Good day and welcome to the Mondee Second Quarter 2024 Earnings Conference Call. Please note this event is being recorded. I will now like to turn the conference call over to Jeff Houston, Senior Vice President. Jeff, please go ahead..

Thank you, Carla and good morning to everyone. Welcome to Mondee’s second quarter 2024 conference call. With me today is our Founder, Chairman, and CEO, Prasad Gundumogula; and Chief Financial Officer, Jesus Portillo.

Executive Vice Chairman, Orestes Fintiklis; and Chief Operating Officer, Jim Dullum will present our results and be available for questions-and-answers.

Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue, growth of our business, our management and governance plans, and other historical statements as further described in our press release.

These forward-looking statements are subject to certain risks, uncertainties, and assumptions, including those related to Mondee’s growth, the evolution of our industry, our product development and success, our management performance, and general economic and business conditions.

We undertake no obligation to revise any statements to reflect changes that occur after this call.

Descriptions of these and other risks that could cause actual results to have a material difference from these forward-looking statements are discussed in our reports filed with the Securities and Exchange Commission and in our earnings press release that was issued this morning.

Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. Listeners are caution to not place undue reliance on any forward-looking statements. During the call, we also refer to non-GAAP financial measures.

Reconciliations of the most comparable GAAP measures are also available in the press release, which is available at investors.mondee.com. With that, it's my pleasure to turn it over to Prasad..

Thank you, Jeff. Good morning, good afternoon, and good evening everyone and welcome to Mondee’s second quarter earnings call to discuss our results and significant developments. We are very pleased to report a strong second quarter with growth in net revenue, take rate, and adjusted EBITDA, the latter by 38% year-over-year.

We also announced the much-anticipated refinancing of our term loan and preferred equity at favorable terms that will position the company for long-term success. Looking more closely, we are encouraged by our improved take rate, which increased 20 bps to 8.6%, reflecting the positive impact of our product mix expanding into non-air.

During Q2 2024, our non-air net revenue mix increased to 47% from 42% in Q2 2023. Mondee's growth in transactions, net revenue, and adjusted EBITDA, along with our platform-driven expansion in global markets, positions us well for continued market-share penetration.

We are confident that the ongoing integration of acquired businesses and the growth of our international markets will contribute to faster sustained revenue increases. We are refinancing our capital structure with favorable terms that position the company for long-term success.

With the longer duration to both the term loan and preferred equity, Mondee anticipates having the flexibility and financial resources to execute on its transformative plans. These plans are expected to increase revenue, profitability, and free cash flows, while continuing to lead AI-innovation in travel.

I now turn the floor over to Jim Dullum, Chief Operating Officer, who will discuss some business trends and Mondee initiatives underpinning our results and outlook.

Jim?.

Thank you, Prasad and good day everyone. Let's start with some market drivers. Long-term growth trend for travel remains intact, however, we did see the beginnings of industry softening by the end of the second quarter and we expect to continue into 2025.

Furthermore, certain regions experienced disruptive events in Q2, such as catastrophic flooding in South America affecting LATAM travel and the re-escalating Middle East conflict.

While a few stronger regional markets remain from the last vestiges of the recovery, the overall moderation in demand is being accompanied by a reduction of air fares and decline in lodging rates. In addition, global inflation and economic conditions are spurring an increase in buyer bargain hunting, to include higher-income consumers.

Meanwhile, suppliers, who are already under service-related pressure, are expected to continue emphasizing product differentiation, packaging, and more targeted distribution as their keys to potential growth. We expect more emphasis to be placed on supplier-driven programs, such as their expanding NDC and direct connections.

While the market softness may have a short-term impact on the remainder of this year, we believe these overall conditions significantly favor Mondee’s B2B marketplace expansion and deployment of our emerging AI platforms. Turning to the Mondee Marketplace.

During Q2, we capitalized on international expansion through our platform, delivering a 57% increase in transactions year-over-year. This growth could have been higher had it not been for the working capital constraints mentioned previously.

Our strategy of expanding in non-air products with higher take rate and growth in transactions in international markets overcame the pricing effect on gross bookings, producing net revenue growth and solid adjusted EBITDA.

