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spk01: Good morning and welcome to Despigar's fourth quarter 2021 earnings call. A slide presentation is accompanying today's webcast and is available at 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 on listen-only mode. Now, I would like to turn the call over to Ms. Natalia Nirenberg, Investor Relations. Please go ahead.
spk05: Good morning, everyone, and thanks for joining us today for a discussion of the SPAC Arts for Quarter 2021 results. In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, we discussed certain non-GAAP 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 I provided a 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 the integration and performance of the businesses we acquire, including best pay and coins. For a description of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and our press release. Speaking on today's call is our CEO, Damian Skokie, who will provide an overview of the fourth quarter and update you on our strategic priorities. Alberto Lopez-Haffney, our CFO, will then discuss the quarter's financial results in more detail. After that, we'll open the call for your questions. Damian, please go ahead.
spk03: Thanks, Natalia, and good day, everyone. Thank you for joining our results call and for your interest in this program. The spread of underlying earnings power became even more evident this past quarter as consistent execution of our strategy enabled us to capture the growth coming from still recovering travel demand across our geographic footprint. That growth flows through our income statement as we will explain. To start, we achieved the highest levels of gross bookings, transactions, and ASPs since the beginning of the pandemic. Further, greater demand for more profitable products, such as travel packages and hotels, significantly upset currency depreciation in the region. Although bookings were only 75% of fourth quarter 2018 levels, we grew adjusted EBITDA by 30% to $16 million when excluding extraordinary charges, and COIN, our merchant paying solution in Brazil where we're investing to scale the business. Taking a step back, multiple levers are driving our performance. First, the more efficient cost structure that is now in place. Second, the synergies that we are now able to realize from past acquisitions, which together with our cost-cutting efforts resulted in a 37% reduction in operating expenses when compared to the fourth quarter of 2018 levels, and excluding extraordinary charges and the impact from Bitcoin and Coin in both quarters. Third, more diverse sources of revenue in terms of geography and products. Fourth, a take rate of 13.4% when excluding extraordinary cancellations. And lastly, we are seeing a good result from our marketing efforts, with the share of non-paid traffic increasing 2 percentage points, while the share of gross bookings captured through the app was up 4 percentage points, both when compared to the fourth quarter of 2019. Looking ahead, as Omicron received and more pent-up travel demand materializes, we expect the operating leverage that we have built into the business to accelerate and generate additional earnings. Moreover, we have maintained a solid balance sheet with cash and equivalent of nearly $280 million, giving us the flexibility to invest in technology and in market consolidation, among other growth initiatives. Let's move to slide four for a closer look at the improving demand conditions in our key markets. Our markets gained additional momentum in October and November. As more pandemic restrictions were lifted and travel activity picked up. Although there has been a pause in travel demand since December, impacted by seasonality and the emergence of Omicron, We expect industry travel should resume to its close trajectory in the second quarter. Our performance was strongest in Brazil, generating a third of transactions. Gross bookings rose 50% sequentially and reached 56% of the fourth quarter of 2019. As domestic air travel improved and international transactions increased. Turning to other relevant markets, Colombia and Chile benefited from pent-up demand, which drove bookings above fourth quarter 2018 levels by 43% and 39% respectively. Growth in gross bookings was triggered not only by an increase in transactions, but also by an improvement in ASPs, which rose 19% sequentially. to $410 per transaction, at just 9% below fourth quarter of 2018 level. Returning to our growth strategy, on slide five, we show how our loyalty program, Pasaporte de Espegal, has been gaining significant momentum in Mexico. Particularly in this market, we made adjustments to our website, which make the program more visible to visitors. And we simplify the registration process. All these measures have resulted in a tripling of members and have also increased the level of customer engagement, critical in the context of changes in IDFI. With these features, 75% of total purchases were done by loyalty program members. Let's move to slide six. With the goal of further enhancing our alternative accommodation proposition, we have just entered into an agreement to acquire 51% ownership stake in states. Brazil's leading vacation rental channel manager for a total price of approximately 15.7 million reais. Founded in 2016, states offer a comprehensive solution to vacation property managers and owners in Brazil. The state is also a preferred integration partner of alternative accommodations for living international booking platforms. In the near term, this latest acquisition will allow us to add new inventory of over 17,000 properties, mainly throughout Brazil, expanding our 400,000-plus total vacation rental inventory. Today also brings us new digital capabilities and significant segment expertise to expand our vacation rental offerings within Brazil. Longer term, today we leverage Despegar's leading position in other key geographies in Latin America to accelerate its expansion. Note that as only 10% of Latin American vacation property owners use digital channel management compared to 90% in Europe, there is ample growth potential for our partnership with states. Turning to slide seven. The heart of our strategy for COIN, another key component in our growth plan, is established in a presence wherever the consumer makes purchases. As a means to effectively scale Coin's platform, we continue expanding its merchant ecosystem, mainly consisting of direct merchants, e-commerce platforms, and payment gateway, among other distribution channels. As you can see on this slide, some of these merchants and platforms are leading brands in Latin America. We are encouraged by the strong adoption of coins payment solutions for merchants today. It is now available as a payment option to some 100,000 merchants from a range of businesses and from small to large. The current rate of adoption is setting the stage for coin to become another key growth driver for our company. By the way of example, Coin's fourth quarter 2021 total purchase volume increased 73% sequentially to nearly $18 million in the fourth quarter of last year. In January, 23% of volume came from new merchants, reflecting expansion in the customer base. At Decolar, the penetration of Coin's BNPL solution accounts for 6% of gross bookings. Reflecting intensive investments to scale up this business, standalone adjusted EBITDA for coins resulted in a loss of just over $3 million. I would like to point out that 100% of the solutions engine and risk model are in-house. Other coin payment solutions we offer merchants are fraud prevention and payment via PIX. The very attractive potential for COIN, as it's buy now, pay later, and fraud prevention services have a total addressable market of between 15 and $20 billion in Latin America. That concludes my portion of the presentation. Alberto, please go ahead.
