Good morning, and welcome to Despegar's Fourth Quarter 2022 Earnings Call. The 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.

And 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..

Good morning, everyone, and thanks for joining us today. In addition to reporting unaudited financial results in accordance with US 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 substitute 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 US 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 fourth quarter performance, as well as an update on strategic initiatives.

Alberto López-Gaffney, our CFO, will then discuss the quarter financial results in more detail. After which, Damián will end our prepared remarks, providing annual guidance and wrap up before opening the call for your questions. Damián will begin his remarks on slide three. Damián, please go ahead..

Thanks, Luca, and good day, everyone. Thank you for joining today's earnings call and for your interest in Despegar. We continued executing our growth strategy with focus and discipline, leading to Despegar's highest EBITDA since the global travel market was hit by the COVID-19 pandemic.

We achieved this even with expected weak travel demand during the fourth quarter, normally our strongest one. Over the last two months, we've seen demand levels rebound strongly.

And therefore, we are expecting first quarter revenues to increase around 40% versus last year and almost 20% versus 2019, with adjusted EBITDA in US dollars for the Q1 in the mid-teens area, implying an EBITDA above the 2018 levels. With the travel recovery regaining its strength, we are also bullish about the remainder of the year.

Later in our presentation, we'll talk more about the annual guidance that we published with this morning's earnings release. The disciplined execution that I mentioned is reflected in our fourth quarter take rate, which rose sequentially and was well above our long-term target of 12% to 12.5%.

That helped offset weak travel demand, driving revenue significantly higher year-on-year and keeping them in line with fourth quarter 2018. It also helped us book our fifth consecutive quarter of positive EBITDA, which drove sequentially and year-on-year to $12.5 million. Our improving revenue mix and higher ASPs also contributed to EBITDA growth.

Importantly, as we continue driving profitability higher, we are better able to make the strategic investments that are building additional scale and other competitive advantages that reinforce Despegar's market leadership in the long-term.

Overall, the operational leverage we built into the business and the growth that we expect to generate this year and beyond are expected to continuously drive our earnings power as we communicated in our last Investor Day.

Lastly, on this slide, given our solid 2022 performance, our expectations for 2023, and considering the performance trajectory that we outlined at the Investor Day, we think that our shares are grossly undervalued. Please turn to slide four.

The fourth quarter weakness in industry travel demand that I highlighted was across our markets, particularly for international travel, which contracted approximately 13% sequentially on average based on our passengers. Nonetheless, our gross bookings rose 10% year-on-year to $1.1 billion on higher ASPs, which increased 29%.

And as I noted earlier, we are experiencing a strong rebound in demand levels based on January and February's numbers. Let's take a closer look at gross bookings in the fourth quarter to explain the transitory weakness in the market. Starting with Mexico, we observed a sequentially industry decline in international passenger traffic of more than 12%.

This market trend, coupled with our continued focus on profitability, particularly in Mexico, led to a quarter-on-quarter decrease in gross bookings. Nonetheless, our gross bookings increased 5% year-on-year on the back of higher ASPs which rose 40% in the same period. In Brazil, our gross bookings were sequentially stable and up 44% year-on-year.

We continued investing in raising the visibility of the Despegar brand in this market and gaining additional traction, specifically with international travel, which is experiencing a strong year-on-year recovery in Brazil.

Like Mexico, ASPs rose sharply with airfares due to holiday travel and higher inflation, which in turn impacted prices for other travel services. Overall, travel demand in Brazil was 79% of the fourth quarter of 2018 levels in terms of passenger traffic.

In the rest of LatAm, our gross bookings decreased 7% sequentially, in line with the demand contraction we observed in the region. This mostly impacted international travel as in Mexico. I'll now turn the call to Alberto for a deeper down our revenue and profitability, starting with slide five..

Thanks Damian. Let's move to slide five for a closer look at revenue, take rate as well as our cost of revenue. Despite industry in air travel demand being at approximately 80% of fourth quarter 2019 levels, we delivered the same level of revenues, $145 million.

And compared to fourth quarter 2021, revenues grew 17%, thanks to our disciplined approach to profitability, specifically in Mexico and Argentina. As you can see on this slide, a take rate of 13.8% was the second highest of the year and in each quarter of 2022 was at/or above our long-term target of 12% to 12.5-plus-percent.

Moving to the bottom half of the slide, our cost of revenue decreased 16% year-on-year, while revenue grew 17%, as I noted. That drove another consecutive quarter of higher gross profit since the beginning of the pandemic, up 6% sequentially and 9% compared to fourth quarter 2019.

