Despegar.com Corp

and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. These include, but are not limited to, expectations and assumptions related to the impact of the COVID-19 pandemic and the integration and performance of the businesses we acquire, including Best Day and Coin. For the description of these risks, please refer to our filings with the Securities and Exchange Commission and our press release. Speaking on today's call is our CEO, Damian Skokin, who will provide an overview of the fourth quarter and update you on our strategic priorities.

Damian, please go ahead.

Thank you, Natalia, and good morning, everyone. Let me first wish that each of you are in good health and that your families are well. The COVID-19 pandemic challenged our industry in ways we have never seen before. The fourth quarter was another example of how we must take the toes ready for the quick changes this pandemic throws our way. We have demonstrated our ability to pivot quickly, anticipate and respond to customers and adapt to their new behaviors. Our team has not only managed through the ongoing demand challenges, but also have made important progress on strategic initiatives, including one, expanding our reach to new customers, while two, increasing engagement with customers, and three, focusing on profitability and maintaining a strong cash position. As this is one of the most challenging and unique times we have all faced, it is also a time that presents opportunities, and I look forward to highlighting some of those for you this morning. Beginning with expanding our reach to new customers, Looking at our performance in the quarter, we are executing on the integration of Best Day, which accounted for 20% of gross bookings in the quarter. A balanced geographic portfolio will generate more sustainable growth going forward. Moving next to increasing customer engagement. 2020 accelerated our strategy by fast-forwarding many of the customer engagement initiatives that we have been building towards. We increased our flexible inventory from 20% to 60%, and we significantly enhanced our refund policy. Our loyalty program continues to gain traction, reaching close to 800,000 members. while our co-branded car with Santander is also gaining momentum as the bank has joined us in our marketing efforts via its app and telethonics. Coins penetration in the Colas growth booking increased 60 basis points to 3.4 percentage points. Another important initiative is the integration of the SPGAR's frauds Next, focus on profitability. Despite the significant uncertainty we had to go through in 2020, we were able to strengthen our balance sheet and improve our cost structure. Additionally, in the fourth quarter of 2020, we observed a strong take rate of 13.3%, which was driven by a focus on profitability in our commercial strategy, together with joint supplier negotiations with Best Day. Furthermore, this past quarter, we saw non-air segment accounting for 64% of revenue, driven by growth in higher margin packages. On the selling and marketing front, We have continued with our strategy of lowering marketing spend per transaction as we continue to leverage unpaid channels. We are still focused on right-sizing our cost structure for the new operating environment, and we saw a 44% year-over-year reduction in structural costs and a 36% decrease in OPEX. excluding extraordinary charges and the impact of best day and coin, this decrease would have been 65%. I am pleased by the fact that we have been able to maintain the cost savings target we had discussed in previous calls. As a result, we entered 2021 being a more efficient and linear company. Excluding the impact of Best Day and Coin, our consolidated adjusted EBITDA loss decreased 71% sequentially, from minus 33.7 million in the third quarter to minus 9.7 million this past quarter. Last but not least, consider Desperado Standalone, which excludes the contribution of Best Day and Coin We had a positive adjusted EBITDA in the fourth quarter if we excluded extraordinary charges as detailed in our earnings release, plus the cost to solve COVID transactions will entail higher costs due to risk adherence and cancellations, and the cost to integrate Best Day and Con, which now sits as a spigot. Our 2020 results demonstrate the effectiveness of our strategic actions. and the progress we have made to date despite this unpredictable environment. Moving next for the discussion of the global travel industry on page four. As you are all aware, the effects of the global pandemic are ongoing, but we believe we are most likely through the worst of it. Nevertheless, The impact on the travel industry remains and is... ...over year basis, but incurrently at a lower level. According to ICAO, airline seat capacity in Latin America declined 47% versus last year in the fourth quarter. That compares with a decline of 90% at the start of the pandemic. During the fourth quarter, Europe and Africa were the only regions that had a sharper decline than Latin America. In the bottom right chart, we have extrapolated the monthly capacity published by ICAO adjusted to take into account our international domestic exposure. As you can see, the monthly year-over-year decrease has been moderating throughout the fourth quarter before turning up again in January. Keep in mind that as travel declines, it impacts our revenues first before it is reflected in capacity reductions. So the softness we experienced in December is reflected in January capacity reductions, as I just mentioned. Most of the travel restrictions that have been in place through 2020 were lifted in November. However, towards late December, traveling in Mexico was particularly impacted due to the increase of health alerts in many regions of the country. The European market was impacted by another wave of the virus in the fourth quarter, and subsequent travel restrictions were enacted. We have observed that the trends in Latin America follow North America and Europe with a lag of approximately one quarter. Consequently, we saw a similar negative trend in LATAM in the first quarter, although the level of contagion in LATAM was milder. The road to industry recovery is expected to be choppy. and is highly correlated with the number of COVID cases, government actions taken to mitigate it, and the vaccine rollout, which will be key for our consumers to regain confidence to travel. Moving next to discussion about trends in transactions and gross bookings on page five. Since our last earnings call, the overall business environment did not materially change. Our operations continue to be impacted by the pandemic, albeit to a lesser extent than in the prior quarters. It is important to highlight that our results for the fourth quarter include a three-month contribution from best day acquisition. In turn, total transactions of 1.26 million were down 56% year over year, an improving trend from the prior two quarters. Excluding best day, transactions were approximately 1 million. It was a 74% sequential increase. We also saw a similar trend with growth bookings, which declined 69% year over