Yatra Online, Inc.

Thank you for your patience, ladies and gentlemen. The YACHT online physical second quarter financial results will begin shortly. During the presentation, you have the opportunity to ask a question by pressing star four by one on a telephone keypad. Thank you for your patience. Ladies and gentlemen, welcome to the Yatra Fiscal Second Quarter Financial Results Conference call. My name is Glen and I'm the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star 1 on the telephone keypad. I will now hand you over to host Manish to begin. Manish, please go ahead.

Thank you, Glen. Good morning, everyone. Welcome to Yatra Fiscal Second Quarter 2023 Financial Results. So the period ended September 30th, 2022. I'm pleased to be joined on the call today by Yatra CEO and co-founder Dhruv Sringi and our new CFO, Rohan Mittal. The following discussion, including responses to your questions, reflects management views as of today, November 29, 2022. We don't undertake any obligation to update or revise the information. Before we begin our formal remarks, allow me to remind you that certain statements made on today's call may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially. For a description of these risks, please refer to our filings with the SEC and our press release file earlier this morning. Copies of this and other filings are available from the SEC and also on the IR section of our website. With that, let me turn the call over to Drew. Drew, please go ahead.

Thank you, Manish. Good morning, everyone, and thank you for joining us today for our second quarter earnings call of fiscal 23. Before we discuss our results for the quarter, let me just quickly update you on the draft red herring prospectus, the BRHP, which was filed by our Indian subsidiary, Astra Online Limited, on March 25, 2022. The Securities and Exchange Board of India, which is SEBI, issued the final observation letter dated November 17, 2022, which means Yatra India's proposed IPO can open for subscription now within a period of 12 months from the date the final observation letter was issued. I just want to clarify that this doesn't mean that it will open after 12 months. This means that it can open at any point within a 12-month window from the date of the issuance of the letter. You'll recall that the Yatra India subsidiary had proposed an IPO of its equity shares comprised of a fresh issue of primary sale of up to INR 7,500 million and an offer for sale of up to 9.3 million equity shares in a secondary offering. We expect to commence marketing activities shortly and currently anticipate that we can complete this offering in the first quarter of calendar year 2023. Aside from strengthening our balance sheet, we expect this offering to allow us to pursue new corporate business more aggressively and to explore alliances with partners who might not have been comfortable with an overseas structure. Let me also welcome our new CFO Rohan Mittal to the servings call. Rohan brings over 20 years of experience to Yatra, most recently serving as CFO for Revivo and prior to that having spent time with other listed companies in India, especially in the logistics space. We are very excited to have Rohan be a part of our team and look forward to his input. Now on to our fiscal Q2 results. I am pleased to report that we delivered strong sequential growth of 21% in adjusted value in what is typically our seasonally weakest quarter. We were able to achieve this growth due to higher take rates in our air ticketing business, which more than offset a 10% Q1Q decline in traffic and lower average ticket prices. Reflecting these dynamics, revenue of INR 831 million, which is approximately USD 10.2 million, was up 85% year-over-year, and adjusted revenue of INR 1.52 billion, which is USD 18.6 million approximately, increased 92% from the previous year. Adjusted EBITDA for the quarter of INR 77.7 million, approximately a million US dollars, was up 234% year-over-year. Our adjusted EBITDA was adversely impacted by higher legal costs of INR 24 million incurred in connection with the expansion of the Yatra board with the addition of Mr. Kaufman, the debt facility that we took subsequent year-end, and IPO-related legal costs. After rebounding strongly in Q1, overall domestic air travel industry volumes contracted by 10%, largely on account of Yatra's overall airfax volume declined only 2%, which was substantially lower than the overall industry, resulting in market share gains for us. This gain was aided by a very successful online travel shopping festival that we launched around our 16th anniversary in August. Our brand strength and recall continues to remain high, and we believe this will enable us to continue to grow meaningfully faster than the industry. especially as both B2C and corporate consumers continue to migrate online at a very rapid pace. Our consumer business remains strong as airlines share special payers to counter the seasonally low quarter that we typically see in September quarter. Domestic travel ended the quarter at approximately 100% of pre-COVID levels. We also saw continued strength in new corporate customer signings with 30 new signings. which exceeded the previous record of 27 large and medium-sized enterprises that we had achieved in the previous quarter. International travel also continues to improve gradually, exiting the quarter at approximately 70% of pre-COVID levels, with the lifting of all travel restrictions in Asia Pacific region, barring operational shutdowns in China. International travel has lagged to global recovery in Asia Pacific specifically, but we are optimistic that in the current scenario, we see sustained growth and recovery happening in international travel going into calendar year 2023. On the hotel front, our adjusted revenue was up 47% year over year, as we saw the benefits of incremental contribution from the Flipkart partnership, and we continue to pursue other such opportunities, which should be accreted to us in the near to mid-term. From a competitive standpoint, the intensity has remained stable from our last quarter, and remains overall manageable. We are currently in one of our seasonally strongest quarters, which benefits from both the Diwali holidays in late October and Christmas at year-end, and we are seeing further signs that consumers continue to have the propensity to spend on leisure travel. In October, domestic air passenger traffic reached 11.4 million passengers, representing an increase of 10% month over month, and a breakout from the 10 to 11 million average passenger traffic range that we've seen in the preceding seven months. From a macro standpoint, the IMF currently expects India's GDP to grow at about 6.8% in our fiscal 2023. As we have mentioned previously, the travel industry has historically grown at approximately 2x of GDP in developing markets versus a 1.5x multiple in developed markets. We continue to believe that we should be able to achieve growth above market rates given by share gains in the corporate travel market and the ongoing secular shift from offline to online in the consumer market. Given the ongoing recovery in corporate and leisure travel, our continued success in finding new large and medium enterprise customers and our upcoming Indian IPO, we believe we are well poised for a strong half of fiscal 23. Aside from sales vanity, We expect our results to benefit from accelerating growth in our corporate business as we continue to line new customers. Additionally, a successful Indian IPO should also leave us well positioned to pursue higher take rates in the air business and to accelerate growth in freight. Even as we invest for growth, we also continue to make strides in improving our operational efficiency. We are already starting to see significantly higher levels of profitability as a result of these efforts. I want to express my gratitude to our employees and shareholders for their continued support. With that, let me hand it over to Rohan to walk you through the details of the financial performance. Rohan? Thank you, Dhruv.

