Good morning, and welcome to the Despegar Second 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 listen-only mode. Now, I would like to turn the call over to Ms. Natalia Nirenberg of Investor Relations. Please go ahead..

Good morning everyone and thanks for joining us today for a discussion of our second quarter 2021 results. In addition to reporting financial results in accordance with U.S. 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 measures 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 the 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 second 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..

Thank you, Natalia, and good morning everyone. Thank you for joining us and for your interest in Despegar. We are pleased to report the best quarter since the onset of the pandemic. Thanks to our geographic diversification strategy, gross bookings and transactions increased 32% and 8% respectively over the first quarter of 2021.

If we exclude Argentina and Brazil, gross bookings were up 64% and transactions increased 44% when compared to the first quarter of 2021. We experienced sustained recovery in Mexico driven by Best Day as well as in Colombia as most of these countries entered their peak summer travel season.

Additionally, travel restrictions were less significant in these two countries and pent up demand contributed to the strong performance.

Moreover, ASPs in the quarter were up 22% sequentially, driven mainly by 63% increase in international transactions, but again we experienced a high take rate even more so when excluding Brazil which had the second wave of COVID which drove a surge in extraordinary cancelations.

Also contributing to this quarter's take rate are the investments we have made in technology and [indiscernible], which allow us to price more accurately, improving algorithms to cut through more profitable transactions and the continuation from Best Day which have higher take rate were key drivers.

In turn, we also saw non-air products capture larger portion of our second quarter. Looking at our second quarter financial results, our adjusted EBITDA loss in the quarter which exclude extraordinary taxes were somewhat surely [ph] lower than the first quarter of 2021 results.

As mentioned previously, we believe the company on a standalone basis can be breakeven for our second quarter in gross bookings of $400 million. These excluding extraordinary charges and call center costs resulting from customers cancellations [indiscernible]. Lastly, we continued to be vigilant about our cash position.

As a result, our balance sheet remained healthy with over $300 million in cash. Moving next for a discussion of the Latam travel industry on Page 4. Almost two years into the pandemic and our business remains disrupted by this health crisis. During the second quarter, we can call out two factors that had most impact on our P&L.

First, countries with lower restrictions as Mexico and Colombia saw better travel times. By contrast, Brazil was hit with a second wave of COVID, while Argentina and Chile were impacted by another round of higher mobility restrictions imposed by their governments. Second, our geographic diversification provided a seasonality option.

Following strategic acquisitions we have generally removed the seasonality factor from our results. Now we have summer, the peak travel period all year round in our business model.

Now for a few highlights by country, starting with Mexico, the highlight in the quarter accounting for 33% of transactions up 700 basis points from the first quarter of 2021.

Although the country still has low vaccination rate, the travel industry has shown sustained recovery as there are very few restrictions in place and second quarter was the start of the summer season. In turn, gross bookings were up 49% as compared to the second quarter of 2019.

Moving next to Colombia, while gross bookings were about 2% above the second quarter of 2019 pre-pandemic levels with recovery driven by both the Mexico and international travelers. Sequentially, gross bookings increased 99%. Colombia represented 22% of total transactions this quarter an 800 basis points increase from the first quarter of 2021.

Brazil firmly our largest market now accounted for 25% of transactions compared to 38% in the first quarter of 2021. With the country facing a second wave of COVID and a tightening of more meaningful restrictions, transactions were down 33% quarter-over-quarter.

Additionally, part of this decrease is also attributable to seasonality factors as Brazil is in the winter season, whereas Mexico and Colombia are in peak summer travel months.

As a result, gross bookings were down 64% when compared with the second quarter of 2019 and the positive sign as we move through the quarter where we tend to see an easing of restrictions and gross bookings [indiscernible] in the quarter.

Nevertheless, this was not enough as Argentina and Chile both experienced a tightening of mobility restrictions with Argentina's border basically closed, thus impacting travel. On a positive note, Chile has a high vaccination rate with 63% of the population fully vaccinated, which bodes well with safer travel.

Notably, the level of translation of trends through the peak of the second wave would comprise the months of April to June of this year was 55% below the one observed in the same period last year when we experienced the first COVID wave.

These results not only reflect better market conditions, but also as I mentioned we have implemented [indiscernible] transaction. Moving to Slide 5, Latam on average continues to have more mobility restrictions in place than the U.S. and Europe.

