Despegar.com, Corp.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Natalia Nirenberg:]

Good morning, everyone, and thanks for joining us today for a discussion of our Fourth Quarter 2020 Results. In addition to reporting financial results in accordance with U.S. Generally Accepted Accounting Principles, we discuss certain non-GAAP financial measures and operating metrics, including foreign exchange neutral calculation. 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, a substitute for or superior to GAAP financial measures and are provided as supplemental information only. Please note that these financial results are preliminary and subject to year-end audit and adjustment. The Company’s audited consolidated financial results for the year ended December 31, 2020, will be included in the Company’s annual report on Form 20-F.

[Damián Scokin:]

Thank you, Natalia, and good morning, everyone. Let me first wish that each of you are in good health and that your families are well. The COVID-19 pandemic challenged our industry in ways we have never seen before. The fourth quarter was another example of how we must stay on our toes, ready for the quick changes this pandemic throws our way. We have demonstrated our ability to pivot quickly, anticipate and respond to customers and adapt to their new behaviors. Our team has not only managed through the ongoing demand challenges, but also have made important progress on strategic initiatives, including

[Alberto Gaffney:]

Thank you, Damián, and thank you all for joining us today. Turning to Slide 8. We delivered another quarter of sequential top line growth, with revenues three and a half times higher when compared to the third quarter, although still largely affected by the COVID-19 prices on a year-on-year basis. As Damián noted, as reported revenues performed better than gross bookings in the quarter, driven mainly by a commercial strategy adapted to the new circumstances. Additionally, we observed a larger share of higher-margin stand-alone packages. Year-on-year, as reported, revenues were down 63% versus a 69% decline in gross bookings, resulting in an exceptionally high take rate of 13.3% in the fourth quarter. Customer cancellations due to the pandemic declined in absolute terms by nearly half this quarter to five million, representing only 9% of revenues. During these extraordinary customer cancellations, our take rate would have been 14.5% and revenues would have increased 177% sequentially. Several factors contributed to this improved performance, including the positive contribution from Best Day for the whole quarter, COVID-19 commercial strategy, reflecting adjustments we implemented from negotiations with our travel partners, leveraging our purchasing power through joint negotiations with Best Day's sourcing team, a strong focus on demand for non-air, which accounted for 65% of revenues, and promoting destinations with a higher take rate, such as Campo, Riviera Maja and Plaza del Carmen in Mexico as well as Gramado and Marcelo in Brazil. Turning to profitability on Slide 9. Adjusted EBITDA levels have been improving sequentially since second quarter 2020. In this past fourth quarter, we reported an adjusted EBITDA loss of slightly over 21.4 million, 36% less sequentially of the adjusted EBITDA loss reported in the prior quarter. Despegar, on a stand-alone basis, contributed with an adjusted EBITDA loss of 9.7 million, while Best Day and Koin contributed with an adjusted loss of $11.7 million. Note this does not reflect the synergies that we expect to cover from these recent acquisitions once the integration is completed. Excluding the extraordinary charges detailed in our earnings release published this morning, which includes extraordinary cancellations resulting from COVID-19, restructuring targets associated with cost-reduction efforts and onetime fees from our M&A and capital-raising efforts, comparable adjusted EBITDA would have been a loss of 7.6 million. For Despegar, on a stand-alone basis, this would have been a loss of only one million. Now please turn to Slide 10. We are taking advantage of the current crisis to build the foundation for a more profitable company in the future. That is why we think it is important to share with you this slide, because it will give you a glimpse of how we think of Despegar going forward. In our last earnings call, we mentioned that considering Despegar on a stand-alone basis, we thought we could be EBITDA breakeven as we get close to gross bookings per quarter in the 400 million area. This figure represents approximately 35% of Despegar's 2019 gross bookings level. Importantly, we also mentioned that this EBITDA breakeven level would exclude the following items

[Operator:]

The first question comes from Ed Yruma of KeyBanc Capital Markets. Please go ahead.

[Edward Yruma:]

Hey good morning and hope all are well. Two quick ones for me. I guess, first, some constructive commentary on Chile. I guess, when you saw that improvement in gross bookings of 34% in February, what type of travel are they engaging in, is it more local air, are you seeing some package activity. And then just as a housekeeping question, I noticed that trade payables increased, I think, almost 100 million quarter-on-quarter was that due to Best Day or if you could kind of walk us through why that number went up and how we should be modeling that going forward, that would be great. Thank you.