The strong increase in transactions was accompanied by flat year-over-year gross bookings as a result of lower average transaction values, this primarily driven by our rapid growth in lower-priced international markets. We do plan to continue our penetration in international markets through deployment of our global marketplace platform.

We continued to make progress during the second quarter on initiatives around boosting profitability, expanding our travel marketplace, and maintaining AI leadership.

Our ongoing focus is to significantly enhance our content, accelerate our sales penetration in existing and new markets, as well as further streamline our business infrastructure and cost structure as note on this current slide, Slide number 7.

In the area of content enhancement, we continue expanding packages and product combinations, while adding new features and options. This is expected to enhance the appeal of our offerings and improve sales performance across Mondee’s growing transaction base.

In addition -- in content in addition, as Jesus will cover later, we expect to ramp-up the use of our Fintech tools and content to further increase customer engagement, take rate, and net revenue.

Further highlights of our progress include enhanced supplier connect programs such as airline NDC connections, direct connections with major hotel chains, and with several other connection projects in our immediate international expansion pipeline.

With these in place, we are seeing more traffic on our NDC connections with improved product pricing and features, as well as material improvement in our hotel take-rate and conversions. By the way a more specific example of the hotel take rate is an increase of over 50% in our North America hotel take rate so far this year.

In summary, as we look into the rest of the year, we are moving from market planning and development to continued platform deployment and business execution.

Our focus initiatives include further implementation of AI tools in Mondee’s operations, product expansion for greater market appeal, enhanced revenue management, and AI automation-led process improvement with further cost efficiency.

In addition, as we position -- as we are positioned to take full advantage of all our Fintech tools and services that will no longer be capacity constrained, all of these initiatives for rapid business expansion and further operational efficiency are expected to put Mondee squarely in line with our historic growth path and profitability goals by the end of the year, despite this market softness.

I now pass the call over to Jesus, our CFO, for a review of Mondee's financial performance and outlook.

Jesus?.

Thank you, Jim and hello everyone. As I go over our Q2 results, I would like to point out that all growth rates are on a year-over-year basis, unless otherwise indicated. Let me start with our financial highlights. During this quarter, we continued to generate strong performance around net revenue, EBITDA, and EBITDA margin.

As part of our core marketplace strategy, our focus has been to diversify our product offering beyond air, which improves take rate; expand internationally; and continue to grow in existing markets.

During the first half of this year, we continued to diversify our product offering and accelerating our international air expansion, which led to a 57% increase in transactions that carry a lower average transaction price.

At the same time, as a result of delayed refinancing and working capital constraints, we moderated growth of our existing business that required working capital to grow. This resulted in flat gross bookings, lower than usual net revenue growth, and improved adjusted EBITDA. Our gross bookings were $678 million in this quarter, in line with last year.

Our net revenue of $58 million increased 3%. After adjusting for acquisitions and divestitures of last year, net revenue grew 11.5%. Our take rate of 8.6% was up 20 basis points. As with prior quarters, this improvement in take rate was driven mostly by the growth of higher-margin hotel and package products.

It is worth mentioning that the delay in our refinancing impacted our ability to fully utilize our credit limits, resulting in lower Fintech revenue, which carries the highest take rate. We expect this to be fully resolved with our refinancing.

Turning to expenses, our largest expense category, sales and marketing, keep improving and was down 5% in absolute terms, while it declined from 71% to 65% as a percentage of net revenue.

The main drivers for this improvement continue to be AI-driven optimization of our revenue management and reductions in performance marketing spent in our B2C business. Adjusted EBITDA increased by 38%, from $4.4 million to $6.1 million.

Adjusted EBITDA margin also increased from 7.8% to 10.5% as we continue to prioritize operating efficiencies and improve profitability.

On a GAAP basis, our net loss was $25.5 million, which included $19.1 million of non-cash and/or non-recurring items, such as $3.7 million of depreciation and amortization, $1 million of PIKed interest, $12 million of stock-based compensation, and $2.3 million amortization of loan origination fees, among others.

Looking at our balance sheet, at the end of this quarter we had $32 million in cash and cash equivalents and $169 million of total debt compared to $36 million and $162 million, respectively at the end of December 2023.