Although there have been some periods when restrictions were eased, in general, the region has mostly curtailed travel as borders were closed or restricted during a big portion of the first half of the year. You can see these more clearly detailed in the chart on Page 5. Earlier, I spoke about the importance of Mexico to our results in the quarter.

And as also shown in this chart, travel is permitted in Mexico and their borders are open. Thus giving us confidence that when see similar lifting of restrictions in our other key markets, travel will once again pick up.

As mentioned in previous calls, we estimate that the recovery path in Latam is lagging six months when compared to the recovery with our travel in the U.S., mainly because the vaccination rollout took longer. Fortunately, the pace of vaccination has accelerated across geographies by climbing from very low levels last quarter.

We are well positioned with broad geographic coverage and capital base to capture anticipated recovery in our main markets. Now please turn to Slide 6. Although COVID has impacted the overall travel industry, we have continued to advance on our strategic initiatives and in fact instances [ph] we have accelerated our plans.

We launched our loyalty program in the second half of 2019 in Brazil followed by the launch in Argentina. And during the second quarter this year we launched this program in Mexico. In the short period that the program has been available, approximately 14% of our Mexican customers have signed up.

Also in Mexico we have almost finished integrating Best Day into our operations with both the B2C and the B2B already integrated into the Despegar platform. Now we are working steadily to finalize the integration of the [indiscernible] GB’s at Decolar by the first quarter of next year.

In Brazil we have been offering more financing options to customers. Koin has been key to this. At Koin, we are implementing a risk-based pricing strategy, where the interest rate that we charge depends on the risk profile of each customer based on internal and external sources of [indiscernible].

We are also adding B2B products that we are offering to e-commerce platforms payment gateways and individual merchants. So far we have [indiscernible]. First, we offer merchants the possibility to use Boleto Parcelado, our buy now, pay later payment validity.

Second, we also offer our payments and antifraud [indiscernible] to companies from which are payment fee per client transaction. More recently, we have begun to work with some key online loan providers in Brazil where we have as an institution channel a payment fee for each transaction that is closed.

I will now turn the call over to Alberto to describe the quarter's financial results..

Thank you, Damián and thank you all for joining us today. Moving on to Slide 7, as Damián noted, Colombia and Mexico posted strong recovery trends. However, demand in Brazil, which is our most relevant market was significantly affected by the second COVID wave. To a lesser extent, this was also the case in Argentina and Chile.

This resulted in a 76% sequential increase in extraordinary cancellations to nearly $8 million this quarter versus $4 million in the prior one. Excluding these extraordinary cancellations, we delivered a solid take rate of 14.4% reflecting the initiatives we are undertaking in several fronts to further support profitability.

Continued improvements in our algorithms are allowing us to make smarter pricing conversion decisions. Our healthy take rate also reflects the positive impact from Best Day in Mexico given its higher share of non-air products. As we mentioned in previous calls, we believe that this take rate also reflects the industry's balance sheet [indiscernible].

Moving on to revenues, excluding higher customers extraordinary cancellations, we believe about 26% sequential increase in our top line reaching $71 million, although revenues were 39% below pre-pandemic levels. Now please turn to Slide 8.

Comparable adjusted EBITDA excluding extraordinary charges was a loss of $7.5 million representing a sequential improvement of nearly $5 million in the lowest quarterly loss since the COVID-19 outbreak. This compares to a adjusted EBITDA losses of $14 million in the prior quarter and $31 million in the second quarter 2020.

One-time charges this quarter were nearly $12 million mostly related to extraordinary cancellations resulting from the surge of COVID cases. Now please turn to Slide 9. We ended the quarter with a comfortable cash position of $316 million, down $10 million.

While the second COVID wave put pressure on achieving higher top line growth, it also drove extraordinary customer cancellations as we have been discussing. As a result, we granted a higher number of vouchers to customers who's trips were impacted by the virus this quarter.

This benefited working capital with use of cash declining nearly $10 million compared to a drop of $25 million in the prior quarter. At the same time, operating cash needs declined to $1 million, down from over $7 million in the first quarter of the year.

In turn, total net operational short term obligations stood at $216 million increasing 3% sequentially. Now, please turn to Slide 10 for the key takeaways of the quarter. Let me step back a moment to go over the five takeaways of today's call.

First, increased geographic diversification continued to drive revenue growth and helped smoothen the asymmetrical dynamics observed across our 11 markets, both in terms of recovery trends and seasonal patterns. For example, countries facing lower restrictions such as Mexico and Colombia recovered at a very good pace.

