Despegar.com, Corp. (DESP) on Q1 2021 Results - Earnings Call Transcript

Operator: Good morning, and welcome to the Despegar First Quarter 2021 Earnings Call. A slide presentation is accompanying today's webcast and is available in the Investors Section of the Company's website www.investor.despegar.com. There will be an opportunity for you to ask questions at the end of today's presentation. This conference call is being recorded. As a reminder, all participants will be in a listen-only mode. Now, I would like to turn the call over to Ms. Natalia Nirenberg, Investor Relations. Please go ahead. Natalia Nirenberg: Good morning everyone and thanks for joining us today for a discussion of our first quarter 2021 results. In addition to reporting financial results in accordance with US 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 as substitute for or superior to GAAP financial measure and are provided as supplemental information only. Damián Scokin: Thank you, Natalia, and good morning everyone. We hope that you and your families are staying safe and healthy. Last year, our first quarter call was focused on how we were going to weather the biggest crisis our business has ever faced. Now, one year after the pandemic and the global lockdowns began, we have demonstrated our operational resilience while improving our strategic capability. In the first quarter, we are executing well against our priorities. Now let me discuss these separately, starting with geographic diversification. We significantly increased our presence in Mexico with the acquisition of Best Day and coupled with an easing of restrictions in that country, we saw gross bookings increased 12% sequentially. Mexico in turn accounted for a larger percentage of our gross bookings in the quarter. We also experienced an active recovery in Colombia and a slight pick-up in Chile. By contrast, Brazil and Argentina experienced the second wave of COVID-19 tampering demand for travel. Excluding these two markets, transactions were up 12% sequentially and gross bookings increased 14%. As evidenced by the first quarter results, a balanced geographic diversification, we generate more sustainable growth going forward. Importantly, our market share has not been impacted by the volatility across the geographies where we operate. Moving next to our focus on profitability. As you have had so much before, we have a lot of focus on maintaining our leading structural cost base. We achieved our target level in second half of 2020 as expected. And in the first quarter, we were able to maintain these cost in line with prior quarters. This focus on profitability has resulted in exceptionally high take rate over the past few quarters, and we achieved the highest level in five years during the first quarter of 2021. Also contributing to the high take rates is an increasing share of non-air revenues. We'll talk more about these later in the call. Alberto Gaffney: Thank you, Damián, and thank you all for joining us today. Starting with Slide 8, we turned in another quarter with a significantly high take rate of 14%, the highest level since 2016. When excluding extraordinary cancellations, the take-rate reached 15.2%, this good performance was driven by a mix of internal and external factors. On the internal side, we are seeing the benefit of several strategic initiatives implemented to enhance sustainable profitability. First, the position of Best Day, which has a better take rate. Second, the improvement introduced to our revenue toolkit, as Damián just noted. It's allowing us to take smarter decision when it comes to capturing transactions. Third, we are leveraging our scale enhanced by the acquisition of Best Day and undertaking better negotiations with suppliers. And finally, we have also further enhanced our ability to buy the products more efficiently as we just discussed. Take rates are also benefited from a couple of external temporary factors triggered by the pandemic. For example, we are seeing that in today's environment, many suppliers are faced with lower marketing budgets themselves and finding it more difficult and/or too costly to sell via performance marketing channels and perfect to offer their products and services directly . Moving on to the topline. Revenues were generally unchanged sequentially at $52 million, the higher take rate offset the drop in gross bookings. In turn, customer cancellations due to COVID-19 was stable at slightly over $4 million. Now, please turn to Slide 9. As reported, first quarter '21 adjusted EBITDA has been relatively in line with those on the previous quarter. On excluding extraordinary charges, adjusted EBITDA was a loss of $14.1 million in the first quarter '21 versus the loss of $9.4 million in the fourth quarter '20, mainly due to higher fulfillment costs to enhance customer service levels in light of COVID-19 second wave in a region. One-time charges, this past quarter was mostly in connection with extraordinary cancellations due to COVID-19. Despegar, on a standalone basis, reported an adjusted EBITDA loss of $15.5 million while Best Day and Koin contributed to an adjusted EBITDA loss of $4.5 million. These metrics still have not captured the full potential on the synergies from the integration of the recent acquired companies. Additionally, on just as side count , in the 20-F report, we have adopted our definition of adjusted EBITDA to the current circumstances and excluded restructuring charges on acquisition transaction costs; these results are based on this new definition. Operator: We will now begin the question-and-answer session. The first question comes from Ed Yruma with KeyBanc Capital Markets. Please go ahead. Mr. Yruma, your line is open. Please go ahead with your question. Okay, moving on to the next questioner. The next question comes from Kevin Kopelman with Cowen & Company. Please go ahead. Kevin Kopelman: Great. Thanks a lot. So I wanted to ask about structural costs in the run rate and the key trends there. Basically, how do you see those playing out both for the second quarter, and then if you can also give us an update on how you would expect us to do develop once you're into the bigger part of the recovery over the next year plus? Thanks. Alberto Gaffney: Kevin. Good morning. Alberto Lopez Gaffney here addressing your question. And so on structural costs, we continue with the same thesis that we have discussed in prior calls that is that structural cost will be gain -- will be constant in these let's say $29 million, $30 million level, okay, until transactions are close to let's say 50% in between 45% or 40% to 50% of 2019 levels. Okay. Following that, the expectation is that overall structural Costs should grow, okay, approximately to 50% to 60% of transaction growth demonstrating the operational leverage of the company. . Operator: Just one moment. There has been an interruption. Please standby. Ms. Nirenberg, if Mr. Alberto would like to continue please. Alberto Gaffney: Are you okay? Can you hear me? Operator: Yes. Please go ahead. Alberto Gaffney: Yes, sorry, I think we got disconnected and just switching to the backup plan. So what I would say is... Operator: Yes. Alberto Gaffney: The structural cost in the $28 million, $30 million area, okay. Following that, structural cost will grow, let's say, at around 50% of the transaction growth gets to the level of around let's say 40% to 50% of transactions -- of 2019 transaction levels. This assumption remains on hold assuming that salary increases, okay, in the regions we operate in dollar terms, okay and -- do not affect overall