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May 04, 2020

Despegar.com Announces 1Q20 Financial Results

Top Line Performance Reflects Travel Disruption from COVID-19 Pandemic

Company Maintains Solid Balance Sheet

Implementing Cost Control and Cash Preservation Measures Across the Company

BRITISH VIRGIN ISLANDS--(BUSINESS WIRE)-- Despegar.com, Corp. (NYSE: DESP), (“Despegar” or the “Company”) a leading online travel company in Latin America, today announced unaudited results for the three-months ended March 31, 2020. Financial results are expressed in U.S. dollars and are presented in accordance with U.S. generally accepted accounting principles.

First Quarter 2020 Key Financial and Operating Highlights
(For definitions, see page 13)

  • Gross bookings on an FX neutral basis declined 19% year-over-year (YoY) and as reported declined 32% YoY to $790 million
  • Revenues declined 34% YoY on an FX neutral basis and 43% as reported to $76.1 million. Excluding extraordinary cancellations due to COVID-19, as reported revenues would have declined 33% to $88.6 million.
  • Transactions and Room Nights down 23% and 30% YoY, respectively.
  • Share of mobile transactions up 551 basis points (bps) YoY, accounting for 44% of total transactions
  • Net Promoter Score (NPS) up 250 bps YoY considering January and February activity.
  • Packages, Hotels and Other Travel Products accounted for 51% of total revenue, down 1120 bps when compared to 1Q19
  • Excluding Extraordinary Charges, Adjusted EBITDA was negative $1.4 million. Reported Adjusted EBITDA was negative $15.6 million compared to positive $15.2 million in 1Q19
  • Operating cash flow negative $68.2 million in 1Q20, compared to negative $6.0 million in 1Q19
  • Structural Costs declined 17% quarter-over-quarter (QoQ) reflecting streamlining implemented in 4Q19 and first cost containment measures introduced in early January 2020.

Message from CEO

“Our results during the quarter were impacted by the COVID-19 pandemic, which has severely disrupted travel worldwide. We entered this global health crisis, with a strong balance sheet and healthy liquidity, closing 1Q20 with a cash position of $222 million, no long term financial liabilities and only a minimal amount of working capital short term debt. We continue to carefully monitor our liquidity position and believe we have sufficient resources to weather the current challenging environment, for the next twelve months.

We proactively addressed the impact of COVID-19, reducing our costs to better align with the decreasing demand. We substantially reduced marketing spend and we are pulling SG&A levers to cut costs. We are well on track to achieve the reductions in Structural Cost targets, which declined by 17% sequentially to $43 million this quarter, and expect to bring them down to $34 million in 2Q20 and $28 million by 3Q20.

Importantly, despite the measures announced, the Company remains ready to adjust to a quick ramp up of travel activity, when required.

The initiatives we have implemented in recent years have allowed us to set in place a low-cost delivery model and an agile and asset light company. And coupled with the cost savings program recently implemented, we are better positioned to meet the challenges ahead. While the depth and longevity of this health crisis is uncertain, we believe we will ultimately emerge as a stronger and leaner company. Furthermore, due to our competitive advantages, the strength of our brand, our digital capabilities, and our broad and compelling product offering, we are confident we can quickly start re-capturing market share in a more hospitable competitive environment.

In sum, we have also accomplished a great deal toward our overall strategic goals over the past 2 years. While we have had to adjust our near-term priorities, our long-term market opportunities and growth strategies remain intact and could even be more favorable given the accelerated shift to online travel we are already seeing across industries.”

Operating and Financial Metrics Highlights

(In millions, except as noted)

 

 

1Q20

1Q19

% Chg

Operating metrics
Number of transactions

2.031

2.652

(23%)

Gross bookings

790.4

$1,157.5

(32%)

Mix of mobile transactions

44%

38%

+551 bps

Financial metrics
Revenues

$76.1

$133.1

(43%)

Air

$36.9

$49.7

(26%)

Packages, Hotels & Other Travel Products

$39.1

$83.4

(53%)

Net income (loss)

($15.2)

$1.9

n.m.

Adjusted EBITDA

($15.6)

$15.2

(203%)

EPS Basic

($0.22)

$0.03

n.m.

EPS Diluted

($0.22)

$0.03

n.m.

Extraordinary Charges
Extraordinary Cancellations due to COVID-19

(12.5)

Extraordinary restructuring charges

(1.7)

Adjusted EBITDA (Excl. Extraordinary Charges)

($1.4)

$15.2

(109%)

EPS Basic (Excl. Extraordinary Charges)

(0.01)

0.03

(148%)

EPS Diluted (Excl. Extraordinary Charges)

(0.01)

0.03

(148%)

Business Update on COVID-19

Impact of COVID-19 on Travel Trends

Reflecting the unprecedented COVID-19 pandemic that has disrupted global economies and travel worldwide, since mid-March, Despegar has experienced an almost complete stoppage in new travel bookings.

As a result, during the second half of March, 2020, Despegar’s gross bookings declined by over 95% as compared to the comparable period of last year. The Company expects that these minimum levels of activity are likely to persist throughout the second quarter.

In response to this unprecedented situation, the Company is focused on three key pillars: 1) taking care of the health and safety of our employees, 2) supporting our customers’ needs in times of disruption, and 3) ensuring business sustainability.

Cost Control and Cash Preservation Measures: As previously announced, Despegar is taking significant cost control measures to mitigate the impact of the COVID-19 pandemic on the Company.

The outsourcing of the fulfillment center and a restructuring in Argentina undertaken in 4Q19, along with measures to protect cash balances implemented in March 2020, contributed to the following results in 1Q20:

  • 12% YoY reduction in Structural Coststo $42.8 million, compared to $48.7 million in 1Q19,
  • 26% YoY reduction in cost of revenue aligned with lower transactions; and
  • Elimination of direct marketing spend starting as of March 13, 2020.

