Despegar.com Announces 3Q22 Financial Results

Gross Bookings up 68% YoY, with Total Adjusted EBITDA¹ of $12.0 million pointing to sustained demand recovery across Latin America

BRITISH VIRGIN ISLANDS–(BUSINESS WIRE)–Despegar.com, Corp. (NYSE: DESP), (“Despegar” or the “Company”), Latin America’s leading online travel company, today announced unaudited financial results for the three-months ended September 30, 2022 (“third quarter 2022” or “3Q22”). Financial results are expressed in U.S. dollars and are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Financial results are preliminary and subject to year-end audit and adjustment. All comparisons in this announcement are year-over-year (“YoY”), unless otherwise noted.

3Q22 Financial and Operating Highlights
(For definitions, see page 10)

• Gross Bookings of $1.1 billion, up 68% YoY and 94% of 3Q19 levels
• Transactions increased 21% YoY to 81% of 3Q19 volume
• Revenues increased 75% YoY to $145.6 million, 10% greater than 3Q19
• Total Adjusted EBITDA increased to $12.0 million, marking the fourth consecutive positive quarter, up from negative $10.3 million a year ago, as the company effectively balanced growth and profitability across different markets in Latin America
• Operating cash flow of $10.3 million, compared to use of cash of $30.5 million in 3Q21
• Loyalty Program members increased 63% quarter over quarter (“QoQ”), reaching 9.3 million members in 3Q22
• Room nights increased 5% YoY to 62% of 3Q19 levels
• Mobile represented 46% of Transactions, down 169 basis points (“bps”) YoY and was 473 bps greater than 3Q19
• Completed the integration of Viajanet into Despegar’s technology platform, resulting in initial improvements in operating metrics
• Reached 21,600 vacation rental properties on our Stays vacation rental platform

Message from the CEO

Commenting on the Company’s performance, Damian Scokin, CEO said:

“We delivered a fourth consecutive quarter of profitable growth, with Total Adjusted EBITDA increasing $22.3 million year-on-year to $12.0 million. Leveraging our market-leading brand and value proposition, we continue capitalizing on the strong recovery in Latin America’s travel demand.

Reflecting Despegar’s growing earnings power, Total Adjusted EBITDA margin expanded 112 basis points versus third-quarter 2019, while third quarter revenues increased 10% above pre-pandemic levels. Higher ASPs and a robust Take Rate of 13.1% contributed significantly to the 75% year-on-year growth in revenues.

During the quarter, we finished bringing Stays’ vacation rental inventory onto Despegar’s technology platform and expanded the number of available properties at Stays to 21,600 units. Additionally, we have begun expanding Stays beyond Brazil, its home market. We have also fully integrated Viajanet into Despegar´s platform, applying our extensive experience in effectively consolidating travel businesses under our regional consolidation strategy. Across all Viajanet transactions, we already see significant improvements in conversion rates as well as increasing average Take Rates.

We also finished the quarter with a cash position of $263 million, which maintains our financial flexibility to strategically expand Despegar’s travel ecosystem and reinforce core competencies whenever we identify suitable opportunities.

Travel demand continues to steadily approach 2019 levels. Notwithstanding near-term uncertainties, we remain optimistic about the long-term potential of the business. Further, we expect to see continuous improvements in profitability in the fourth quarter. Looking ahead to next year, we intend to maintain a disciplined focus on profitable growth in line with our 5 year target.”

¹ Total Adjusted EBITDA for 3Q22 includes $0.8 million net reversal of airline Chapter 11 provisions, while Total Adjusted EBITDA for 3Q21 included a net provision of $1.3 million of airline Chapter 11 provisions.

Operating and Financial Metrics Highlights

The following table presents key operating metrics of Despegar’s travel and financial services businesses as well as key financial metrics on a consolidated basis post intersegment eliminations between these businesses.

Key Operating Metrics

Transactions increased 21% YoY to 2.2 million, reaching 81% of 3Q19 levels, mainly driven by a 29% YoY increase in Packages, Hotels & Other Travel Products that was mostly related to increased demand for international travel in Brazil and Argentina. Consequently, non-air transactions nearly reached 2019 levels, while Air transactions remained 29% below pre-pandemic levels, largely due to a lack of international capacity deployed by airlines in some markets.