structural cost and as you know, that is a function of inflation rates in the country -- in the different countries and of course, in nominal FX rates, okay. But that is how we need to think about structural costs overall. Kevin Kopelman: Got it, that's very helpful. Thanks. And then, just a couple of other quick ones. So as you look to the second quarter here, and you're talking about gross booking's volumes being similar I believe Q-over-Q, is that -- how does that compare to what you're seeing in the overall markets? Is that in line with what you're expecting for the overall market? Or do you have some share gains built in or perhaps some share losses? Thanks. Alberto Gaffney: No. I think importantly, the strategy of the company since the kickoff of the pandemic, the fact has been that the Company is running the company for profitability, for cash flow generation or cash preservation. But again, the limit is for the company, not to erode its market share. Okay. So those are the two key guiding principles, okay. With regards to the actual performance in bookings, okay, you might have seen that in some of either the airlines, our competitors are actually expecting a strong performance of Latin America by the summer, okay. But at the same time, we also believe that we need to be very prudent when it comes to providing visibility of what will be the sector performance, the expectation is that second quarter is going to be not very dissimilar to -- not very different from Q1 and -- but again after vaccination programs rollout and also as the South America particular gets out of the fall, winter season, okay, compounding to, as I said before, with vaccination rollout, the expectation is that we should have a good summer season, okay. And as a comparison, and I'm not saying that we will have the same levels of travel activity, clearly can see us benefited from the two factors that I have just highlighted, okay. On one extreme we actually have the North American market. Kevin Kopelman: Thank you very much. That's very helpful. Alberto Gaffney: You're very welcome. Operator: And I see that we have a follow-up from Mr. Kopelman. Mr. Kopelman, please go ahead with your follow-up. Alberto Gaffney: Welcome. Kevin Kopelman: Thank you very much. Could you just give us a quick update on any acquisition activity that you may be pursuing or the current environment there? Damián Scokin: Yes. Hi, Kevin, this is Damián. Usually we keep very active conversations with a lot of potential targets and partners. Obviously we remain prudent in terms of prices and aggressiveness those who are willing to pay. But conversations keep intensifying and as we usually say when we have concrete yields, we will share them with you. As we have already said, inorganic acquisition is a key component of the company's strategy, but as we proved in the past, we will remain very prudent on what that are going to validate that price. Kevin Kopelman: Thanks, Damián. Operator: The next question comes from Brian Nowak with Morgan Stanley. Please go ahead. Alex Wong: Hi, good morning. This is Alex Wong on for Brian. Thanks for taking the question. First one, Alberto, you talked about some of the internal and external factors driving the take rate improvement and in particular, was wondering if you can focus on the revenue yield management side, on the internal front and then you talked about sort of suppliers growth relying more on Despegar given their own marketing challenges. So, I was wondering how amenable do you think that is as we sort of progress through the recovery. The second question is, I think you called out some improvements in marketing ROI. I wonder if you could provide some color there whether that's mostly driven by a continued shift to mobile or are there other factors driving sort of better ROIs in the performance marketing channels. Alberto Gaffney: Okay. Sure, Alex. Good morning. Again when we talk about marketing clearly, one or two key on course of the Company marketing expenditure strategy marketing or investment strategy is mobile and more and over mobile is a direct connection, okay. So what we are seeing is that the share of the direct connection continues to be very much in line with what the target that we set for the company back then -- more than the targets we have the pivot that we displayed back in 2019, which is close to 70% of the overall traffic of our website actually goes either through the app or direct or other unpaid channels, okay. So we continue with that idea. And we believe that even of as the app continues to solidify when it comes to the product offering and capabilities, I think we are in a strong position on that point. Going to your very first question on take rate, okay, clearly -- on take rate, I would like to maybe deconstruct the answer in at least two points. The first one is, importantly today the priority is delivering an extraordinarily high take rate and that extraordinary high take rate of course has various factors that drive it but one factor that we should not lose sight is that the company is running the strategy, not co-market share gains, as it was in the past, but given the pandemic, in order to preserve cash and things like losses, okay, the companies have are higher price strategy in relative terms to the ones we used to have and that is a contributor to higher take-rate. Secondly, while we're seeing clearly, as you well pointed out, suppliers relying on Despegar to sell their inventory. I think we continue to solidify our relationships, okay. We have strengthened our sourcing power through the integration of Best Day activities and prior to that, integration of the Falabella, okay. So clearly, I think we have a more robust set of sourcing partners that we are benefiting from and at the same time given the capillarity we have in the region and given how well we connect and how well be market our supplier's inventory, okay, we believe our suppliers are also benefited from us, okay. With regards to revenue yield or revenue management, okay. I think as loyalty program continues to -- continue to expand south, we already over 800,000 members in the region with limited marketing activity of these loyalty program given COVID-19 situation, okay. We have the four levers that work into the take rate function that are -- into the profitability function that are marketing expenditure, financing, pricing and now the loyalty program. So we believe that what, the way we are looking at the operations is that we are building in the context of COVID-19, a much better company, a much more solid company with core competency that should pretty much bring to bear an earning power for the company once we get back to 2019 levels. But we are not seeing a leaner side, a higher pricing level for cash preservation purposes. We are not seeing that the current situation that this -- that the different factors at work in the current pandemic will not be there for us as they are in the future, i.e., we should be able, leaving pricing aside, to deliver a stronger take rate and reach the level we had in 2019. Alex Wong: Great, thank you. Alberto Gaffney: You're welcome. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Damián Scokin for any closing remarks. Damián Scokin: Thank you very much, operator. So, to close, wish that all of you remain healthy and safe. And thank you for joining us today, and we look forward to talking to you again with the next earnings call. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Despegar.com, Corp. (NYSE:DESP) Shows Strong Growth Potential Amid Market Fluctuations