As announced on April 1 and April 13, the Company undertook additional initiatives to further streamline operations, which entailed 566 layoffs, 397 furloughs and the reduction of working hours of 159 employees, among others.

As a result of the combination of these measures, Despegar estimates that its run-rate for Structural Costs (excluding one-time items such as restructuring costs and other Extraordinary Charges) will be further reduced to:

  • Approximately $34 million during 2Q20; and
  • Approximately $28 million during 3Q20.

Solid Cash Position: The Company believes that its existing cash and cash equivalents, together with expected cash flows generated from operating activities, will be sufficient to meet its currently-anticipated cash needs for the next twelve months:

  • Unrestricted cash and cash equivalents amounted to $222 million as of March 31, 2020, compared to $309.2 million as of December 31, 2019.
  • Aggregate Net Operational Short-term Obligations (comprised of travel accounts payable plus related party payables and accounts payable and accrued expenses, minus trade accounts receivable net of credit expected loss and related party receivables) were $52.9 million as of March 31, 2020, compared to Aggregate Net Operational Short-Term Obligations of $120.1 million as of December 31, 2019.

In addition, and as announced on April 13, 2020, the Company is undergoing negotiations with Best Day with respect to the previously announced pending acquisition.

The Company’s current expectation is that, if the parties agree to amend the purchase agreement, such agreement is likely to have significant changes to the original terms of the deal including changes to valuation and timing of payments trying to minimize or eliminate cash outlays associated to the purchase price in the short term, at least until 2022.

Overview of First Quarter 2020 Results

Key Operating Metrics
(In millions, except as noted)

1Q20

1Q19

% Chg

FX Neutral %

Chg

$

% of total

$

% of total

Gross Bookings

$790.4

$1157.5

(32%)

(19%)

Average selling price (ASP) (in $)

$389

$436

(11%)

5%

Number of Transactions by Segment & Total
Air

1.2

60%

1.5

57%

(20%)

Packages, Hotels & Other Travel Products

0.8

40%

1.1

43%

(28%)

Total Number of Transactions

2.0

100%

2.7

100%

(23%)

First quarter 2020 results include three-months of operations from Viajes Falabella in Chile, Argentina, Colombia and Peru.

Transactions declined 23% YoY to $2.0 million in 1Q20, while FX neutral gross bookings declined 19%. As reported gross bookings decreased 32% YoY to $790.4 million in 1Q20 reflecting i) the impact of COVID-19 crisis, ii) the lower demand in Argentina due to the implementation of a new tax on foreign travel and iii) the depreciation of the Brazilian Real.

The share of higher-margin Packages, Hotels and Other Travel Products transactions in 1Q20 was down 244 bps YoY to 40%.

Regarding customer satisfaction, the Company decided to suspend NPS reporting as of March 2020 as the current travel restrictions do not allow for sufficient data to measure Post Trip NPS. January and February NPS improved 250 bps due to improvements in the communication with car rental partners and the implementation of new features associated with the “My trips” feature.

The average selling price (“ASP”) in 1Q20 increased 5% on an FX neutral basis and decreased 11% as reported to $389 per transaction. On an as reported basis, the decrease was largely driven by i) the effects of the pandemic on the product mix, ii) the depreciation of the Real, and iii) the impact of the new tax on international travel in Argentina. These developments were offset by higher ASPs particularly in packages in Mexico, Chile and Colombia throughout January and February.

Despegar continues to drive mobile transaction growth, with aggregate downloads exceeding 62 million at quarter end 1Q20. The number of mobile transactions increased 551 basis points YoY, with 44% of all transactions completed on the mobile platform.

Geographic Breakdown

Geographical Breakdown of Select Operating and Financial Metrics
(In millions, except as noted)
1Q20 vs. 1Q19 - As Reported
 
Argentina Brazil Rest of Latam Total
% Chg. % Chg. % Chg. % Chg.
Transactions ('000)

(47%)

(18%)

(14%)

(23%)

Gross Bookings

(58%)

(29%)

(17%)

(32%)

ASP ($)

(20%)

(13%)

(4%)

(11%)

Revenues

(43%)

Gross Profit

(52%)

1Q20 vs. 1Q19 - FX Neutral Basis
 
Argentina Brazil Rest of Latam Total
% Chg. % Chg. % Chg. % Chg.
Transactions ('000)

(47%)

(18%)

(14%)

(23%)

Gross Bookings

(33%)

(18%)

(12%)

(19%)

ASP ($)

27%

0%

3%

5%

Revenues

(34%)

Gross Profit

(48%)

During 1Q20, Brazil, Despegar’s largest market, accounting for 42% of total orders, reported an 18% YoY decrease in transactions reflecting the travel restrictions imposed by the Government due to the COVID-19 pandemic. Gross bookings decreased 29% driven by the abovementioned industry contraction and a 18% depreciation of the Brazilian real which led to a 13% YoY decrease in as reported ASP [0% FX neutral]. On an FX neutral basis, gross bookings decreased 18%.

In Argentina, transactions and gross bookings decreased 47% and 58% respectively due to the following developments: i) the travel ban imposed by the Government which included a complete lockdown of the country as of mid-March, ii) a reduction in travel demand resulting from the government's tax on services and hotel accommodations completed outside the country imposed in 4Q19. This new tax also resulted in some advancement of travel purchases in 4Q19. As reported ASPs decreased YoY by 20%, due to a mix shift from international to domestic triggered by this new tax . On an FX neutral basis, gross bookings declined 33% YoY and ASPs increased 27%.

Across the Rest of Latin America, Despegar reported a decrease of 14% in transactions and 17% in gross bookings. In addition, ASPs decreased 4% year-over-year to $404. The COVID-19 related effects particularly on air ASP, were partially offset by an increase in packages ASP in Mexico, Colombia and Chile, in both January and February. On an FX neutral basis, gross bookings decreased 12%, while ASPs increased 3%.

