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. [Operator Instructions] Now, I would like to turn the call over to Ms. Natalia Nirenberg, Investor Relations. Please go ahead..

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.

Before we begin our prepared remarks, allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control.

These include, but are not limited to expectations and assumptions related to the impact of COVID-19 pandemic and integration and performance of the businesses we acquired, including Best Day and Koin. For a description of these risks, please refer to our filings with the Securities and Exchange Commission and our press release.

Speaking on today's call is our CEO, Damián Scokin, who will provide an overview of the first quarter and update you on our strategic priorities; Alberto Lopez Gaffney, our CFO, will then discuss the quarter's financial results. After that, we'll open the call to your questions. Damián, please go ahead..

customer fees, installment, marketing and loyalty. This was the result of intense testing. These actions have allowed us to further diversify our traffic sources and to use our segmentation capabilities to drive loyalty among higher LTV customers.

We have also made some changes internally, putting revenue marketing departments together, which allows for better combination and driving a higher ROI for this transaction.

On the sourcing side, we have been working diligently with our travel partners since the onset of the pandemic, which resulted in the offering of better package options for travel in Argentina, Brazil and the Andean countries.

At the same time, we were able to leverage destinations in higher take rates in the South American summer month of January and February. Moving next to product mix.

Low demand and restrictions for international travel, many markets along with internal actions coupled with the acquisition of Best Day in Mexico have enabled us to drive a higher portion of non-air sales in the mix, 68% in the first quarter. Moving next to Slide 6 for a discussion on how we are strengthening our capabilities for the recovery.

We remain focused on our long-term objectives. We have been expanding our reach by working with additional travel partners. The API connectivity with Trip.com went live on April 28. As a reminder, Trip.com is a leading provider of online travel and related services.

We are making available to Trip.com our direct accommodation inventory in Latin America utilizing API. It will be available across brand [ph] through its mobile app and Internet website.

From the marketing front, we're encouraged as throughout the last quarter, we have been seeing our marketing efficiency improve and have further developed our brand to enhance the perception of trust and affordability.

We have also taken steps to further enhance product bundling, which resulted in a 3 percentage points increase in Package Transactions vis-à-vis pre-pandemic of the first quarter 2019.

Key initiatives including improving the flow, clients go through the bundling products by themselves either on our app or on the website and ensuring they find the best offers based on machine learning capability technology [ph].

The combination of the inventory from the different brands and the cross-selling of activities and [indiscernible] are also contributing to drive more efficient banking. Now please turn to Slide 7. We are well prepared and have the right ecosystem in Place to capture the anticipated recovery in our main markets.

Starting with an update on where we are with the Best Day acquisition, a key strategic asset for us. To begin, we are already capturing synergies in the B2C online segment at the migration to Despegar's platform is complete.

In turn, the revenue margins improved by 120 basis points, well ahead of our expectations disclosed in our third quarter of 2020 earnings call. In addition, the conversion rate increased by 30 basis points. Progress in the integration process is also observed in the 5.4 percentage point increase in gross margins of the B2C offline segment.

These good results are driven by the relief [ph] of Despegar's leading technology integrated into Best Day. Thanks to this achievement, this past quarter, we presented the first time that Best Day overall B2C segment achieve profitability.

In terms of the B2B segment, in the coming months, we will complete the integration of the different white labels with which Best Day has arrangements with. We started working on this project in the first quarter and expect to conclude it in the early third quarter.

Lastly, next quarter, we will start with the tech development in connections with the in-destination activities, which will allow us to take this vertical to a different level. We're excited about all the opportunities that Best Day has brought to us and we are already seeing the benefit on the two brands working together under Despegar's umbrella.

Now moving to financing and payments where we're driving innovation in the Brazilian Payments Environment. At Koin, we're expanding each financing solution to other verticals beyond Decolar. Today, Koin is already available as a payment method, as [indiscernible], one of the leading and rapidly growing e-learning companies in Brazil.

Additionally, we're also completing the integration of Koin [ph], a leading player in the B2C digital commerce. PIX, the instant payment developed by the Central Bank in Brazil is also now available at Decolar. With only two weeks since implementation, already 5% of transactions at Decolar were paid through PIX.

In line with our focus on cost controls, PIX allows savings of 95% per transaction when compared to other payment methods. I will now turn the call to Alberto to discuss the quarter's financial results..

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 [ph] 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 [indiscernible]. 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 [ph], 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. Now, please turn to Slide 10.