In fact, when excluding Argentina and Chile, but faced higher travel bans. International transactions were up 120%, this sequentially signalling, strong pent-up demand in markets more open to travel. In turn, demand in Brazil that was very weak in April and May began to improve in June, with this positive trend continuing into July.

In summary, the strategy put in place over the last couple of years has allowed us to grow our business this quarter, despite the travel restrictions imposed in Brazil due to the second COVID wave. I discussed earlier cancellations for this quarter, restricting how top line growth translates into profitability.

However, when excluding extraordinary cancellations, our adjusted EBITDA was better than last quarters. Additionally, the second wave of COVID-19 and the resulting cancellations triggered the issuance of vouchers to customers, which prevented us from burning the level of cash that we reported last quarter.

Second, take rates remained at solid levels, with revenues excluding extraordinary cancellations 39% below pre-pandemic levels, beating the 56% decline in gross bookings during the same period.

Third, we continue advancing on our customer engagement initiatives, leveraging the consistent adoption of our loyalty program observed in both, Brazil and Argentina, which reached over 900,000 members. This quarter we successfully launched our loyalty program in Mexico.

Fourth, we are expanding Koin's B2B product offerings beyond Boleto Parcelado by adding new partnerships and other verticals. And finally, in terms of ESG, we are pleased to report the launch of our inaugural corporate sustainability report prepared under the SASB framework for the e-commerce sector.

This constitutes Despegar’s first steps in its ESG journey and we look forward to continue marching on this front. Now, please turn to Slide 11, for final remarks. Consolidated gross bookings in July were in line with the levels posted in June, which accounted for the higher gross bookings due in the first half of the year.

During the third quarter ’21 we expect the geographic mix to change in line with seasonality, as well as a gradual recovery in Brazil. Demand in Mexico and Colombia, are expected to remain relatively stable considering that demand in the third quarter is seasonally lower.

We also plan to continue building new verticals of Koin and strengthening its B2B business with additional platforms, payment gateways and digital wallets. We also expect further benefits from the implementation of risk-based pricing while focusing on expanding to other geographies.

The integration of Best Day is also progressing nicely and will remain on track to complete this process by Q1 2022. The B2C migration to Despegar platform is allowing us to beat our internal targets for key KPI such as conversion rate and revenue margin in Best Day's B2C segment.

The first quarter was the first time that Best Day B2C segment achieved profitability. Finally, we plan to launch our materiality assessment during the fourth quarter of this year as we continue our goal of advancing in our ESG journey. This concludes our prepared remarks. We are ready to answer your questions.

Operator, please open the lines for questions..

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ed Yruma of KeyBanc Capital Markets. Please go ahead..

Hey good morning guys. Just a couple of quick ones from me.

I guess, first, as you prepare for seasonal recovery in Argentina and Chile, are you anticipating that those travellers are domestic or you're looking international packages? Second, it seems like you have a very interesting kind of hidden asset in Koin and it and sounds like you're expanding into growth.

I guess what kind of investment is necessary in the business as you're building new verticals? And then finally, just one housekeeping question, the tourist payable on the cash flow statement, how should we think about that going forward? Thank you..

Hi Ed, how are you? This is Damián. Thanks for the question. In terms of Argentina and Chile in particular, not only those countries are in general, we are talking about the evolution of domestic and international passengers, in general you can see that domestic has recovered almost twice to three times as fast as international.

We expect that to remain as a trend in the future. So, to your question, yes, going forward with Q3 and Q4 for domestic passengers to continue growing faster than international and taking longer for international passengers to catch up and reach pre-pandemic levels. I don't know if that addresses your question..

It does..

And as per Koin, yes, we definitely are moving into not only increasing the penetration of Koin within Despegar, and the Koin in particular we are also moving into other verticals and also we are exploring options to take Koin to other geographies where Despegar is very relevant.

As you know, we will not disclose specific financial requirements for that, but I can tell you, that the way we are managing the expansion and the way we're managing payouts and receivables with vendors and clients, it has not been a significant use of cash and we don't expect that to be in the future..

Hey, Alberto then here for your third question on tourist payables and clearly in this quarter we certainly benefited from I think again, the bottom line is we -- the second wave in Brazil certainly impacted us negatively, so that actually curtailed our growth rate.

