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

Jeff, please go ahead. .

Thank you, operator, and good morning to everyone. Welcome to Mondee's First 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.

We'll 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 cautioned 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 to everyone, and welcome to Mondee's First Quarter 2021 Earnings Call to discuss our results and significant developments. We are pleased to have had a strong start to 2024 with a record first quarter, exceeding net revenue and adjusted EBITDA market expectations. .

Despite some caution expressed in our latest earnings call, take rate continued to expand with a 10% increase year-over-year to 8.2% for Q1 2024. This translated into net revenue of $58 million, representing growth of 16% year-over-year. .

First quarter 2024 adjusted EBITDA was $5.1 million as a result of continued marketplace expansion in product and geography, driven by our innovative AI tech platform. Based on these Q1 results, we are now increasing our net revenue guidance for the year.

To further support this growth trend, we are continuing to enhance and deploy Mondee's AI capabilities in every aspect of our business with exciting innovations in the pipeline. .

As mentioned when presenting our 2023 year-end results, we remain focused on achieving the near- and long-term goals of enhancing profitability, expanding our travel marketplace and maintaining our AI technology leadership. Let me provide a bit more detail on this. .

First, enhanced profitability and free cash flow. We remain focused on transaction volume growth, improving take rates on our way to achieving sustained double-digit levels as well as implementing cost control measures and AI-supported ecosystem optimization.

As Jesus will explain in more detail we were free cash flow positive, which led to our cash results increasing by $11.4 million from the prior quarter. .

Second, we are seeing good early results from expanding our travel marketplace across more geographies while broadening our product mix. With emphasis on packages, events and activities, we continue to achieve notable diversification in revenue mix.

During Q1 2024, our non-air components, such as hotels and packages expanded to 51% from 26% in Q1 2023. This diversification of our product mix supports further take rate improvement. .

Third, maintain technological leadership in AI. We are continuing to develop, innovate, train and deploy new AI travel features and comprehensive end-to-end capabilities across our ecosystem. Stay tuned for more exciting and specific announcements in the second half of the year. .

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

Jim?.

Thanks, Prasad, and hello, everybody. Turning to some business drivers and marketplace enhancements. Mondee remained very well positioned in the volatile and rapidly transforming travel environment throughout the first quarter. .

We anticipate good demand growth from the emerging market trends despite post-pandemic pent-up demand peaking and some headwinds from regional arm conflicts. On a macro industry note, the strong travel demand from last year continued through the first quarter of this year with the international consumption led very handily by Asia Pacific.

Mondee's strong position in international travel, which emphasizes LATAM, Asia and the Middle East is expected to continue benefiting us into 2024 with these macro trends. .

Amidst this growing demand, there remains supply side challenges for airlines, hotels and other suppliers who are facing high cost capital constraints for renovations and upgrades, while trying to solve for labor shortages and aircraft delivery delays.

As we have highlighted previously, Mondee's ecosystem and business model flourishes in such conditions of volatility. Travelers seeking effective options for full service support aligned very well with Mondee's offerings.

While on the supply side, these volatile conditions can create more perishable capacity, motivating suppliers and travelers to work through full-service B2B channels. These are outcomes which are all well suited to Mondee's AI-driven marketplace. .

Looking into the future. The macro trends -- these macro trends benefit they provide benefits from Mondee that are complemented by the emerging consumer trends, which are being driven by the younger traveler demographic and persona sets.

These trends include the emergence of inspiration travel such as entertainment, music, tourism and hybrid work or leisure travel. These new age persona requirements and trends are a great fit with Mondee's AI platforms and expanding new age distribution channels. .

From an AI perspective, as we interact with these new cohorts at scale, we gain additional valuable feedback allowing us to refine our platform, monetization and content localization strategies. We also continue enhancing our marketplace.

As Prasad described, with our continually expanding marketplace, Mondee is steadily increasing its market share within the $1 trillion-plus assisted and affiliated travel market by focusing on our added content and distribution expansion. .

You may recall that just 4 short years ago, Mondee almost exclusively offered discounted airfares. In the first quarter of this year, air-only net revenues accounted for only 49% of total net revenue, as previously mentioned. Let's break down the non-air components a bit further. .