[Alberto Gaffney:]

Hi Ed good morning and Alberto here. So let me address both questions regarding Chile. Clearly, as you know, today, Latin America is more a region of, let's say, domestic travel, short trips, et cetera. But clearly, as vaccination actually - the rollout actually moved in a positive manner. We are starting to see actually, let's say, more international travel started to pick up. More bundled product as well. So the trend is, as expected, either like ASPs going up, of course, FX will be in effect. ASP is going up with, let's say, the level of complexity of the travel plans increasing. And I think that addresses the first part of the question. Regarding the net payables, close to 60% of that increase is the date, and we discussed in the prior call that Best Day is coming with some legacy debt. And then the remainder of the explanation, it comes with the seasonality. Clearly, the net payable position, as you might recall, particularly, what you see is the receivables goes up, okay, but particularly the payable position also goes up. So it is a combination of both. Approximately 60% EBITDA, that is a one-timer, given that we are consolidating the company. And at the same time, what also happens is that - remember, seasonality for Mexico is different than for seasonality for Despegar. What you used to see, it was that the fourth quarter in Brazil and South America, the fourth quarter, you actually sell a lot, and then you start paying down those payables in the first quarter of the following year. However, Mexico, as they have the higher season in the middle of the year, in line with the Northern Hemisphere, of course, actually, that dynamic plays differently, so you actually have the negative impact of the working capital more in the fourth quarter.

[Edward Yruma:]

Okay. So just to be clear, on the Best Day associated payables, that just represents a use of cash as you pay those down? Is there an accompanying kind of offset or just - thank you.

[Alberto Gaffney:]

Yes. As we, in the future, start those payables starts coming down, that will be on its own and use of cash. However, let's all recall that we are operating at levels that are very low from a gross booking perspective. So the positive working capital dynamic that Despegar has is intact. So as we grow gross bookings, the expectation is that the working capital dynamic will start generating cash for the company.

[Edward Yruma:]

Thank you.

[Operator:]

The next question comes from Eric Sheridan of UBS. Please go ahead.

[Eric Sheridan:]

Thanks so much and hope everyone is well on the team. Maybe I will ask a two-parter around the broader competitive dynamic. As you see the potential for demand to become less volatile and the pickup as we move through 2021, can you give us a better sense for country by country or thinking through the lens of who you see as some of the most competitive forces you are trying to sort of play a mixture of offense against in the region for when demand improves and how that is manifesting itself in the investments you are making in your marketing channels on the product side and on the inventory side? Thanks guys.

[Damián Scokin:]

Eric, this is Damián. In general terms, we see, as Alberto mentioned, significant volatility even from week to week in that - very heavily dependent on how the vaccination and how the restrictions of movement apply, for example, from one week to another, Chile shoot up, then Mexico became more restricted and sales went down. So we don't tend to look at this very bumpy changes, but what we rely on and what we are seeing is an underlying trend of bookings recovery. As per the competitive environment and how are we managing our investments, two things here. We haven't seen any significant change in competitive dynamics as a whole, any competitor emerging with a different strategy or spending significantly more or less in this context, remember that everybody, almost everybody in the market has constrained this investment. What we are doing in this context is obviously taking advantage of our strong brand, our organic traffic and are optimizing and reviewing our traffic spend going forward. The team has been using this month into challenging our already very sophisticated algorithms and attribution models to make sure that, as soon as the market reengage, we even have a much more precise approach to how we acquire traffic. And with the objective, obviously, are relying much more on what was already a heavy proportion of non-paid traffic. So in a nutshell, as was explained during the remarks, we are relying significantly more on our organic traffic. And going forward, we expect that not to remain at current levels, but not to reach our prior levels of investments.

[Eric Sheridan:]

Thank you.

[Operator:]

The next question comes from Kevin Kopelman with Cowen & Company. Please go ahead.

[Emily DiNovo:]

Hi good morning. This is Emily Lavin on for Kevin. Thank you very much for taking my question. I wanted to ask about you know you had impressive take rate expansion in Q4. You noted it was impacted by a mix shift to higher-margin products. But you also noted you improved your negotiations with suppliers. Could you give us some more color on that new strategy and do you expect the increase in take rate to continue going forward? Thank you.

[Damián Scokin:]

Yes. Emily, this is Damián. I would say this is a combination of 3 things. As you say, we leverage our growing bargaining power with suppliers. That is a big driver for take rate. Secondly, the product mix. And obviously, we are trying to push the non-air and packaging components, as we have been doing for several times already. Best Day certainly helped us strengthen that, and we will continue doing that in the future. And selectively, our revenue management capabilities have also been part of what we have been invested over the last few months. And we have been able to increase some of our margins without losing market share. And a combination of those three things, going to your point of whether that will continue in the future, as we always reply, we adapt our pricing strategy very dynamically to market conditions. We believe and I think the results are proof to that, that this strategy is the best possible strategy in this context. And we will challenge that pricing strategy going forward. As per our negotiations with suppliers and our push towards higher-margin packaged products that has been in place for some time, what we are seeing is basically the results of both our organic efforts and how best they help us further achieve that.

[Operator:]

Was there a follow-up, Mr. Kopelman?

[Emily DiNovo:]

No. thank you very much. That was helpful.

[Damián Scokin:]

Thank you.

[Operator:]

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Damián Scokin, Chief Executive Officer, for any closing remarks.

[Damián Scokin:]

I just wanted to thank you all for joining us today. We look forward to speaking with you again next quarter. In the meantime, please keep in mind that we remain available to answer any questions you may have. And please stay safe. Goodbye, and have a nice day to all of you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.