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spk05: Hello and welcome to today's conference call. Today's call will begin in just a few moments time. If you would like to ask a question today, please press star followed by one on your telephone keypad. Or alternatively, if you have joined us via the webcast, you may submit a text question. Thank you for your patience. We'll be right back. Good morning and welcome to Despargar's first quarter 2023 earnings call. A slide presentation is accompanying today's webcast and is available in the investor section of the company's website, www.investor.despargar.com. There'll be an opportunity for you to ask questions at the end of today's presentation. This will be conducted via the telephone lines or by submitting a text question via the webcast. 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 Mr. Luca Pfeiffer, Investor Relations. Please go ahead.
spk01: Good morning, everyone, and thanks for joining us today. In addition to reporting unaudited 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 substitutes for or superior to GAAP financial measures and are provided as supplemental information only. Before we begin our prepared remarks, Please turn to slide two and 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 Day, Stace, Via Hanet, and Coin. 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 Skokin, who will provide an overview of DesPegard's first quarter performance, as well as an update on our strategic initiatives. I will then discuss the quarter's financial results in more detail, after which Damian will end our preferred remarks, providing annual guidance and a wrap-up before opening the call for your questions. Damian will begin his remarks on slide three. Damian, please go ahead.
spk02: Thanks, Luca, and good day, everyone. Thank you for joining today's earnings call and for your interest in the SPGARs. Travel demand accelerated to begin the year, helping drive our gross bookings 44% higher in the first quarter when compared to the first quarter of 2022. Stepped-up demand combined with a healthy take rate, ASPs increasing in the mid-30s, and a still improving revenue mix took our revenue to record levels. Importantly, our operating expenses increased at a far slower pace than gross bookings, rising only 34%. And the quarter's strong top-line growth, coupled with the operating leverage we built into the business, drove adjusted EBITDA 154% higher to $17.3 million, our strongest in five years. Also gratifying was Coin's performance, which took another step towards the break-even point with Evita improving $2.1 million year on year. Turning to innovation on page four. On the left of this slide is a screenshot of a personalized homepage, a feature that we recently launched. This feature helps drive customer engagement by offering tailor-made flight and travel packages based on their purchase history. Engagement as well as customer experience are also improved by providing information that enriches travel planning, such as discount alerts and reels with travel tips and destination recommendations. The chart on the right shows the share of transactions completed across our acquired brands as a percentage of consolidated B2C transactions. When integrating Viajes Falabella, Best Day and Viajanet, we quickly had them running on our app platform while maintaining their brand identity. This has enabled us to drive customer engagement and of course, increase conversion rates. Also noteworthy is that over 60% of online B2C transactions across all our brands today involve some degree of participation of customer activity via our apps, even though more than half of them are completed online, underscoring the significant potential to increase customer engagement over time. In a moment, we will show our progress to date. Moving to slide five, here we track KPIs that show the progress we have been making in our three key focus areas, to increase both revenue and profitability, starting with revenue diversification, higher margins, standalone travel packages, and counting for 34% of gross bookings in the first quarter, up 4 percentage points year-on-year, and increasing 13 percentage points since the first quarter of 2019. Reflecting our strategy to prioritize our key growth markets, Brazil and Mexico, our operations in these two countries now account for 59% of total gross bookings, up from 53% in last year's quarter. As shown in the middle of the table, our focus on diversifying distribution channels is very fraught. Our B2B channel, which includes wide labeling of our platform, accounted for 15% of gross bookings in the quarter, more than doubling from 5% in the first quarter of 2018. Our apps continue to attract an increasing number of transactions, with nearly 37% of online B2C transactions conducted via our apps, up from over 24% in the same quarter of 2019. We also saw a meaningful increase in our install base, which reached 25.1 million downloads up 21.4% year on year. Customer centricity remains an integral part of our growth strategy. At the end of the first quarter, we had 14 million members in our loyalty program, Pasaporte. And over the last year, point redemptions by members have doubled to 7%. Our net promoting score increased 800 basis points, bringing us within 20 basis points of our first quarter 2019 pre-pandemic scores. I will now turn the call over to Luca for a deeper dive in our performance, starting with revenue and gross profit on slide six.