Packages were 28%, up 13% from Q1 '23; hotels were up 13%, up 4% from Q1 '23; fintech was at 6%; and all Other, which included SaaS insurance, round transportation and other ancillaries were 5%. These adjacent products and markets not only significantly expand Mondee's total addressable market, but also contribute to the impressive rise in take rate.

As we continue deploying this content with more personalized and localized experiences through our AI technology platform, Mondee will more effectively grow its distribution channels such as the New Age distribution partners. .

Moreover, beyond this growing expert-led distribution, we continue to see transactions and net revenue increases year-over-year with our enterprise and membership organizations closed user group customers.

This is a result of our pleasure-friendly platforms, packaged offerings and the trends in corporate travel growth, such as hybrid work travel and cultural exploration trips. .

During the quarter, we continued to make progress in a number of areas that benefit profitability and operating cash flow.

These included further automation-led optimization of pricing and transaction flows, additional deployment of NDC connections with our airline and other distribution partners and implementing some hotel direct connections with major brands with immediate positive effect on our pricing and take rate. .

On the synergies and integrations front. Finally, during the first quarter, we focused on achieving further synergies with our 5 acquisitions in 2023, through seamless integration and lucrative cross-selling opportunities.

Along these lines, the integration of financial settlement processes has yielded strong early cost savings results, while the consolidation of all hotel content under one global content hub is advancing. .

We also made good progress on integration of our cross-border air content and indicatively, on May 2 of this year 2024, Mondee Brazil has launched flight-only distribution in the country, levering our air carrier relationships and superior air content. For the balance of this year, we're focusing on realizing organic growth and synergy benefits. .

I now yield the floor 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 first quarter 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.

We continue to generate a strong performance throughout this first quarter around net revenue, EBITDA and more noteworthy free cash flow generation, which was materially positive as I will detail. .

Our gross bookings were $708 million in this quarter, up 6%. This growth was driven by a 62% increase in the number of transactions with a big share of that coming from an expansion in our [ shareholder ] international flights, which carry a lower price point per transaction. .

Our net revenue increased 16% to reach $58 million. This growth in net revenue is the result of higher gross bookings, combined with our continued improvement in take rate. Our take rate of 8.2% was ahead of our expectations for this first quarter and up 10%.

As with prior quarters, this improvement in take rate was driven mostly by the growth of higher-margin products and the diversification of revenue stream, including fintech and ancillary services. .

Turning now to expenses. Our largest expense category, sales and marketing was up 8% in absolute terms. But as a percentage of net revenue, sales and marketing improved from 75% to 69%.

The main drivers for this improvement continue to be AI-driven optimization of marketing credits to our B2B distribution network and reductions in performance marketing spend in our B2C business. Adjusted EBITDA improved by 27% from $4 million to $5.1 million. .

Adjusted EBITDA margin also improved from 8% to 8.7% as we continue to prioritize operating efficiencies and improve profitability.

On a GAAP basis, our net loss was $19.5 million, which included $20.7 million of noncash and/or nonrecurring items such as $5.6 million of depreciation and amortization, $5.5 million of PIKed interest, $5.3 million of stock-based compensation, $1.9 million amortization of loan origination fees, $1.2 million change in fair value of earnout liability, and $1.2 million of acquisition and financing-related costs, among others.

.

Looking at our balance sheet. At the end of this quarter, we had $47 million in cash and cash equivalents and $166 million of total debt compared to $36 million and $162 million, respectively, at the end of December 2023.

The increase by $11.4 million in our cash balance quarter-over-quarter is a result of the company achieving the important milestone of being free cash flow-positive for Q1 2024. .

Free cash flows were $13.8 million, a $25.7 million improvement from the same quarter last year. This improvement in free cash flows included a certain timing related working capital and cash management initiatives. We have advanced further on the refinance of our term loan to increase duration and improved terms.

We expect these to optimize our capital structure, adding value to our shareholders. In the meantime, we have executed an amendment with our current lenders, extending the existing loans maturity to June 30, 2025. .

