Despegar.com Announces 3Q22 Financial Results

Gross Bookings up 68% YoY, with Total Adjusted EBITDA¹ of $12.0 million pointing to sustained demand recovery across Latin America

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 September 30, 2022 (“third quarter 2022” or “3Q22”). 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 adjustment. All comparisons in this announcement are year-over-year (“YoY”), unless otherwise noted.

3Q22 Financial and Operating Highlights

(For definitions, see page 10)

• Gross Bookings of $1.1 billion, up 68% YoY and 94% of 3Q19 levels
• Transactions increased 21% YoY to 81% of 3Q19 volume
• Revenues increased 75% YoY to $145.6 million, 10% greater than 3Q19
• Total Adjusted EBITDA increased to $12.0 million, marking the fourth consecutive positive quarter, up from negative $10.3 million a year ago, as the company effectively balanced growth and profitability across different markets in Latin America
• Operating cash flow of $10.3 million, compared to use of cash of $30.5 million in 3Q21
• Loyalty Program members increased 63% quarter over quarter (“QoQ”), reaching 9.3 million members in 3Q22
• Room nights increased 5% YoY to 62% of 3Q19 levels
• Mobile represented 46% of Transactions, down 169 basis points (“bps”) YoY and was 473 bps greater than 3Q19
• Completed the integration of Viajanet into Despegar’s technology platform, resulting in initial improvements in operating metrics
• Reached 21,600 vacation rental properties on our Stays vacation rental platform

Message from the CEO

Commenting on the Company’s performance, Damian Scokin, CEO said:

“We delivered a fourth consecutive quarter of profitable growth, with Total Adjusted EBITDA increasing $22.3 million year-on-year to $12.0 million. Leveraging our market-leading brand and value proposition, we continue capitalizing on the strong recovery in Latin America’s travel demand.

Reflecting Despegar’s growing earnings power, Total Adjusted EBITDA margin expanded 112 basis points versus third-quarter 2019, while third quarter revenues increased 10% above pre-pandemic levels. Higher ASPs and a robust Take Rate of 13.1% contributed significantly to the 75% year-on-year growth in revenues.

During the quarter, we finished bringing Stays’ vacation rental inventory onto Despegar’s technology platform and expanded the number of available properties at Stays to 21,600 units. Additionally, we have begun expanding Stays beyond Brazil, its home market. We have also fully integrated Viajanet into Despegar´s platform, applying our extensive experience in effectively consolidating travel businesses under our regional consolidation strategy. Across all Viajanet transactions, we already see significant improvements in conversion rates as well as increasing average Take Rates.

We also finished the quarter with a cash position of $263 million, which maintains our financial flexibility to strategically expand Despegar’s travel ecosystem and reinforce core competencies whenever we identify suitable opportunities.

Travel demand continues to steadily approach 2019 levels. Notwithstanding near-term uncertainties, we remain optimistic about the long-term potential of the business. Further, we expect to see continuous improvements in profitability in the fourth quarter. Looking ahead to next year, we intend to maintain a disciplined focus on profitable growth in line with our 5 year target.”

¹ Total Adjusted EBITDA for 3Q22 includes $0.8 million net reversal of airline Chapter 11 provisions, while Total Adjusted EBITDA for 3Q21 included a net provision of $1.3 million of airline Chapter 11 provisions.

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.

Key Operating Metrics

Transactions increased 21% YoY to 2.2 million, reaching 81% of 3Q19 levels, mainly driven by a 29% YoY increase in Packages, Hotels & Other Travel Products that was mostly related to increased demand for international travel in Brazil and Argentina. Consequently, non-air transactions nearly reached 2019 levels, while Air transactions remained 29% below pre-pandemic levels, largely due to a lack of international capacity deployed by airlines in some markets.

As travel demand continued to gradually recover across Latin America, domestic Gross Bookings increased 22% YoY and exceeded 3Q19 levels by 7%, while international Gross Bookings increased 143% YoY, reaching 86% of 3Q19 levels. This resulted in total Gross Bookings increasing 68% YoY to $1.1 billion, which reached 94% of 3Q19 levels.

ASPs increased 40% YoY — or 55% on an FX neutral basis — to $503, principally reflecting growing travel demand, particularly for international trips, as well as rising inflation across markets in Latin America. Compared to 3Q19, ASPs increased 16%.

Geographic Breakdown of Select Operating and Financial Metrics

The following table presents key operating metrics of Despegar’s travel business and key financial metrics on a consolidated basis post intersegment eliminations between Despegar's travel and financial services businesses.