As travel demand continued to gradually recover across Latin America, domestic Gross Bookings increased 22% YoY and exceeded 3Q19 levels by 7%, while international Gross Bookings increased 143% YoY, reaching 86% of 3Q19 levels. This resulted in total Gross Bookings increasing 68% YoY to $1.1 billion, which reached 94% of 3Q19 levels.

ASPs increased 40% YoY — or 55% on an FX neutral basis — to $503, principally reflecting growing travel demand, particularly for international trips, as well as rising inflation across markets in Latin America. Compared to 3Q19, ASPs increased 16%.

Geographic Breakdown of Select Operating and Financial Metrics

The following table presents key operating metrics of Despegar’s travel business and key financial metrics on a consolidated basis post intersegment eliminations between Despegar’s travel and financial services businesses.

Brazil, Despegar’s largest market, accounted for 37% of total Transactions in 3Q22, increasing 46% YoY as the Company remained focused on exploiting the strong recovery in international traffic to gain market share. Total industry passenger traffic in the country remains 22% lower than 2019 levels, while domestic traffic reached 90% of pre-pandemic levels. ASPs increased 47% YoY, mainly due to fuel pass-through on airfares and rising inflation – with the latter also affecting the pricing of other travel services – and to the accelerating recovery in international traffic. As a result of the above factors, Gross Bookings grew 112% YoY in Brazil.

Mexico represented 19% of 3Q22 Transactions. Gross Bookings increased 24% YoY, as ASPs increased 25% during this period. Transactions were flat YoY, mainly due to a decline in lower margin domestic air sales, offset by higher margin package sales, as Despegar capitalized on the opportunity to pursue more profitable growth. Compared to 3Q19, transactions and ASPs rose 10% and 28%, respectively, while Gross Bookings increased 41%, reflecting the contribution of Best Day, acquired in October 2020.

Across the rest of Latin America, Transactions and Gross Bookings increased YoY by 15% and 67%, respectively, as demand for international travel across the region continued to recover, but lagged 23% and 10%, respectively, when compared to 3Q19 levels. ASPs increased 45% YoY and 17% compared to 3Q19.

Revenue Breakdown

We organize our business into three segments: (1) Air, which consists of selling airline tickets; (2) Packages, Hotels and Other Travel Products, which consists of travel packages (which can include airline tickets and hotel rooms, among other products); and (3) Financial Services, which consists of point-of-sale installment loans and Buy Now Pay Later services. A portion of the revenues generated in the Financial Services segment are generated with the Travel Business segment of Despegar.

The following table reconciles the intersegment revenues of the Company’s three business segments for the quarter ended September 30 2022, 2021 and 2019:

On a YoY basis, Total Revenues increased 75% to $145.6 million, while revenue margin increased 44 bps to 13.1%, mostly due to significantly fewer cancellations as well as an increase in Take Rate in Mexico and Argentina, where the Company focused on more profitable growth.

Compared to 3Q19, Total Revenues increased 10%, while revenue margin improved 191 bps, principally reflecting higher up-front incentives and customer fees as a percentage of Gross Bookings.

Consolidated Cost of Revenue and Gross Profit

The following table shows Cost of Revenue and Gross Profit on a consolidated basis post intersegment eliminations between Despegar’s travel and financial services businesses.

Cost of Revenue consists mainly of credit card processing fees, bank fees related to customer financing installment plans and fulfillment center expenses.

On a YoY basis, Cost of Revenue increased 33% – less than half the YoY increase in Gross Bookings – the absolute increase is driven by higher volumes and increased interest rates. As a percentage of Gross Bookings, Cost of Revenue decreased 124 bps to 4.5%, reflecting Despegar’s improved operating leverage, which is converging toward the Company’s long-term target, while demand for customer care is recovering to lower pre-pandemic levels.