Turning now to our 2024 guidance. Based on our improved financial performance during this first quarter, we remain optimistic about this fiscal year 2024 and now forecast our net revenue to be between $250 million and $260 million, representing an increase of 14% versus 2023 net revenues measured at the midpoint.

We reiterate our adjusted EBITDA guidance of $30 million to $35 million, representing an increase of 67% versus 2023 adjusted EBITDA, measured at the midpoint. .

With all this, let me now turn it back to Jeff for Q&A.

Jeff?.

Thanks, Jesus. Operator, we are ready for questions now. .

[Operator Instructions] Our first question today comes from Nick Jones from JMP. .

I think last quarter, you spoke to revenue per transaction coming down despite kind of transaction lines up, on kind of increased short-haul flights.

How should we think about the dynamic as you guys drive really great kind of transaction growth? What's the trajectory of revenue per transaction? And how should we think about that traffic? And then I have a second question. .

Nick, it's Jim. Thanks for the question. Yes, first of all, there is somewhat of a continuation of that, right? We've had continued good growth in those international short-haul flights, which do bring revenue per transaction down. .

There are a couple of other factors as well. The hotel-only transactions and even some of the packages have a higher take rate but are also lower price per transaction. So with that lower price per transaction, that will also blend down that metric. And then the third component of it is there has overall been some moderation.

If you look at some of the IATA numbers that were recently published as an example, you'll see a general moderation in flight pricing across most markets and most regions, particularly those we serve.

So we've had sort of that trifecta that has caused the average transaction rate to come down, albeit at a higher take rate because of the blend that we talked about during the announcements. .

Great. And then Abhi has been out for a while. You guys are focused on a lot of AI and kind of product enhancements across the platform.

Can you speak to the engagement? The impact it's having on the business, now that's been out for a little bit now? And is there any way you can kind of quantify the impact either on top line or margins?.

It's too early to do that. Nick, we have had great experience with Abhi in the marketplace today, the good engagement and good learnings and changes that we are making. So we are in the process of releasing our next version in the second half with all the great feedback that we received from our customers and marketplace. .

At the same time, we are using the AI platform with Abhi to the external world and while we are working on this transforming the industry with these disruptive technologies.

But we are also working on a project called [ Infinity ] internally to focus and deploy AI platforms within our current departments and things such as sales and marketing, contact center and everything to achieve cost savings and revenue uptick.

So we expect that to be positively impacting our financials sometime in second quarter -- second half of the year. .

So at this point of time, we are focusing on deploying and focusing on making this system better than great. And then we expect to see the results and some good metrics being published at that point of time. .

Just adding to that. If you want also some metrics and part of what Prasad was referring to, a big part of our improvement in our sales and marketing ratio is actually driven by these internal AI solutions. .

Yes. That's the first area that we deployed and as we continue to deploy in other areas so we already see that reaction in marketing expense through an appropriate marketing and pricing information being offered by our AI platform. .

The next question is from Darren Aftahi from Roth MKM. .

Can I follow up on the question on -- you were commenting on about AI and performance marketing.

I'm just kind of curious how you're using machine learning and your performance marketing objectives and just kind of what your target payback periods are for those?.

And then second, your comments about short-haul flights and kind of the delta between transactions and bookings.

I'm curious as you look into 2Q, almost halfway over, how long is the shortfall kind of impact going to be with your business? Is this kind of a terminal thing?.

And then lastly, maybe for Jesus, really nice cash flow from ops number. I appreciate there's some working capital nuances. It's a pretty big delta from what's your reported with EBITDA.

So kind of how do we think about normalization of kind of cash flow from ops going forward?.

So as far as the AI involvement in marketing campaigns and the effect of that on the sales and marketing, so we are using these for 2 major areas. One is for the revenue management optimization using ML.

We are having a great information being feeded into the platform, which is helping us to set the right prices at the right times and as well as the promotions. So the pricing and the rating algorithms are being fine-tuned with the AI that helps us to set a proper revenue management levels for our sales and marketing, for both B2B and B2E businesses.

And we also placed our AI platform, which is connected with our marketing platforms or marketing tools that helps us to analyze the performance of these campaigns and how -- and what corrections to be made real-time through our AML platform being in the middle. .

