Despegar.com Corp

Good day and welcome to Despigar's third quarter 2024 earnings conference call. My name is Jeannie and I will be the operator for today's call. At this time, all participants are in a listen-only mode. Please note that this call is being recorded. There will be an opportunity for you to ask questions at the end of today's presentation. Now I would like to turn the call over to Mr. Luca Pfeiffer, Investor Relations. Please go ahead.

Good afternoon, everyone, and thanks for joining us today. In addition to reporting on audited financial results in accordance with US generally accepted accounting principles, we will discuss certain non-GAAP financial measures and operating metrics, including foreign exchange neutral calculations. Investors should carefully read the definitions of these measures and metrics included in our press release 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 a supplemental information only. Before we begin our prepared remarks, please 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 integration and performance of the businesses we acquire. For a description of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and our press release. Joining us on today's call, our CEO, Damian Skokin, will kick things off with an overview of Despegar's performance in the third quarter and an update on key growth issues. Following Damian, Sebastian McKinnon, our chief of travel partners, will share the latest on our B2B efforts. And then our CTO, Gonzalo Esteverena, will walk you through the recent advancements we have made with Sofia, our AI travel assistant. Diving deeper into the financials, our CFO, Amit Singh, will provide a detailed review of the quarter's results. Finally, Damian will wrap up our prepared remarks before we open the floor for your questions. Damian, please go ahead.

