Despegar.com Corp

Good morning and welcome to the Despigar second quarter 2021 earnings call. A slide presentation is accompanying today's webcast and is available in the investor section of the company's website, www.investor.despigar.com. There will be an opportunity for you to ask questions at the end of today's presentation. This conference call is being recorded. As a reminder, all participants will be in listen-only mode. Now, I would like to turn the call over to Ms. Natalia Nirenberg of Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us today for a discussion of our second quarter 2021 results. In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, we discussed certain non-DAF financial measures and operating metrics, including foreign exchange neutral calculations. Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand them. Non-GAAP financial measures and operating metrics should not be considered in isolation as substitute for or superior to GAAP financial measures and are provided as supplemental information on this. Before we begin our prepared remarks, Allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements which are based on management's current expectations and beliefs 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 integration and performance of the businesses we acquire, including Best Day and Coins. For a description of this week, 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 second quarter and update you on our strategic priorities. Alberto Lopez-Afni, our CFO, will then discuss the quarter's financial results. After that, we'll open the call to your questions. Damian, please go ahead.

Thank you, Natalia, and good morning, everyone. Thank you for joining us and for your interest in Despegar. We are pleased to report the best quarter since the onset of the pandemic. Thanks to our geographic diversification strategy, gross bookings and transactions increased 22% and 8% respectively over the first quarter of 2021. If we exclude Argentina and Brazil, gross bookings were up 64%, and transactions increased 44% when compared to the first quarter of 2021. We experienced sustained recovery in Mexico, driven in part by the day, as well as in Colombia, as most of these countries entered the peak summer travel season. Additionally, travel restrictions were less significant in these two countries, and pent-up demand contributed to the strong performance. Moreover, ASPs in the quarter were up 22% sequentially, driven mainly by a 63% increase in international transactions. Once again, we experienced a high take rate, even more so when excluding Brazil, which makes a second wave of COVID, which drove a surge in extraordinary cancellations. Also, contributing to this quarter's tax rate are the investments we have made in technology and analytics, which allow us to price more accurately, improving algorithms to capture more profitable transactions, and the contribution from this day, which has a higher tax rate, who are key drivers. In turn, we also saw non-air products capture a larger portion of our sales in the quarter. Looking at our second quarter financial results, our adjusted EBITDA loss in the quarter, which includes extraordinary charges, was about 4 million lower than the first quarter of 2020 water loss. As mentioned previously, we believe the company on a standalone basis can be breakeven on reaching quarterly gross movings of $400 million. These, excluding extraordinary charges and call center costs, resulting from customer cancellations and rescaling. Lastly, we continue to be vigilant about our cash position. As a result, our balance sheet remains healthy with over $600 million in cash. Moving next for a discussion of the lockdown travel industry on page four. Almost two years into the pandemic and our business remains disrupted by this health crisis. During the second quarter, we can call out two factors that have the most impact on our P&L. First, countries with lower restrictions. such as Mexico and Colombia, saw better travel times. By contrast, Brazil was hit with a second wave of COVID, while Argentina and Chile were impacted by another round of higher mobility restrictions imposed by their government. Second, our geographic diversification provided a seasonality offset. Following strategic acquisitions, we have generally removed the seasonality factor from our results. Now we have summer, the peak travel period all year round in our business model. Now for a few highlights by country. Starting with Mexico, the highlight in the quarter, accounting for 33% of transactions, up 700 basis points from the first quarter of 2021. Although the country still has a low vaccination rate, the travel industry has shown sustained recovery as there are very few restrictions in place and the second quarter was the start of the summer season. In turn, gross bookings were up 49% as compared to the second quarter of 2019. Moving next to Colombia. where gross bookings were back 2% about the second quarter of 2019, pre-pandemic level, with recovery driven by both domestic and international travel. Sequentially, gross bookings increased 99%. Colombia represented 22% of total transactions this quarter, and 800 basis