spk01: Thanks, Damien. We delivered record revenues of $159 million in the first quarter, supported by accelerated travel demand which recovered to approximately 80% of first quarter 2019 levels. Revenues grew 41% year on year and 19% above what we reported in first quarter 2019. As you can see at the top of the upper bar chart, we remained disciplined with the take rate. At 13.8%, we kept it well above our long-term target of 12% to 12.5%. In other words, we maintain our strong focus on profit particularly in Mexico, Chile, and Argentina. Turning to the bottom chart, cost of revenue increased 20% year-on-year, which was less than half the increase in our revenues in the quarter. This contributed to record high gross profit of nearly $108 million, up 54% year-on-year and 7% sequentially. Looking across the top of the chart, you can see that we've consistently increased gross profit over the last five quarters. On the next slide, we provide a closer look at our cost discipline and improving operating leverage. Operating expenses as a percentage of revenues declined 317 basis points year on year, even while selectively stepping up sales and marketing expenses in some key higher margin growth areas. In the chart on the left, you can see that our fixed costs increased 10% versus last year's quarter, but we're down nearly 5% sequentially. even as we continue to absorb costs related to the integration of ViaHanet, which accounted for roughly half of the 25% increase in our product and technology development costs in the quarter. That was mainly onboarding ViaHanet's Brazil-based developers who are augmenting Destegar's developer team. The remainder of the increase was due to FX variations in local currency inflation in Argentina that increased IT personnel expenses. We'd like to draw your attention to the middle chart, which illustrates our improved operating leverage. As you can see, G&A expenses as a percentage of revenues decreased 664 basis points year-on-year, while technology and product development costs decreased 208 basis points. G&A declined 4% year-on-year, mostly due to lower stock base compensation and severance payments. Moving to the chart on the right, we continued investing in growth initiatives during the first quarter, with sales and marketing expenses increasing 12% sequentially and 555 basis points as a percentage of revenues. When looking at the 70% year-on-year increase in sales and marketing, recall we substantially reduced marketing spend in first quarter 2022 due to the COVID Omicron variant back then. Approximately half of the increase reflects strategic investments in building our higher margin B2B white labeling business, as well as offline sales channels. Of note, investments in these areas helped our Viajet Falabella and Best Day brands increase cross bookings over last year's quarter by over 80% and 50% respectively. We also invested more in performance marketing, which included promotional activities for our newly integrated ViahaNet brand in Brazil, among other tactical investments to expand in our largest market. Now, moving on to profitability on slide eight. Pulling it all together, our improving cost structure combined with strengthening travel demand across our markets drove a 154% year-on-year absolute increase in adjusted EBITDA. together with margin expansion of 483 basis points. Also noteworthy is our 11% adjusted EBITDA margin, our highest since 2019. And we expect to carry this margin into the seasonally stronger third and fourth quarter. Let's move to slide nine for a closer look at COIN's performance. As Damian noted, COIN is still tracking well to the break-even point that we are targeting for the second half of this year. Our buy now, pay later business improved $1.5 million sequentially and $2.1 million year on year to a negative 2.5 million. In line with our conservative loan origination, total payment volume decreased 12% compared to first quarter 2022. On a sequential basis, we did see a modest increase, largely driven by loan origination for travel purchases. as COIN continues to help us expand our addressable market in Brazil. Importantly, COIN maintained a take rate well above expected losses, reflecting our rigorous risk management and effective pricing strategy. I will now turn it back over to Damian, who will walk you through the progress of some of our strategic initiatives and make some closing remarks. Damian?
spk02: A few takeaways before we take your questions. the recovery in travel demand remains strong across Latin America. We continue to maintain our focus on profitable growth as our 17.3 million EBITDA in combination with 41% revenue growth shows. Top line growth, operating leverage and a more profitable revenue mix generated 154% higher EBITDA than the first quarter of 2022. Coin's profitability continues improving, and the unit is on track to reach EBITDA break-even later this year. To summarize, the SPGAR's strong fundamentals, coupled with a still strong demand recovery, mean we are tracking well to our 2023 revenue and EBITDA guidance. Our exceptional financial performance, consistent delivery of higher adjusted EBITDA over the past five quarters, and record-breaking revenues as the Latin American travel market continues to recover, are a testament to our dedicated team and solid business model. Given these strong results and outlook, we continue to see considerable upside to our share price. Thank you for your continued support and we look forward to unlocking our potential and creating sustainable value for all our stakeholders. Let's open the call for questions. Operator, please proceed.
spk05: 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, please press star followed by one. Alternatively, you may submit a written question via the webcast. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. Our first question today comes from the line of Kevin Coleman from TD Cowen. Kevin, please go ahead when you're ready.
spk00: Hi, good morning. This is Jacob in for Kevin. Thanks for taking my question. What are you seeing in terms of macro in Q2, particularly in Mexico, Chile, and Brazil? Also, if you could provide any color on the take rate heading into the rest of the year. Thank you.
spk02: Hi, Jacob. How are you? This is Damian. Thank you very much for your question. What we are seeing in terms of demand across Latin America is that the trends of Q1 remain very strong. If you ask us in particular in Mexico and Brazil, we are seeing strong bookings in both markets. And in terms of state rate, our view for the quarter and the remaining of the year is in line with our best-of-day projections. So it would be in the range between 12.5 and 13.5, in that order. Overall, we see, as I said, travel demand continues to recover during Q2. And that means that our revenue growth and our EBITDA will continue to grow in trajectory. That's our real-to-bid, our annual guidance. We are totally on track to that annual guidance of $640 to $700 million in revenues and EBITDA in between $80 and $100 million. Got it. Thank you. And I also wanted to ask,
spk00: Regarding the sales and marketing of 12% Q over Q, do they increase in B2B investments? Is this a new trend for the rest of the year, or is this new seasonality that we should be looking at? Thank you.