Thank you, Luca, and welcome to the SPGAS third quarter conference call. We are pleased to report that our third quarter results were robust, reflecting a continuation of the positive trends we've seen through the year. Even though during the quarter, gross bookings declined slightly to $1.3 billion, this was anticipated due to the foreign exchange headwind, particularly in Brazil and Mexico. In constant currency, our gross bookings demonstrated an industry-leading growth of 35% year over year, underscoring the very strong fundamental trends of our business. Our commercial efforts during the quarter were highly successful, leading to a record high take rate of 14.6%. This significant increase was driven by two key factors. First, our continued emphasis on package sales led to a 253 basis points increase year on year in package sales as a percentage of gross bookings, reaching 33%. Second, we saw a recovery in travel demand in Argentina, where bookings increased sequentially for the first time since the fourth quarter of 2023. We achieved this success in part through our ability to offer a comprehensive portfolio of payment options, combined with product innovation, like allowing Argentine customers to pay for international transactions in local currency. In line with this favorable trend, total revenues for the quarter increased by 9% year over year, reaching $194 million. Notably, non-air revenues represented 62% of our consolidated top line, further diversifying our revenue mix and in line with last year's results. Importantly, when adjusting for foreign exchange headwinds, our total revenues increased by 53% year over year. highlighting again the underlying strength of our business. Our top-line growth, combined with a continued focus on operational efficiency, enabled us to deliver a gross margin of almost 74%, our strongest in the Sprigard's IPO in 2017. Key drivers of this efficiency include cost savings in installment-related expenses, and credit card processing fees. Additionally, in line with our results throughout the year, we achieved additional savings in general and administrative and technology expenses. As a result of our improving operational efficiency, adjusted EBITDA increased 94% year-over-year, reaching $48 million, a new record for the company. Our adjusted EBITDA margin also approached 25%, making another all-time high for Despegado. These results reflect our ability to deliver profitable growth while continuing to enhance operational leverage, positioning us strongly for the future. Also of note is the increase in adjusted net income, which rose an impressive 309% year over year. reaching $36 million for the quarter. As a consequence, adjusted earnings per share rose to 34 cents during the third quarter of 2024, up from 1 cent in the year-ago quarter. In our core B2C segment, gross bookings reached $1.1 billion for the quarter, decreasing 8.4% year-on-year, in line with the anticipated FX heading. Despite this temporary trend, we remain focused on our commercial strategy centered around higher margin packages and hotel sales, particularly in Brazil and Argentina, where we experienced notable success. Our strategic focus in these markets has been on offering a compelling and comprehensive product portfolio alongside a market-leading financial solutions, which are integral to travel decisions and purchases in Latin America. In our B2B segment, we continue to see strong growth trends that have remained steady throughout the year. B2B growth bookings, which include our wide-level segments, and comprehensive technology solutions for online and offline travel agencies grew by 23% year over year and now account for almost 19% of our total gross bookings. We are pleased with the sustained growth in B2B, which reflects the strength of our technological platform and the successful ramp up of new partnerships with leading brands positioning us for continued growth in this segment. During the quarter, we achieved another significant milestone as we redefined our long-term commercial relationship with Expedia Group. We're excited to announce the signing of a new 10-year lodging outsourcing agreement with Expedia, set to take effect on January 1st, 2025. This partnership not only enhances the collaboration between our companies, but also unlocks substantial growth opportunities for both parties. Under this agreement, Despregar will further optimize its lodging supply, focusing on key initiatives such as our B2B, white label, software as a service, and M&A strategies, while also expanding our directly sourced hotel inventory outside Latin America. The partnership also provides Despegar with greater flexibility to form new strategic alliances and pursue business in complementary segments, positioning us to further strengthen our market presence across the region and beyond. This collaboration builds on our combined strengths. Despegar's leading technology platform and extensive customer base and Expedia Bass Global Launching Supply. We believe this enhanced partnership reinforces our competitive mode and will foster new growth opportunities for both companies over the next decade. Additionally, another key financial benefit of this new agreement is that the previously recorded 135 million perpetual contingent liability on the SPREGAS balance sheet will now be amortized over 10 years significantly improving our net asset position. We are thrilled to embark on this new phase of our relationship with Expedia, and the evolution of the partnership underscores our commitment to delivering innovative, customer-centric solutions, and will further solidify our position as a leading travel technology company. Innovation remains at the heart of the SPGAL success, exemplified this year by the launch of our AI-powered travel assistant, Sophia. Since its debut in March, Sophia's capabilities have evolved significantly. Today, the assistant allows customers to seamlessly search, browse, and book both air and hotel services directly within the conversation flow. This conversational approach has enhanced the user experience by offering a more personalized and efficient way to plan and book travel. Throughout this recent quarter, we made notable advances in SOFIA's after-sales support capabilities as well. Customers can now easily make post-booking inquiries through SOFIA, resulting in a notable reduction in costly call center resolutions. Furthermore, we've introduced a feature that enables customers to browse their conversation history allowing the user to manage multiple distinct travel conversations in parallel, all within the same tool. This not only improves customer satisfaction, but also reduces friction in the travel planning process. A further testament of this improvement is our NPS score, which reached 71.1%, one of our highest scores for a quarter. While these advances are impressive in their own right, the most significant development we got in SOFIA is our ability to offer it as a Software-as-a-Service solution to our business partners. As recently announced, we signed our first Software-as-a-Service agreement and we are incredibly excited about this new growth avenue. This strategic move opens up opportunities for SPGAR to leverage AI technology beyond its own platform, allowing our B2B and wide-label partners to benefit from SOFIA's cutting-edge capabilities. Our goal is to integrate SOFIA into our partners' platforms effortlessly, making it a vital resource for enriching their ecosystem and elevating the customer experiences they offer. it will also be a growing source of recurring revenue and enable us to further diversify our revenue streams. Later in the call, Gonzalo will provide more details on this exciting new product offering. I would like to highlight our loyalty program, Pasaporte Despegar, which remains a key pillar of the value proposition we offer our customers. In the quarter, the program grew by more than 50% year-over-year, reaching a milestone of 30 million loyalty members. Being part of our loyalty program provides customers with the ability to earn passaporte points on every transaction booked through Despegar, while also accumulating loyalty points from hotels and airline programs. This dual accumulation significantly enhances the benefits and appeals of our loyalty program, making it more attractive to frequent travelers. An important indicator of the program's success is a continued increase in redemption rates. In the third quarter, 12% of all transactions were completed using Pasaporte points, demonstrating the growing value customers placed on the rewards they earned through Despegada. In addition to our loyalty program, Our mobile app plays a crucial role in enhancing the overall customer experience. We continuously refine the app to improve the travel, search, and booking process, which in turn drives cross-selling opportunities, boosts customer engagement, and repeats booking rights. During the quarter, the app's downloads increased 47% year-over-year, reaching 19 million total downloads. Furthermore, the app-based transactions now account for almost 51% of our total booking, underscoring the growing importance of our mobile first approach and its ability to drive organic traffic. Once again, this quarter we have made significant progress towards being the preferred choice for travel booking in Latin America. while also expanding our margins to drive profitable growth and create additional shareholder value. We are also laying the groundwork for continued future industry-leading growth through several exciting new initiatives, which Sebastián and Gonzalo will discuss shortly. These initiatives will present significant opportunities to fuel our momentum and drive long-term value for both our customers and shareholders. I will now turn the call over to Sebastian, who will walk you through our latest B2B initiative and wide-level partnership. Thank you, Damian, and good day, everyone.