First of all, I would like to say how excited I am to be part of the Yatra team. Since joining the company, I have been impressed by the quality of our employees and our strong positioning in the corporate and consumer travel markets. I'm looking forward to helping our business reach new heights. I will now review our September quarter results and focus primarily on year-on-year comparisons. Our adjusted revenue increased by about 92% on a YOY basis to INR 1.5 billion. The strong year-on-year growth was driven by a rebound in the air passenger traffic of about 41% and an improvement in yields which resulted in a 110% increase in the air ticketing adjusted revenue to INR 1 billion. Adjusted revenue for hotels and packages was up 47% to INR 240 million. Sequentially, the total gross bookings declined 11% to INR 15.9 billion, reflecting normal seasonality. This was partially offset by the special fares shared by airlines. to counter the seasonal crimes. Gross bookings, however, registered a strong year-on-year growth of 88%. Hotel and packages gross bookings improved 97% on a bioware basis, reflecting strength in the corporate uptake of hotels. Gross air passengers booked were 1.27 million, up 41% year-on-year basis. Standalone hotel room nights booked were 412,000, up 43% YOY. Moving on to the expenses, marketing and sales promotion expenses, including an ad back for consumer promotions and loyalty program costs, increased by 131% on a YOY basis to INR 796 million. Our personal expenses decreased by 3% YOY to INR 288 million in the September quarter. The decrease from the prior year was predominantly due to a decrease in the employee share-based payment expenses to INR 36.5 million from INR 79 million in the prior year quarter. Excluding the impact of the share-based compensation, personal expenses increased by 16% on an year-on-year basis due to the reinstatement of salaries and increments for employees to the pre-pandemic levels. Other operating expenses increased by 91% YOM to INR 390 million, primarily due to the increase in payment gateway charges, sales commission, and communication, which increased in line with the growth in revenue as the business continued to recover strongly. And an increase in the legal and professional charges associated with the expansion of the Yatra board, as well as raising a debt facility subsequent to the quarter end. Adjusted EBITDA of INR 77.7 million improved significantly from INR 23.3 million on a YOY basis. As Dhruv mentioned earlier, our adjusted EBITDA was adversely impacted by higher legal cost of INR 24 million incurred in connection with the expansion of the Yatra boat with the addition of Mr. Mike Kaufman, as well as the debt facility that we took subsequent to the quarter and IPO-related legal costs. Barring the impact of this incremental cost, our adjusted EBITDA would have been INR 102 million, which would have been a growth of almost 4.4x on an year-on-year basis. As of September 30th, 2022, the balance of cash and cash equivalents and term deposits on our balance sheet was INR 703 million, or roughly translated into USD 9 million. The decrease in cash balance from the previous quarter is primarily due to increased working capital to support the recovery of the corporate travel business. Subsequent to the quarter end, we raised an additional capital of $10 million from my capital to help maintain a growth momentum and continue to work closely with banks in India to increase our receivable financial limits as the corporate business continues its strong recovery. This concludes our prepared remarks. I would like to turn this back to the operator and open the floor for any Q&A from the attendees. Thank you so much.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 4 by 1 on the telephone keypad now. When preparing to ask your question, please ensure your phone is unmuted locally. We have our first question. It comes from Scott Buck from HC Wainwright. Scott, your line is now open.