spk04: Thank you, Damian, and thank you all for joining us today. For a review of our top line results, please turn to slide eight. Record levels of gross bookings and ASPs since the start of the pandemic resulted in a 49% sequential increase in US reported revenues. Excluding extraordinary cancellations stemming from the pandemic, revenues would have increased 43%, quarter on quarter, and just 12% below comparable 4.19 levels. Note that cancellations continue to decline this quarter, down by 39% sequentially. While we expect cancellations to continue in the first quarter due to Omicron disruptions, as the level of cancellations normalizes, we should see a decline in fulfillment central costs. Our day trade remains strong, at 13.4% when excluding cancellations, and was up by over 200 basis points when compared with fourth quarter 2019. The contribution from this day, together we have more advanced pricing strategies, which allow us to get higher upfront incentives and customer fees, who are the key drivers behind this improvement. Now, please turn to slide nine. We've delivered significantly higher profitability this quarter. When excluding extraordinary charges on coins, comparable adjusted EBITDA would have increased 30% when compared to four quarter 19 numbers, up to just over $16 million. We achieved this even though gross bookings reached only 75% of pre-pandemic levels. This much improved performance reflects the operating efficiencies, synergies, and revenue diversification we have built into the business over the past two years. that is allowing Despegar to emerge from this pandemic as a company with a more sustainable business model and greater earnings power. With respect to coins' impact on profitability, as Damien noted earlier, standalone adjusted dividends and our merchant payment operation was a loss of just over $3 million, reflecting significant investments to scale up this business. Now, please turn to slide 10. We ended the year with a strong balance sheet, with cash and equivalents at nearly $280 million and break-even operating cash flow. In turn, our net payable position remained relatively unchanged sequentially at nearly 197 years. During the quarter, the SPGAS reported net cash flow of $3 million. This compares to uses of cash of nearly $40 million in the prior quarter, when customers redeemed a large amount of travel vouchers as demand de-tapped. Now, please turn to slide 11. In summary, when excluding extraordinary charges and coins, adjusted EBITDA was over $16 million, 30% higher than in fourth quarter 19. This is even more impressive when you consider that gross bookings reach only 75% of that quarter's level. This substantial improvement in profitability, together with breakeven operating cash flow, make clear the operating leverage we are carrying into the future quarters. Despite lower travel demand in December, impacted by the Omicron variant, our business had strong momentum in the fourth quarter, with particularly robust sequential growth in Brazil, Colombia, and Chile. We see that momentum building again in the remainder of this year. A substantial pent-up demand drives travel purchases above pre-pandemic levels. We also entered 2022 with a strong cash position of close to $280 billion, one that allows us to continue investing in our growth levels, such as further consolidation in our industry and scaling coins payment platforms. As market acceptance continues growing, COIN's ecosystem of merchants is expanding, setting the stage for higher purchase volumes in Brazil. And finally, we would like to highlight again the tripling of Despegar's loyalty members, who now number 2.8 billion customers. Now moving to slide 12. While we observed a slowdown in demand in recent months on concerns around the Omicron variant. Going forward, we expect the virus to have a diminishing impact on travel demand. Despite first quarter seasonality and the recent pullback in demand, we nevertheless expect test egg ads to be adjusted to be deposited in the first quarter when excluding coins. For the remainder of the year, we expect to continue investing in marketing activities in countries with promising demand trends. Looking further out, the pending acquisition of Stace, Brazil's leading vacation rental channel, will allow us to expand our vacation rental business in the country, as well as in other key markets in Latin America. We also remain focused on further enhancing Coin's value proposition, while capturing additional clients in the B2B segment and developing new attractive features for our end consumers. Finally, we expect sales to continue to recover throughout this year and beyond, as long as Latin America is not impacted by the current global state of affairs. In the meantime, we continue executing on our strategy that has proven to deliver solid results, despite demand levels having not fully recovered yet. This concludes our prepared remarks. We are ready to address your questions. Operator, please open the line for questions.