I'm excited to share our latest advancement in the B2B segment, which continues to experience remarkable growth To recap, our B2B segment includes both our high-label operations and tech ecosystem, providing online and offline travel agencies with access to our extensive travel inventory. As outlined in previous earning calls, we remain focused on our robust commercial strategy that leverages our top-tier technology and local expertise. This approach consistently delivers exceptional value to our partners while strengthening our leadership in the Latin American region. As Damien noted, our third quarter B2B growth has outpaced the industry, with gross booking increasingly by 23% year-over-year to nearly $250 million. This strong performance is in part driven by demand from more than 17,000 online and offline travel agencies using our inventory. A particularly exciting trend is the rising interest among online agency bookings accommodations for international clients exploring Latin America. This trend is expanding our reach beyond our core Latin American market, allowing us to capture new demand from international markets. Currently, our B2B growth is fueled mainly by hotels booking. However, with upcoming launch of our flight booking engine, we anticipate entering a new growth phase within the B2B segment, further strengthening our market position. I'd now like to update you on our White Label partnerships. This year, we've prioritized onboarding 19 new clients and actively displacing competitors. Today, we operate over 80 White Label partnerships across the region, solidifying our position as the leading B2B player in Latin America. Recent announcements highlight our success in securing major new clients. We are currently developing tailored solutions and scaling up services for new partners onboarded in recent months. To give you a sense of the progress we've made, I'll share some specific achievements. In the banking and loyalty program space, we now operate more than 40 partnerships across Latin America, providing solutions for over half of the top banks and loyalty programs in the region. This past quarter alone, we added four new deals, including one of the major banks in Brazil. The new partnership set to launch in the coming month will allow customers to redeem loyalty points for travel services directly accessing Despegar's market-leading inventory. This integration will provide exclusive deals available only on our partners' platform, making travel more accessible and affordable for millions. Beyond technology, in these types of partnerships, Despegar also provides customer service post-sale support for all travel-related inquiries, ensuring our expertise supports customers at every step, from booking to post-travel assistance. This, combined with our ability to tailor solutions to partner needs and support diverse payments and redemption options makes our oil label solutions the premier choice for financial institutions and other partners. In their sector, we've developed one of the most advanced packages booking engines and currently work with one of Latin America's largest airlines. Today, our partnerships cover operations in eight different countries and offer packages hotel bookings and other non-air services as well and integrations with the airline's frequent flyer program. Importantly, we are currently in a very advanced negotiation with a prominent pan-regional airline that operates flights within Latin America to US and Europe. Our solution will be fully integrated with the airline's inventory and feature automated after-sales support all powered by our state-of-the-art technology platform. Turning to our partnership with retailers, we've made great strides here as well. During the third quarter, we signed three new deals with retail partners in major markets, further solidifying our position in the regional travel market. Our platform enables the more than 15 retailers we work with to monetize the traffic, integrate specific payment methods, and efficiently operate physical travel stores within their retail locations. We also work closely with more than 20 leading global and local hotel chains to support their package offerings. In Q3, we signed multiple new agreements that allow these hotels to provide comprehensive travel options leveraging our platform's best-in-class flight solution, payment flexibility, and multi-market capabilities, including operations in the U.S. Finally, as part of our ongoing innovation, we have developed a travel solution specifically designed for super apps. During our latest earnings calls, we mentioned that we signed a high-level partnership with a global ride-hailing app. Today, we are on track to launch this travel platform by the end of 2024. This partnership marks an exciting expansion into the super app space, a fast-growing sector that presents new opportunities both in Latin America and beyond. In summary, we've built strong momentum for our B2B segment, which sets the stage for significant top-line growth in the years ahead. Our partnerships are helping us to make travel more accessible, personalized, and seamlessly integrated, not only across Latin America, but also in new markets as we expand globally. This progress in our B2B initiatives underscores the potential to lead the travel technology innovation, positioning us as a global leader, not just a regional one. With that, I will turn the call over to Gonzalo who will share some exciting new updates about SOFIA, Despegar's AI Travel Assistant.