Hi, good morning, guys. Thank you for taking my question. First one, Dhruv, when you guys talk about pursuing new corporate business more aggressively post-IPO, I think we're talking about some M&A in there, right? And if that's the case, what's that pipeline look like and how quickly could we see some deals get done?

Good morning, Scott. Scott, in terms of addressing that question, there are two parts to it. One is obviously the organic growth itself, and we are seeing a strong pipeline on the organic side also today, given that companies are very keen to adopt a technology solution. So that's something which is materializing quite rapidly, as we are seeing in the number of new customers and accounts that we are signing queue on queue. On the other part, in terms of M&A, as part of the IPO, we have earmarked some capital for M&A, M&A, as you well know, has its own timeframes associated with it. But our endeavor would be, once the IPO is done, to accelerate this road to a combination of both organic and inorganic. It's hard for me to pin down an exact timeline, but I think our endeavor would be to do this as quickly as we can without compromising on the quality of the assets that we look at as part of the M&A or without doing adequate diligence. So given those constraints, we will try and move as quickly as we can. But we are seeing a great opportunity at this point, Scott, both, as I said, organically and inorganically. So it's not just one way. I think there are multiple levers for growing this as of today.

Okay. That makes a ton of sense. Thank you for that. I'm curious when I think about OpEx moving forward with the return in travel demand, Do you give us a sense of maybe where you are from a headcount perspective versus pre-COVID levels and how we should think about sales and marketing expense moving from here? And I understand there's some seasonality in there as well.

Sure. So at the headcount level, we are at about half the headcount that where we were pre-COVID. Headcount increase will now be at a much more gradual pace and linked to largely new customers that we are acquiring on the corporate side. Otherwise, on the headcount front, I think we are fairly well-capacitized to manage the business as is today. So I don't think there will be a significant bump-up in headcount. Whatever incremental headcount had to come in has come in either in the September quarter or has come in subsequently in the October-November timeframe to gear up for the incremental demand that we are seeing as of today. So from a headcount perspective, I don't see major movements happening from the headcount levels that we are at as of today. On the other OPEX cut, just to factor that in, I think we should start seeing good operating leverage on that. Legal and professional costs will continue to remain at a slightly elevated level as we go through the IPO process. but then going forward from there into fiscal 24 should taper off significantly once this one-time IPO cost is all baked in and out of the way.

Great, thank you for that. And then last one for me, if you could just touch on, for those of us that aren't local, what the Indian IPO market looks like today. I mean, what does demand look like and any recent offerings that might give some color on how your offering may perform?

Sure. So in terms of the overall markets in India, the markets continue to remain fairly buoyant. In fact, the markets recently touched a new 52-week high, which is quite unheard of, right? You're seeing, on the other hand, in more developed markets, that markets seem to be touching a 52-week low, whereas in India, we just recently touched a 52-week high. So markets are quite buoyant. Demand for you know good offerings continues to remain there we think we are one of those where there is a strong appetite given the high degree of that great well thank you for the time guys and uh congrats on the quarter thank you with our next question which comes from

I'm just so strong from C2D. Enjoy your lines now open.

