Good morning, and welcome to the Despegar's Third Quarter 2022 Earnings Call. A slide presentation is accompanying today's webcast, and is available in the Investors section of the company's Web site, 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'd like to turn the call over to Mr. Luca Pfeifer, Investor Relations. Please go ahead, your line is now open..

Good morning, everyone, and thanks for joining us today. 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 calculations.

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 substitutes for or superior to GAAP financial measures, and are provided as supplemental information only.

Before we begin our prepared remarks, please turn to slide two, and 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 the integration and performance of the businesses we acquire, including Best Day, Stays, Viajanet, and Koin. For a description of these risks, please refer to our filings with the U.S.

Securities and Exchange Commission and our press release. Speaking on today's call is our CEO, Damián Scokin, who will provide an overview of Despegar's third quarter performance, as well as an update on our strategic initiatives. Alberto López-Gaffney, our CFO, will then discuss the quarter's financial results in more detail.

After that, we'll open the call for your questions. Damián will begin his remarks on slide three. Damián, please go ahead..

Thank you, Luca, and good day, everyone. Thank you for joining our earnings call and for your interest in Despegar. A focus on balancing growth and profitability across the geographic markets allowed us to deliver our highest EBITDA since the onset of COVID-19, on strong revenues and higher operating leverage.

Gross bookings increased nearly 70%, to just 7% below what we booked in the third quarter of 2018 as demand for travel continued to recover. The strength of our bookings coupled with a take rate 60 basis points above the upper range of our long-term guidance drove revenues 75% above the third quarter of 2021.

Operating expenses increased 39% year-on-year, well below our 75% top line growth. OpEx stood at 8.5% of GBs, compared to 10.3% in the third quarter of last year. At the same time, we sought to take advantage of higher demand levels to expand our share in certain markets, including Brazil, where we continued to make market inroads.

The net result, Despegar's reduced cost structure combined with strong revenue growth enabled us to deliver our fourth consecutive quarter of positive EBITDA. At Koin, we stepped up our conservative approach to credit approval, and we have slowed down loan origination, predominantly with respect to third-party merchant transactions.

At the same time, we have been effectively pricing credit risk. A word about innovation on slide four, we always put the customer at the center of all our efforts as we continue to innovate and accompany them on each step of their journey, from researching the [travel ecosystem] [Ph] to making their final purchase.

With the aim of continuously improving their customer experience, we're always implementing various initiatives to drive innovation across several of our brands and product categories.

To mention a few, we are customizing the landing page and tailoring the [mighty] [Ph] sections of our site in order to reflect [a bit of our] [Ph] customers' purchase history and travel [needs] [Ph]. This quarter, we also launched a pilot WhatsApp sales channel under our Best Day brand, and it's already showing very promising results.

In an effort to provide customers with the most competitive prices, we are currently working on the launch of [kilopacks] [Ph] in selected markets, which allows customers to access [indiscernible] such as airlines and hotel names that will be revealed one month prior to departure. This allows for aggressive sourcing options.

Turning to our loyalty program, we're excited to report that membership growth accelerated [63%] [Ph] quarter-on-quarter, reaching a total of 9.3 million members. This allows us to establish an even closer connection to our customer base, and is another way we are able to tailor travel solutions to their specific preferences.

Today, already 5% of all transactions across our platforms include point redemptions. Let's look at gross bookings by region on the next slide. In Brazil, our largest market, gross bookings rose 9% sequentially as we capitalized on a recovery in international traffic to build on our market position.

Industry international passenger traffic in Brazil reached 68% of the third quarter of 2019 level, continuing to recover sequentially. Year-over-year, gross bookings more than doubled driven by transactions and average selling price, ASPs, both of which increased in the high 40s.

In Mexico, gross bookings posted a 13% sequential decline due to seasonal effect but recovered 9% from September to October. ASPs increased 25% year-on-year as we continued to increase sales of higher-margin packaged hotels, and added travel products.

While the relative mix of lower-margin domestic air sales continued to decline, this drove a 24% increase in bookings year-on-year. Compared to third quarter 2018, ASPs increased 28% as we continued to focus on driving higher profitability. Across our other markets, gross bookings were flat quarter-on-quarter.

Although international traffic continued to gradually recover at a lower pace than other markets, ASPs increased 45% year-on-year, exceeding pre-pandemic levels by 17%.

To summarize this slide, we continued to effectively respond to and tactically exploit the recovery in international traffic in Brazil in order to capture a greater share of this market. And as Mexico, our second-largest market, entered its high travel season, our mix of higher-margin travel products continued to improve.