Thank you, Sebastian, and hello, everyone. It has been nine months since we launched SOFIA publicly, and we are extremely pleased with the customer engagement, feedback, and evolution of this cutting-edge technology. Since its launch, SOFIA has materially improved in every respect. Daily conversations continue to increase rapidly, dabbling every five weeks on a sustained basis as we incorporate more products and services into Sofia's knowledge base, significantly expanding her capabilities. Growing adoption and a sharp increase in returning users to a service, which is 50% higher than just one quarter ago, signal that Sofia's capabilities are helping set us apart in the travel industry, offering our customers unique and tangible benefits from the moment they begin planning their trip due to the booking process. During the quarter, we concentrated our efforts on three specific areas of focus. First and foremost, we made significant improvements to Sophia's after-sales capabilities and incorporated the chatbot as part of our customer service flow. Today, Sophia can assist customers with various post-booking tasks, ranging from simple answers to frequently asked questions, to more complex situations like providing support during the checking process, making a special request for a meal during a flight, or a type of rest for a hotel stay. These requests are then automatically relayed to the appropriate third parties, significantly streamlining the process for our customers. The primary goal of this enhancement is to provide a self-service tool that empowers customers to resolve most of their travel-related inquiries independently. This not only improves the customer journey, but also leads to a measurable reduction in call volumes at our call centers, resulting in tangible cost savings for the SPR and improved NPS. The second focus area has centered on enhancing SOFIA's conversational abilities. As we mentioned in our last earnings call, one of our primary goals is to replicate a natural human-to-human interaction in SOFIA. To bring this experience to life, we are working on giving Sophia a voice and preparing to launch Sophia on Call, which will enable customers to engage with her just as they would with a human operator over the phone. Customers will be able to discuss both sales and after-sales topics in a manner that feels intelligent, empathetic, and human, all leveraging the same robust infrastructure and travel technology as we've done during the past nine months. in response times that are comparable to those in human interactions. Notably, conversations don't have to follow a preset flow. It can progress at the customer's discretion. Users can even interrupt Sofia mid-response and she will instantly adapt to the new topic or, if needed, transfer the call seamlessly to a human operator. We are very excited about this new capability and look forward to seeing how it will transform customer interactions in the future. By creating a more dynamic, responsive, and human-like experience, we believe Sophia will not only improve customer satisfaction, but also deepen the trust and connection customers feel with our brand while driving efficiencies in our fulfillment centers. This evolution marks a significant step forward in our commitment to providing exceptional personalized service, and we can't wait to see the positive impact it will bring. Lastly, we are focusing on developing SOFIA as a software as a service product. The improvements we are making to our customer-facing AI travel assistance are also attracting many prospective B2B customers. A major milestone on this front was the licensing agreement that we recently signed with Carisma Hotels and Resorts, our first software as a service partnership. As we recently announced, it marks a significant step forward for both companies. Through this collaboration, Carisma will integrate Sophia into their operations to enhance digital engagement with customers and offer guests a truly personalized travel experience. This partnership is our first client win as a part of our strategy to expand our B2B business through SaaS models, and it underscores the growing demand we see for Despegar's cutting-edge AI technology in the global travel industry. By licensing SOFIA to CARISMA, we are not only deepening our collaboration with our valued travel partners, but also positioning CARISMA at the forefront of technological innovation in the hospitality industry. There are several standard features of this partnership. First, SOFIA will provide enhanced travel assistance, offering CARISMA's guests in-depth knowledge of their unique hotel offerings, rates, and activities. This means customers will receive personalized guidance throughout their travel planning process, creating a more streamlined and engaging experience. Second, after the search and planning process is complete, seamless booking integration will allow guests to book their accommodations directly through conversations with the Sophia-powered assistance. This simplifies the booking journey by eliminating the need for customers to re-enter details on a separate reservation page. making the entire process more convenient and efficient. Another key advantage is comprehensive travel support. Beyond booking, SOFIA will use natural language processing to answer questions about travel logistics, local attractions, and other destination details, providing Charisma customers with a complete travel companion. We're incredibly excited about the potential of this partnership at MLOC. Not only does it highlight the versatility and strength of our AI technology, It opens the door for further expansion of our SaaS offering. We are eager to see the impact this will have on Carisma's customer experience and look forward to extending this innovative solution to more partners in the near future. With that, I will send the call to Amit, who will review more of our third quarter financial results. Thank you, Gonzalo, and good day, everyone.