Revenue

Revenue Breakdown
 
1Q20 1Q19 % Chg

$

% of total

$

% of total

Revenue by business segment (in $Ms)
Air

$36.9

49%

$49.7

37%

(26%)

Packages, Hotels & Other Travel Products

$39.1

51%

$83.4

63%

(53%)

Total revenue

$76.1

100%

$133.1

100%

(43%)

Revenue per transaction (in $)
Air

$30.5

$32.8

(7%)

Packages, Hotels & Other Travel Products

$47.7

$73.5

(35%)

Total revenue per transaction

$37.5

$50.2

(25%)

 
Total revenue margin

9.6%

11.5%

(187) bps

Extraordinary Charges
Extraordinary Cancellations due to COVID-19

($12.5)

Total Revenue (Excluding Extraordinary Charges)

$88.6

$133.1

(33%)

 
Total revenue margin (Excluding Extraordinary Charges)

11.2%

11.5%

(29) bps

Revenues decreased 34% YoY on a FX neutral basis in 1Q20. As reported revenues, decreased 43% to $76.1 million, from $133.1 million in 1Q19, reflecting the effect of: i) the impact of COVID-19 on travel demand; ii) refunds that took place in March primarily due to COVID-19, iii) provisioning of refunds forecasted for the second quarter and in the case of Argentina the refunds forecasted until the end of August, also as a result of COVID-19; and iv) lower customer fees and other incentives resulting from the decline in demand. These effects were partially offset by the contribution of Viajes Falabella. Revenue margin decreased 187 basis points YoY, to 9.6% in the quarter driven by the effect of cancellations made in the quarter as well as those provisioned for the next few months. Excluding the impact from extraordinary cancellations due to COVID-19, the revenue margin would have been 11.2%.

  • Air segment revenue was $36.9 million in 1Q20, decreasing 26% YoY from $49.7 million in the year-ago quarter.
  • Packages, Hotels & Other Travel Products segment revenue decreased 53% in 1Q20 to $39.1 million, from $83.4 million in the year-ago quarter. Revenues per transaction decreased 35% YoY. The share of Packages, Hotels and Other Travel Products accounted for 51% of total revenues in 1Q20, down from 63% in 1Q19.

Cost of Revenue and Gross Profit

Cost of Revenue and Gross Profit
(In millions, except as noted)

1Q20

1Q19

% Chg

Revenue

$76.1

$133.1

(43%)

Cost of Revenue

$33.5

$45.2

(26%)

% of revenues

44.0%

34.0%

+1,004 bps

Gross Profit

$42.6

$87.9

(52%)

Gross Profit Margin

 

56.0%

 

66.0%

 

(1,004) bps

Total Revenue (Excl. Extraordinary Charges)

$88.6

Gross Profit (Excl. Extraordinary Charges)

$55.1

$87.9

(37%)

Gross Profit Margin (Excl. Extraordinary Charges)

62.2%

66.0%

(381) bps

Cost of revenue, which mainly consists of credit card processing fees, bank fees related to customer financing installment plans offered and fulfillment center expenses, decreased 26% YoY to $33.5 million in 1Q20 from $45.2 million in 1Q19.

As a percentage of revenue, cost of revenue increased 1,004 basis points to 44.0% from 34.0% in the year ago quarter, reflecting the fixed portion of Fulfillment Center fees in a lower revenue context, following the outsourcing of the call centers early January 2020 to further streamline operations.

The absolute year-on-year decrease in cost of revenue was primarily driven by a significant reduction in variable costs, including cost of installments, credit card processing fees as well as fraud and errors.

On an FX neutral basis, gross profit decreased 48% to $45.8 million. As reported gross profit decreased 52% YoY to $42.6 million in 1Q20, and excluding the impact from customers’ extraordinary cancellations due to COVID-19, gross profit would have decreased 37% to $55.1 million.

Operating Expenses

Operating Expenses
(In millions, except as noted)

 

1Q20

1Q19

% Chg

Selling and marketing

$32.0

$40.9

(22%)

% of revenues

42.0%

30.8%

+1,129 bps

General and administrative

$18.0

$20.6

(13%)

% of revenues

23.7%

15.5%

+818 bps

Technology and product development

$17.2

$18.7

(8%)

% of revenues

22.5%

14.1%

+849 bps

Total operating expenses

$67.2

$80.3

(16%)

Total operating expenses as a % of revenues

88.3%

60.3%

+2,796 bps
Extraordinary Charges
Extraordinary restructuring charges

$1.7

General and administrative (Excl. Extraordinary Charges)

$16.3

$20.6

(21%)

% of revenues

21.5%

15.5%

+596 bps

Total operating expenses (Excl. Extraordinary Charges)

$65.5

$80.3

(18%)

Total operating expenses as a % of revenues (Excl. Extraordinary Charges)

86.1%

60.3%

+2,574 bps

Total operating expenses in 1Q20 excluding the impact of Viajes Falabella and the Extraordinary Charge described below, decreased 29% YoY to $57.3 million. This cost reduction reflects a combination of cost savings initiated earlier as well as the mitigation measures being implemented in the context of the COVID-19 crisis. These initiatives are also expected to result in further significant reductions in all non-critical spend and the re-adjustment of Structural Costs in the upcoming quarters.

Operating expenses in 1Q20 include $1.7 million in extraordinary restructuring severance expenses. As reported Operating Expenses, which include Viajes Falabella's contribution this quarter and the aforementioned Extraordinary Charge, decreased 16% YoY to $67.2 million in 1Q20.

As a percentage of revenues, operating expenses excluding the non-recurring restructuring charges increased to 86.1% in 1Q20 from 60.3% in 1Q19, prompted by the higher relevance of the fixed portion of Operating Expenses in a lower revenue scenario.

