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Despegar.com Announces 2Q23 Financial Results

By Business Wire

Business Wire
Overall Rating

Revenues up 23% YoY, with Total Adjusted EBITDA Increasing 183% YoY to $30.0 million

BRITISH VIRGIN ISLANDS--(BUSINESS WIRE)--Despegar.com, Corp. (NYSE: DESP) (“Despegar” or the “Company”), Latin America’s leading online travel company, today announced unaudited financial results for the three-months ended June 30, 2023 (“second quarter 2023” or “2Q23”). Financial results are expressed in U.S. dollars and are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Financial results are preliminary and subject to year-end audit and adjustments. All comparisons in this announcement are year-over-year (“YoY”), unless otherwise noted.

2Q23 Financial and Operating Highlights
(for definitions, see page 15)

  • Gross Bookings for 2Q of $1.3 billion, up 16% YoY as travel demand continues to recover in Latin America
  • Travel Packages as a percentage of Gross Bookings reached 33%, up 577 basis points (bps) YoY
  • Average Selling Prices (ASPs) increased 15% YoY to $585, while Transactions were flat YoY, reflecting sustained focus on expanding higher-margin package transactions
  • Revenues increased 23% YoY to $165.5 million, reaching a record quarterly level, with a 12.9% Take Rate, as Packages, Hotels and Other Travel Products Revenue reached $102.0 million (+27% YoY)
  • Cost of Revenue as a percentage of Gross Bookings rose to 4.7% from 4.1% in 2Q22, in part due to one-time impacts during the quarter
  • Total Adjusted EBITDA increased 183% YoY to $30.0 million, and excluding one-time items Adjusted EBITDA increased 71% YoY to $20.2 million
  • Net Income of $28.0 million, the first positive quarter since 2019
  • Operating cash flow was positive $28.9 million, compared to positive $5.7 million in 2Q22
  • Cash position of $243.9 million, including restricted cash, at June 30, 2023
  • Loyalty Program members increased 194% YoY to 16.9 million
  • Net Promoter Score (NPS) increased 4.0 percentage points YoY to 67.4%

Message from the CEO

Commenting on Despegar’s performance, Damian Scokin, CEO, said:

Our momentum accelerated and we achieved a remarkably strong performance in the second quarter, with revenues reaching a new all-time high of $165.5 million despite operating in our seasonally weakest quarter.

There were three driving forces behind this growth. First, a significant improvement in revenue mix, as we continue to successfully increase sales of vacation Packages, further expanding our margins. Second, a sustained rise in average sales prices, reflecting the value and quality that we consistently deliver to our customers. And third, our steadfast focus on profitable growth, resulting in a robust 12.9% Take Rate.

From a geographic standpoint, we are particularly pleased with the continued expansion of Despegar’s key Brazilian business, with transactions up 39% YoY. Additionally, demand for international traffic continued recovering across our footprint and contributed to a 16% YoY increase in Gross Bookings.

Excluding one-time benefits in the quarter, comparable Adjusted EBITDA increased 71% YoY to $20.2 million, with reported Adjusted EBITDA of $30.0 million. Our top line momentum and sustained profitability are keeping us firmly on track to achieve our revenue and Adjusted EBITDA guidance for the year. In addition, we are particularly pleased with our return to positive Net Income, which reached a solid $28 million in the quarter, or $5 million excluding one-time items.

Profitability at Koin, our Buy Now, Pay Later business, improved to an EBITDA loss of only $0.6 million from the $4.5 million loss in 2Q22. Thanks to our disciplined focus on cost control, margin expansion and asset quality, Koin remains on target to not only reach EBITDA breakeven in the second half of this year but become EBITDA accretive.