Our third quarter results were very robust. Once again, it delivered solid revenue growth and record profitability. helped by continued secular demand trends across our markets. For the quarter, revenues increased by 8.9% year-over-year, reaching $194 million, as we focused on profitable growth, especially in our key markets such as Brazil and Mexico, and captured some demand recovery in Argentina. Similar to what we observed in the second quarter, foreign exchange headwinds impacted our results across the region. Despite these challenges, the underlying demand remains solid, as demonstrated by our FX neutral revenue growth, which was 53% year-over-year. This underscores the strength of our business fundamentals. Now, let's take a closer look at our regional performance, starting with Brazil, our largest and most important market. During the third quarter, transactions grew by a healthy 14% year-over-year, reaching 1.2 million. This growth was driven by a rise in domestic air transactions and stronger demand for both domestic and international hotels. As anticipated, average selling prices experienced a temporary 15% decline year-over-year, primarily due to the depreciation of the Brazilian real. Excluding this FX impact, gross booking grew by 10% year-over-year, while on a reported basis, they showed a 3% decline. Turning to Mexico, our second largest market. Transactions declined by 22% year-over-year, in part driven by the divestiture of our destination management company business during the quarter. Excluding the impact of this sale, transactions declined 14% year-over-year, primarily due to our strong strategic focus on driving profitability, FX headwinds, and a significant reduction in domestic air capacity, particularly on routes to Cancun. These factors led to a temporary contraction in gross bookings of 14% on an FX-neutral basis and 22% as reported for our Mexican operations. As for our operations in the rest of Latin America, we began to observe a positive shift in trends, particularly in Argentina, where demand was stronger than anticipated. Thanks to the tailored payment solutions we offer in Argentina, coupled with our leading product portfolio, we have gained significant market share and achieved strong take rates. It's important to note that due to the various exchange rates applicable to transactions in Argentina, our ability to adapt and offer flexible payments options has proven to be a competitive advantage. That said, I would like to emphasize that we continue to keep our exposure to the Argentinian peso to a minimum in line with our company policies in order to mitigate potential currency risk. However, this policy introduces FX hedging costs in our P&L. In summary, our strong commercial execution, unmatched local market expertise, and focus on profitability, alongside implementing innovative payment solutions in Argentina, enabled us to achieve Despicar's highest-ever take rate of 14.6%. Our record-setting take rate, combined with gross bookings of $1.3 billion, drove revenues to $194 million. An increase of 53% in constant currency and 9% in as reported terms. As we have emphasized throughout the year, we continue to prioritize operating leverage and have achieved substantial efficiencies in cost of revenues. Key drivers of these savings for the quarter included a decline in installment cost and credit card processing fees in Mexico, reduced customer fraud expenses due to improvements in our fraud prevention performance, and lower interest rates in Argentina. As a result, we reported our strongest ever gross profit margin of 73.8%, generating a total gross profit of $143.1 million, which was 18.7% higher than third quarter of 2023. In addition to cost of revenue efficiencies, we also made significant progress in streamlining operating expenses. While selling and marketing expenses rose year over year, largely due to increased commission payments driven by a rapid growth in our B2B business, total operating expenses remained largely flat. This stability drove operating leverage with regard to journal and administrative technology and product and development expenses, allowing us to maintain a lean cost structure. We are pleased to announce that as a result of these efforts, we achieved record adjusted EBITDA of $48 million, representing a 94.2% year-over-year increase and an adjusted EBITDA margin of 24.8%, another record for our company. Turning to our financial expense, which was $29 million for the quarter. This was in large part due to us moving funds into U.S. dollars and moving outside of Argentina, as I noted earlier. Then analyzing adjusted net income, which excludes from GAAP net income FX translation impacts and other primarily non-recurring expenses, we reported an impressive $36.1 million in adjusted net income. representing a more than four-fold improvement versus the $8.8 million that we reported in third quarter of 2023. Importantly, our adjusted APS improved year-over-year to 34 cents from one cent in the same quarter last year. In terms of operating cash flow, we generated $26.6 million this quarter, compared to $12.7 million in the last quarter. Our robust operating cash flow has enabled us to further strengthen our solid financial position as capital expenditures remain steady at $7.7 million for the quarter. A strong commercial execution has also led to a total cash balance of $220 million, an increase of $15.2 million compared to the end of second quarter of 2024. Notably, we grew cash 7% quarter on quarter. despite a $7 million payment to our preferred shareholders. During the quarter, we also extended around $17 million in working capital benefits through cash advances to our core travel partners as part of our strategy to strengthen our supplier relationships. Let's turn now to our capital allocation strategy. Our approach remains centered on evaluating acquisition opportunities across Latin America and selectively beyond the region. When assessing any potential transaction, we rigorously apply a discipline framework that examines the strategic benefits of new capabilities that enhance our offerings or competitive advantages, increase market penetration or geographic expansion. Each opportunity is then weighed against the target's implied valuation to ensure that it meets our high standards for value creation. Our focus is clear. We only proceed with transactions that can generate long-term shareholder values by delivering both revenue and cost synergies that support and complement our strong organic growth profile. With our robust cash position and favorable working capital dynamics, we have the flexibility to execute transactions efficiently. Now, looking towards the year end, we are confident in our commercial strategy for the fourth quarter's high season. Our extensive inventory, leading bundling capabilities, and comprehensive payment solutions make Deskagar the preferred choice across Latin America. However, FX has further moved against us since last quarter. With that in mind, we are maintaining our full-year revenue guidance of at least $760 million, representing year-over-year top-line growth of 8%. However, Given our sustained margin expansion, we are raising our adjusted EBITDA forecast from a minimum of $160 million to at least $170 million, which equates to a year-over-year increase of 47%. In closing, we remain confident in our ability to lead the consolidation of Latin America's travel market, and we are particularly excited about the new growth opportunities that Sebastian Gonzalo outlined with regard to a strategic B2B and SAAS initiative. These trends, together with the strong secular tailwinds, uniquely positioned Despegar to set the pace for sustained market-leading growth in Latin America while also tapping into the $2.5 trillion global travel market. I'll now turn the call back over to Damian for a few closing remarks.