We've closed the quarter with a strong cash position of nearly $326 million a sequential decline of $25 million. At the same time, total net operational short-term obligations stood at $201 million, up 4% when compared to the prior quarter.

We obtained a positive contribution of nearly $7 million in working capital as we continued collecting our receivables while we granted vouchers to customers whose trips were impacted by the second wave of COVID-19. At the same time operating cash needs declined quarter-on-quarter by nearly $28 million to $7 million in the quarter.

This compares to use of cash from operating activities of $68 million in the same quarter last year. Now please turn to Slide 11 to wrap up the key takeaways of the quarter. Our greater geographic diversification contributed to smooth and topline volatility in the recovery trends and different seasonality across the region.

Mexico and Colombia experienced the strongest recoveries in demand driven by domestic leisure travel. By contrast, Brazil and Argentina showed the sharpest contractions as they faced a resurge of the virus.

At the same time our recent acquisitions together with enhancement to our revenue toolkit and a higher share of non-ARR revenues have allowed us to keep a significantly higher take rate for the second consecutive quarter, the highest in the past five years.

We have been successfully navigating this pandemic since its onset and believe that our strong cash position, streamlined operations, continuous focus on profitability position us well as we face the second wave of the pandemic. The integration of Best Day is also moving along nicely.

The B2C migration to Despegar's platform is allowing us to meet our internal targets for key KPIs such as conversion rate and revenue margin in Best Day's segment. The first quarter was the first time that Best Day's B2C segment achieved profitability.

Importantly, Despegar's business on a standalone basis remains breakeven when excluding one-time items and additional related to COVID-19. During the first quarter, we also completed API connectivity with our travel partners Trip.com.

Finally, our marketing strategy that prioritizes unpaid channels to drive direct traffic continues to deliver good results. Now, please turn to Slide 12 for final remarks.

The past year has been one of opportunity, challenge and opportunity during which we have shown incredible resilience, creativity and focus as one team from navigating the pandemic to generating momentum as we execute on our strategic priorities. We know we have both headwinds and tailwinds this year. The balance and degree of which is unclear.

As the year progresses, we hope to get more clarity around vaccine rollout. The scale and duration of the economic recovery and demand for travel.

Despite uneven travel recovery trends in early 2021, impacted by resurgence of the virus, as we go through the year, we expect Mexico to continue on this recovery path, and other countries to eventually follow. We know that in an environment that is changing as fast at this one, demand recovery will be choppy.

Note that, we were hit by the second wave one quarter later than the northern hemisphere, but due to seasonality, it should take us one more quarter to begin to recover as we are now entering the winter season. We would expect that by the third quarter LatAm will be in a better position.

In summary, given the seasonality patterns and the late impact on the second wave of COVID-19 for lagging [ph] the northern hemisphere recovery by along six months. Beyond seasonality, relative deployment of vaccination programs should be considered as we contrast Latin America with the northern hemisphere.

Building on the work we've begun in 2020, we will continue to drive near term cost and operational improvements that protect our bottom line while also taking actions for strengthening the company's long-term position for growth, included in the ongoing integration of Best Day and further rollout or enhancements to our loyalty program which is also benefited from a record level of co-branded credit cards.

While some uncertainty remains in our markets, we have positioned the company well in terms of future potential growth. This concludes our prepared remarks. We are ready to answer your questions. Operator, please open the line for questions..

We will now begin the question-and-answer session. [Operator Instructions] 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..

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..

Kevin. Good morning. Alberto Lopez Gaffney here addressing your question.

And so on structural costs, we continue with the same thesis [ph] 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. [Technical Difficulty]..

Just one moment. There has been an interruption. Please standby. Ms. Nirenberg, if Mr. Alberto would like to continue please..

Are you okay? Can you hear me?.

Yes. Please go ahead..

Yes, sorry, I think we got disconnected and just switching to the backup plan. So what I would say is....

Yes..

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..

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..

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 [ph] 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 [indiscernible] can see us benefited from the two factors that I have just highlighted, okay. On one extreme we actually have the North American market..

Thank you very much. That's very helpful..

You're very welcome..

[Operator Instructions] And I see that we have a follow-up from Mr. Kopelman. Mr. Kopelman, please go ahead with your follow-up..

Welcome..

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?.

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..

Thanks, Damián..

[Operator Instructions] The next question comes from Brian Nowak with Morgan Stanley. Please go ahead..

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..

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..

Great, thank you..

You're welcome..

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Damián Scokin for any closing remarks..

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..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..