Regarding our key growth initiatives, we continue to make significant progress toward the milestones presented at our Investor Day a little over year ago. The share of high-margin Travel Packages in Gross Bookings expanded 577 bps YoY to 33%. While the expansion of our B2B service, HotelDo, together with our white-label solutions, also remain on track with the combined share of these two business lines expanding 567 bps to 15% of Gross Bookings. In addition, our Mobile Apps continue to be an important tool to drive customer engagement, with Mobile App transactions increasing 334 bps YoY and reaching 37.8% of total Transactions. Our unwavering client focus coupled with our ambition to provide excellent B2B solutions underscore our commitment to provide the best travel options to both customers and travel partners.

Continuously strengthening our technology advantage, we’re increasingly employing artificial intelligence (“AI”) and large language models to enhance the customer experience as well as our operational effectiveness. We are preparing to introduce a Beta version of our innovative AI trip planner in the third quarter of this year. Building on our robust machine learning models, this new tool will not only offer bespoke travel and accommodation recommendations, but also go further by creating a conversational experience to enhance our customers’ trip planning. Additionally, our developer team is using AI for code writing and aiding our after-sales team when addressing customer requests.

Finally, we are leveraging our technology platform and experience operating highly profitable brick-and-mortar travel agencies in the Andean Region and Mexico, as we embark on expanding Despegar’s offline business. In an initial deployment, we will be opening 10 mostly asset-light stores in Brazil and 5 in Argentina by year end. These new stores will enable us to reach more of Latin America’s still large cash-based economy, while providing a personalized experience that more than half of the region’s travel consumers prefer today.

Our outstanding financial performance, noteworthy achievements across business segments, and substantial progress with each of our strategic growth initiatives are all enabling us to effectively and efficiently deliver higher value to our customers and travel partners alike. And as the most recent quarter makes clear, we continue driving earnings power by growing in more profitable product segments and by scaling our market-leading travel platform to further penetrate and consolidate Latin America’s fast-growing and fragmented travel market.”

2023 Financial Guidance

The Company reaffirms its 2023 annual guidance, which is as follows:

  • Revenue: $640 million to $700 million
  • Adjusted EBITDA: $80 million to $100 million

The above guidance assumes that the Latin American travel market will continue to recover and reach 2019 demand levels by year-end 2023. This guidance is in line with the 2024 financial targets presented at the Company’s June 2022 Investor Day. See our Investor Relations website at www.investor.despegar.com.

Disclaimer: The 2023 financial guidance reflects management’s current assumptions regarding numerous evolving factors that are difficult to accurately predict, including those discussed in the Risk Factors set forth in the Company’s Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the “SEC”).

Reconciliations of forward-looking non-GAAP measures, specifically the 2023 Adjusted EBITDA guidance, to the relevant forward-looking GAAP measures are not being provided, as the Company does not currently have sufficient data to accurately estimate the variables and individual adjustments for such guidance and reconciliations. Due to this uncertainty, the Company cannot reconcile projected Adjusted EBITDA to projected net income without unreasonable effort.

The 2023 financial guidance constitutes forward-looking statements. For more information, see the “Forward-Looking Statements” section in this release.

Operating and Financial Metrics Highlights

The following table presents key operating metrics of Despegar’s travel and financial services businesses as well as key financial metrics on a consolidated basis, post-intersegment eliminations between these businesses.

(in millions, except as noted)

2Q23

2Q22

Δ %

Operating metrics

Number of transactions

2.204

2.193

0

%

Gross bookings

$

1,287.0

$

1,113.4

16

%

TPV Financial Services (1)

$

16.7

$

22.5

(26

)%

Financial metrics

Total Revenue

$

165.5

$

134.4

23

%

Total Adjusted EBITDA

$

30.0

$

10.6

183

%

Net income (loss)

$

28.0

$

(13.2

)

n.m.

Net income (loss) attributable to Despegar.com, Corp

$

28.0

$

(13.2

)

n.m.

Less: Class A and Class B preferred shares dividends

$

(4.3

)

$

(4.2

)

2

%

Less: Class A preferred shares accretion

$

(3.3

)

$

(2.9

)

13

%

Less: undistributed income allocated to participating securities

$

(1.3

)

$

n.m.