Thank you, Amit. We are very pleased with our main significant achievements this quarter, demonstrating strong revenue growth and leading margin expansion despite foreign exchange challenges across Latin America. Our results reflect the strength of our business model with record levels of profitability in terms of adjusted EBITDA and adjusted income, and underscore the effectiveness of our growth strategy, commercial approach, as well as operational focus and efficiency. Our commitment to delivering outstanding value is apparent in the presence of Latin American travelers, many of whom continue to choose Despegar as their preferred travel platform. Thanks to our vast inventory, regional expertise, and unmatched payment solutions. This quarter, we took significant strides to strengthen our competitive edge, notably through our expanded partnership with Expedia, which enabled us to leverage an unparalleled global inventory for new growth initiatives. Moreover, our recent B2B2C agreement, coupled with the significant business potential of our AI-driven travel assistant, SOFIA, set a clear path forward. Our objective is to seamlessly integrate SOFIA into our partner's platform, positioning as an essential tool and resource for enhancing their ecosystem and their customer experiences they deliver. This will not only help drive sustained organic growth, but further diversify our portfolio of offerings, broaden our strategic mode, and reinforce our status as an industry leader. These initiatives underscore our commitment to capitalizing on global growth opportunities and solidifying our leadership in an international scale. In summary, we are poised to end the fiscal year on a strong note, bolstered by the successful execution of our growth strategies and robust market demand. Our focus remains on continuous improvement and maximizing value for our customers and stakeholders. With that, we are now ready to take your questions.

At this time, we will open the floor for your questions. In order to ask a question via audio, please press star 1 on your telephone keypad. For those listening on the web, you may submit your question online by using the Q&A function of the webcast platform. And your first question comes from the line of Naved Khan with B Reilly Securities. Your line is open. Please go ahead.

Good. Thank you very much, and congrats on the strong quarter, despite the FX headwinds. I have a question on just the take rate, which is very strong. How should we think about the ability to maintain these kind of levels, not only in Q4, but maybe if I look at 2025, do you think this is a sustainable kind of level? And then the other question I have is just around the Expedia renegotiation. So when should we think about the, you know, the benefits that could accrue on the P&L? You know, I know that the reset happened on January 1st, but when do you think you are prepared internally to kind of take advantage of this renegotiated contract?

Anyway, thank you for the question. So I'll start with the take rate question and then I'll pass it to Damian to talk about the Expedia contract. So on take rate, as you saw in the prepared remarks, the company has a very strong focus on driving profitable growth and that's something you can see across our P&L and how we are trending in all the geographies. That boosted by, obviously, the packages as the proportion of bookings continue to increase, with us providing innovative payment solutions and differentiating ourselves in the market. All those are helping us to drive strong take rates, which in turn, as you saw, help us drive very strong EBITDA margin as well. But going forward, I mean, obviously we're not guiding to 2025 right now. But as we look over the over the mid long term, we continue to believe that the right take rate for us as a company, given all the various strategies that we have in place for the coming years, is around that 13 percent level, as we have as we have as we have discussed in the past. So that's how I would think about it, you know, in the in the in the mid long term. But but in the short term, our strong focus on profitability is yielding very strong results on take rate.

This is Damian. Thanks for the question. As per the impact of the renegotiation of the agreement with Expedia, I would say first of all that the new agreement with Expedia is transformational in at least a couple of ways. First of all, the profitability impact of being able to source directly a larger portion of our inventory And that's going to start being reflected on our P&L as early as the first quarter of next year. We will gradually ramp that up and should start being reflected as early as the first quarter. But more importantly, the flexibility options in terms of our growth strategy that opens is significant. because we will be able to source in a more competitive way from different regions of the world. And the growth of our B2B business beyond LATAM relies significantly on that achievement.

Understood. Thank you. And then maybe just to follow up to your answer, Ahmed, on the margin. So what are the puts and takes that can bring the the 14% plus kind of take rate down to 13%. I know B2B probably has lower, but just give us thoughts there.

