Despegar.com Announces 4Q22 Financial Results

Gross Bookings up 10% YoY, with Total Adjusted EBITDA of $12.5 million; Company Initiates 2023 Annual Guidance

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 December 31, 2022 (“fourth quarter 2022” or “4Q22”). 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 adjustments. All comparisons in this announcement are year-over-year (“YoY”), unless otherwise noted.

4Q22 Financial and Operating Highlights

(For definitions, see page 11)

• Gross Bookings for 4Q of $1.1 billion, up 10% YoY and representing 82% of 4Q19 levels
• ASPs increased 29% YoY to $539, while transactions decreased 15% YoY to 69% of 4Q19 volume due to high average prices and demand weakness across markets
• Second-highest Take Rate of the year at 13.8%, increasing 79 bps YoY
• Revenues increased 17% YoY to $145.5 million, returning to 4Q19 levels
• Cost of Revenue as a % of Gross Bookings decreased 136 bps to 4.3%, trending toward pre-pandemic levels
• Total Adjusted EBITDA increased 39% YoY to $12.5 million, marking the fifth consecutive positive quarter, as the Company continued to focus on profitability across markets in Latin America
• Operating cash flow was negative $17.8 million, compared to positive $2.0 million in 4Q21
• Year-end 2022 cash position of $245 million
• Members of Loyalty Program increased 338% YoY to 12.1 million
• Net Promoter Score (NPS) increased 637 bps YoY to 65.1%, approaching pre Covid levels
• Mobile represented 49% of Transactions, up 279 “bps” YoY and 613 bps above 4Q19

Message from the CEO

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

“A fifth consecutive quarter of positive Adjusted EBITDA reflects our consistent and disciplined execution as well as a still improving revenue mix. In what was expected to be a challenging demand environment marked by steep inflation and substantially higher airfares, we held fast with a Take Rate of 13.8%, above our long-term target, while maintaining a low cost structure.

Adjusted EBITDA also benefited from ASPs that grew 29% over fourth quarter 2021, thanks in part to a greater mix of more profitable travel packages, which increased 265 basis points to 31% of Gross Bookings. In Brazil, Gross Bookings grew 44%, while in Mexico they increased 5% despite a sharp decrease in transactions and as we continued to focus on profitability. ASPs also helped us deliver a second consecutive quarter of consolidated revenue above $140 million.

During the quarter, we maintained a portfolio approach to our business, making select investments to further strengthen brand awareness and gain additional market share in Brazil, as well as bolster Despegar’s technology advantages.

We are nearing the end of the first quarter and I’m glad to report that travel demand has picked up considerably, which bodes well for the rest of 2023, particularly with regard to our operating leverage. As such, we anticipate 1Q23 Adjusted EBITDA in dollars to be in the “mid teens” area. We are also initiating annual financial guidance, and expect to deliver 2023 consolidated revenues in the range of $640 to $700 million and Adjusted EBITDA between $80 and $100 million, in line with the projections we provided during last year’s Investor Day which assume a full recovery in Latin America’s travel market by year-end 2023.

Continuous innovation plays a crucial role in achieving our ambitious performance targets, especially in a market where the needs of customers are evolving faster and they increasingly demand tailored travel experiences. A recent innovation is Despegar’s redesigned mobile app, which is integral to our customer engagement strategy. Reaching an installed base of 23 million customers, our app now offers a significantly streamlined and substantially faster booking process, with 15% fewer information fields to fill and auto-population of 40% of those that remain.

We also recently introduced travel packages that are preselected for customers based on tailored travel preferences that are among numerous customer data points that Despegar’s vast database continuously captures. This new product feature significantly reduces the amount of time a customer needs to conduct a travel search and increases conversion rates by offering packages that are more likely to appeal to them. Over time, such innovations help set our brand apart and strengthen customer loyalty.”

Initiating 2023 Financial Guidance

The Company is introducing 2023 annual guidance, which is as follows:

• Revenue: $640 million to $700 million
• Adjusted EBITDA: $80 million to $100 million

The above guidance assumes that the Latin American travel market will continue recovering and reach 2019 demand levels by year-end 2023. Importantly, this guidance is in line with the 2024 financial targets presented at the Company’s June 2022 Investor Day.

Disclaimer: The 2023 financial guidance reflects management’s current assumptions regarding numerous evolving factors that are difficult to accurately predict, including those discussed in the Risk Factors set forth in the Company’s filings with the United States Securities and Exchange Commission.