spk01: Thanks, Jacob. This is Lucas speaking. Indeed, as you correctly pointed out, our sales and marketing have increased on a sequential basis, particularly due to our investments in the offline channels and B2B. Specifically, we will maintain a certain level of investment in those channels as they're very, very profitable for us and positive on operating contribution basis. However, looking into the second quarter, I think it's fair to assume that you will see a decrease in that line item when you put it into relation to gross bookings.
spk00: Got it. Thank you. And my last question is regarding the competitive landscape, is there any updates that you could provide there? Also, if you're seeing any M&A opportunities.
spk02: Well, regarding the competitive landscape, as we've been mentioning in the last few calls, we see a much more rational behavior of our competitors. That has been the case in Q1, and that's what we still perceive on what's going on in Q2. In terms of M&A opportunities, as we said, we are having very promising conversations with a series of targets, but obviously Google cannot disclose any of the specifics of those conversations.
spk00: Okay, thanks for taking my questions.
spk05: Thank you. Our next question today comes from the line of Joao Suarez from Citigroup. Please go ahead. Your line is now open.
spk03: Thank you, and good morning, Daniel, and good morning, Luca. I have a couple of questions, if I may. I wanted to dig a little deeper first into Brazil. You guys are, I know you don't want to comment on competition, but you guys are growing double what CBC is growing. So I just wanted to understand their clear consolidation opportunities. So I just wanted to understand, you know, how should we expect to continue in sequential quarters? I mean, you guys are still very confident about consolidating the market, especially in terms of OTA, right? It seems like you guys have kind of a clear runway there. And also, in that same context, I want to understand how is the relationship with suppliers. I mean, imagine that it is improving. We are seeing these more irrational players like Rutel Urbana and all those things, you know, under a lot of scrutiny, so it seems like it's a much more rational environment. So I wanted to understand how that connects your relationship with supplies. And the last one is on the working capital. We saw that receivables last year, and you guys discounted a lot of receivables in things like this quarter, much less. So I wanted to confirm this, if you're discounting more receivables and thinking about funding and working capital dynamics I just want to hear your thoughts about that. We know that the market is a little bit tougher for funding. So, yeah, I just wanted to catch on that. Thanks, guys.
spk02: Hi, Joao Damian here. Thanks for your question. In terms of our performance in Brazil, that's one of the aspects of the business performance in Cuba that is the more positive of many good news. So, we're really happy on how the business is evolving in Brazil. In terms of competitors, we don't comment on their performance, but I can tell you that we continue to see a lot of opportunities in Brazil, not only in the B2C side of the business, but our B2B is growing particularly well in Brazil. As per the relationship with suppliers and the overall perspective of the Brazilian market, I can tell you that relationship with suppliers, particularly airlines, It's on a very high note. We're doing a lot of things with many airlines, generating opportunities for consumers to access travel at better prices and more competitive terms. And what we see is that the market is becoming more and more rational. So you're aware some of the companies that offer products that in the end they could not deliver. have been hurt by the disclosure of some of those issues, and also with Brazilian regulators. So we are extremely happy, not only with the past performance, but with the perspectives of the Brazilian market. In terms of the working capital dynamics, can you repeat the question? We couldn't listen it correctly.
spk03: Yeah, sure, sure. In terms of the working capital, looking at your cash flow, it seems that you discounted much less receivables this quarter than you did last year. So I just wanted to confirm if I'm right based on what's there in the cash flow statement and to understand if this will continue, if you guys are thinking about resuming this kind of receivable. So overall, about funding, right, via working capital,
spk02: Joel, thanks for clarifying. There are no changes in our working capital dynamics. As you know, Brazilian interest rates are very expensive at the moment, so we take advantage of our solid cash position to try to minimize our interest expense. There's nothing else beyond that.
spk03: Very helpful, Damien. And sorry to abuse, but just one last thing. Remind us of the deal with Al Carterton and the dividend to Al Carterton this quarter, and if we should see another disbursement related to dividends on that fund. Appreciate it.
spk01: Sure, Joao, no problem. Just as a brief reminder, we closed the deal with Al Carterton in September 2020. The size was $150 million, and it pays a 10% interest payable semi-annually. No changes there, right? We paid the last dividend, which amounted to $8 million, and no changes on that front. The same amount is still outstanding. And just as a reminder, the maturity of that structure is in September 2025. And thanks.
spk04: Thank you, Luca. Thanks, guys.