Hi, thank you for taking my questions. I'm just curious for the new enterprise clients, this is like you accelerated up to 30 new customers this quarter. Are you at all scaling up the sales team or are you just seeing a stronger demand or is there more growth to go after? So maybe you should be scaling up your sales team or should we think about that?

Anyhow, I think through flying this job, I'll take that. We haven't really expanded the sales team as much. It's more of the inbound demand we are seeing coming in, and that's what's resulting in the number of customers we're able to sign.

Okay, thank you. And then I'm just curious.

Hello? Hi, sorry, sorry, Mike. My line just seems to have gone silent for a while. I'm back on. Yeah. Anya, please carry on.

Okay. Thank you. Manish was able to address my first question, but my second question is about the freight business. How is that trending compared to your expectations, and what can we expect in terms of revenue contribution from that for this year?

So the freight business, as we've mentioned in the past in the last quarter, I think a bit working capital constrained. Hence, we were being a bit more cautious on the freight business. Our first priority was to provide incremental working capital to our corporate business, which was recovering very strongly. So freight was slightly muted in the previous quarter because of this working capital constraint. But given that subsequent to quarter end, we've got this debt facility from Mac Capital and we are now in advanced stages with some of our other banks out here for extending the working capital facilities and increasing the size of our current facilities we expect the freight recovery to happen very rapidly as well to get on freight the organic demand for technology and a technology-led solution is extremely high in this market freight as you would recall is a very opaque market so we think technology can really disrupt that there were some working capital constraints because of which we had to slow that down slightly but In the November month onwards, we started seeing recovery happening again very quickly. So freight for next fiscal year, which is like FY24, we would expect the freight business to do almost, you know, between $5 and $6 million of revenue.

For fiscal 2023?

For fiscal 24.

Oh, 24, okay. Which is for next fiscal year. Okay. Thank you. That was all for me.

Sure. Thank you. Thank you. With our next question comes from Lisa Thompson from SEC Investment Research. Lisa, your line is now open.

Hi, good morning. I was just wondering if you could talk a little bit about what you're seeing as far as demand from consumers. In the past, you said there's a lot of pent-up demand. Is there still pent-up demand, or has that pretty much been filled?

Good morning, Lisa. Lisa, I've been in the travel industry now in India for the last 15, 16 years. And honestly, I haven't seen this kind of demand ever in my 15 years in India. in the travel industry so demand still continues to be at extremely elevated levels especially for leisure travel and that too during peak holiday periods now we are seeing very strong forward booking numbers at this point looking into the december holiday season the christmas and new year holiday season and we've also seen similarly you know the diwali the sharab break being fairly strong so demand continues to be at high levels and uh we expect that this to be the new norm rather than this being just pent-up demand which is tapering off.

Okay, interesting. So you haven't seen any pullback at all because everyone I talk to over here in North America is saying, you know, all of a sudden demand is getting weaker and things like that, but not in India and not in travel?

No, not as of now because, you know, what's also happening is that in India, wage inflation, right, is hovering in the early double digits right people are seeing between 10 and 15 percent kind of wage inflation especially at the mid and lower levels and that provides enough and more you know capital in the hands of consumers to continue to spend we've seen saving rates also come down historically saving rates in india were in the mid to late 30s we are seeing them taper off to as low as you know 28 to 30 percent so overall in the economy We are continuing to see enough headroom from a consumption standpoint.

That's great. That's good to hear. I look forward to see how the December quarter looks and best of luck with a successful IPO. Thank you.

Sure. Thank you.

Thank you, Lisa. As a reminder, ladies and gentlemen, if you would like to ask a question, you can press star followed by one on a telephone keypad now. When preparing to ask your question, please ensure your phone is unmuted locally. We have no further questions on the line. I will now hand back to Manish.

Thank you, Glenn. Thanks, everyone, for joining the call today. As always, we are available for follow-up, so please feel free to reach out. That concludes our call for today.

Thank you.