coins increased from the first quarter of 2021. Brazil, formerly our largest market, now accounted for 25% of transactions compared to 38% in the first quarter of 2021. With the country facing a second wave of phone and the tightening of mobility restrictions, transactions were down 33% quarter over quarter. Additionally, part of this decrease is also attributable to seasonality factors, as Brazil is in the winter season, whereas Mexico and Colombia are in peak summer travel months. As a result, gross bookings were down 64% when compared with the second quarter of 2018. On the positive side, as we move to the quarter, we began to see an easing of restrictions and gross bookings needing to reach a month in the quarter. Nevertheless, this was not enough, as Argentina and Chile both experienced a tightening of mobility restrictions, with Argentina's border basically closed, thus impacting travel. On a positive note, Chile has a high vaccination rate, with 63% of the population fully vaccinated, which bodes well with future travel. Notably, the level of cancellations observed through the peak of the second wave, which comprised the month of April to June of this year, was 55% below the one observed in the same period last year, when we experienced the first COVID wave. These results not only reflect better market conditions, but also the measures we have implemented to assess the risk of transactions. Moving to slide five, LATAM on average continues to have more mobility restrictions in place than the US and Europe. Although there have been some periods when restrictions were eased, in general, the region has mostly curtailed travel as borders were closed or restricted during a big portion of the first half of the year. You can see this more clearly detailed in the chart on page five. Earlier, I spoke about the importance of Mexico towards resourcing the quarters. And, as also shown in this chart, travel is permitted in Mexico and the borders are open. That's giving us confidence that when we see similar lifting of restrictions in our other key markets, travel will once again pick up. As mentioned in previous calls, we estimate that the recovery path in Latam is lagging six months when compared to the recovery we are observing in the U.S., mainly because the vaccination rollout took longer. Fortunately, the pace of vaccination has accelerated across geographies by coming from very low levels last quarter. We are well positioned with a broad geographic coverage and customer base to capture anticipated recovery in our main market. Now, please turn to slide six. Although COVID has impacted the overall travel industry, we have continued to advance on our strategic initiatives, and in some instances, we have accelerated our plans. We launched our loyalty program in the second half of 2018 in Brazil, followed by the launch in Argentina. During the second quarter of this year, we launched this program in Mexico. In the short period that the program has been available, approximately 14% of our Mexican customers have signed up. Also in Mexico, we are almost finished integrating Best Day into our operations with both the B2C and the B2B already integrated into the Best Day platform. now we are working steadily to finalize the integration of the investigation activities vertical by the first quarter of next year in brazil we have been offering more financing options to customers coin has been key to this at coin we are implementing a risk-based pricing strategy but the interest rate that we charge depends on the risk profile of each customer based on internal and external sources of data. We are also adding B2B products that we are offering to e-commerce platforms, payment gateways and individual merchants. So far, we have two different verticals. First, we offer merchants the possibility to use Boleto Parcelat, our buy-now-pay-later payment capability. Second, we also offer our payment and antifund capabilities to companies from which we obtain a fee per client transaction. More recently, we have begun to work with some key online loan providers in Brazil, where we act as a distribution channel, obtaining a fee for each transaction that is closed. I will now turn the call over to Alberto to discuss the quarter's financial results. Thank you, Damian, and thank you all for joining us today. Moving on to slide seven, as Damian noted, Colombia and Mexico posted strong recovery trends. However, demand in Brazil, which is our most relevant market, was significantly affected by the second COVID wave. To a lesser extent, this was also the case in Argentina and Chile. This resulted in a 76% sequential increase in extraordinary cancellations to nearly $8 million this quarter. versus $4 million in the prior one. Excluding these extraordinary cancellations, we delivered a solid take rate of 14.4%, reflecting the initiatives we are undertaking on several fronts to further support profitability. Continued improvements in our algorithms are allowing us to make smarter pricing conversion decisions. Our healthy take rate also reflects the positive impact from Best Day in Mexico, given its higher share of non-air products. As we mentioned in previous calls, we believe that this