Income (loss) attributable to common stockholders (2)

$

19.2

$

(20.3

)

n.m.

Average Shares Outstanding - Basic (3)

77,109

77,434

n.m.

Effect of Dilutive Participating Securities - Stock Option Plan (3)

3

0

n.m.

Average Shares Outstanding - Diluted (3)

77,112

77,434

n.m.

EPS Basic (2)

$

0.25

$

(0.26

)

n.m.

EPS Diluted (2)

$

0.25

$

(0.26

)

n.m.

Note that Despegar´s 2Q22 earnings press release indicated that weighted common average shares outstanding totaled 82,362 thousand (basic and diluted) at June 30, 2022 when the amount should have been 77,434 thousand as presented in the table above. More information is available in our 2022 Annual Report on Form 20-F filed on April 27, 2023 with the SEC

(1)

Presented on a pre intersegment elimination basis. Intersegment TPV amounted to $14.9 million in 2Q23 and $ 15.9 million in 2Q22.

(2)

Round numbers. For 2Q23, basic earnings (loss) per share is computed using the two-class method, which is an earnings allocation formula that determines earnings (loss) per share for common stock and any participating securities according to dividend and participating rights in undistributed earnings (losses). The Company's Class B Preferred Shares contain rights to dividends or dividend equivalents and are deemed to be participating securities. Other instruments granted by the Company (such as restricted stock awards and stock options to employees, as well as Class A Preferred Shares) do not contain non-forfeitable rights to dividends and are not deemed to be participating securities. In periods of net loss, no amounts are allocated to participating securities as they do not have an obligation to absorb such loss.
Under the two-class method, net income for the period, after subtracting dividends on and accretion of preferred stock, is allocated between common stockholders and the holders of the participating securities based on the weighted-average number of common shares outstanding during the period and the weighted-average number of participating securities outstanding during the period, respectively. The allocated, undistributed income for the period is then divided by the weighted-average number of common shares outstanding during the period to arrive at basic earnings per common share for the period. Pursuant to U.S. GAAP, the Company has elected not to separately present basic or diluted earnings per share attributable to preferred stock.
Diluted earnings (loss) per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities

(3)

In thousands
n.m.: Not Meaningful

Key Operating Metrics

(in millions, except as noted)

2Q23

2Q22

% Chg

FX Neutral % Chg

$

% of total

$

% of total

Gross Bookings

$

1,287.0

$

1,113.4

16

%

29

%

TPV Financial Services (1)

$

16.7

$

22.5

(26

)%

(25

)%

Average selling price (ASP) (in $)

$

585

$

511

15

%

28

%

Number of Transactions by Segment & Total

Air

1.0

47

%

1.1

51

%

(8

)%

Packages, Hotels and Other Travel Products

1.2

52

%

1.0

47

%

12

%

Financial Services

0.0

0

%

0.0

1

%

(77

)%

Total Number of Transactions

2.2

100

%

2.2

100

%

0

%

(1)

Presented on a pre intersegment elimination basis. Intersegment TPV amounted to $14.9 million in 2Q23 and $ 15.9 million in 2Q22

Transactions were flat YoY at 2.2 million, as the Company continues to focus on expanding Package Transactions, which increased 270 bps YoY as a percentage of total Transactions. In Brazil and Chile, non-air Transactions increased 58% and 22% YoY respectively, as the Company continues to effectively capitalize on the demand recovery in those markets. Accordingly, the consolidated share of higher-margin Packages, Hotels and Other Travel Products Transactions increased to 52% from 47% in the previous year. Conversely, Air Transactions declined 8% YoY, mostly due to a decrease in lower margin domestic Transactions in Mexico and Colombia as Despegar maintained its focus on profitable growth.

ASPs in 2Q23 increased 15% YoY (+28% FX neutral) to $585 per transaction. The increase in ASPs was mostly driven by a combination of the aforementioned improvements in product mix reflecting sustained growth in higher average ticket Package sales, as well as higher lodging fares.