Brazil, Despegar’s largest market, accounted for 37% of total Transactions in 3Q22, increasing 46% YoY as the Company remained focused on exploiting the strong recovery in international traffic to gain market share. Total industry passenger traffic in the country remains 22% lower than 2019 levels, while domestic traffic reached 90% of pre-pandemic levels. ASPs increased 47% YoY, mainly due to fuel pass-through on airfares and rising inflation - with the latter also affecting the pricing of other travel services - and to the accelerating recovery in international traffic. As a result of the above factors, Gross Bookings grew 112% YoY in Brazil.

Mexico represented 19% of 3Q22 Transactions. Gross Bookings increased 24% YoY, as ASPs increased 25% during this period. Transactions were flat YoY, mainly due to a decline in lower margin domestic air sales, offset by higher margin package sales, as Despegar capitalized on the opportunity to pursue more profitable growth. Compared to 3Q19, transactions and ASPs rose 10% and 28%, respectively, while Gross Bookings increased 41%, reflecting the contribution of Best Day, acquired in October 2020.

Across the rest of Latin America, Transactions and Gross Bookings increased YoY by 15% and 67%, respectively, as demand for international travel across the region continued to recover, but lagged 23% and 10%, respectively, when compared to 3Q19 levels. ASPs increased 45% YoY and 17% compared to 3Q19.

Revenue Breakdown

We organize our business into three segments: (1) Air, which consists of selling airline tickets; (2) Packages, Hotels and Other Travel Products, which consists of travel packages (which can include airline tickets and hotel rooms, among other products); and (3) Financial Services, which consists of point-of-sale installment loans and Buy Now Pay Later services. A portion of the revenues generated in the Financial Services segment are generated with the Travel Business segment of Despegar.

The following table reconciles the intersegment revenues of the Company’s three business segments for the quarter ended September 30 2022, 2021 and 2019:

On a YoY basis, Total Revenues increased 75% to $145.6 million, while revenue margin increased 44 bps to 13.1%, mostly due to significantly fewer cancellations as well as an increase in Take Rate in Mexico and Argentina, where the Company focused on more profitable growth.

Compared to 3Q19, Total Revenues increased 10%, while revenue margin improved 191 bps, principally reflecting higher up-front incentives and customer fees as a percentage of Gross Bookings.

Consolidated 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.

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

On a YoY basis, Cost of Revenue increased 33% - less than half the YoY increase in Gross Bookings - the absolute increase is driven by higher volumes and increased interest rates. As a percentage of Gross Bookings, Cost of Revenue decreased 124 bps to 4.5%, reflecting Despegar’s improved operating leverage, which is converging toward the Company’s long-term target, while demand for customer care is recovering to lower pre-pandemic levels.

As reported, Gross Profit increased 110% to $95.3 million, from $45.4 million in 3Q21. As a percentage of Gross Bookings, Gross Profit increased to 8.6% from 6.9% in 3Q21.

Compared to 3Q19, Cost of Revenue increased 16%, due to higher fulfillment center expenses and increases in customer claims. Accordingly, Cost of Revenue as a percentage of Gross Bookings was only 84 bps above 2019 levels, while Gross Profit increased 8%, as the Company improved its revenue margin by 191 bps.

Operating Expenses

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

On a YoY basis, Operating Expenses increased 39% to $93.9 million, significantly below the 68% growth in Gross Bookings, as the Company continues to focus on increasing operating leverage. The rise in Operating Expenses was mainly driven by a 77% increase in Selling and Marketing spend in response to higher travel demand and with a sharp focus on gaining market share in key geographies during the period.

Selling and Marketing (“S&M”) expenses increased 77% YoY to $46.2 million and rose 18 bps as a percentage of Gross Bookings. The increase in absolute terms was principally driven by higher investments in direct marketing, consistent with market growth, particularly in countries with stronger recovery levels. Specifically, the Company continued to invest in raising brand awareness and gaining market share in Brazil, in line with its long-term strategic growth plan.

General and Administrative (“G&A”) expenses, increased 12% YoY to $24.9 million, mainly reflecting FX and local currency inflation in Argentina, particularly in connection with wages, provisions related to contingencies, and outsourced services related to the Company’s strategic initiatives. G&A expenses declined 113 bps YoY as a percentage of Gross Bookings, as the Company’s operating leverage kicked in.

Technology and Product Development (“T&PD”) expenses totaled $22.8 million, increasing 18% YoY, mainly due to an increase in IT headcount as Despegar continued to expand its developer team. T&PD expenses also increased due to FX variations and local currency inflation related to IT personnel expenses, as well as expenses related to the integration of Viajanet. However, T&C expenses declined 90 bps YoY as a percentage of Gross Bookings, as operating leverage continues to contribute to margin expansion.