  • Selling and marketing (S&M) expenses declined 22% YoY and would have decreased 31% YoY to $28.3 million, when excluding Viajes Falabella. This decrease is due to the elimination of direct marketing spend since the COVID-19 outbreak in Latam. Operational costs from Viajes Falabella stores and telesales operations added $3.7 million to S&M expenses in 1Q20.
    S&M expenses increased to $15.8 per transaction in 1Q20 from $15.4 in 1Q19 mainly due to the inclusion of Viajes Falabella’s marketing costs and the allocation of structural marketing costs to a lower number of transactions. As a percentage of revenues, S&M expenses increased to 42.0% in 1Q20, from 30.8% in 1Q19.
  • General and administrative (G&A) expense declined 13% YoY as reported and would have declined 36% YoY to $13.1 million excluding $1.7 million in extraordinary severance charges in connection with the cost savings program implemented following the COVID-19 outbreak and $3.2 million in G&A expenses at Viajes Falabella.
    Excluding this extraordinary severance charges, G&A as a percentage of revenues, increased 596 basis points to 21.5% in 1Q20 from 15.5% in 1Q19, reflecting the negative impact of COVID-19 on Gross Bookings and the higher cost structure of Viajes Falabella’s offline operations.
  • Technology and product development expenses declined 8% YoY as reported and would have decreased 15% when excluding $1.3 million in connection with Viajes Falabella’s operations. Additionally, there was a reduction in personnel expenses due to the restructuring process carried out in 4Q19.
    As a percentage of revenue, technology and product expenses increased by 849 basis points YoY to 22.5% mainly due to the impact on revenues of the current COVID-19 crisis.

Financial Income/Expenses

In the first quarter of 2020, the Company reported a net financial gain of $10.1 million compared to a net financial expense of $5.2 million in 1Q19. The increase was primarily driven by foreign exchange gains mainly from the impact of operational debt incurred with third parties in countries affected by relevant currency depreciation such as Brazil, Mexico and Colombia. Additionally, in this quarter we benefited from our hedging activities as regional currencies got weaker.

Income Taxes

The Company reported an income tax expense of $0.7 million in 1Q20, compared to $0.5 million in 1Q19. The effective tax rate in 1Q20 was 4.9%, compared to 20.3% in 1Q19.

The decrease in the effective rate is driven by the combination of geographical mix of profits and losses and the reduction on permanent differences.

Adjusted EBITDA & Margin

Adjusted EBITDA Reconciliation & Adjusted EBITDA Margin
(In millions, except as noted)

1Q20

1Q19

% Chg

Net income/ (loss)

($15.2)

 

$1.9

 

(907%)

Add (deduct):

 

 

 

 

 

Financial expense, net

($10.1)

 

$5.2

 

n.m.

Income tax expense

$0.7

 

$0.5

 

48%

Depreciation expense

$1.9

 

$1.4

 

33%

Amortization of intangible assets

$4.9

 

$3.2

 

54%

Share-based compensation expense

$2.2

 

$3.0

 

(28%)

Adjusted EBITDA

($15.6)

 

$15.2

 

(203%)

Adjusted EBITDA Margin

-20.5%

 

11.4%

 

(3,192) bps

Extraordinary Charges

 

 

 

 

 

Extraordinary Cancellations due to COVID-19

($12.5)

 

 

 

 

Extraordinary restructuring charges

($1.7)

 

 

 

 

Adjusted EBITDA (Excl. Extraordinary Charges)

($1.4)

 

$15.2

 

(109%)

Adjusted EBITDA Margin (Excl. Extraordinary Charges)

-1.8%

 

11.4%

 

(1,323) bps

In 1Q20 Adjusted EBITDA was negative $15.6 million compared to positive $15.2 million in 1Q19. In turn, the Adjusted EBITDA margin was negative 20.5% for 1Q20, compared to positive 11.4% in the same quarter of the prior year.

The above mentioned figures correspond to the Company’s definition of Adjusted EBITDA. However, due to the impact of COVID-19, Despegar: i) experienced an atypical spike in customer travel cancellations which had a negative impact of $12.5 million, and ii) implemented cost savings measures representing additional non-recurring restructuring charges of $1.7 million. Adjusted EBITDA, which excludes these Extraordinary Charges, would have been negative $1.4 million, 109% lower than in 1Q19.

Balance Sheet and Cash Flow

The Company’s cash and treasury operations are managed locally while subsidiaries’ dividends are paid directly to Despegar in Delaware, U.S. Additionally, the majority of Despegar’s cash balance is held in US dollars in the US and UK. Despegar minimizes its foreign currency exposures by managing natural hedges, netting its current assets and current liabilities in similarly denominated foreign currencies, and managing short term loans and investments for hedging purposes.

Cash and cash equivalents, including restricted cash, at March 31, 2020 was $225.9 million. During the quarter, cash and cash equivalents decreased by $87.7 million, while the total debt balance decreased QoQ $1.7 million to $17.5 million.

The Company believes that its existing cash and cash equivalents, will be sufficient to weather the current challenging environment for the next twelve months.

Despegar reported a use of cash from operating activities of $68.2 million compared to a use of cash of $6.0 million in 1Q19.

On Funds from Operations, in 1Q20 we reported a Net Loss of $15.2 million significantly offset by Non-Cash adjustments of $16.6 million which mostly reflects depreciation and amortization and unrealized FX losses.

Regarding the working capital portion of Cash Flow, Despegar’s Tourist Payables position triggered a use of cash of $134.6 million as a consequence of the seasonality of the business which has a natural impact on the first quarter each year. Given the unprecedented times the travel industry is going through, in 1Q20 this seasonal effect was not offset by relevant new sales. On the other hand, the Company’s receivables balance decreased by $80.6 million.

During 1Q20, the Company’s capital expenditures were $8.1 million compared to $7.9 million during the same quarter in the prior year. Funds were primarily invested in platform development.

Business Update

  • On April 13, 2020 Despegar Provided an Update on the Agreement to Acquire Best Day

As previously announced, in January 2020, the Company entered into an agreement to acquire Viajes Beda S.A. de C.V. and Transporturist S.A. de C.V (“Best Day”), subject to the occurrence of certain closing and business conditions, which are pending.