Gross Bookings increased 16% YoY (+29% FX neutral), reaching $1.3 billion for the quarter. Specifically, international Gross Bookings grew 14% YoY while domestic gross bookings increased 16% over the same period.

Geographic Breakdown

(in millions, except as noted)

2Q23 vs. 2Q22 - As Reported

Brazil

Mexico

Rest of Latin America

Total

2Q23

2Q22

Δ %

2Q23

2Q22

Δ %

2Q23

2Q22

Δ %

2Q23

2Q22

Δ %

Transactions ('000)

989

709

39

%

399

459

-13

%

816

1,025

-20

%

2,204

2,193

0

%

Gross Bookings

508

356

42

%

268

247

9

%

511

510

0

%

1,287

1,113

16

%

TPV Financial Services (1)

17

22

-26

%

%

%

17

22

-26

%

ASP ($)

515

512

1

%

673

537

25

%

627

498

26

%

585

511

15

%

Revenues

166

134

23

%

Gross Profit

106

89

18

%

2Q23 vs. 2Q22 - FX Neutral

Brazil

Mexico

Rest of Latin America

Total

2Q23

2Q22

Δ %

2Q23

2Q22

Δ %

2Q23

2Q22

Δ %

2Q23

2Q22

Δ %

Transactions ('000)

989

709

39

%

399

459

-13

%

816

1,025

-20

%

2,204

2,193

0

%

Gross Bookings

510

356

43

%

236

247

-4

%

690

510

35

%

1,437

1,113

29

%

TPV Financial Services (1)

17

22

-25

%

%

%

17

22

-25

%

ASP ($)

518

512

1

%

593

537

10

%

846

498

70

%

653

511

28

%

Revenues

187

134

39

%

Gross Profit

119

89

33

%

(1)

Presented on a pre intersegment elimination basis. Intersegment TPV amounted to $14.9 million in 2Q23 and $ 15.8 million in 2Q22

Brazil, Despegar’s largest market, accounted for 45% of total Transactions in 2Q23, increasing 39% YoY. Growth was driven by increases in both domestic and international traffic. Importantly, Packages and Hotel Transactions increased 79% and 53% YoY respectively, as the Company’s growth investments in Brazil continue to pay off. ASPs were flat YoY on an as reported basis and grew 1% on an FX neutral basis, as increases in international ASPs were offset by declining domestic ASPs. As a result of the above factors, Gross Bookings in Brazil grew 42% YoY.

Mexico represented 18% of 2Q23 Transactions. During the quarter, ASPs increased 25% (+10% FX neutral) with both domestic and international ASPs increasing equally YoY. Transactions declined 13% YoY, mainly due to a decrease in domestic air Transactions as the Company maintained its focus on more profitable travel products. The 25% YoY growth in ASPs was largely driven by an improving revenue mix as the prices of Packages, Hotels and Other Travel Products increased. Accordingly, Gross Bookings increased 9% YoY.

Across the rest of Latin America, Despegar’s Transactions decreased 20% YoY, primarily due to a decline in air Transactions in Colombia. ASPs grew 26% (+70% FX neutral) during the same period, mainly due to an improving revenue mix and a recovery in international demand in Chile and Argentina. The combination of these factors resulted in flat Gross Bookings when compared to 2Q22.

Revenue Breakdown

We organize our business into three segments: (1) Packages, Hotels and Other Travel Products, which consists of facilitation services for the sale of travel packages (which can include airline tickets and hotel rooms, among other products); (2) Air, which consists of facilitation services for the sale of airline tickets on a stand-alone basis; and (3) Financial Services, which primarily consists of loan origination to our travel business’ customers and to customers of other merchants in various industries. Our “Financial Services” segment also consists of processing, fraud identification, credit scoring and IT services provided to our travel business, and to third-party merchants.