spk01: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that is star followed by one. We kindly ask that you stick to one question and one follow up. Thank you. Our first question today comes from Kevin Copelman from Cowan & Co. Kevin, please do go ahead. Your line is now open.
spk00: Hi, good morning. This is Emily on for Kevin. Congrats on a strong Q4. I was just wondering to what extent do you believe the improvement in gross bookings you saw in the quarter to minus 25% reflected market share gains versus pent-up demand? And then I have a follow-up. Thank you.
spk02: Hi, Emily. This is Damian. Thank you very much for your question. As you know, we track market share very thoroughly, and we gain a slight market share during Q4, so it's a combination of two things, the pent-up demand and market share gains in most countries.
spk00: Got it. Thank you. And my follow-up is, how do you plan to manage your sales and marketing spend throughout 2022? And asked another way, at what level of gross bookings would we see marketing levels increase? Thanks.
spk02: Well, the marketing spend, as you know, is the result of our algorithms evaluating the profitability of the next bid. is not just a strategic decision which will come in terms of investing more, but we believe that the relevant aspect to consider is that increasing our organic traffic, our non-paid traffic in general, will sustain across 2022. So even though we would increase investments as market recover, our portion of organic traffic will remain at higher level than pre-pandemic.
spk05: Thank you.
spk01: Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from Alejandra Aranda from ITAU. Please go ahead. Your line is now open.
spk06: hi good morning and congratulations on on the really good results that you just show i'm wondering if you could share a little bit the breakdown between the revenues coming from peaks and coin and the rest and what should we expect there going forward in terms of cost savings all right hello alejandra good morning yeah uh
spk04: As Damien pointed out, what we see in coin today is approximately today, 20% of the activity comes from third party clients. And then the remaining 80 or slightly lower than that is related to the Collab.com captive clients. On that front, what you're seeing is on a penetration basis on our number of transactions, because the actual revenue is much, much lower when it comes to the PIX product. You actually see that you have approximately over 6%. That is the penetration on our website. And then when it comes to PIX, that's an additional 4% for a total on aggregate of approximately 10%.
spk07: okay okay thank you you're very welcome thank you thank you next question today comes from kieran kenny from morgan stanley please go ahead your line is now open thank you and congrats on the great results um first could you talk a little bit about bookings in one queue and whether you expect bookings relative to 2019 levels to improve versus the 75% in 4Q. And then second, could you just talk a little bit about how you're thinking about fuel costs and whether or not you expect those to negatively impact demand over the short to medium term? Thank you.
spk04: Sure. Good morning. On the first piece, of your question regarding, let's say, visibility on Q1. Importantly, we are actually experiencing, or we can describe the situation very similar to what our competitors in the region or globally had, that is, certainly booking activity came down in the very last weeks of December. That trailed into January, and then by February started little by little coming up. and we actually have a perspective that that improvement will continue up until the end of Q1. So as we were in GB around minus 25% vis-a-vis 2019, we actually see that our bookings overall will come slightly down from what we actually saw in Q4, and that is vis-a-vis Omicron. If on top of that, you add the seasonality factor, okay, as you know, Q1 is the, in relative terms, the weakest quarter for the company. So you actually, you will see that as percent of 2019, you actually have, let's say, probably between 5% to 10% decrease vis-a-vis 2019. And then on top of that, you need to add the seasonality in order to understand what will be the level of activity. But most importantly, as you look into how far out into Q2, Q3, and the rest of the year we believe Omicron will end up impacting the industry in Latin America, we are very positive on that front so that the impact will be mostly contained to Q1. On your second question, okay, the geopolitical developments, certainly not very, very sad news for all, do not have a direct impact in the region or particularly for despegar. It's immaterial, the amount of revenues or transactions that we actually are related to travel to Eastern Europe. So that's certainly good news. With regards to the impact on jet fuel prices, that could potentially push ASPs up because our suppliers will actually, particularly on the air side, will likely push prices up. I think the key thing to look at there is the balance between foreign exchange in the region, because Latin America could potentially benefit from high commodity prices, and such consumers through their jobs could benefit. So the balance would be between, OK, jet fuel prices, ASPs going up, maybe that less transactions. But if FX in the region actually appreciates, that should be positive. So it's still too soon to tell. But that's the way to, from a framework perspective, how to analyze it.
spk07: That's really helpful. Thank you.
spk04: You're welcome.
spk01: Thank you. There are currently no further questions registered. So as a reminder, that is star followed by one on your telephone keypad. There are no additional questions waiting at this time. So I'd like to pass the conference over to Damian Skokin, CEO, for closing remarks. Damian, please go ahead.
spk02: Well, we thank you again for your interest in Despegar and we hope you all remain healthy and safe. Thanks for joining us today and for your interest in the company. Goodbye and have a nice day. Bye.
spk01: That concludes today's Despica fourth quarter 2021 earnings call. Thank you for your participation. You may now disconnect your line.
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