Under the purchase agreement, the total consideration for the acquisition is approximately $136 million, subject to closing purchase price adjustments and plus or minus a variable purchase price component of up to approximately 10% of the total consideration. According to the purchase agreement, approximately 65% of the purchase price is payable upon closing, with the remainder of the consideration to be paid on or about the second and third anniversaries of the closing date.

The Company’s current expectation is that, if the parties agree to amend the purchase agreement, such agreement is likely to have significant changes to the original terms of the deal including changes to valuation and timing of payments trying to minimize or eliminate cash outlays associated to the purchase price in the short term, at least until 2022.

However, the Company cannot assure whether any changes to the terms of the purchase agreement will be agreed by the parties.

The purchase agreement is subject to a number of closing conditions, including regulatory approvals, in particular approval of the Mexican antitrust authorities, and certain business conditions. If the Company and/or the sellers do not satisfy these conditions in the manner or in the timeframe contemplated, the proposed acquisition may be delayed, modified or terminated.

The Company is monitoring, and having discussions with the sellers, regarding the impact of the COVID-19 pandemic and other developments on Best Day. The Company cannot assure you that it and the sellers will be able to consummate the acquisition of Best Day under the existing terms, under different terms, or at all.

Subsequent Events

  • On April 27, 2020, the National Civil Aviation Authority (ANAC) of Argentina issued a resolution effectively halting all air travel to and from the country until September 1, 2020 and prohibiting airlines operating in the country, directly or indirectly, to sell air tickets for travel before September 1, 2020. The Company is currently evaluating the impact of this resolution in its operations. There can be no assurance that other national governments or agencies in the countries where the Company operates issue similar or more restrictive regulations due to the COVID-19 crisis.

Argentina Considered Hyperinflationary Economy

As of July 1, 2018, as a result of a three-year cumulative inflation rate greater than 100% and following the guidance of ASC 830 the U.S. dollar became the functional currency of the Company’s Argentine subsidiary. This change in functional currency is being recognized prospectively in the financial statements. As a result, starting 3Q18 the impact of any change in currency exchange rate on the Company’s balance sheet accounts is reported in the Net financial income/(expense) line of the income statement instead of Other comprehensive income.

1Q20 Earnings Conference Call

When:

8:00 a.m. Eastern time, May 4, 2020

Who:

Mr. Damián Scokin, Chief Executive Officer

 

Mr. Alberto López-Gaffney, Chief Financial Officer

 

Ms. Natalia Nirenberg, Investor Relations

Dial-in:

1-844-750-4865 (U.S. domestic); 1-412-317-5275 (International)

 

Webcast: CLICK HERE

Definitions and concepts

Adjusted EBITDA: is calculated as our net income/(loss) exclusive of financial income/(expense), income tax, depreciation, amortization, impairment of long-lived assets and stock-based compensation expense.

Aggregate Net Operational Short-term Obligations comprised of travel accounts payable plus related party payables and accounts payable and accrued expenses, minus trade accounts receivable net of credit expected loss and related party receivables.

Average Selling Price (ASP): reflects gross bookings divided by the total number of transactions.

Gross Bookings:Gross bookings is an operating measure that represents the aggregate purchase price of all travel products booked by the Company’s customers through its platform during a given period. The Company generates substantially all of its revenue from commissions and other incentive payments paid by its suppliers and service fees paid by its customers for transactions through its platform, and, as a result, it monitors gross bookings as an important indicator of its ability to generate revenue.

Extraordinary Charges:extraordinary events triggered by COVID-19 that lead to further non regular expenses, such as: i) extraordinary cancellations due to COVID-19 and ii) extraordinary restructuring charges.

Foreign Exchange (“FX”) Neutralcalculated by using the average monthly exchange rate of the first quarter of each month of 2019 and applying it to the corresponding months in the current year, so as to calculate what the results would have been had exchange rates remained constant. These calculations do not include any other macroeconomic effect such as local currency inflation effects.

Number of Transactions:The number of transactions for a period is an operating measure that represents the total number of customer orders completed on our platform in such period. The number of transactions is an important metric because it is an indicator of the level of engagement with the Company’s customers and the scale of its business from period to period but, unlike gross bookings, the number of transactions is independent of the average selling price of each transaction, which can be influenced by fluctuations in currency exchange rates among other factors.

Reporting Business Segments: The Company’s business is organized into two segments: (1) Air, which consists of the sale of airline tickets, and (2) Packages, Hotels and Other Travel Products, which consists of travel packages (the bundling of two or more products together which can include airline tickets and hotel rooms), as well as stand-alone sales of accommodations (including hotels and vacation rentals), car rentals, bus tickets, cruise tickets, travel insurance and destination services.

Revenue: The Company reports its revenue on a net basis, and in some cases on a gross basis, deducting cancellations and amounts that it collects as sales taxes. Despegar derives substantially all of its revenue from commissions and other incentive payments paid by its suppliers and service fees paid by its customers for transactions through its platform. To a lesser extent, Despegar also derives revenue from the sale of third-party advertisements on its websites and from certain suppliers when their brands appear in the Company advertisements in mass media.

Revenue Margin: calculated as revenue divided by gross bookings.

Seasonality: Despegar’s financial results experience fluctuations due to seasonal variations in demand for travel services. Bookings for vacation and leisure travel are generally higher during the fourth quarter, although to date and prior to the revenue recognition change beginning in the first quarter of 2018, the Company has recognized more revenue associated with those bookings in the fourth quarter of each year. Latin American travelers, particularly leisure travelers, who are Despegar’s primary customers, tend to travel most frequently at the end of the fourth quarter and during the first quarter of each year.