The following table reconciles the intersegment revenues of the Company’s three business segments for the quarters ended June 30, 2023 and 2022:

2Q23

2Q22

Δ %

$

% of total

$

% of total

Revenue by business segment (in $Ms)

Travel Business

Air Segment

$

60.7

37

%

$

53.4

40

%

14

%

Packages, Hotels and Other Travel Products Segment

$

102.0

62

%

$

80.1

60

%

27

%

Total Travel Business

$

162.7

98

%

$

133.5

99

%

22

%

Financial Business

Financial Services Segment

$

9.4

6

%

$

3.2

2

%

195

%

Total Financial Business

$

9.4

6

%

$

3.2

2

%

195

%

Intersegment Eliminations

$

(6.7

)

-4

%

$

(2.3

)

-2

%

191

%

Total Revenue

$

165.5

100

%

$

134.4

100

%

23

%

Total Revenue margin

12.9

%

12.1

%

+79 bps

On a YoY basis, Total Revenue increased 23% to a record high of $165.5 million. The increase in revenue was mainly driven by an ongoing product shift toward higher ticket Packages, Hotels and Other Travel Products, which also drove margin expansion in line with the Company’s growth strategy, particularly in Brazil, Argentina and Chile. Given Despegar’s continuous focus on profitable growth, sales of Packages, Hotels and Other Travel Products increased 27% to $102.0 million, or 62% of Total Revenue (versus 60% in 2Q22). In addition, Revenue margin increased 79 basis points to 12.9%.

Cost of Revenue and Gross Profit

The following table shows Cost of Revenue and Gross Profit on a consolidated basis, post-intersegment eliminations between Despegar’s travel and financial services businesses.

(in millions, except as noted)

2Q23

2Q22

Δ %

Revenue

$

165.5

$

134.4

23

%

Revenue Margin

12.9

%

12.1

%

79

%

Cost of Revenue (1)

$

60.0

$

45.1

33

%

Cost of Revenue as a % of GB

4.7

%

4.1

%

+61 bps

Gross Profit

$

105.5

$

89.3

18

%

Gross Profit as a % of GB

8.2

%

8.0

%

+18 bps

(1)

Cost of Revenues was impacted by two one-time events due to: i) a $2.5 million increase in customer claims provision as ASPs of customer claims increased; and ii) a $2 million expense increase due to changes in VAT recoverability in Mexico

Cost of Revenue consists mainly of credit card processing fees, bank fees related to customer financing installment plans, and fulfillment center expenses as well as credit loss expenses.

On a YoY basis, Cost of Revenue increased 33% YoY to $60.0 million and 61 bps as a percentage of Gross Bookings. The increase was mainly due to: i) the cost of installments rising $6.8 million due to the Argentine government´s “Previaje” domestic travel incentive program; ii) a $3.1 million rise in credit card processing fees in line with the overall demand recovery across the region; iii) a one-time $2.5 million expense on customer claims, as the Company took a conservative approach to projecting claim provisions, given the overall increase in ASPs; and iv) a $2.0 million one-time expense related to Mexican VAT recoverability. Excluding these one-time effects, Cost of Revenues would have been $55.5 million, or 4.3% of Gross Bookings.

As reported Gross Profit increased 18% to $105.5 million from $89.3 million in 2Q22. As a percentage of Gross Bookings, Gross Profit increased to 8.2% from 8.0% over the same period. On an FX neutral basis, Gross Profit increased 33% to $119 million.

Operating Expenses

The following table shows operating expenses on a consolidated basis, post-intersegment eliminations between Despegar’s travel and financial services businesses.