Reconciliations of forward-looking non-GAAP measures, specifically the 2023 Adjusted EBITDA guidance, to the relevant forward-looking GAAP measures are not being provided, as the Company does not currently have sufficient data to accurately estimate the variables and individual adjustments for such guidance and reconciliations. Due to this uncertainty, the Company cannot reconcile projected Adjusted EBITDA to projected net income without unreasonable effort.

The 2023 financial guidance includes forward-looking statements. For more information, please see the “Forward-Looking Statements” section in this release.

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 decreased 15% YoY to 2.0 million, reaching 69% of 4Q19 levels, mainly due to a 20% YoY decline in Air transactions, as average ticket prices increased in an inflationary environment and upward price pressure due to a combination of post-Covid market recovery, holiday travel and still limited airline capacity. Given weak travel demand, the Company maintained its focus on profitability, thus improving the relative importance of Packages, Hotels & Other Travel Products within the revenue mix. Consequently, Air transactions remained 38% below pre-pandemic levels, while non-Air transactions declined 9% YoY, principally due to weakness in lodging transactions across the region.

Total Gross Bookings increased 10% YoY to $1.1 billion, or 82% of 4Q19 levels, mainly due to a 26% YoY increase in international Gross Bookings, which reached 69% of 4Q19 levels. This positive trend was partially offset by a 3% YoY decline in domestic Gross Bookings which nevertheless exceeded 4Q19 levels.

ASPs increased 29% YoY to $539, principally reflecting inflation as well as average price increases, which affected international trips particularly. Compared to 4Q19, ASPs increased 20%.

¹ Total number of transactions for Packages, Hotels & Other Travel Products was adjusted to 1.0 million in 4Q21. As a result, total transactions were 2.3 million in the same quarter.

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 41% of total Transactions in 4Q22, increasing 4% YoY as the Company remained focused on leveraging the strong recovery in international traffic to gain market share. Total industry passenger traffic in Brazil remained 21% lower than 2019 levels, while domestic traffic reached 91% of pre-pandemic levels. ASPs increased 38% YoY, as airfares increased due to rising travel demand as well as inflation, with the latter also affecting the pricing of other travel services. As a result of the above factors, Gross Bookings grew 44% YoY in Brazil to 81% of 4Q19 levels.

Mexico represented 18% of 4Q22 Transactions. Gross Bookings increased 5% YoY, as ASPs increased 40% during the period. Transactions decreased 25% YoY, as relatively high ASPs affected demand for domestic travel, mainly in the Air segment, while the Company continued to focus on its profit taking strategy in this particular market. Compared to 4Q19, transactions declined 15% while ASPs rose 47%. Due to these factors, Gross Bookings increased 26%, but this growth also reflects the contribution of Best Day, acquired in October 2020.

Across the rest of Latin America, Transactions and Gross Bookings decreased YoY by 24% and 7%, respectively, as demand for both domestic and international travel across the region weakened on ASP increases of 23% YoY and 22% when compared to 4Q19. Accordingly, Transactions and Gross Bookings lagged 4Q 2019 levels by 40% and 27%, respectively.

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 significant portion of the revenues generated in the Financial Services segment are generated with the Packages, Hotels and Other Travel Products segment of Despegar.

The following table reconciles the intersegment revenues of the Company’s three business segments for the quarters ended December 31, 2022, 2021 and 2019:

On a YoY basis, Total Revenues increased 17% to $145.5 million, while revenue margin increased 79 bps to 13.8%, mainly driven by a significant decrease in trip cancellations as well as continued margin expansion in Mexico and Chile related to supplier incentive fees, loyalty revenues and other margin improvements. Despegar continues to maintain its focus on profitable growth, with the intention of further capitalizing on the projected recovery in travel demand.

Compared to 4Q19, Total Revenues were unchanged, while revenue margin improved 242 bps, principally reflecting higher up-front incentives from suppliers 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 decreased 16% despite a 10% YoY increase in Gross Bookings and was mainly due to efficiency gains in Despegar’s call center following the automation of certain workflows as well as the renegotiation of certain outsourcing contracts. Declining transaction volumes and customer claims as well as increasing fiscal credits further reduced cost of revenue. As a percentage of Gross Bookings, Cost of Revenue decreased 136 bps to 4.3%, trending toward pre-pandemic levels as Despegar continued to drive operating leverage, which moves towards the Company’s long-term target, while demand for customer care is also converging toward lower pre-pandemic levels.