Structural Costs: Structural Costs represents management’s estimations of the fixed portion of the Company’s cost of revenue and operating expenses, which includes: call center fees (included in cost of revenue), plus the fixed portion of selling and marketing expenses (i.e., primarily personnel expenses), general and administrative expenses, and technology and product development expenses. Structural Costs does not include stock-based compensation, depreciation and amortization, capitalized IT and impairment. The estimates above do not include any costs that the Company may incur in connection with an acquisition of Best Day, as described below nor any extraordinary items related to the Company’s reorganization.

About Despegar.com

Despegar is the leading online travel company in Latin America. With over two decades of business experience and operating in 20 countries in the region, Despegar accompanies Latin American travelers from the moment they dream of taking a trip until they share their memories of that trip. Thanks to the strong commitment to technological development and customer service, Despegar offers a customized experience to more than 18 million customers.

Despegar’s websites and leading mobile apps, offer products from over 270 airlines, more than 690,000 accommodation options, as well as more than 1,260 car rental agencies and approximately 200 destination services suppliers with more than 7,500 activities throughout Latin America. The Company owns and operates two well-recognized brands, Despegar, its global brand, and Decolar, its Brazilian brand. Despegar is traded on the New York Stock Exchange (NYSE: DESP). For more information, please visit www.despegar.com.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We base these forward-looking statements on our current beliefs, expectations and projections about future events and financial trends affecting our business and our market. Many important factors could cause our actual results to differ substantially from those anticipated in our forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly or to revise any forward-looking statements. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. The words “believe,” “may,” “should,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “will,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, capital expenditures, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. In particular, the COVID-19 pandemic, and governments’ extraordinary measures to limit the spread of the virus, are disrupting the global economy and the travel industry, and consequently adversely affecting our business, results of operation and cash flows and, as conditions are recent, uncertain and changing rapidly, it is difficult to predict the full extent of the impact that the pandemic will have. Considering these limitations, you should not make any investment decision in reliance on forward-looking statements contained in this press release.

-- Financial Tables Follow --

Unaudited Consolidated Statements of Operations for the three-month period ended March 31, 2020 (in thousands U.S. dollars, except as noted)

1Q20

1Q19

% Chg

Revenue

76,082

133,114

(43%)

Cost of revenue

33,495

45,245

(26%)

Gross profit

42,587

87,869

(52%)

Operating expenses
Selling and marketing

31,985

40,933

(22%)

General and administrative

18,023

20,638

(13%)

Technology and product development

17,154

18,713

(8%)

Total operating expenses

67,162

80,284

(16%)

 
Operating (loss) / income

(24,575)

7,585

(424%)

Net financial income (expense)

10,061

(5,220)

n.m.

Net (loss) / income before income taxes

(14,514)

2,365

(714%)

Income tax expense

709

479

48%

Net (loss) / income

(15,223)

1,886

(907%)

Basic EPS (in $)

(0.22)

0.03

n.m.

Diluted EPS (in $)

(0.22)

0.03

n.m.

Basic shares weighted average1

69,668

69,294

Diluted shares weighted average1

69,668

70,377

As a % of Revenues
Cost of revenue

44.0%

34.0%

+1,004 bps

Gross profit

56.0%

66.0%

(1,004) bps

Operating expenses

 

Selling and marketing

42.0%

30.8%

+1,129 bps

General and administrative

23.7%

15.5%

+818 bps

Technology and product development

22.5%

14.1%

+849 bps

Total operating expenses

88.3%

60.3%

+2,796 bps

Operating (loss) / income

-32.3%

5.7%

(3,800) bps

Net (loss) / income before income taxes

-19.1%

1.8%

(2,085) bps

Net (loss) / income

-20.0%

1.4%

n.m.

1. In thousands

Key Financial & Operating Trended Metrics (in thousands U.S. dollars, except as noted)

Pro Forma
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
FINANCIAL RESULTS
Revenue

$124,999

$123,462

$131,468

$144,011

$148,593

$128,259

$121,247

$132,515

$133,114

$114,087

$132,048

$145,627

$76,082

Revenue Recognition Adjustment

($3,321)

($59)

$1,310

$7,578

Cost of revenue

31,140

35,087

37,869

38,383

43,646

42,088

36,673

49,703

45,245

40,342

42,591

51,387

33,495

Gross profit

90,538

88,316

94,909

113,206

104,947

86,171

84,574

82,812

87,869

73,745

89,457

94,240

42,587

Operating expenses
Selling and marketing

35,546

43,289

41,097

46,356

46,410

43,450

41,572

42,925

40,933

50,701

46,656

49,604

31,985

General and administrative

18,869

18,618

15,318

19,821

15,888

16,986

17,130

17,599

20,638

21,254

25,090

25,980

18,023

Technology and product development

15,408

17,644

18,907

19,349

19,225

18,732

16,821

16,376

18,713

18,077

17,922

18,663

17,154

Total operating expenses

69,823

79,551

75,322

85,526

81,523

79,168

75,523

76,900

80,284

90,032

89,668

94,247

67,162

 
Operating income

20,715

8,765

19,587

27,680

23,424

7,003

9,051

5,912

7,585

(16,287)

(211)

(7)

(24,575)

Net financial income (expense)

(6,156)

(1,611)

(2,880)

(6,232)

(2,831)

(5,292)

(11,026)

(18)

(5,220)

(1,663)

(3,627)

(6,705)

10,061

Net income before income taxes

14,559

7,154

16,707

21,448

20,593

1,711

(1,975)

5,894

2,365

(17,950)

(3,838)

(6,712)

(14,514)

Adj. Net Income tax expense

2,418

4,254

4,373

2,617

4,235

471

(501)

2,864

479

(1,483)

(154)

(4,067)

709

Income tax expense

2,486

3,806

4,190

1,512

4,235

471

(501)

2,864

479

(1,483)

(154)

(4,067)

709

Adjustment

$68

($448)

($183)

($1,105)

Net income /(loss)

12,141

2,900

12,334

18,831

16,358

1,240

(1,474)

3,030

1,886

(16,467)

(3,684)

(2,645)

(15,223)