We announced today a comprehensive refinancing of our capital structure with TCW and funds affiliated with Morgan Stanley, that is expected to extend the term loan to June 30th, 2028 and the preferred equity to December 31st, 2028.

The extended timing for the term loan beyond August 31st, 2025 and the preferred equity beyond September 30th, 2026, are both subject to securing a $15 million letter of credit that the company anticipates finalizing shortly and which would provide additional working capital.

Operating cash flow was negative $7.6 million for the quarter compared to negative $2.4 million in Q2 23. In this quarter, we used over $10 million of cash reserves as working capital to offset for credit limit reductions by certain Fintech partners in the face of delays in refinancing of our term loan.

We are working to get some of these credit limits reinstated as the refinancing is being completed. Year-to-date, both operating cash flow and free cash flow were positive, $11.1 million and $3.3 million, respectively. Turning now to our 2024 guidance.

As a consequence of the limitations we described, we now forecast our net revenue to be between $240 million and $250 million, representing an increase of 10% versus 2023, measured at the midpoint. And adjusted EBITDA to be between $25 million to $30 million, representing an increase of 42% versus 2023, measured at the midpoint.

Let me now turn it back to Jeff for Q&A.

Jeff?.

Thanks Jesus. Operator, Carla, we’re ready for Q&A now. Thank you..

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mike Grondahl from Northland Securities..

Hey thanks guys and congratulations on the refinancing. Two questions related to that. One, roughly how much working capital does that free up for you? And two, what are your priorities spending that working capital on to kind of reinvigorate growth? If you could just go over those priorities, I think that would be helpful..

Yes. Thank you so much for your question. So, addressing first your first question, in terms of how much working capital, obviously, we'll have a $150 million LOC, as we mentioned in the script, right? So, that will be to add.

We expect another $5 million that will be coming in, in terms of cash or a total of $20 million that will help us revamp our working capital. In terms of priorities to drive growth, I think that, obviously, at this point, most of that will be used in our Fintech solutions because it carries the highest take rate of all of our product mix.

And it's probably the portion that has been affected the most during these past few months while we were doing the refinancing..

Got it. And I don't know, maybe, Jim, it seems like you're having pretty good success penetrating the hotel-only space. I don't know, a little more detail there might be helpful..

Hey Mike, appreciate the question. We are having good success in hotel penetration. I mean, we've picked up some real expertise with some of the companies we've acquired. But it's not just pure hotel. Remember, there's also some packaging expertise there, which bring more of that in.

So, as we get to the non-air product, a lot of that is around packaged product, which carries higher take rate. So, we're picking that up. The other thing is in the hotel program itself, I mean, I think we've mentioned previously, we've been emphasizing the hotel program.

And as we've done that, we are significantly improving our agreements with certain hotels. We've added a couple of direct connections with major chains so far this year, and we have more in the pipeline before the end of the year that will come.

All of those things help not just the pricing and the presentation of the product but significantly the take rate, which is why you've seen the nice improvement that we saw in our North American hotel take rate so far this year..

Got it. Got it. Okay. Thank you..

Our next question comes from Brett Knoblauch from Cantor Fitzgerald..

Hi guys. This is Thomas Shinske on for Brett. Thank you for taking my questions.

I guess, first, how has the traction been for the AI-related products? More specifically Abhi, I guess, if you could give us an idea of how many transactions are coming through that virtual assistant? And then also internally, I know we mentioned Infinity last earnings call, I guess, how has progress been there?.

So, Abhi is providing good traction for us to have some great interactions and transactions. So, although the numbers seem to be less than 2% of our business.

However, the employment provided us to have the knowledge to train our models, which we are currently doing and also take the feedback in improving this product, which we are working on our second version that is view on delivering in Q4.

At the same time, we have Infinity project, as you mentioned, Infinity product is our project to deploy for our AI-nizing all of our internal operations that includes operations, call center through our CRM platforms being placed and our sales and marketing, revenue management functions.

So, we already deployed that at our revenue management function of Infinity, which has resulted some very good results where we reduced -- we were able to reduce our marketing expenses -- sales and marketing expenses by 5%.

And we expect to deploy more on to all of our assets of our business where either we improve our take rate and reduce our sales and marketing expense or reduce our cost per transaction by having an efficient operations function. So, Infinity is currently under deployment by function-by-function in our business.