Having said that, it also drove second wave of cancellations, as already mentioned on the earnings press release. That second wave of cancellations had a positive impact on working capital from the perspective that we granted either more vouchers or refunds. That allowed us to conserve cash.

If you look at the burn, the prior quarter was around $25 million, this quarter was around $10 million. So, we expect that in the future quarters, our cash balance will diminish, from the perspective of how many vouchers get redeemed in our platform and at the same time we returned money to clients in the proper schedule.

Having said that, you also compensate because the growth rate of the company, as we have positive working capital, we generate cash from that positive working capital. All in all, we expect that the minimum cash balance of the company would be at around year end.

Remember the strategies with you in prior calls and the expectation was more around the second quarter.

The situation keeps on getting delayed and these tourists they all balance again is not something that you need to pay immediately, it's a very long cycle that actually as I have just highlighted in this response gets affected by the different waves of COVID in the region, very importantly, very importantly.

As you know, we do pay our suppliers following checkout. Okay? So in the end, the expectation is that a sales recover, will regenerate cash that we only need to cancel that down following checkout. So, we continue having the positive working capital dynamics that we exhibited pre-COVID..

Great, thank you, guys..

Thank you..

The next question comes from Kevin Kopelman of Cowen. Please go ahead..

Hi good morning. This is Emily on for Kevin. I was wondering if you could help us understand your market share strategy at present and once the market recovers, what tools will you use to gain share either organically or inorganically? Thank you..

Emily, hi, this is Damián. As we mentioned in the prepared remarks this was a very positive quarter in terms of share, and particularly because those share gains were obtained with the revenue margins we have described.

What was remarkable is that, within the strategy we’ve been sharing with you over the last few quarters, trying to maximize profitability, we were able to gain share because of the revenue management algorithms that we put in place in different markets.

So organically, we continue to improve our ability to remain competitive and taking advantage of specific pricing opportunities. As per inorganically, as part of the overall strategy of the company, you know that we are actively pursuing opportunities that help us to apply those tools in a broader scale.

So, basically, we are very happy with the results so far. We expect that to increase in recovering market..

Very helpful, thank you..

[Operator Instructions] Our next question will come from Brian Nowak of Morgan Stanley. Please go ahead..

Hi, good morning. This is Alex Wong, on for Brian, thanks for taking the question.

Just to, I'm wondering your more reopen markets like Mexico and Colombia, can you maybe talk to how you may be leaning into marketing spend to capitalize on some of the pent-up demand and maybe provide a general update on what you're seeing from a competitive landscape? Second question, you mentioned a strong take rate again in the quarter about a 400-basis point increase versus 2Q 2019, can you help us quantify, maybe how much of that, may be due to the improved pricing algorithm that you talked about versus geographic mix, and versus Best Day contribution, and how durable you think that take rate is?.

Okay, Alex, hi, thanks for the question. As you know, we do not disclose specific numbers and particularly take rate by geography. What I can tell you is that, we’ve been very careful in terms of our marketing spend by geography, depending on we believe is the different stages of the market.

In Mexico and Colombia, to your specific question, as you correctly point is where the markets in Q2 have been closer to full recovery, particularly in Colombia.

Accordingly, we have been much more aggressive in our investments in those two markets, and particularly in Colombia, I can disclose at the general level that we’ve been gaining share significantly and we receive, we start to see a very similar competitive dynamic in those markets as the one prior to the pandemic.

Obviously with just one difference, not so intense as many our competitors have left business it if you want. All in all, we will react in terms of marketing spend and pricing aggressiveness according to the evolution of the different markets, Mexico and Colombia being the ones closest to recovery.

As per the sustainability of the take rate, I think we mentioned in prior calls that we do not expect this to be the new normal.

The specific company that has significant growth potential going forward, and when the market returns to normal levels, we are ready to invest not only our full capabilities, but our financial resources to a continue growing aggressively..

And just complement to the take rate response with the new algorithms, with the change in mix, the improved mix that we actually have more non-air, more packages, et cetera, the expectation is, as you might recall, what we discussed in the December 2019, but today that we have an 11.5 plus take rate horizon in the mid to long run, we do believe that certainly with the change in mix and the strategy that can be improved, and we are looking more now in the 12 plus.

Okay, that's a long term, but of course excludes all the noise that you have today with our industry that is operating at lesser, half its capacity..

Great, thank you. End of Q&A.

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

I just wanted to thank you all for joining today and we look forward to seeing you in our next call. Thank you very much..

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