(in millions, except as noted)

2Q23

2Q22

Δ %

Selling and marketing

$

51.7

$

42.2

22

%

S&M as a % of GB

4.0

%

3.8

%

+23 bps

General and administrative

$

8.4

$

27.0

-69

%

G&A as a % of GB

0.7

%

2.4

%

(178) bps

Technology and product development

$

26.4

$

21.4

24

%

T&PD as a % of GB

2.1

%

1.9

%

+13 bps

Total operating expenses

$

86.5

$

90.7

-5

%

Operating Expenses as a % of GB

6.7

%

8.1

%

(142) bps

On a YoY basis, Operating Expenses decreased 5% to $86.5 million, mainly due to a 69% decrease in General and Administrative expenses, mostly reflecting a reversal in Mexican tax provisions, as explained below under General and Administrative expenses, in addition to improved operating efficiencies. Excluding one-time impacts, operating expenses as a percentage of Gross Bookings would have decreased 18 bps.

Selling and Marketing (“S&M”) expenses increased 22% YoY to $51.7 million and rose 23 bps as a percentage of Gross Bookings. The increase was principally driven by YoY increases of: i) $3.7 million in third party commissions, as the Company expanded its B2B and white label solutions business; ii) $2.7 million in Direct Marketing costs, mostly in Brazil; and iii) $2.6 million in personnel costs due to the expansion of the Company's higher-margin Offline Sales channels.

General and Administrative (“G&A”) expenses decreased 69% YoY to $8.4 million, and 178 bps as a percentage of Gross Bookings to 0.7%. The decline in G&A expenses was mainly due to the aforementioned one-time $14.3 million reversal of tax provisions, following a favorable resolution with the Mexican tax authorities regarding tax payables that Despegar had acquired when merging with Best Day in 2020. Excluding this extraordinary benefit, G&A expenses would have decreased 16% to $22.7 million, or 1.8% of Gross Bookings, mainly due to declines in stock-based compensation, office rental expenses and outsourced services. This trend was partially offset by FX variations and local currency inflation in Argentina, particularly in connection with wages.

Technology and Product Development (“T&PD”) expenses increased 24% YoY to $26.4 million, and rose 13 bps as a percentage of Gross Bookings. Approximately two-thirds of this increase was related to expanding the Company’s developer team with the onboarding of Viajanet personnel, a key resource to further extend Despegar’s competitive advantage in the region. The remainder of the increase was due to FX variations and local currency inflation related to IT personnel expenses.

Financial result, net

Despegar reported net financial expenses of $3.9 million in 2Q23, compared to $10.5 million in 2Q22. The YoY decrease was primarily due to FX appreciation in Brazil as well as working capital efficiencies in Argentina.

Income Taxes

The Company reported an income tax benefit of $13.3 million in 2Q23, compared to an income tax expense of $1.3 million in 2Q22. The effective tax rate in 2Q23 was 89.8%, compared to 10.6% in 2Q22.

​The variation in the effective tax rate was mainly driven by: i) the impact of the aforementioned tax settlement and closing tax audits in Mexico in 2Q23; and ii) an increase in Valuation Allowance in Mexico, the US and Brazil.

Adjusted EBITDA Reconciliation

(in millions, except as noted)

2Q23

2Q22

Δ %

Net gain (loss)

$

28.0

$

(13.2

)

n.m.

Add (deduct):

Financial result, net

$

3.9

$

10.5

(63

)%

Income tax (benefit) / expense

$

(13.3

)

$

1.3

n.m.

Depreciation expense

$

3.1

$

1.7

82

%

Amortization of intangible assets

$

7.3

$

6.9

5

%

Share-based compensation expense

$

0.9

$

3.3

(73

)%

Total Adjusted EBITDA

$

30.0

$

10.6

183

%

One Time Charges

Total Adjusted EBITDA

$

30.0

$

10.6

183

%

Extraordinary Cancellations due to COVID-19

$

$

0.5

n.m.

One Time Charges*

$

9.8

$

(1.7

)

n.m.

Adjusted EBITDA (Excluding One Time Charges)

$

20.2

$

11.8

71

%


Contacts

IR Contact
Luca Pfeifer
Investor Relations
Phone: (+57)3153824802
E-mail: luca.pfeifer@despegar.com

Read full story here

First published on Thu, Aug 17, 2023

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