As reported Gross Profit increased 42% to $100.6 million from $70.8 million in 4Q21. As a percentage of Gross Bookings, Gross Profit increased to 9.5% from 7.4% in the year-ago quarter.

Compared to 4Q19, Cost of Revenue decreased 16%, due to a decline in fulfillment center expenses and in customer claims as well as an increase in fiscal credits. Accordingly, Cost of Revenue as a percentage of Gross Bookings was only 6 bps above 2019 levels, while Gross Profit increased 10% as the Company improved its revenue margin by 242 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 34 % to $97.4 million. The rise in Operating Expenses was partly driven by a 34% increase in Selling and Marketing spend, as the Company increased investments in direct marketing.

Selling and Marketing (“S&M”) expenses increased 34% YoY to $46.2 million and rose 77 bps as a percentage of Gross Bookings. The increase was principally driven by higher investments in building brand awareness and by performance marketing in Brazil, as the Company invested in growing its presence in this market. In addition, the Company increased headcount as it expanded telesales capabilities as well as its Destination Management Company (“DMC”) team to capitalize on growth in Mexico’s travel market.

General and Administrative (“G&A”) expenses increased 40% YoY to $26.1 million. The increase is partly explained by a $2.4 million reversal in export taxes in 4Q21, which reduced the comparable base from $21.1 million to $18.7 million in that quarter. Also contributing to the increase in G&A expenses was $3.2 million of one-time costs related to the consolidation of Viajanet, while another $1.7 million in costs were related to FX variations and local currency inflation in Argentina, particularly in connection with wages. G&A expenses increased 52 bps YoY as a percentage of Gross Bookings.

Technology and Product Development (“T&PD”) expenses totaled $25.0 million, increasing 28% YoY. Approximately two thirds of the increase was related to expanding the Company’s developer team (including Viajanet integration), a key resource to further extend its competitive advantage in the region. The remainder of the increase was due to FX variations and local currency inflation related to IT personnel expenses. As a percentage of Gross Bookings, T&PD expenses increased 33 bps YoY.

Financial result, net

Despegar reported net financial expenses of $12.5 million in 4Q22, compared to $3.8 million in 4Q21. The YoY increase was primarily due to FX losses and higher financing costs associated with the factoring of receivables in Brazil, as a result of higher interest rates, and partially offset by interest income gains.

Income Taxes

The Company reported an Income Tax expense of $5.7 million in 4Q22, compared to an expense of $7.5 million in 4Q21. The effective tax rate in 4Q22 was 61%, compared to 58% in 4Q21.

The increase in the effective tax rate was mainly driven by: i) an increase in valuation allowance of deferred tax assets primarily in the US and Mexico, due to a recoverability analysis for the upcoming years; ii) a decrease in the unrecognized tax benefits; and iii) a decrease in non-deductible expenses.

Total Adjusted EBITDA Reconciliation

Total Adjusted EBITDA in 4Q22 was $12.5 million, 39% above the $9.0 million reported in 4Q21.

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 December 31, 2022, was $245.0 million. During the quarter, Cash and cash equivalents decreased $ 18.0 million, mainly due to a change in working capital dynamics. Aggregate Net Operational Short-term Obligations were $209.5 million, decreasing 6.0% on a QoQ basis.

Despegar used $17.8 million in Cash from operating activities during 4Q22, mainly due to working capital changes in line with an increase in credit card receivables, predominantly in the Brazilian market. This compares with cash generation of $1.9 million in 4Q21 and cash generation of $15.3 million in 4Q19.

Financial Services Segment Analysis

Despegar’s financial services segment consists of point-of-sale installment loans, 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, and fraud prevention services.

Despegar’s financial services business maintained its conservative approach to loan origination throughout 4Q22 given still challenging market conditions in Brazil. In line with the declining trend observed throughout the third quarter TPV reached $15.1 million down 13% YoY. Throughout the 4Q we continued to price risk adequately as the spread between Take Rate and projected losses remain positive. For the quarter, the financial segment reported a Total Adjusted EBITDA of negative $4.1 million compared to a negative Total Adjusted EBITDA of $3.0 million in 4Q21.

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.

4Q22 Earnings Conference Call

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Webcast: CLICK HERE

Definitions and concepts

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.

Contacts

IR Contact
Luca Pfeifer

Investor Relations

Phone: (+57)3153824802

E-mail: [email protected]

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