketing expenses, sales and marketing expenses, by 5%. and we expect to deploy more onto all of our sets of our business where either we improve our take rate and reduce our sales and marketing expense or reduce our cost per transaction by having an efficient operations function. So, Infinity is currently under deployment by function by function in our business and we are hoping to complete it you know, by end of Q4 and beginning of Q1, and we are planning to reap very good results from it.
spk07
Awesome. Thanks. And then one more, if I may. Very encouraging to see the strong growth in transactions, coupled with, you know, a continued pressure on ARPT, I guess. You mentioned strong growth in international contributing to this, and And last quarter, obviously, we mentioned short haul international hotel only. I was just wondering, have you seen a skew towards more just consumer weakness contributing to this and just overall decreased travel spend? And, you know, any visibility into, I know you see continued weakness into 2024 and a bit into 2025. You know, is there any visibility into when we can see this ARPT start expanding again? Thank you.
Jim Dellum
Yeah, thanks, Thomas. It's Jim. Yeah, look, I think we will expect to see that average transaction rate moderate here and start to recover through the rest of the year, right? You're right. The biggest influence has been the expansion internationally, right, in markets that as they recovered, they recovered in more regional short haul first. which tends to be lower-priced transactions. That will continue to expand back to more global and international travel. As it does that, that we should see, even though airfares and even hotel rates will come down somewhat in our expectation for the next few quarters, we will see the mix start to moderate back in our favor. So we see the ticket price fall, the average transaction rate fall moderating now to stabilize and then recover as we go into next year is probably the way I would, the timing I would put on that.
Aristis Venticulus
So the average revenue per ticket, you know, is between 50 to 55 in our business. And this year, last year it is high, it is, you know, mid-70s. But we grew the transactions by 47%. and at the same time, sorry, 57%, and at the same time that we are maintaining a good revenue per ticket and also paying the inroads into expanding our front end FinTech and the answer revenues by taking this market share. So we expect to continue to have the revenue per ticket transaction at between 50 and 55 this year, And in the following year, in 2025, we are expecting to grow into 60 to mid-60s.
spk04
And since this is an important point, I would like to add one more perspective here. The softening in the market is typically advantageous to the Monday business model because there is more desire for the consumer to hunt for bargains and also for the suppliers to provide better economics, but in Q2 and Q3, we were not able to fully capitalize on these because of working capital constraints. So we simply didn't have the working capital, even though the demand was there to capture it. So as we look towards the end of the year in 2025, following the completion of the refinancing, we should be able to take advantage of that market dynamic, which is typical in such times of softness, favorable to our business model. Awesome. Thank you, guys, for the color.
spk07
Thank you.
Operator
The next question comes from Dara Aftahi from .
Dara Aftahi
Hey, this is Dylan. I'm for Dara. Thanks for taking my questions. First, with the revised guidance, could you talk a little bit about what some of the expectations are in there? Like how much of that is driven from lower FinTech in 2Q and then it seems like at least for a portion of 3Q until the financing is secured versus some of the softness that Jim was talking about?
Jesus
Yeah. So, you know, at this point, I would say probably around 50, 50% is driven by our FinTech revenue that is down, as well as some of the opportunities that we had to let pass because of our capital, working capital restraints.
spk04
Got it. Okay. It's almost the entire Q3 that is impacted, right? Because it's not just a matter of securing the financing, but then it takes time to open these credit limits. So this impact, we expect it to be on Q2 and Q3. Okay.
Dara Aftahi
Got it. Thank you. And then as a follow-up, when you are going into, some of these other markets and expanding where some of the rates are lower. Do all those markets have the same sort of, I guess, offerings as your more established markets? I'm talking sort of all the ancillaries or those are some of the things you're looking to add.
spk04
Yes. So that is precisely one of the opportunities. So at this point in time, we are capturing the market share and the market share is most of the times just a low-price transaction that you mentioned with very limited front-end revenue, right? So the strategy here is to capture this market share, which also was favorable in the last few quarters because this is business that requires less working capital, so we could take advantage of it with the constraints that we have. And then on the back of that, we can attach the ancillaries, not just the fintech, which is the easiest one to attach, but then negotiate better deals and attach better front-end revenues, attached hotels, attached other unsealed product that carries a higher take rate. So this is precisely the strategy, and that is one of the reasons you are seeing now at this point in time much higher transaction volume, not a significant growth in gross volume because it's the lower price particular dimension without the full capacity and capability of the additional revenue that attaches to each one of these transactions.
Aristis Venticulus
And even with these dynamics, we are able to achieve high EBITDA margins.
Dara Aftahi
Thank you. That's it from me. I'll pass it on.
Jesus
Thank you, Dylan.
Operator
As a reminder, to ask a question, please press star followed by 1 on your telephone keypad. And our next question comes from Nick John from Citizen JMP Security.
Nick John
Hey, guys. It's Tim on for Nick here this morning. Just a couple from us, please. I appreciate you taking our questions. Can you just talk a little bit about what you're seeing in terms of the competitive dynamic or the intensity within marketing? A lot of your current competitors have called out reaching out to new channels. Just wanted to see how the competitive landscape is from your guys' point of view, and if you have any plans to change your strategy moving forward in the second half.
Jim Dellum
Nick, it's Jim. Let me start. First of all, we think the strategy is working great in the current market. Again, the transaction increase, as Orestes just described, this is all, you know, we're taking share of wallet, we're taking market share, fully positioned now to both capitalize on the base transactions as we've penetrated those markets to improve things, but also, you know, capitalize on the deployment of our platform more and more internationally, right? And as we do that, we think that allows us to continue to grow very strongly in this market. We have what we certainly believe is a lead position in the deployment of AI into this space, which gives us great differentiation in the market. So we think we stand in a strong position to grow. We've had a little bit of headwinds with This capital issue that constrained us from, you know, knocking everything out of the park. But, you know, we took advantage of everything we could. We're taking advantage of this platform. And, you know, we're pretty jazzed about the position we have going forward in this market. It's, you know, sometimes the softness is actually great for the Mondi strategy and to continue to deploy it.
Nick John
great thanks so much for all that color um just one more if we could please um in terms of kind of airfares kind of looking out into back half of the year in 2025 a lot of the airlines had kind of called out taking corrective action to kind of reduce capacity which should kind of help drive stability and fares i know you guys kind of talked about your guidance taking down your guidance due to some of the stuff that you're seeing and the impact from credit limits working capital In terms of airfares kind of for the back half of the year, how are you guys thinking about that? Are you guys expecting continued softness, any kind of improvement, or any kind of colors on what's being sent to the guide there? Thanks.