Adjusted EBITDA

$24,751

$13,096

$24,337

$32,678

$27,284

$11,972

$14,520

$13,868

$15,182

($7,323)

$9,410

$8,292

($15,611)

 
KEY METRICS
Operational
Gross bookings

$1,019,102

$1,061,026

$1,116,022

$1,258,398

$1,231,496

$1,184,355

$1,092,287

$1,207,186

$1,157,512

$1,118,134

$1,177,728

$1,280,883

$790,416

- YoY growth

54%

40%

32%

26%

21%

12%

(2%)

(4%)

(6%)

(6%)

8%

6%

(32%)

Number of transactions

2,129

2,210

2,298

2,419

2,514

2,607

2,596

2,676

2,652

2,448

2,723

2,855

2,031

- YoY growth

30%

30%

25%

19%

18%

18%

13%

11%

5%

(6%)

5%

7%

(23%)

Air

1,246

1,325

1,328

1,386

1,362

1,513

1,512

1,557

1,517

1,459

1,586

1,658

1,211

- YoY growth

34%

31%

22%

13%

9%

14%

14%

12%

11%

(4%)

5%

6%

(20%)

Packages, Hotels & Other Travel Products

883

885

970

1,033

1,152

1,094

1,085

1,119

1,135

989

1,137

1,197

820

- YoY growth

25%

27%

29%

27%

30%

24%

12%

8%

(1%)

(10%)

5%

7%

(28%)

Revenue per transaction

$57.2

$55.8

$57.8

$62.7

$59.1

$49.2

$46.7

$49.5

$50.2

$46.6

$48.5

$51.0

$37.5

- YoY growth

3%

(12%)

(18%)

(21%)

(15%)

(5%)

4%

3%

(25%)

Air

$45.6

$45.2

$44.3

$47.7

$44.7

$35.1

$33.4

$32.3

$32.8

$32.5

$32.3

$32.2

$30.5

- YoY growth

(2%)

(22%)

(25%)

(32%)

(27%)

(8%)

(3%)

(0%)

(7%)

Packages, Hotels & Other Travel Products

$73.5

$71.8

$76.2

$82.7

$76.2

$68.6

$65.2

$73.5

$73.5

$67.5

$71.1

$77.1

$47.7

- YoY growth

4%

(4%)

(14%)

(11%)

(4%)

(2%)

9%

5%

(35%)

ASPs

$479

$480

$486

$520

$490

$454

$421

$451

$436

$457

$433

$449

$389

- YoY growth

18%

8%

6%

6%

2%

(5%)

(13%)

(13%)

(11%)

1%

3%

(1%)

(11%)

 
 
Net income/ (loss)

$12,141

$2,900

$12,334

$18,831

$16,358

$1,240

($1,474)

$3,030

$1,886

($16,467)

($3,684)

($2,645)

($15,223)

Add (deduct):
Financial expense, net

6,156

1,611

2,880

6,232

2,831

5,292

11,026

18

5,220

1,663

3,627

6,705

(10,061)

Income tax expense

2,418

4,254

4,373

2,617

4,235

471

(501)

2,864

479

(1,483)

(154)

(4,067)

709

Depreciation expense

1,343

1,362

1,337

1,033

859

1,475

1,338

1,676

1,395

2,683

2,036

1,094

1,851

Amortization of intangible assets

1,517

2,039

2,454

2,741

2,018

2,228

2,738

3,156

3,203

3,089

4,195

5,100

4,939

Share-based compensation expense

1,176

930

959

1,224

983

1,266

1,393

3,124

2,999

3,192

3,390

2,105

2,174

Adjusted EBITDA

$24,751

$13,096

$24,337

$32,678

$27,284

$11,972

$14,520

$13,868

$15,182

($7,323)

$9,410

$8,292

($15,611)

 

Unaudited Consolidated Balance Sheets as of March 31, 2020 (in thousands U.S. dollars, except as noted)

As of March 31, 2020 As of December 31, 2019
ASSETS
Current assets
Cash and cash equivalents

221,657

309,187

Restricted cash and cash equivalents

4,272

4,457

Short Term Investments
Accounts receivable, net of allowances

115,018

213,551

Related party receivable

10,145

19,555

Other current assets and prepaid expenses

52,241

69,694

Total current assets

403,333

616,444

Non-current assets
Other Assets

22,016

25,351

Restricted cash and cash equivalents
Right of use

38,811

41,638

Property and equipment net

19,613

21,205

Intangible assets, net

50,069

49,619

Goodwill

41,551

46,956

Total non-current assets

172,060

184,769

TOTAL ASSETS

575,393

801,213

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses

36,374

59,673

Travel suppliers payable

100,670

206,954

Related party payable

41,025

86,602

Loans and other financial liabilities

17,511

19,209

Deferred Revenue

9,019

8,853

Other liabilities

34,699

46,722

Contingent liabilities

5,519

6,297

Lease liabilities

6,189

6,498

Total current liabilities

251,006

440,808

Non-current liabilities
Other liabilities

7,388

6,646

Contingent liabilities

68

54

Lease liabilities

31,949

34,469

Related party liability

125,000

125,000

Total non-current liabilities

164,405

166,169

TOTAL LIABILITIES

415,411

606,977

 
SHAREHOLDERS’ EQUITY (DEFICIT)
Common stock

262,011

261,608

Additional paid-in capital

329,646

327,523

Other reserves

(728)

(728)

Accumulated other comprehensive income

(19,871)

610

Accumulated losses

(342,809)

(326,510)

Treasury Stock

(68,267)

(68,267)

Total Shareholders' Equity Attributable / (Deficit) to Despegar.com Corp

159,982

194,236

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

575,393

801,213

 

Unaudited Statements of Cash Flows for the three-month period ended March 31, 2020 and 2019

(in thousands U.S. dollars, except as noted)

3 months ended March 31,

2020

2019

Cash flows from operating activities
Net income

($15,223)