Financial result, net

For 3Q22, Despegar reported net Financial expenses of $15.4 million, compared to net financial expenses of $3.3 million in 3Q21. The increase in expenses was mainly due to FX losses and higher financing costs associated with the factoring of receivables in Brazil, as a result of higher interest rates. The increase in financial expenses was partially offset by interest income gains.

Income Taxes

The Company reported an income tax gain of $4.8 million in 3Q22, compared to an income tax gain of $1.7 million in 3Q21. The effective tax rate in 3Q22 was 34%, compared to 6.5% in 3Q21.

The following factors contributed to the 3Q22 effective tax rate: (i) a positive impact in valuation allowance in Brazil; (ii) a Tax Holiday in Brazil in accordance with application of the Brazilian PERSE beneficial tax law; iii) an update with respect to certain tax contingencies in Mexico and Ecuador; and (iii) a true-up effect in the US.

Total Adjusted EBITDA Reconciliation¹

3Q22 Total Adjusted EBITDA¹ was $12.0 million, compared to a loss of $10.3 million in 3Q21.

Balance Sheet and Cash Flows

The majority of Despegar’s excess cash balance is held in U.S. dollars in the United States and the United Kingdom. Foreign currency exposure is minimized by managing natural hedges, netting the Company’s current assets and current liabilities in similarly denominated foreign currencies, and by managing short term loans and investments for hedging purposes.

Cash and cash equivalents, including restricted cash, at September 30, 2022, was $263.1 million. During the quarter, Cash and cash equivalents decreased $ 11.7 million, mainly due to M&A related costs. Aggregate Net Operational Short-term Obligations were $222.9 million, increasing 2.8% on a QoQ basis.

Despegar generated $10.3 million in Cash from operating activities during 3Q22, in line with increasing sales related to the demand recovery across the region. This compares with a use of cash of $30.5 million in 3Q21 and cash generation of $25.5 million in 3Q19.

Financial Services Segment Analysis

Despegar’s financial services segment consists of point-of-sale installment loans and Buy Now Pay Later (BNPL) services which enable the Company’s customers as well as customers of third-party merchants to make online purchases and pay off interest bearing debt in installments as well as fraud prevention services.

Despegar’s BNPL business, Koin, continues to effectively navigate volatile macroeconomic conditions in the Brazilian market. During 3Q22, Koin maintained a strict focus on asset quality and properly adjusted pricing to an environment of higher delinquency rates. In the context of a market with high delinquency rates, Koin took a conservative stance on loan approvals, with TPVs reaching $17.8 million and expanding 136% YoY. For the quarter, Koin reported a Total Adjusted EBITDA of negative $5.2 million compared to a negative Total Adjusted EBITDA of $3.0 million in 3Q21.

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 recognized prospectively in the Company's financial statements. As a result, 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.

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Definitions and concepts

Total Adjusted EBITDA: is calculated as net income/(loss) exclusive of financial income/(expense), income tax, depreciation and amortization, impairment charges, stock-based compensation expense, restructuring charges and acquisition transaction costs.

Aggregate Net Operational Short-term Obligations: consists 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.

Extraordinary Charges: extraordinary events that lead to further irregular expenses, such as: i) extraordinary cancellations; ii) extraordinary restructuring charges and bad debt provisions for airlines that have entered into Chapter 11, among others. As of 1Q22, Extraordinary Charges also include costs generated from the operation of Best Day.

Foreign Exchange (“FX”) Neutral: calculated by using the average monthly exchange rate of each month of the quarter 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 effects such as local currency inflation effects.

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, the Company monitors Gross Bookings as an important indicator of its ability to generate revenue.

TPV: means Total Purchase Volume, and is equivalent to the volume processed by the BNPL financing solution during a specific period of time.

Reporting Business Segments: In 2022, in connection with a new strategy by management to expand the financial services business, the relevance of this business to the consolidated results of operations of the Company has increased significantly. In addition to the Company’s plans for expanding the financial services business outside of Brazil, the Company is incorporating into the business other service offerings, such as fraud identification, analysis and credit scoring for the Company’s travel business and other merchants, as well as providing technology/IT services to the Company’s travel business and other merchants. As a consequence the Company’s business is organized into the following segments: (1) Air, which primarily consists of facilitation services for the sale of airline tickets on a stand-alone basis and excludes airline tickets that are packaged with other non-airline flight products, (2) Packages, Hotels and Other Travel Products, which primarily consists of facilitation services for the sale of travel packages (which can include airline tickets and hotel rooms), as well as stand-alone sales of hotel rooms (including vacation rentals), car rentals, bus tickets, cruise tickets, travel insurance and destination services. Both segments also include sale of advertisements and, to a lesser extent, incentives earned from suppliers and interest revenue, and (3) one financial services segment, which consists of point of sale installment loans and buy now pay later services that allow customers to make purchases and pay off the interest bearing debt in installments.