As reported, Gross Profit increased 110% to $95.3 million, from $45.4 million in 3Q21. As a percentage of Gross Bookings, Gross Profit increased to 8.6% from 6.9% in 3Q21.

Compared to 3Q19, Cost of Revenue increased 16%, due to higher fulfillment center expenses and increases in customer claims. Accordingly, Cost of Revenue as a percentage of Gross Bookings was only 84 bps above 2019 levels, while Gross Profit increased 8%, as the Company improved its revenue margin by 191 bps.

Operating Expenses

The following table shows operating expenses on a consolidated basis post intersegment eliminations between Despegar’s travel and financial services businesses.

On a YoY basis, Operating Expenses increased 39% to $93.9 million, significantly below the 68% growth in Gross Bookings, as the Company continues to focus on increasing operating leverage. The rise in Operating Expenses was mainly driven by a 77% increase in Selling and Marketing spend in response to higher travel demand and with a sharp focus on gaining market share in key geographies during the period.

Selling and Marketing (“S&M”) expenses increased 77% YoY to $46.2 million and rose 18 bps as a percentage of Gross Bookings. The increase in absolute terms was principally driven by higher investments in direct marketing, consistent with market growth, particularly in countries with stronger recovery levels. Specifically, the Company continued to invest in raising brand awareness and gaining market share in Brazil, in line with its long-term strategic growth plan.

General and Administrative (“G&A”) expenses, increased 12% YoY to $24.9 million, mainly reflecting FX and local currency inflation in Argentina, particularly in connection with wages, provisions related to contingencies, and outsourced services related to the Company’s strategic initiatives. G&A expenses declined 113 bps YoY as a percentage of Gross Bookings, as the Company’s operating leverage kicked in.

Technology and Product Development (“T&PD”) expenses totaled $22.8 million, increasing 18% YoY, mainly due to an increase in IT headcount as Despegar continued to expand its developer team. T&PD expenses also increased due to FX variations and local currency inflation related to IT personnel expenses, as well as expenses related to the integration of Viajanet. However, T&C expenses declined 90 bps YoY as a percentage of Gross Bookings, as operating leverage continues to contribute to margin expansion.

Financial result, net

For 3Q22, Despegar reported net Financial expenses of $15.4 million, compared to net financial expenses of $3.3 million in 3Q21. The increase in expenses was mainly due to FX losses and higher financing costs associated with the factoring of receivables in Brazil, as a result of higher interest rates. The increase in financial expenses was partially offset by interest income gains.

Income Taxes

The Company reported an income tax gain of $4.8 million in 3Q22, compared to an income tax gain of $1.7 million in 3Q21. The effective tax rate in 3Q22 was 34%, compared to 6.5% in 3Q21.

The following factors contributed to the 3Q22 effective tax rate: (i) a positive impact in valuation allowance in Brazil; (ii) a Tax Holiday in Brazil in accordance with application of the Brazilian PERSE beneficial tax law; iii) an update with respect to certain tax contingencies in Mexico and Ecuador; and (iii) a true-up effect in the US.

Total Adjusted EBITDA Reconciliation¹

3Q22 Total Adjusted EBITDA¹ was $12.0 million, compared to a loss of $10.3 million in 3Q21.

Balance Sheet and Cash Flows

The majority of Despegar’s excess cash balance is held in U.S. dollars in the United States and the United Kingdom. Foreign currency exposure is minimized by managing natural hedges, netting the Company’s current assets and current liabilities in similarly denominated foreign currencies, and by managing short term loans and investments for hedging purposes.

Cash and cash equivalents, including restricted cash, at September 30, 2022, was $263.1 million. During the quarter, Cash and cash equivalents decreased $ 11.7 million, mainly due to M&A related costs. Aggregate Net Operational Short-term Obligations were $222.9 million, increasing 2.8% on a QoQ basis.

Despegar generated $10.3 million in Cash from operating activities during 3Q22, in line with increasing sales related to the demand recovery across the region. This compares with a use of cash of $30.5 million in 3Q21 and cash generation of $25.5 million in 3Q19.