The quarter's substantially higher ASPs reflect these, as well as our focus on prioritizing profitability overall, in Mexico, during the quarter. Our discipline, combined with a much lower cost structure, are driving Despegar's earning power and building on the profitable growth trajectory we have established.

With this, I will turn the call over to Alberto..

Thanks, Damián, great to be with you all once again. As we can see in the chart in the upper-left of slide six, the 75% increase in revenue put 10% above the level we reported in third quarter 2019. The year-on-year increase was even more pronounced on an FX-neutral basis, at 94%, nearly doubling during the period.

In addition to strong demand levels that drove gross bookings, we benefited from a higher take rate of just over 13%, benefiting from normal travel conditions driving fewer cancellations on higher rates in Mexico and Argentina, where we focus more on profitability over growth.

As you can also see in this chart, our take rate improved 191 basis points compared to third quarter 2019, when it was at 11.2. Cost of revenue rose 33%, and this was well below the 75% increase in our revenue.

And as a percentage of gross bookings, it decreased 124 basis points to foreign [indiscernible], thanks to improved operating leverage, together with lower cost related to customer care which got ballooned during the pandemic. As a result, gross profit more than doubled year-on-year with gross margins expanding almost 170 basis points to 8.6%.

And over 100 basis points when compared to third quarter 2019. Let's move to operating cost on slide seven. We are very pleased with how our fixed cost structure has evolved specifically general, administrative, and technology and product development expenses.

In absolute terms, fixed cost only grew 15% year-on-year and 13% since 2019 after successfully integrating several companies. This favorable trend becomes more evident when analyzing our fixed cost as a percentage of gross bookings are strong in the second-half of the slide.

Our technology and product development expenses declined 90 basis points, while our G&A expenses decreased 113 basis points. Sequentially, we see a slight increase in tech and product development expenses as we brought on the IT team from Viajanet.

We will also appreciate how our operating leverage has been kicking in when comparing our fixed cost as a percentage of revenues. Moving to the third graph, you see an absolute increase in selling and marketing expenses which are more tactical in nature.

The increase was mainly driven by our decision to favor market share gains in certain geographies, particularly Brazil as we sought to take advantage of rise in travel demand in this regard. On slide eight, we present our EBITDA evaluation.

The operating leverage we have built into the business drove 28% increase in adjusted EBITDA when compared to third quarter 2019, which is also its highest level since then, year-on-year adjusted EBITDA improved by $22.4 million. In summary, our earnings power continues to strengthen.

In addition, thanks to the gradual recovery in travel demand, we generated $10.3 million in operating cash flow and closed the quarter with a strong cash position of $263 million.

This allows us to maintain our financial flexibility to make strategic acquisitions such as our recent investments in Viajanet on states, which not only expand Despegar's travel ecosystem but also reinforce the core competencies behind our market-leading value proposition and best-in-class technology platform; both of which serve as a strong and sustainable competitive advantages.

This quarter, we would also like to provide an update on Koin as well as share some additional information about this business on slide nine. Koin has maintained a strict focus on asset quality and remains vigilant given the complex and volatile economic environment in Brazil.

On this slide, we share a number of key operating metrics that reflect our present approach. As you can see in the bar chart on the left, we took even more conservative approach to origination with a stricter client approvals resulting in a 25% sequential decline in total purchase volume.

In the chart on the right, you can see Despegar obtaining high levels of take rate while expected losses have been declining, another indicator of our cautious approach origination.

Also, it's important to remember that most of Koin's portfolio is comprised of short duration loans of approximately 5 months on average, which allows us to make rapid adjustments to attractively price risk. In addition, most of the consumer verticals that Koin serves are relatively low risk light travel.

For the quarter, Koin produced an EBITDA loss of $5.2 million. For those of you on this call who are new to Despegar's growth strategy, let me remind you that we acquired Koin as it expands our addressable market and increases conversion rate, take rate as well as average tickets among other distinct advantages.

That concludes my review of the quarter, back to Damián for some closing remarks..

Thanks, Alberto. We would like to wrap up our comment with a few key takeaways. First, there continue to be a gradual recovery in travel demand in LatAm, generating sustained growth in gross bookings, which finished the quarter just 7% below the third quarter of 2019.

The strong growth in bookings and a higher take rate drove revenues 75% higher, and finished the quarter 10% above third quarter 2019. Our top line growth combined with greater cost efficiencies continue increasing the earnings power, and drove EBITDA substantially higher versus last year, making it our first consecutive positive quarter.