take rate also reflects the industry's current circumstances. Moving on to revenues, excluding higher customers' extraordinary cancellations, we delivered a 26% sequential increase in our top line, reaching $71 million. although revenues were 39% below pre-pandemic levels. Now, please turn to slide eight. Comparably adjusted EBITDA, excluding extraordinary charges, was a loss of $10.5 million, representing a sequential improvement of nearly $5 million and the lowest quarterly loss since the COVID-19 outbreak. This compares to adjusted EBITDA losses of $14 million in the prior quarter and $31 million in the second quarter of 2020. One-time charges this quarter were nearly $12 million, most of them related to extraordinary cancellations resulting from the surge in COVID cases. Now, please turn to slide nine. We ended the quarter with a comfortable cash position of $316 million, down $10 million. While the second COVID wave put pressure on achieving higher top-line growth, it also drove extraordinary customer cancellations, as we have been discussing. As a result, we granted a higher number of vouchers to customers whose trips were impacted by the virus this quarter. This benefited working capital, with use of cash declining nearly 10 million compared to a drop of 25 million in the prior quarter. At the same time, operating cash needs declined to 1 million, down from over 7 million in the first quarter of the year. In turn, total net operational short-term obligations stood at $216 million, increasing 3% sequentially. Now, please turn to slide 10 of the key takeaways of the quarter. Let me step back a moment to go over the five takeaways of today's call. First, increased geographic diversification continued to drive revenue growth and help smoothen the asymmetrical dynamics observed across our Latin markets, both in terms of recovery trends and seasonal patterns. For example, countries facing lower restrictions, such as Mexico and Colombia, recovered at a very good pace. In fact, when excluding Argentina and Chile that faced higher travel bans, international transactions were up 120 percent, this sequentially signaling strong demand in markets more open to travel. In turn, demanding Brazil that was very weak in April and May began to improve in June, with this positive trend continuing into July. In summary, the strategy put in place over the last couple of years has allowed us to grow our business this quarter, despite the traffic restrictions imposed in Brazil due to the second COVID wave. As discussed earlier, cancellations soared this quarter, restricting how top-line growth translates into profitability. However, when excluding extraordinary cancellations, our adjusted EBITDA was better than last quarter's. Additionally, the second wave of COVID-19 and the resulting cancellations triggered the issuance of vouchers to customers, which prevented us from burning the level of cash that we reported last quarter. Second, our data remained at solid levels. with revenues excluding credit cancellations 39% below pre-pandemic levels, beating the 56% decline in gross bookings during the same period. Third, we continue advancing on our customer engagement initiatives, leveraging the consistent adoption of our loyalty program observed in both Brazil and Argentina, which reached over 900,000 members. This quarter, we successfully launched our loyalty program in Mexico. Fourth, we are expanding COIN's B2B product offering beyond Boleto Parcelado by adding new partnerships with our own verticals. And finally, in terms of ESG, we are pleased to report the launch of our inaugural corporate sustainability report prepared under the SASB framework. the e-commerce sector. This constitutes the first steps in its ESG journey, and we look forward to continue advancing on this front. Now, please turn to slide 11 for final remarks. Consolidated gross bookings in July were in line with the levels posted in June, which accounted for the highest gross bookings during the first half of the year. During third quarter 21, we expect the geographic mix to change in line with seasonality, as well as a gradual recovery in Brazil. Demand in Mexico and Colombia are expected to remain relatively stable, considering that demand in the third quarter is seasonally lower. We also plan to continue building new verticals of coin and strengthening its B2B business through the addition of platforms, payment gateways, and digital wallets. We also expect to further benefit from the implementation of risk-based pricing by focusing on expanding to other geographies. The integration of Best Day is also progressing nicely and will remain on track to complete this process by Q1 2022. The B2C migration to the SPGAD platform is allowing us to beat our internal targets for key KPIs, such as conversion rate and revenue margin in Best Day's B2C segments. The first quarter was the first time that Best Day B2C segment achieved profitability. Finally, we plan to launch a materiality assessment during the fourth quarter of this year as we continue our goal of advancing in our ESG journey. This concludes our prepared remarks. We are ready to answer your questions. Operator, please open the line for questions.