Darren, it's Jim. On your second question on the impact of short-haul flights. You'll continue to see actually on all 3 fronts that we mentioned that are part of that dynamic between the reducing average ticket price, you'll see that dynamic continue for a little while.

If you think about it, what's driving a lot of that short-haul traffic, it's a lot of the Asia Pacific recovery and think about when that kind of started and picked up steam and so forth. And we started to see the effect of it. That's going to be toward the back half of the year, that the comparisons will more normalize.

But right now, we're still we're still looking at that there being a comparatively higher rate of those short-haul flights impacting our ATPs, our average transaction prices. .

And Darren, I'll address your question and thank you so much for your question. So yes, I mean, as you pointed out, obviously, first quarter, our free cash flow was very positive. We were working in different factors in this quarter, right? We anticipated collections of our receivables.

We also improved certain supplier payment terms as well as we also picked a bigger part of our interest, and that contributed enormously. We don't expect every quarter to remain the same. We expect some fluctuations on how the free cash flow is going to behave.

But overall, we maintain our expectation to provide positive free cash flow for the full 2024. .

[Operator Instructions] The next question is from Mike Grondahl from Northland Securities. .

Any regions to call out for travel above plan or below [indiscernible]?.

Mike, it's Jim. Again as I mentioned a little bit ago, obviously, good strength in the whole Asia Pacific market and that is continuing. And as again, just mentioned, you should see that comparatively continue for the time being this year. We've also seen a very good pickup in Latin America. That market has remained pretty robust and expected to do so.

The markets where it's actually been an interesting bifurcation of both positive uplift somewhere and then some pressure in all the places is the Middle East because there have been some -- there's a lot of that conflict in that area of the world that causes a bit of disruption in travel. .

but there are still segments of that market that are very strong and the outlook is very good for those. I can't think of any markets where we're really seeing a lot of softening of any kind. The general trends are certainly up, and we expect that to remain for the remainder of the year. .

Got it. Second question, just non-air or non-flight net revenues went from 26% to 51%.

Were you guys surprised by such a large increase? Or is that kind of fully part of the '24 plan?.

Yes. I mean it was a little bit ahead of what we expected, which is also why our take rate in this quarter was also ahead of that expectation. When you look at our -- every time that we talk about our future, we always say we expect air to be around 50%. So we already achieved that a little bit ahead of our expectations.

So a little bit better than what we thought. .

Got it.

And what's kind of your outlook for air, kind of in terms of net revenue? As you look out a year or 2, do you see that growing or just kind of continuing on the same trend?.

Right now, we continue with that same perspective of around 50% of our business being in air. So we're investing. As we said, we're pushing forward and strong in our short-haul international flights. So there will be a component that will be categorized as air. And we continue to push in hotels, packages and cruise lines, as you know. .

And Mike, this is Orestes. I may add one more point there.

As we are giving to our customer the package option, right, many of them are choosing to book their flight and the hotel to a package, right? So basically, some of the -- what was classified before as air now goes inside the package component, which is positive because we are giving another option to our customers and also for us because this is a higher take rate business, the same transaction [indiscernible].

.

Got it. Got it. That's fair. And I guess the reason I was asking is, it would be interesting -- that 28% that's in packages it really increased -- putting that in the non-air category, if you just look at what net revenues would have been from air a year ago to this quarter, without considering that package revenue, it's kind of a steep drop.

So what you're just saying is part of that package is kind of really -- could be characterized as air and then we wouldn't have seen such a large drop. .

I mean that's the reason. Yes, it's one of the reasons. Also as we continue expanding in other more lucrative businesses, we've been also been critical on the profitability of some of our customers, and we've been reducing some of those as well. So we prefer to continue growing in the most lucrative and profitable way possible. .

We have no further questions. I'd like to hand back to Jeff to conclude. .

Thank you, operator, and thanks to everyone who tuned in for our first quarter 2024 earnings call, whether it was live, 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 site, which is investors.mondee.com or send an e-mail to ir@mondee.com. Thank you. .

Thank you, everyone. This does conclude today's call. You may now disconnect your lines, and enjoy the rest of your day. Thank you..