spk03: And congrats on the results.
spk05: Thank you. Thank you. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. Or alternatively, please submit a text question via the webcast. I'll now move to a written question. And the first written question comes from the line of Andrew Carrion. And they say, hello. Congratulations on the very strong results. There has been a lot of news recently with the rapid development in AI and large language models such as ChatGPT. It has been surprising how much better many of these models are than chatbots used by most corporates today. Is there an opportunity to leverage this new technology to bring down cost of revenue? Thank you.
spk02: Yeah, certainly cost of revenue is one of the many opportunities that this AI technology provides us. We are already working particularly in customer service and operations in training models to help us provide more channels for access and better service to our consumers. We've been already working for, I would say, a couple of years to reach sentiment from text to speech to text efforts that have been in place for a while. So there's a lot of things that can be done and a lot of things we've been doing with ai and now even more with chat gpt on the on the customer service side but also on the revenue generating side our ability to offer details information in terms of destination recommendations to customers when you combine this technology with our knowledge our insights of Latin American consumers is a game changer for us. And we're investing heavily both in what's better service on back office to revenue generation, and obviously there's also some upside in terms of engineering productivity, as you know.
spk04: Thank you.
spk05: The next question today is another written question from Alejandra Aranda. And they say, good morning, Damian and Luca, and congratulations on the results. Could you please comment on the gross profit margin trend and also what to expect in terms of marketing expenditure per transaction, as this is slightly higher than pre-pandemic? Thank you.
spk01: Thank you, Alejandra, for submitting your question. With regards to the gross profit margin, indeed, we expect to maintain current levels and carry them on certainly into the next quarter and the seasonally stronger second half of this year. So we're quite content with how things are developing on that specific line item. With regards to the second part of your question on sales and marketing, very much in line with the question that we've received from Cohen. Again, we see a downward trend for the second quarter this year and then as well For the remainder of the year, you should see, let's say, our numbers to trend into a positive level in line with the operating leverage that we generate.
spk04: Thank you.
spk05: The next question comes from David O. They ask, congratulations on reaching 14 million loyalty members. Can you tell us how having 14 million members changes your business versus how you conducted business prior to having this membership program? Is this 14 million membership basis impact on your business something major that the consensus is missing? Thank you.
spk02: Well, David, thanks a lot for your question. This is, for us, a tremendous opportunity in very several dimensions. One is acquisition cost. As you know, we are particularly in terms of our organic traffic, our lower dependence on traffic investment. This is another tool to keep reducing our acquisition costs. Second, it's obviously a component of the growing value proposition to our consumers, and it's a reflection of how strong the brand and how loyal the customers are towards this payout. Finally, it opens up a lot of opportunities in terms of building better offers to our consumers. We are extremely happy with how the enrollment of new members is evolving, and we are growing towards more and more redemptions. Keep in mind that at the moment, only 7% of our transactions involve some type of point redemption. We expect that to be much higher. Just as an example, we have the ability to offer our consumers a payment mix in between points and cash or credit card that makes the consumer's access to travel products uniquely flexible. We are extremely excited how this has evolved, but are much more excited of what lies ahead of us.
spk04: Thank you.
spk05: The next written questions today come from Santiago Yarton. And they say, hi, two questions. One, what's the total cumulative negative EBITDA you expect to have in coin until it gets to break even? And two, can you please talk about what run rate cash conversion from EBITDA one should expect? On $100 million of EBITDA, how much cash would you generate?
spk04: Thank you.
spk01: Thank you Santiago for submitting your question. With regards to coin, we are currently eyeing an impact on cumulative negative EBITDA around $23, $24 million. Since we acquired it. Ah, since we acquired it. Of course, since acquiring it, right? And for this year, we are looking at substantially reducing the negative EBITDA impact versus what we've seen in... With regards to your question on cash conversion, as we have guided the market before, we're looking at a cash conversion from EBITDA of around 60% in the future, in the long term.
spk05: Thank you. Written question we have is from Joao Soares from Citibank. What are your plans on physical presence in Brazil? Thank you.
spk02: Joao, thanks for your question. As we always said, we offer a multi-channel, omnichannel value proposition, and we are exploring all options. And certainly, physical stores are not out of the question for the second half of the of 2023, we will perhaps test the waters on how that results with a limited number of outlets.
spk04: Thank you. As a reminder, if you would like to ask a question.
spk05: Thank you. There are currently no additional questions waiting at this time. So I'd like to pass the call back over to Damien Skokin for any closing remarks. Please go ahead.
spk02: Thank you very much, operator. And on my side, just wanted to thank everybody for your interest in Despegar. We're looking forward to seeing you again when we release the Q2 numbers. Thanks a lot and take care. This concludes today's conference call.
spk05: Thank you all for your participation.
spk04: You may now disconnect your lines.
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