  • DESP has experienced a monthly gain of 12.80%, indicating strong upward momentum despite a short-term decline of 8.65% over the past 10 days.
  • The stock is projected to increase by 26.74%, suggesting it is undervalued and has substantial upside for investors.
  • With a Piotroski Score of 8, DESP's financial health is robust, highlighting its potential for sustained growth.

Despegar.com, Corp. (NYSE:DESP) is a leading online travel company in Latin America, offering a wide range of travel-related services, including airline tickets, hotel reservations, and vacation packages. The company competes with other travel giants like Expedia and Booking Holdings, but it has carved out a niche in the Latin American market, leveraging its local expertise and strong brand presence.

DESP has shown a remarkable monthly gain of 12.80%, reflecting strong upward momentum. This performance is noteworthy, especially in a competitive industry. However, the stock has seen a short-term decline of 8.65% over the past 10 days. This dip might be a strategic entry point for investors anticipating a rebound, as highlighted by its recent performance.

The stock's growth potential is significant, with a projected increase of 26.74% in its price. This suggests that DESP is undervalued and offers substantial upside for investors. The company's ability to capitalize on its current valuation could be a key driver for future growth, making it an attractive option for those seeking long-term gains.

DESP's financial health is robust, as indicated by its Piotroski Score of 8. This score, which evaluates a company's financial strength, suggests that DESP is fundamentally sound. A high Piotroski Score is a positive sign for investors, indicating that the company is well-positioned to sustain its growth trajectory.

Analysts have set a target price of $21 for DESP, suggesting a significant upside from its current levels. This target price reflects confidence in DESP's growth prospects and market position. Additionally, the stock's recent touch on a local minimum could signal a potential reversal, offering an attractive entry point for investors looking to capitalize on its growth potential.

Despegar.com, Corp. (NYSE:DESP) Sees Impressive Monthly Gains Amidst Market Fluctuations

Despegar.com, Corp. (NYSE:DESP) is a leading online travel company in Latin America, offering a wide range of travel-related services including airline tickets, hotel reservations, and vacation packages. The company competes with other major players in the travel industry, such as Expedia and Booking Holdings, by focusing on the unique needs of Latin American travelers.

DESP has recently caught the attention of investors due to its impressive monthly gain of approximately 21.10%. This upward momentum suggests strong investor confidence and interest in the stock. However, the slight dip of 0.17% over the last 10 days may provide a strategic entry point for potential investors looking to capitalize on short-term fluctuations.

Despite the stock's growth potential being estimated at -2.60%, this should be viewed with caution. It indicates that the stock might be slightly overvalued, but investors should also consider broader market conditions and the company's fundamentals. These factors can significantly impact the stock's future performance and should be part of any investment decision-making process.

The Piotroski Score of 8 for DESP is a positive indicator of the company's financial health. This score reflects strong profitability, liquidity, and operational efficiency, suggesting that DESP is well-managed and financially stable. Investors often use the Piotroski Score to assess the financial strength of a company, and a score of 8 is considered robust.

Investors should monitor market trends and company announcements that could impact the stock's movement towards this target, ensuring they make informed investment decisions.