And we are hoping to complete it by end of Q4 and beginning of Q1, and we are going to -- we are planning to reap very good results from it..

Awesome. Thanks. And then one more, if I may. Very encouraging to see the strong growth in transactions, coupled with a continued pressure on ARPT. I guess you mentioned strong growth in international contributing to this and last quarter, obviously, you mentioned short-haul international hotel-only.

I was just wondering, have you seen a skew towards more just consumer weakness contributing to this and just overall decreased travel spend? And any visibility into -- I know you see continued weakness into 2024 and a bit into 2025. Is there any visibility into when we can see this ARPT start expanding again? Thank you..

Yes. Thanks Thomas, it's Jim. Yes.

Look, I think we would expect to see that the average transaction rate moderate here and start to recover through the rest of the year, right? You're right, the biggest influence has been the expansion internationally, right, in markets that as they recovered, they recovered in more regional short haul first, which tends to be lower priced transactions.

That will continue to expand back to more global and international travel as it does that, that we should see, even though air fares and even hotel rates will come down somewhat in our expectations for the next few quarters, we will see the mix start to moderate back in our favor.

So, we see the ticket price fall, the average transaction rate fall moderating now to stabilize and then recover as we go into next year is probably the way I would -- the timing I would put on that..

So, the average revenue per ticket is between 50% to 55% in our business. And we -- this year -- last year, it is high. It is in the mid-70s, but we grew the transactions by 47% and at the same time, sorry, 57%.

And at the same time that we are maintaining a good revenue per ticket and also paying the inroads into expanding our Trent and Fintech and the ancil revenues by taking this market share.

So, we expect to continue to have revenue per ticket transaction is between 50 and 55 this year and in the following year in 2025, we're expecting to grow into 60 to mid-60s..

And since this is an important point, I would like to add one more perspective here. The softening in the market is typically advantageous to the Mondee business model because there is more desire for the consumer to hand for bargains and also for the suppliers to provide better economics.

But in Q2 and Q3, we were not able to fully capitalize on this because of working capital constraints. So, we simply didn't have the working capital even though the demand was there to capture it.

So, as we look towards the end of the year and 2025 following the completion of the refinancing, we should be able to take advantage of that market dynamic, which is pivotal in such times of softness favorable to our business model..

Awesome. Thank you guys for the color..

Thank you..

The next question comes from Darren Aftahi from ROTH Capital..

Hey, this is Dillon on for Darren. Thanks for taking my questions.

First, with the revised guidance, could you talk a little bit about what some of the expectations are in there? Like how much of that is driven from lower Fintech in 2Q? And then it seems like at least for a portion of 3Q until the financing secured versus some of the softness that Jim was talking about?.

Yes. So, at this point, I would say, probably around 50% is driven by our Fintech revenue that is down as well as some of the opportunities that we had to let pass because of our capital -- working capital restraints..

Okay..

And one more point. Yes, it's almost entire Q3 that is impacted, right, because it's not just a matter of securing the financing, but then it takes time to open this credit limits. So, this impact we expect it to be on Q2 and Q3..

Okay, got it. Thank you.

And then as a follow-up, when you are going into some of these other markets and expanding where some of the rates are lower, do all those markets have the same sort of, I guess, offerings as our more established markets, I'm talking sort of all the ancillaries? Or those are some of the things you're looking to add?.

Yes. So, that is precisely one of the opportunities. So, at this point in time, we are capturing the market share.

And the market share is most of the times, just the low-priced transaction that you mentioned, with very limited fronted revenue, right? So, the strategy here is to capture this market share, which also was favorable in the last few quarters because this is a business that requires less working capital, so we could take advantage of it with the constraints that we have.

And then on the back of that, we can attach the ancillaries, not just the fintech, which is the easiest one to attach, but then negotiate better deals and attach better trended revenues, attached hotel, attach other ancillary product that carries a higher take rate. So, this is precisely the strategy.

And that is one of the reasons you are seeing now at this point in time, much higher transaction volume, not significant growth in gross volume because it's the lower price practice that you mentioned, without the full capacity and capability of the additional revenue that attaches to each one of these transactions..

And even [Indiscernible] high EBITDA margins..