Yeah, so I think B2B you mentioned, that's one of the factors, but also in our mind, we also think going forward, we have to take an approach that the air take rates could possibly come down from current levels. So we have, and then for us also, We are driving a lot of other strategies which help us gain market share in various regions, and that could have some impact on take rate in the coming years. So when we combine all of those factors, that's what's right now leading us to believe that in the mid-long term, that 13% is the right level for us to operate at.

OK. And then a very quick clarification, if I could. There was some impact from the storms, I guess, on the bookings. I think you mentioned that on the previous call. Do you have any number to share in terms of what that impact was in the third quarter?

I think right now the overall impact, as we discussed, is pretty much the same, you know, from those storms. It's around that 10-ish million impact. The only incremental impact that we had to our revenues was more from FX since last quarter to this quarter. I think none of those other factors had any other incremental impact, but FX got further weaker for us since last quarter, and that is having an incremental around 10-ish million impact to our full year revenue expectations. So, and we highlighted that in the, you know, in our script.

And that's true. Thank you, guys.

Thank you.

Your next question comes from the line of Andrew Rubin with Morgan Stanley. Your line is now open. Please go ahead.

Hey, thanks very much for the question. Congratulations on all the developments during the quarter. uh hoping to dig in a bit more on on argentina you mentioned a few times but it seems like there was really an inflection in the quarter so hoping if you could break down what changed from from a top-down perspective versus company initiatives and kind of within your company initiatives um you mentioned you know the the fx uh arrangements so trying to understand how impactful that was really just any bridge to understand you know what changed top-down, bottom-up in Argentina this quarter would be very helpful.

Hi, this is Damian. On Argentina, I will start with the market. The market on the third quarter evolved on a positive trend, although still very well below 2023 levels. Within that market, we were particularly effective, gaining market share, as Amit explained, by offering payment methods and payment alternatives that help our customers pay less for their travel through implementing what we call the monetario strategy, which has to do with the different FX regulations that are in Argentina. So we were able to provide our customers with unique payment value propositions that help us gain significant market share. As we expect that to continue in Q4, both the underlying market positive evolution and our share gain. As you know, Argentina is growing through a very positive momentum and we're very excited also regarding what the market is going to look like in 2025. Yeah.

That's a no, no, it's fair. And it's very encouraging. And you spoke about the take rate overall. But I think in the presentation, Argentina was called out as one of the positive drivers for for take rate. Similarly, do you see that market being a sustained higher take rate or anything that we should consider reverting there? I know you talked about the company's overall drivers, but just understanding if there's any Argentina nuance to the take rate to consider.

Hi Andrew, this is Amit. So yes, in Argentina, I would say given what Damian was describing, we are being able to differentiate ourselves materially. And also the products and all that we are offering is helping us drive strong take rates in the market. In the near midterm, we do expect that differentiation to remain. But as I'm talking about our longer-term expectation and take rate coming down, or our longer-term expectation of that 13-ish percent take rate, we are also taking that into account, that potentially some of that higher take rate trends in the other direction. But all that is built into our mid-long-term expectations for take rate. But to Damia's point, right now, you know, the solutions that we are providing is helping us cement our leadership position in Argentina and take very strong market shares. You know, more than just the take rate and all, take very strong or gain significant market share in the region.

That makes a lot of sense. Thank you both.

Your next question comes from the line of Kevin Kopelman with TD Cowen. Your line is now open. Please go ahead.

All right. Thanks a lot. Could you give us, could we start off by talking about the Q4 trends a little bit? In particular, what are you seeing quarter to date in transaction growth? It looks like that was about, in Q3, that was about 2% X the divestiture. And you mentioned some of the Mexico pressure. So I was just wondering how that was kind of trending this quarter.

I mean, look, our guidance sort of, you know, we don't specifically guide to transactions, but our guidance of revenue for the full year and for EBITDA does imply sort of year-over-year growth in both of those metrics. Q4 is important for us, and especially that, you know, it is our generally the strongest quarter in the region and generally the second quarter Half of November and first part of December is the high season when it comes to travel. But we feel very confident about the guidance that we have provided. Obviously, the trends both on top line, despite unusually strong FX headwinds this year, the trends in top line remain. remain solid, and our overall progress towards on the margin side also continues to be extremely, extremely solid.

Thanks. And maybe just to drill into the Mexico trends, you noted the kind of some of the temporary pressures there. Is that like temporary Q3, or do you see it more of like maybe like a four-quarter thing on the air capacity, and then once we anniversary it would start looking better?