Financial Services Segment Analysis

Despegar’s financial services segment consists of point-of-sale installment loans and Buy Now Pay Later (BNPL) services which enable the Company’s customers as well as customers of third-party merchants to make online purchases and pay off interest bearing debt in installments as well as fraud prevention services.

Despegar’s BNPL business, Koin, continues to effectively navigate volatile macroeconomic conditions in the Brazilian market. During 3Q22, Koin maintained a strict focus on asset quality and properly adjusted pricing to an environment of higher delinquency rates. In the context of a market with high delinquency rates, Koin took a conservative stance on loan approvals, with TPVs reaching $17.8 million and expanding 136% YoY. For the quarter, Koin reported a Total Adjusted EBITDA of negative $5.2 million compared to a negative Total Adjusted EBITDA of $3.0 million in 3Q21.

Argentina Considered Hyperinflationary Economy

As of July 1, 2018, as a result of a three-year cumulative inflation rate greater than 100% and following the guidance of ASC 830, the U.S. dollar became the functional currency of the Company’s Argentine subsidiary. This change in functional currency is recognized prospectively in the Company’s financial statements. As a result, the impact of any change in currency exchange rate on the Company’s balance sheet accounts is reported in the net financial income/(expense) line of the income statement instead of other comprehensive income.

3Q22 Earnings Conference Call

Pre-Register: You may pre-register at any time: click here. Callers who pre-register will be given a unique PIN to gain immediate access to the call and bypass the live operator.

Webcast: CLICK HERE

Definitions and concepts

Total Adjusted EBITDA: is calculated as net income/(loss) exclusive of financial income/(expense), income tax, depreciation and amortization, impairment charges, stock-based compensation expense, restructuring charges and acquisition transaction costs.

Aggregate Net Operational Short-term Obligations: consists of travel accounts payable plus related party payables and accounts payable and accrued expenses, minus trade accounts receivable net of credit expected loss and related party receivables.

Average Selling Price (“ASP”): reflects Gross Bookings divided by the total number of Transactions.

Extraordinary Charges: extraordinary events that lead to further irregular expenses, such as: i) extraordinary cancellations; ii) extraordinary restructuring charges and bad debt provisions for airlines that have entered into Chapter 11, among others. As of 1Q22, Extraordinary Charges also include costs generated from the operation of Best Day.

Foreign Exchange (“FX”) Neutral: calculated by using the average monthly exchange rate of each month of the quarter and applying it to the corresponding months in the current year, so as to calculate what the results would have been had exchange rates remained constant. These calculations do not include any other macroeconomic effects such as local currency inflation effects.

Gross Bookings: Gross Bookings is an operating measure that represents the aggregate purchase price of all travel products booked by the Company’s customers through its platform during a given period. The Company generates substantially all of its revenue from commissions and other incentive payments paid by its suppliers and service fees paid by its customers for transactions through its platform, and, as a result, the Company monitors Gross Bookings as an important indicator of its ability to generate revenue.

TPV: means Total Purchase Volume, and is equivalent to the volume processed by the BNPL financing solution during a specific period of time.

Reporting Business Segments: In 2022, in connection with a new strategy by management to expand the financial services business, the relevance of this business to the consolidated results of operations of the Company has increased significantly. In addition to the Company’s plans for expanding the financial services business outside of Brazil, the Company is incorporating into the business other service offerings, such as fraud identification, analysis and credit scoring for the Company’s travel business and other merchants, as well as providing technology/IT services to the Company’s travel business and other merchants. As a consequence the Company’s business is organized into the following segments: (1) Air, which primarily consists of facilitation services for the sale of airline tickets on a stand-alone basis and excludes airline tickets that are packaged with other non-airline flight products, (2) Packages, Hotels and Other Travel Products, which primarily consists of facilitation services for the sale of travel packages (which can include airline tickets and hotel rooms), as well as stand-alone sales of hotel rooms (including vacation rentals), car rentals, bus tickets, cruise tickets, travel insurance and destination services.

Contacts

IR
Luca Pfeifer

Investor Relations

Phone: (+57)3153824802

E-mail: [email protected]

Read full story here