year, 401 million, including the contribution from Best Day. Excluding Best Day, gross bookings would have been 323 million, resulting in a 75% year-on-year decline in gross bookings. The rate of decline in gross bookings was sharper than that of transactions, and it's a reflection of a mixed shifts to lower ticket domestic travel products as well as currency depreciation when compared with the fourth quarter of 2018. After a good start in October and November, both transactions and gross booking slowed in December. This reflects the resurgence of the virus in many countries and the resultant slowdown in travel as I just discussed. Specifically, we saw this in Mexico. Hospitalizations increased across the country, and the government also put in place restrictions on restaurants and commercial centers. These slowing trending transactions and gross bookings continued into January of this year. By the second half of February, we were once again seeing an improvement, with this trajectory continuing into early March. You can see the monthly trends in the bar chart shown on the right side of page 5. Moving next to slide 6. 2020 was quite the year in just about every respect. For Despegar, it was an opportunity to demonstrate our value proposition to our customers. Over the past year, we have proven our ability to pivot quickly, anticipate customer needs, and adapt to their new behaviors. Our customers welcome us serving them in new ways. Let me now talk about a few of these actions. First, working with our suppliers, we were able to increase the flexibility of our current offering to 60% from 20% pre-pandemic. At the same time, 90% of non-refundable bookings that were impacted by the full COVID lockdown are now flexible in order to make it easier for customers to reschedule their trips. We also focus our publications and promotions on domestic travel and we make significant changes to our refund policy. For example, We are also issuing refund coupons in U.S. dollars to mitigate the impact from currency volatility. Next, loyalty. For us, it is as important to welcome new consumers to our site as well as having consumers that repeatedly choose Despegar for their travel experiences. And our loyalty program plays a key role in this. Today, we have 760,000 loyalty members, with the majority in Brazil. Without much marketing activity, as we wait for better travel conditions in which to expand the program to other countries, we have already signed up a significant number of customers in Argentina. Furthermore, our plan is to launch a loyalty program in Mexico at some point this year. As announced previously, we have launched a co-branded credit card with Santander in Brazil. We saw an acceleration of the sign-up in the fourth quarter of 2020 and the first quarter of 2021, as Santander joined our efforts by marketing the card through its app and telesales channel. To date, and combined with our own efforts, we have 24,000 co-branded cards in circulation. The last initiative I want to discuss is coins. We have been focusing on increasing coins penetration in the Colar, our Brazilian operation through banners, special campaigns and promotions. As a result, in the fourth quarter, penetration increased 60 basis points to 3.4% of gross bookings that are transacted via the Colar. The tech rate achieved through the sale of Despegar products and coins was 7.5% and it is measured as a percentage of total purchase value. Additionally, we are working on integrating our highly rated fraud scoring platform into coins. In so many ways, we are building deeper relationships with our consumers. We remain confident in our ability to provide a wide range of solutions as we blend our agile platform with our leading position in the Latin online travel industry. Moving next for a discussion of our focus on improving profitability on slide seven. While it was another challenging quarter, we continue to see a number of benefits from initiatives we have undertaken throughout the year, enabling us to successfully manage the business through the pandemic as we focused on improving profitability and managing the variables that are under our control. We have been working on three key areas mainly, negotiating with our travel partners, leveraging organic traffic and maintaining a lean cost structure. Since the onset of the pandemic, we have been working with our travel partners and have put in place a new commercial strategy adjusted to the current environment. We have been successful in this endeavor as the role of distributors have become an even more important channel for the travel suppliers. The result of this was a strong take rate, excluding cancellations of 14.5% in the quarter. Additionally, with the completion of the best day acquisition, we have been able to integrate both sourcing teams quickly and drive further improvement thanks to a larger scale. In turn, with an increase in transactions of higher margin packages, with non-air revenue accounting for 65% of total revenue. As a result of these initiatives, you can see that in the first chart on the bottom left, that this quarter revenues declined less than gross booking. Next, As the leading online travel agency in Latin America, we have leveraged unpaid marketing channels to drive visitors to our site. Strong participation in local industry events was also an important traffic driver. In the fourth quarter, we participated in the Buen Fin campaign in Mexico and Black Friday in Brazil. Mobile is also a more cost-efficient traffic driver, accounting for 50% of all transactions in the quarter. All these actions enable us to reduce selling and marketing expenses by 73% in the quarter, while gross bookings only decline 69%. excluding the impact of Best Day and Coin, and extraordinary charges, the reduction in selling and marketing expenses would have been 89%. Last, maintaining a lean cost structure. Prior to the onset of the pandemic, we were already working towards becoming a leaner organization, but we have become even more so over the past year. Late 2019, we took some decisive action on expenses, and cost control was also a key feature in our operation in 2020, as we aim to caution the impacts from pandemic. We are very proud to have achieved a 44% year-over-year reduction in structural costs during the fourth quarter, sticking to the structural cost levels of the prior quarter. The chart on the bottom right of page 7 depicts the evolution of our structural cost. Please note that this structural cost consider the operation of Despegar on a standalone basis. Regarding the state, as we advance on the integration, expect to fully capture synergies by 2022. We achieved a significant number of milestones in 2020, operationally, financially, and strategically, which positions us well when the travel industry recovers and beyond. Our accomplishments through 2020, as we continue to navigate an unprecedented environment, have been a testament to the strength and resilience of our team. I will now turn the call to Alberto for a discussion of our financial results and thoughts about the near-term industry outlook.