The Company also recast previously reported segment financial information for the quarters ended September 30, 2021 to reflect its new reportable segments. The segment change has no impact on the Company’s historical consolidated financial results.

Total Revenue: The Company reports its revenue on a net basis for the majority of its transactions, deducting cancellations and amounts collected as sales taxes. The Company presents its revenue on a gross basis for some transactions when it pre-purchases flight seats. These transactions have been limited to date. Despegar derives substantially all of its revenue from commissions and incentive fees paid by its travel suppliers and service fees paid by the travelers for transactions through its platform. To a lesser extent, Despegar also derives revenue from advertising, its installment loans and Buy Now Pay Later offered through the company’s fintech platform Koin and other sources (i.e. destination services, loyalty and interest revenue). For more additional information regarding Despegar’s revenue recognition policy, please refer to “Summary of significant accounting policies” note of Despegar’s Financial Statements.

Total 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. Despegar’s most significant market, Brazil, and much of South America where Despegar operates, are located in the southern hemisphere where summer runs from December 1 to February 28 and winter runs from June 1 to August 31. Despegar’s most significant market in the Northern hemisphere is Mexico where summer runs from June 1 to August 31 and winter runs from December 1 to February 28. Accordingly, traditional leisure travel bookings in the Southern hemisphere are generally the highest in the third and fourth quarters of the year as travelers plan and book their winter and summer holiday travel. The number of bookings typically decreases in the first quarter of the year. In the Northern hemisphere, bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The seasonal revenue impact is exacerbated with respect to income by the nature of variable cost of revenue and direct S&M costs, which are typically realized in closer alignment to booking volumes, and the more stable nature of fixed costs.

Transactions: The number of transactions for a period is an operating measure that represents the total number of customer orders completed on Despegar’s platforms 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. However, 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.

About Despegar.com

Despegar is the leading online travel company in Latin America. For over two decades, it has revolutionized the tourism industry through technology. Despegar today is comprised of a consolidated group, that in addition to the Despegar and Decolar brands, also includes Best Day, Viajes Falabella and Koin, the Company's fintech business. With its continuous commitment to the development of the sector, Despegar has become one of the most relevant companies in the region able to offer a tailor-made experience for more than 29 million customers.

Despegar operates in 20 countries in the region, accompanying Latin Americans from the moment they dream of traveling until they share their memories. With the purpose of improving people's lives and transforming the shopping experience, it has developed alternative payment methods and financing, democratizing access to consumption and bringing Latin Americans closer to their next travel experience. Despegar is traded on the New York Stock Exchange (NYSE: DESP). For more information, please visit www.despegar.com.

About This Press Release

This press release does not contain sufficient information to constitute a complete set of interim financial statements in accordance with U.S. GAAP. The financial information is this earnings release has not been audited.

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 uncertain and changing rapidly, it is difficult to predict the full extent of the impact that the pandemic will have or when travel will resume at pre-pandemic levels. Considering these limitations, you should not make any investment decision in reliance on forward-looking statements contained in this press release.

Unaudited Consolidated Statements of Operations for the three-month periods ended September 30, 2022, 2021 as well as three month period ended December 31, 2022 (in thousand of U.S. dollars, except as otherwise indicated)

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

Unaudited Consolidated Balance Sheet as of September 30, 2022 and June 30, 2022 (in thousands of U.S. dollars, except as otherwise indicated)

Unaudited Statements of Cash Flows for the three-month periods ended September 30, 2022 and 2021 (in thousands of U.S. dollars, except as otherwise indicated)

Use of Non-GAAP Financial Measures

This earnings release includes certain references to Total Adjusted EBITDA, a non-GAAP financial measure. For the year ended December 31, 2020, Despegar changed the calculation of Total Adjusted EBITDA reported to the chief operating decision maker to exclude restructuring charges and acquisition costs. The Company defines:

Total Adjusted EBITDA as net income/(loss) exclusive of financial income/(expense), income tax, depreciation and amortization, impairment charges, stock-based compensation expense, restructuring charges and acquisition transaction costs.

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.

To supplement its consolidated financial statements presented in accordance with U.S. GAAP, the Company presents 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.

On page 4 of this earnings release the company shows FX neutral measures to the most directly comparable GAAP measure. The Company believes that comparing 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 provides 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 2021 and applying them to the corresponding months in 2022, so as to calculate what 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 for local currency inflation or devaluations.

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