$1,886

Adjustments to reconcile net income to net cash flow from operating activities
Unrealized foreign currency translation losses

3,304

2,120

Depreciation expense

1,851

1,395

Amortization of intangible assets

4,939

3,203

Impairment of long live assets

Disposals of property and equipment

Stock based compensation expense

2,174

2,999

Amortization of Right of use

782

826

Interest and penalties

3,072

241

Income taxes

(340)

(375)

Allowance for doubtful accounts

81

497

Provision / (recovery) for contingencies

713

(464)

Changes in assets and liabilities, net of non-cash transactions
(Increase) / Decrease in accounts receivable, net of allowances

71,164

13,683

(Increase) / Decrease in related party receivables

9,389

45

(Increase) / Decrease in other assets and prepaid expenses

10,843

(9,015)

Increase / (Decrease) in accounts payable and accrued expenses

(18,473)

3,661

Increase / (Decrease) in travel suppliers payable

(93,761)

(26,925)

Increase / (Decrease) in other liabilities

(7,479)

2,418

Increase / (Decrease) in contingencies

(161)

(208)

Increase / (Decrease) in related party liabilities

(40,861)

(1,129)

Increase / (Decrease) in lease liability

(833)

(1,188)

Increase / (Decrease) in deferred revenue

589

332

Net cash flows provided by / (used in) operating activities

(68,230)

(5,998)

Cash flows from investing activities
Payments for acquired business, net of cash acquired

Acquisition of property and equipment

(1,788)

(914)

Increase of intangible assets including internal-use software and website development

(6,347)

(6,961)

(Increase) / Decrease in restricted cash and cash equivalents

Net cash (used in) /provided by investing activities

(8,135)

(7,875)

Cash flows from financing activities
Increase / (Decrease) in loans and other financial liabilities

(3,259)

(23,416)

Capital contributions

352

Lease obligations

Treasury Stock

Net cash (used in) / provided by financing activities

(2,907)

(23,416)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(8,443)

1,147

Net increase / (decrease) in cash, cash equivalents and restricted cash

(87,715)

(36,142)

Cash, cash equivalents and restricted cash as of beginning of the period

313,644

352,189

Cash, cash equivalents and restricted cash as of end of the period

225,929

316,047

Use of Non-GAAP Financial Measures

This announcement includes certain references to Adjusted EBITDA and non-GAAP financial measures. The Company defines:

Adjusted EBITDA is defined as net income/(loss) exclusive of financial income/(expense), income tax, depreciation, amortization and share-based compensation expense.

Adjusted EBITDA is not a measure recognized under U.S. GAAP. Accordingly, readers are cautioned not to place undue reliance on this information and should note that these measures as calculated by the Company, differ materially from similarly titled measures reported by other companies, including its competitors. Adjusted EBITDA margin refers to Adjusted EBITDA as defined above divided by revenue.

To supplement our consolidated financial statements presented in accordance with U.S. GAAP, we use foreign exchange (“FX”) neutral measures.

This non-GAAP measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP and may be different from non-GAAP measures used by other companies. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. This non-GAAP financial measure should only be used to evaluate our results of operations in conjunction with the most comparable U.S. GAAP financial measures.

Reconciliation of this non-GAAP financial measure to the most comparable U.S. GAAP financial measures can be found in the tables included in this quarterly earnings release.

The Company believes that reconciliation of FX neutral measures to the most directly comparable GAAP measure provides investors an overall understanding of our current financial performance and its prospects for the future. Specifically, we believe this non-GAAP measure provide useful information to both management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook.

The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2019 and applying them to the corresponding months in 2020, so as to calculate what our results would have been had exchange rates remained stable from one year to the next. The table below excludes intercompany allocation FX effects. Finally, this measure does not include any other macroeconomic effect such as local currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations.

The following table sets forth the FX neutral measures related to our reported results of the operations for the three-month period ended March 31, 2020:

Geographical Breakdown of Select Operating and Financial Metrics
(In millions, except as noted)
1Q20 vs. 1Q19 - As Reported
 
Argentina Brazil Rest of Latin America Total

1Q20

1Q19

% Chg.

 

1Q20

1Q19

% Chg.

 

1Q20

1Q19

% Chg.

 

1Q20

1Q19

% Chg.

Transactions ('000)

325

618

(47.4%)

852

1,045

(18.5%)

854

989

(13.7%)

2,031

2,652

(23.4%)

Gross Bookings

115.3

275.1

(58.1%)

330.5

466.0

(29.1%)

344.6

416.3

(17.2%)

790

1,158

(31.7%)

ASP ($)

355

445

(20.3%)

388

446

(13.0%)

404

421

(4.1%)

389

436

(10.8%)

Revenues

12.8

41.9

(69.5%)

28.1

50.0

(43.7%)

35.2

41.2

(14.7%)

76.1

133.1

(42.8%)

Gross Profit

4.9

23.6

(79.2%)

12.9

29.6

(56.4%)

24.8

34.7

(28.5%)

42.6

87.9

(51.5%)

1Q20 vs. 1Q19 - FX Neutral Basis

 
Argentina Brazil Rest of Latin America Total

1Q20

1Q19

% Chg.

 

1Q20

1Q19

% Chg.

 

1Q20

1Q19

% Chg.

 

1Q20

1Q19

% Chg.

Transactions ('000)

325

618

(47.4%)

852

1,045

(18.5%)

854

989

(13.7%)

2,031

2,652

(23.4%)

Gross Bookings

183

275

(33.4%)

382

466

(18.1%)

368

416

(11.5%)

933

1,158

(19.4%)

ASP ($)

564

445

26.6%

448

446

0.4%

432

421

2.6%

460

436

5.3%

Revenues

88

133

(34.2%)

Gross Profit

46

88

(47.9%)

 

IR Contact
Natalia Nirenberg
Investor Relations
Phone: (+54911) 26684490
E-mail: natalia.nirenberg@despegar.com

Source: Despegar.com, Corp.

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