At $100 million, it was also the second highest fourth quarter gross profit in our company's history. Moving on to slide 6. Our operating expenses were relatively stable quarter-on-quarter and since second quarter 2022.

Note that our fourth quarter costs included $2.4 million of one-time G&A expenses stemming from the integration of Viajanet, which we acquired last year. Those expenses, in addition to FX and inflation, are what drove a 34% increase in our total operating cost versus last year's quarter.

Therefore, as you can see in the middle of the slide, G&A increased 52 basis points as a percentage of gross bookings, while our investments in technology and product development increased by 33 basis points. Moving to the right of the slide. Our sales and marketing expenses were stable sequentially.

The 34% year-on-year increase reflects inflation, as well as the tactical investments that we continue making in certain markets. Those investments are primarily aimed at building greater brand awareness in Brazil, our most important market and include performance marketing in that country.

In Mexico, our second largest market, we invested in expanding our telesales operation and destination management teams. Before moving to the next slide, I'd like to point out that due to operating leverage, OpEx as a percentage of gross bookings will trend downward as the business builds scale and the top line growth.

Now let's take a closer look at our profitability on slide 7. Despite a weak market and the one-time bump in our G&A, we delivered our fifth consecutive quarter of positive EBITDA, which was 51% higher than fourth quarter 2019 and 39% above fourth quarter 2021.

Behind the growth in our profitability was a 29% increase in ASPs and the robust take rate that we highlighted, as well as a more profitable revenue mix. The graph at the bottom of the slide shows our full year EBITDA, which went from a negative $43.6 million in 2021 in the midst of the pandemic to a positive $41.9 million in 2022.

That reflects not only the recovery in travel demand, but also our substantially lower cost structure and the operating leverage we built into the business. When excluding Koin, where we continued to invest in last year, EBITDA was just over $60 million. As an update, we now forecast Koin reaching breakeven in the second half of this year.

Given the challenging macroeconomic environment that remains in Brazil, we maintain a prudent approach at Koin, which is reflected in asset quality that continued to improve in the fourth quarter. As a reminder, Koin plays a vital role in providing financing that is integral to travel purchases in Latin America, but making them more affordable.

And as we expected, when we acquired Koin, it continues helping expand our addressable market, raise average ticket prices and increase customer conversion rates. That concludes my review of the quarter.

I will now turn it over to Damian, who will walk you through our progress with some of our strategic initiatives and who has some closing remarks as well..

Thanks, Alberto. We've been emphasizing our improving revenue mix, how it's one of the ways we've been generating profitable growth. On this slide, we take a closer look at how the composition of our business has been evolving.

As you can see at the top of the table, higher-margin standalone travel packages as a percentage of gross bookings were 31% in the fourth quarter of last year versus 22% in the fourth quarter of 2019.

You can also see that our geographic diversification continues to increase as Brazil and Mexico now account for 56% of gross bookings, up 8 percentage points year-on-year. We have also diversified our business from a distribution standpoint.

In the middle of the table, you see that our B2B channel, which includes white labeling of our platform, accounted for 12% of our gross bookings in the fourth quarter of last year compared to 5% in the same period of 2019.

And as mobile devices are increasingly becoming the preferred means for consumers to transact, our award-winning app has also accounted for more of Despegar's transactions last year. It represented nearly 34% of fourth quarter 2022 transactions versus roughly 28% in the same quarter of 2018.

Our app continues to gain in popularity with the installed base increasing 25% year-on-year to 23 million downloads. Customer centricity is an integral part of our growth strategy. It strengthens customer loyalty and ultimately leads to repeat business as well as referrals.

With that in mind, we have been cultivating point redemptions among the 12 million customers who joined our loyalty program, as apart. Last year, on average 5% of transactions included point redemptions.

However, when looking at Mexico, our second most relevant market, we are pleased that 10% of transactions were already executed through our loyalty program. As the follow-up from the pandemic increasingly subside last year, we also saw a big improvement in our NPS score, we jumped to 65.6%, not far off our fourth quarter of 2018 score.

We expect it to improve even further as we enhance the customer experience more and more, having made the booking process significantly easier and faster through our app. We have also been introducing new travel features to enhance Despegar's value proposition.

A more recent one is preselected travel packages that we know will appeal to certain customers based on travel preferences that we continually track and analyze. Please move to slide 9. As our 2022 results made clear, we have been effectively exploiting favorable near-term dynamics in our market.