As Alberto discussed, we also finished the quarter with a strong cash position, generating $10.3 million in operating cash flow [indiscernible] our strategic investments in the Viajanet and Stays.

With Viajanet now fully integrated into our technology platform, we also expect to further benefit from the cost and revenue synergies that we're achieving with this business. As an example, we're already seeing significant improvement in conversion rates and average take rates across all Viajanet transactions.

We're also very encouraged with the success we're having in cross-selling higher-margin packages through Viajanet, which had been primarily focused on selling air transactions. With respect Stays, it is now expanding beyond Brazil, its home market, as we seek to increase our prices in the vacation rental segment.

We hope the additional information about Koin is helpful to your analysis. More importantly, you can expect us to remain disciplined with the credit approvals, and continue pricing risk effectively to improve the margin of this business over time.

Looking ahead, we expect travel demand to gradually approach pre-pandemic levels based on current market trends. Therefore, we expect to maintain our positive momentum in EBITDA in the fourth quarter of this year. However, we cannot predict how inflation will trend nor its impact on our businesses in the terms of travel demand and cost.

Notwithstanding near-term uncertainties, we remain optimistic about the long-term potential of our business. This concludes our third quarter review. Operator, please open the call for questions..

Thank you. [Operator Instructions] First question comes from Kevin Kopelman from Cowen. Please go ahead, Kevin..

Great, and thanks a lot.

Just a couple of questions, the first one is, you gave a lot of helpful color on how things are trending into the fourth quarter, could you summarize those and maybe give us a better idea of what to expect in terms of bookings recovery, revenue recovery, and a little more clarity there on the fourth quarter, and where it stands today? Thanks..

Yes, Kevin, Alberto here. Good morning. Okay, with regard to the fourth quarter, okay, we're actually seeing travel demand to be very stable and similar to third quarter levels. In addition, we also see that profitability will follow the same course, okay. And so, what we're seeing is, at the end of the day, is a business that's pretty stable.

We have gained, in past quarters, from an advanced purchase, in the case of Argentina, for the [indiscernible] program, that was a program incentivizing local customers to advance purchases particularly in non-air transactions. So, that's how we see the fourth quarter shaping up..

Alberto, so is that -- just to clarify there, is that stable on an absolute dollar basis or are you thinking relative to 2019 stable because, typically, you have a -- instead of q-over-q uptake in the fourth quarter?.

Sequential, quarter-over-quarter, Kevin..

Okay, got it, got it.

So, volume and booking and revenue dollars similar q-over-q?.

You are right..

Okay, perfect.

And then one other one, could you talk about you had a share repurchase program earlier in the year, can you give us an update on how you are thinking about share repurchases? And, whether you would consider instituting a new program?.

As you pointed out, we finalized the program in mid-August.

Ended up purchasing the equivalent of $10 million worth of shares, okay? With regards to additional capital allocation, we are certainly very pleased with our liquidity position that actually provides us with financial flexibility to actually reinvest in the business or to pursue inorganic growth.

Today, we want to preserve that flexibility as we are evaluating different opportunities that may require either payment or funding to grow such operations. So at this stage, we continue advancing our agenda. And we are not planning on restarting a share buyback program despite the fact that we do appreciate that our shares are grossly undervalued..

Okay, understood. And then just a follow-up, could you give maybe a little bit more color on how you see the macro environment right now in your key markets, particularly Brazil and Mexico, just what's the latest that you are seeing there? Thank you..

Hi, Kevin. This is Damián. Thanks for your question. As we have been pointing out over the last few months, we see the macro situation in Latin America slightly different as one in the U.S. or Europe.

Although inflation has picked up in the early stages of the year, if you see Brazil there is deflation on the last couple of months and Mexico remains more stable. So, our view is more optimistic on the macro in the region in general when compared to what we see for the U.S. and Europe.

Keep in mind that when we say that Latin America has been used to dealing with inflationary situations very effectively. So, we remain more optimistic on this market and what we are for the U.S. and Europe..

Okay, got it. Thanks, Damián. Thanks, Alberto..

[Operator Instructions] It appears we have no further questions at this time. So, I am going to hand it back to Damián for final remarks..

Thanks to all of you for your interest in Despegar and your participation on the call. We look forward to seeing you on our next earnings release. Thank you very much and stay safe. Bye..

This concludes today's call. Thank you for joining and have a lovely rest of your day..