Yeah, I mean, some of the air capacity impact could go in or will go in 4Q as well. And then the FX headwinds that have happened in, you know, including Mexico and in other regions as well, that impact should happen in Q4 as well. And that's, you know, included in the guidance that we are providing. But to your point, you know, as we move into into the following years, 2025 and beyond. I mean, this year is exceptional when it comes to the FX headwinds that are there. So, you know, at least at this point, we don't expect these type of material headwinds to happen in the coming year. So that should be positive for the company as we are looking at sort of the following years, especially when it comes to bookings and revenue growth in dollar terms.

Yep. And then could you give your kind of, I mean, you kind of touched on it there, but just how you're thinking about growth versus margins next year initially?

Yeah. So, I mean, we are, to be very open, you know, we are currently in the middle of our budgeting process. And at this point, you know, obviously we don't guide to next year. As we have been, you know, as we have discussed in the past, you know, our goal is to, you know, drive, we've talked about a lot of strategic growth initiatives for our company. You know, in the past quarters, we did talk about, you know, for us starting investing in, for example, in our SaaS solutions. And then now, as Gonza mentioned, and, you know, and as Sebas was mentioning, we've already started winning clients in that area. We have talked about, you know, investments in technology and through that SaaS solutions, now we are actually licensing our technology. So we have a lot of, you know, along with that, we have a lot of growth initiatives which we believe should help us drive industry-leading growth for the foreseeable future. And as we are going through our budgeting process, we'll evaluate what type of investments will be required in the near mid-term for those type of initiatives. We also need to evaluate what type of fee strategy we need to drive in various geographies. So all that will help us determine how should the margins and all look for sort of next year. But what I can tell you is like the business as usual, if we operate business as usual without going into any initiatives and all, the trend remains positive. But as it should be for any company, our goal is to how do we position this company not just for for growth next year, but how do we position this company for a sustained industry-leading growth over the mid-long term? So our investment decisions will be very much based on that mid-long term industry-leading growth creation standpoint.

Oh, thank you. And then just on with B2B accelerating, Is there anything to call out on the take rate or EBITDA margin side as we think about that mix shift over the next, you know, next year and go forward?

Yeah, I mean, I wouldn't, I mean, on EBITDA level, largely similar-ish. You know, some of the white labels have, you know, depending on the clients, you would have different margin profile, but EBITDA margin profile. but broadly, I would say, you know, similar-ish adjusted EBITDA margin profile for B2C side or to the B2B side. I would say, you know, if you look at the B2B growth, which is about 20%, and maybe Sebas can add more to it, we're very excited about where that business is going, you know, not just in the type of, you know, white label solutions. We are winning, and hopefully we can announce more and more There's always some restrictions in how much we can announce as well, but hopefully we can announce more and more in the coming quarters to give everyone an idea of the strong scale we are achieving there. But also, on the other side, what we are doing with agencies and tapping into the offline market, which is almost 50% of Latin American market through our B2B solutions. So I don't know, Seba, if you want to add anything over there, but very excited about where B2B will go for us in the coming years.

Yeah, totally agree.

I'm sure we are building a strong momentum in our B2B segment. We are setting the stage for significant supply growth in coming years. I'm very motivated by three main initiatives. The first one we have incorporated more than 3,500 offline and online agencies. So we are, nowadays, totalizing 17,000 agencies. Secondly, we have onboarded more than 19 new variables and partners. So we are now operating with more than 80 partners. And finally, we are about to launch our flight booking engine. So up to now, we were only fueling our growth from hotel bookings. So flight is coming, and I'm sure that will help a lot. And well, as Daniel mentioned, we are now expanding our B2B globally also, and so I'm very confident of the strong momentum we are building on the B2B segments.

Great. Thank you.

Our final question is via the webcast. From Walter Chavezio of Santander. What is the real impact of FX in Mexico and Brazil? Only ASTR travelers are retracting consumption due to higher costs of traveling, mainly abroad, affecting numbers of transactions too. Do you expect this to improve in the short term?

Hi, Walter. This is Damian. In the Mexican market, we see both a decline at the market level of transactions, coupled and compounded with the FX decline. What we see is obviously the foreign travel is becoming more expensive, and there's also the challenge of reduced air capacity. We expect some of these factors to be temporary, particularly air capacity, although the FX is more of a question mark. Having said that, Mexico remains a very large market for us, and we are striving to regain revenue growth momentum there, and we're very optimistic about the next few months being able to, for the market to recover.

There are no further questions at this time. I will now turn the call over to Mr. Skokken for any closing remarks.

Just wanted to thank you all for your interest in Despegar, your participation, and we look forward to seeing you again in our next call in which we'll share with you our fourth quarter results. Thank you all and take care.

This concludes today's conference call. You may now disconnect.