Got it. Thank you guys. That’s it for me. I'll pass it on..

Thank you, Dillon..

[Operator Instructions] And our next question comes from Nick Jones from Citizens JMP Securities..

Hey guys. It's Tim on for Nick here this morning. Just a couple for me, please. Appreciate you taking our questions. Can you just talk a little bit about what you're seeing kind of in terms of the competitive dynamic or the intensity within marketing. A lot of your cutting competitors have called out like bridging out the new channels.

Just wanted to see how the competitive landscape is from you guys point of view? And do you have any plans to change your strategy moving forward in the second half?.

Nick, it's Jim. Let me start. First of all, we think the strategy is working great in the current market. And again, the transaction increase, as Orestes has just described, this is all -- we're taking share of wallet.

We're taking market share, fully positioned now to both capitalize on the base transactions as we've penetrated those markets to improve things, but also capitalize on the deployment of our platform more and more internationally, right? And as we do that, we think that allows us to continue to grow very strongly in this market.

We have -- what we certainly believe is a lead position in the deployment of AI into the space. which gives us great differentiation in the market. So, we think we stand in a strong position to grow. We've had some -- we had a little bit of headwinds with this capital issue that constrained us from knocking everything out of the park.

But we took advantage of everything we could. We've taken advantage of this platform. And we're pretty jazzed about the position we have going forward in this market. It's sometimes the softness is actually great for Mondee strategy and to continue to deploy it..

Great. Thanks so much for all that color. Just one more if we could, please.

In terms of kind of air fares kind of looking out into back half of the year in 2025, a lot of the airlines had kind of called out taking corrective action to kind of reduce capacity, which should kind of help drive stability and fares? I know you guys kind of talked about your guidance, taking down your guidance due to some of the softness you're seeing and the impact from kind of on the working capital.

In terms of airfares kind of for the back half of the year, how are you guys thinking about that? Are you guys expecting continued softness? Any kind of improvement? Or any kind of color on what's baked into the guide there? Thanks..

Tim, your point is a great one, right? You're absolutely right. The airlines actually reduced capacity slightly during the -- or didn't increase capacity, certainly not in keeping with what was the demand, the strength of the demand during the first half of the year.

And they did see their load factors increase, right, which is, in general, good for the airlines. However, in the face of that, even there because they have such service issues because some of the constraints coming out of coal that still remain for them.

With those service issues, they still struggle to continue to compete on the routes that they all work on. So, they are using pricing now as they appear to be using pricing as a strategy going forward, we think they will use targeted distribution channels more strongly. So, we see them using several different levers. Price is going to be one of them.

So, right now, we would expect air prices to continue to be a little soft through the remainder of this year, maybe into early next year. We think that a little bit of inflation fares and some of the general economics globally are causing a little bit of customer sentiment to back off.

So, I think as the airlines look at that, they make some decisions on -- because they're trying to price so far forward, it make some decisions that create some softness in the price.

So, we think that -- we'll see a little bit of movement probably still downwards slightly on air fares, but a stabilization here before it starts picking up hopefully in the early part of next year. But that's sort of the general trend that we would expect..

To expand the from -- it may change from market-to-market. There are certain markets that are performing very strongly. We being a global platform and expanding into and looking into these opportunities very closely.

So, we are using our platform as a vehicle for us to expand into the areas that really are growing and expected to grow and using our platforms to receiving the transactions and optimize it. At the same time, managing the softness of certain segments of the business with the other markets and other product mix that we have in our plans.

So, being a market place, although there is a little stress in the market, on the airline and inventory and its softness of the price, but we see some great opportunities that we fit very well in that environment. So, we are working on our plans. And hopefully, that's all going to see -- we are going to see that in results in the next few quarters..

So, this does conclude the question-and-answer session and I will hand back over to Jeff Houston for any final remarks..

Hey thank you, Carla, and thanks to everyone who tuned in for our second quarter 2024 earnings call, whether it was live, the replay or the transcript, if you have any questions or would like to learn more about Mondee. Please don't hesitate to schedule a call with us.

You can get more information on our IR website, which is investors.mondee.com or you can send us an e-mail at ir@mondee.com. Thank you..

Then this concludes Mondee's earnings conference call. Have a nice day. You may now disconnect..