At the same time, we have also been continually strengthening our leadership position, our core competencies. Our focus remains on our customer-centric strategy that centered around offering affordable and complete travel opportunities through the sales channel of choice of our clients.

Overall, this is allowing us to leverage our superior value proposition to effectively capitalize on medium and long-term growth opportunities.

In other words, the growth strategy that we laid out during last year Investor Day, which targets approximately $5.7 billion in gross bookings and $130 million in adjusted EBITDA by the year-end 2024 is working. Moreover, it's been gaining additional traction along with the market's recovery.

With that, and the strong rebound in travel demand observed in the first two months of the year, we decided to initiate annual guidance. For 2023, we expect to generate revenues between $640 million and $700 million, and deliver an adjusted EBITDA between $80 million and $100 million.

As we've noted in the footnote of this slide, these projections assume the region's travel market would recover to approximately 90% of its 2019 level by the year-end. Let's now turn to slide 10. To summarize, the fourth quarter of 2022 was a period of transitory weaknesses in the market, which has quickly rebounded.

A take rate well above our target level, along with higher ASPs drove revenues 17% higher in the quarter. During the quarter, we maintained our focus on profitable growth, and thanks to still improving revenue mix, we delivered adjusted EBITDA that was 51% above the fourth quarter to 2019 levels, and that was our fifth consecutive positive quarter.

Taking another step back, our fourth quarter and full year results demonstrate that we have the right strategy in place that has increased our confidence in achieving our long-term targets.

With those targets in mind, we are cementing Despegar's leadership position as we build additional scale, make target tactical and strategic investments, innovate more and further diversify our business. In the near term, we fully expect to maintain our first quarter momentum, and hit our revenue and EBITDA guidance for the year.

I would like to emphasize that, given the results were achieved in 2022, in combination with a strong outlook for 2023, we continue to see considerable upside to our share price.

Before moving to the Q&A, as previously announced, Alberto is leaving us, I'd like to take this opportunity to publicly thank him for his many strong contributions at Despegar, which he leaves on a very strong footing. We all wish him the very best in his next role, Head of M&A at Evertec. Operator, please open the call for questions..

Thank you. [Operator Instructions] Our first question today comes from Kevin Kopelman from Cowen. Your line is open..

Thanks a lot. Could you talk a little bit about the gross bookings that you're seeing for the first quarter and what's implied also in that 2023 revenue and EBITDA, what level of gross bookings? Thanks..

Hi, Kevin, this is Damián. Thanks for your question. As we mentioned in the remarks, we are seeing a very strong rebound in Q1. And as we mentioned, both in terms of revenues and EBITDA, we expect a very solid Q1. And our annual projections that we share our guidance for the first time are based on those numbers.

So we see strong market reaction in the main markets, and we expect the rest of the year to remain on that trend..

Okay. Got it. And then maybe another way of looking at it is just the take rate, how you see the revenue take rate playing out through the year just to help us with the models a little bit? Thanks..

The take rate usually model in line with what we shared in our Investor Day. So we mentioned that in Q4 was slightly higher, and that's a result of our strategy in the software market, but we will evolve towards what we said in Investor day, which is between 12 to 12.5.

Obviously, reaching those levels from the higher situation we just brief on the Q4. But we will evolve towards the Investor Day guideline..

Okay. Great. And then a separate question. Can you talk about the M&A landscape, what kind of opportunities out there and how you view? Thanks..

No. In terms of M&A guidance, this is a very tricky question because the company always keeps an ongoing set of conversations. We are extremely delighted about a couple of them at least. But Kevin, we cannot get into any further details.

And just to refer to the previous point, you have to keep in mind that our projections, guidance and the long-term projections that we shared in the Investor Day are without any significant M&A transactions. Those are based on organic growth numbers. So, all the conversations that are currently happy will add up on top of that.

And as they would feel pretty confident that our target of one to two main relevant transactions will take place along 2023..

Okay. Fantastic. Well, thank you very much. And Alberto, best of luck on the next role. We'll miss you on the calls. Thank you..

Thank you. Kevin, thank you very much. Looking forward to continued interacting..

[Operator Instructions] This concludes our Q&A. I'll now hand back to Damián Scokin, CEO, for any closing remarks..

Well, just wanted to thank everybody for your interest in Despegar, and we are looking forward to seeing you again when we release the Q1 numbers. Thanks a lot. Take care..

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines..