Good morning, and welcome to Despegar's Second Quarter 2023 Earnings Call. A slide presentation is accompanying today's webcast and is available in the Investors section of the company's website www.investor.despegar.com. [Operator Instructions] This conference call is being recorded. And as a reminder, all participants will be in a listen-only mode. Now, I'd like to turn the call over to Mr. Luca Pfeifer, Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us today. In addition to reporting unaudited financial results in accordance with U.S. Generally Accepted Accounting Principles, we discuss certain non-GAAP financial measures and operating metrics, including foreign exchange and neutral calculations. Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand them. Non-GAAP financial measures and operating metrics should not be considered in isolation as a substitute for or superior to GAAP financial measures and are provided as a supplemental information only. Before we begin our prepared remarks, please turn to Slide 2 and allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties which could cause actual results to materially differ, including factors that may be beyond the company's control. These include, but are not limited to, expectations and assumptions related to the integration and performance of the business we acquire, including Best Day, Stays, Viajanet and Koin. For a description of these risks, please refer to our filings with the U.S. Securities and Exchange Commission and our press release. Speaking on today's call is our CEO, Damian Scokin, who will provide an overview of Despegar's second quarter performance as well as an update on our strategic initiatives. I will then discuss the quarter's financial results in more detail, after which Damian will end our prepared remarks and provide an update on our annual guidance. We will then open the call for your questions. Damian will begin his remarks on Slide 3. Damian, please go ahead.

Thanks, Luca, and good day, everyone. Thank you for joining our results call and for your interest in Despegar. As the quarter's excellent results show, our strategy to drive earnings power continues gaining traction. In addition to the ongoing recovery in travel demand, our improving product mix and higher ASPs drove a 23% increase in revenues, which reached yet another quarterly record of $165 million. Keep in mind that we achieved this in our seasonally weakest quarter. We also maintained our cost discipline during the quarter. OpEx decreased 18 basis points as a percentage of gross bookings when excluding one-time impacts and was even lower on a reported basis as we benefit from the reversal of the tax provisions that we explained in the morning's earnings release. The quarter's top-line growth, coupled with our underlying operational leverage, drove adjusted EBITDA 71% higher to just over $20 million when excluding one-time impact. That's the highest second quarter EBITDA that we generated since the company's IPO. Further, Koin continues progressing well towards the breakeven point, improving $3.9 million year-over-year and posting only a negative $600,000 of EBITDA in the quarter as our take rate versus expected losses margin continues to expand. With respect to our many strategic initiatives, we are deepening our omnichannel strategy by employing generative AI and also deploying our successful asset-light and tech-enabled offline strategy in new markets. I'll explain both later in our presentation. On this slide, we show the steady progress we have been making across our core strategic initiatives to improve profitability and further diversify our revenue streams. Starting with revenue diversification, higher-margin travel packages continue to grow reaching 33% of our gross bookings in the second quarter. That's an almost 600 basis points increase versus last year and has been a key component in our non-air revenue reaching 62% of total revenue. And as we continue to grow in Brazil and Mexico, these massive markets now account for 60% of our gross bookings. Moving to omnichannel in the middle of the slide, we continue to effectively leverage our B2B channels in combination with our white-label solution to increase our market penetration generating 15% of our gross bookings in the quarter, compared to last year's quarter, that was also roughly 600 basis point increase. In addition, we continue to leverage our technology platform for our app-first approach, which helps drive customer growth and loyalty, while also giving us the opportunity to further cross-sell additional travel products to our clients. As shown on this slide, our portfolio of branded apps accounted for nearly 38% of our online B2C transactions in the quarter. At the bottom of the slide, we can see how we continue strengthening the customer relationship with our brands. Today, we have nearly 17 million loyalty program members while points redemptions doubled over the last year reaching 8%. Our Net Promoter Score also continues rising as we recover from the impact the pandemic had on customers' travel plans. We are nearing our pre-pandemic score, but we don't plan to stop there. The brand loyalty that customer centricity fosters remain an integral part of our strategy. With that, I will turn the call over to Luca for a more detailed review of our second quarter performance.

Thanks, Damian. My review begins with the first chart on Slide 5. Also behind our record second quarter revenue of $165 million was a take rate that was maintained slightly above the range that we presented during the Investor Day last year. The 12.9% rate in the quarter reflects our disciplined approach and emphasis on profitable growth, particularly in Mexico, Chile and Argentina. Moving to the second chart on the slide. Our cost of revenue increased 33% versus last year's quarter, partly due to onetime expenses. When excluding these one-offs, shown at the right of the chart, cost of revenue would have increased only 23%, in line with our sales growth. Also, on this basis, our gross profit would have increased 23% to $110 million, another record high. Let's turn to Slide 6. As Damian noted, we have maintained our cost discipline, which is driving operating leverage as our revenues continue growing. As the chart on the left indicates, our fixed costs only increased 1% versus last year's quarter to just over $49 million when excluding one-time impacts. This was mostly due to higher technology and product development costs related to expanding our developer team as well as to FX and inflation. Also, keep in mind that $14.3 million of this amount was the one-time benefit that we detailed in the earnings release. The line chart in the middle of the slide illustrates the operating leverage we've been pointing to. As a percentage of revenue, our G&A costs fell 640 basis points, while technology and product development costs ticked up slightly. And when excluding the $14.3 million one-time impact, G&A decreased 15 percentage points. Lastly, on costs, our sales and marketing expenses increased 22% year-on-year. The increase reflects offline investments in Brazil as well as ongoing growth investments, particularly in our B2B and white label channels, which increased third-party commission expenses. On a sequential basis, selling and marketing expenses were flat. Let's move to Slide 7. The ongoing recovery in travel demand and our improving revenue mix, combined with our underlying operating leverage continue driving profitability. Our adjusted EBITDA increased 183% to $30 million on an as-reported basis, which nets the reversal of the tax provision and the onetime costs incurred under cost of revenues or $9.8 million. The corresponding margin was 18%, our highest since 2018. When excluding the one-time reversal and costs, adjusted EBITDA increased 71% to $20.2 million, our highest second quarter EBITDA since the IPO. And on this basis, our margin expanded 340 basis points to 12%. Turning to Slide 8. Our profitability also improved with respect to Koin, which is nearing the breakeven point. The $600,000 EBITDA loss in the quarter represents a nearly $4 million year-on-year improvement. In the chart on the left, you can see that total payment volume was 29% lower than last year's quarter. This is because we have maintained a conservative approach to lending as Brazil's credit market remains challenging. Lastly, as shown in the chart on the right, the spread between take rate and Koin's expected losses continue to widen, which reflects both our prudence and effective pricing. Back over to Damian, who would like to share our latest strategic initiatives before summarizing the quarter, and we begin the Q&A session. So, please turn to Slide 9.

Thanks, Luca. We continually invest in innovation to reinforce our substantial technology moat and to enhance the customer experience. Most recently, that has including the application of generative AI, which we are doing in three primary ways. First, on the product development front, we are further leveraging Despegar's large customer base by applying machine learning models to customer preferences. During the third quarter, we plan to launch a better version of an AI trip planner to further enhance our product offering and the user experience. Our developer teams have also been assessing various ways to employee AI to optimize the automated cold writing. The main objective here is to increase the overall efficiency of our technology teams, where in addition, employing AI to customer care in a way that significantly speed the resolution. This helps lower cost to serve and increase customer satisfaction. Let's move to Slide 10. Building on our success in Mexico and in Argentina region, we will deploy our asset-light tech-enabled offline model in Brazil and Argentina. There are two main objectives here. One, to further increase our margins; and two, to increase our market penetration of these two key geographies. As some of you might recall from our Investor Day a little over a year ago, offline bookings are roughly 50% of Latin America's travel market. The two bar charts in the bottom left of this slide also show that Despegar's core segment, the online travel market, will grow at 13% and 15% in Brazil and Argentina, respectively. The offline segment in both countries will be growing at a CAGR of 12%. It's also important to highlight that this is a very profitable market segment as well. On the right of this slide, we outlined the timing, cities and store types under our rollout strategies for Brazil and Argentina. Keep in mind that these mostly asset-light retail outlets will [indiscernible] our market-leading brands, Despegar in Argentina and Decolar in Brazil. Our stores will prioritize providing an exceptional customer experience, where our knowledgeable staff will assist our clients with planning their tailor-made holiday travel. Given the size, growth rates and profitability of the offline segment and considering the seasonable cash economies within these countries, we expect our doors to enhance our omnichannel's offering and to further strengthens our earnings power. This strategic initiative is particularly efficient because of the scalability of our technology platform, and it will help further consolidate Despegar's market leadership in the region. Let's now turn to Slide 11. I would like to leave everyone with a few key takeaways from our second quarter results. The strong recovery in travel demand that continues across Latin America, particularly in Brazil and Chile, coupled with our still improving revenue mix, yielded record revenues for the quarter. Our cost discipline has built significant operating leverage, which combined with a strong top-line growth led to a $20.2 million in adjusted EBITDA. Again, that was the strongest second quarter EBITDA post IPO, even when excluding the one-time benefits in the quarter. We are also particularly pleased with the performance of our Buy Now Pay Later business unit, Koin, as it nears the EBITDA breakeven point and is well on its way to become EBITDA accretive towards the end of this year, as we outlined at last year's Investor Day. Looking ahead, we expect the recovery in travel demand to continue during the seasonally stronger second half of the year. Specifically, we expect revenue and adjusted EBITDA to increase in the mid- to high single digits in the third quarter. In addition to reiterating our full year revenue guidance of $640 million to $700 million and adjusted EBITDA between $80 million and $100 million, we are confident that we can reach the mid to upper end of our guidance range for the year, assuming the demand recovery continues. In summary, Despegar's operational strength, combined with the still strong resurgence in travel demand and our focus on improving revenue mix, continue driving our profitable growth trajectory. Our record-breaking revenues and consistent delivery of increasing adjusted EBITDA over the past six quarters are a testament to the dedication of our team and the strength of our growth strategy and business model. Before taking your questions, we would like to publicly welcome Despegar's new CFO, Amit Singh. Our senior management team looks forward to working with Amit to seize the many profitable growth opportunities that we are pursuing and extend our leadership position in Latin America's growing travel market. With that, let's open the call for questions.

[Operator Instructions] Your first question comes from the line of Naved Khan with B. Riley Securities. Your line is open.

Thanks a lot, and congrats on the results. Just a couple of questions from me. Maybe first one maybe just on the monthly trends. Can you maybe just describe how bookings growth look like during the months of April, May and June, and how July is trending? And then if I have to look at the take rate or the revenue margin, given that your practice mix continues to increase, shouldn't like a 13% be like a baseline? If I have to think like next year and further from there, shouldn't that continue to inch up the thoughts, that would be helpful. Thank you.

Hi, Naved. How are you? This is Damian. Thanks for your call. I'll take the first part regarding bookings. As you saw in the numbers, the trend during the Q4 -- Q2 were very strong, and they were evenly distributed across the three months. Keep in mind that the second quarter is our weakest quarter in terms of seasonality. And what we've seen in July and the first day of August is a sustained trend in the same level or slightly higher than during the Q2, not only as a result of seasonality, as I mentioned, but also we see the market continue to rebounding heavily in all geographies. And as per the take rate, keep in mind that on our Investor Day yesterday -- last year, not yesterday, it seems yesterday, while it was last year, we pointed out to a take rate in between 12% and 12.5%. So that's the target range in which we should operate longer term. Occasionally, we will deviate from that, but that's not our target.

Got it. And then maybe a quick follow-up, if I may. Maybe just give us your thoughts high level on the competitive landscape in your core markets like Brazil and what are you seeing in terms of competition?

We haven't seen any major change in the trends that we've been discussing over the last few months. We continue seeing a more rational approach from all players, domestic local ones. I will say domestic local ones in the different markets we compete have reduced their investments mostly. That trend has continued. And as for international players, it applies to what I mentioned before regarding being much more rational in marketing investments and their pricing behavior.

The next question is from Andrew Ruben with Morgan Stanley. Your line is open.

Great. Thanks very much for the question and congratulations on the results. I wanted to dig in a bit on transactions. It looks like there were diverging trends between Brazil and Mexico. I'd be curious to hear about the differences, whether based on strategy or perhaps market conditions for each country. Thank you.

Yes. Thank you, Andrew, for your question. Two things. We are doing particularly well in Brazil. And given the market situation in Brazil, we decided to invest heavily in Brazil. That's also a very key market for us. We saw a market discontinuity that justify our investments. And we see that trend continue in Q3. In terms of Mexico, two things there. First of all, keep in mind that Mexico was a market that rebounded first from pandemia. So, the baseline is much higher than in Brazil. And within the quarter and even in July and August, we have seen a much strong acceleration of our bookings in Mexico too. So nothing out of the ordinary and strategic decisions to invest in Brazil, in particular.

Great. It's very clear. And then just a follow-up, if I may, on Koin. Curious what drove the faster path to breakeven and now looking for accretive in the back half?

So, this is a combination of two things. We are very pleased with the performance and the prospects of Koin based on being able to obtain higher margins per transaction. That's a result of our ability to score clients in a much granular detailed way. So our credit performance has improved significantly. And also, we've been very efficient in terms of cost. So we are very well positioned. For the moment, the Brazilian market in terms of credit, credit performance improves.

The next question is from Kevin Kopelman with TD Cowen.

Hi. This is Jacob in for Kevin. Thanks for taking my questions. So, B2B is up in the mix versus '22, 15%, GBV versus 9%. Can you talk about how that is impacting margins for the overall business and where you see growth for B2B going forward? And then maybe could you also touch on where you see growth for the overall business in '24 as well? Thank you.

Thank you, Jacob. The B2B is one of the things we are particularly happy about because the growth performance has been in line with our expectations, but it's a different platform from the ones we had in the past. That's as a result of the integration of Best Day B2B operation into our technological platform. And the growth obviously comes with a lower margin given that that's the nature of the B2B business. So we expect that to continue growing and gaining share within our portfolio and expanding -- as we expand into other geographies. We are growing particularly fast in Brazil. We are in Argentina in a very intense way in the last quarter of the year. So we are very excited about the prospects and how much it adds to our scale and competitive advantage. In terms of the overall growth perspective, I would again refer you to our Investor Day in which we set our growth aspirations at 25% year-on-year, and we reiterate that view at this moment. We're seeing that, overall, we're on the right path in all key variables of what we said last year on the Investor Day, both at the top-line and the operational leverage that we are achieving.

Got it. Thank you. And also a follow-up. So you have loyalty members now that 17 million, so up a few million Q-over-Q. Are you able to quantify any sort of benefit you're seeing from these numbers related to EBITDA?

We obviously monitor and manage that benefit from all the different impact that the loyalty program of that [site cost] (ph) from acquisition cost, to increase repeat rates and things like that. But we will not disclose those at the moment.

Okay. We will transition to the webcast questions. The first is from [Bruno Goldstein] (ph) asking, can you please give us more detail on the decrease of the current contingent liabilities on the second quarter?

Absolutely, Bruno, thanks for your question. This is Luca Pfeifer speaking. Just to put it into perspective, the contingent liabilities essentially have increased due to the increase in provisions of legal claims in the Brazilian market. That has been the major impact on that specific line item. And there is a small remainder that has also been affected by FX variations, but it's marginal. The biggest impact comes from the adjustments to claims.

And our next webcast question is from [Alejandra Aranda] (ph) asking, what should we expect for 2H considering the latest currency softness seen?

Hi, Alejandra. How are you? Thanks very much for your questions. As we stated in our earnings release, Argentina currently represents slightly less than 15% of our bookings. We are exposed on the revenue side and on the cost side. The revenue side is of that 15%, mostly on the domestic to this market, which is 6% of our bookings is even less than the total exposure to Argentina. And given our cost base that is denominated in peso, we have a natural hedge in between the revenue stream and the cost base. So the impact on the P&L of any type of Argentina devaluation is close to zero. On the other hand, and in terms of the balance sheet, we split our strategy in two. We -- as we mentioned in several occasions before, we actively hedged our working capital and current balance exposure. So again, no impact whatsoever there. And we explicitly do not hedge our long-term assets and liabilities. So, if there's a relevant -- the devaluation in Argentina, you will see non-cash, again, non-cash accounting impact from the long-term assets that we have in Argentina. Those are for your reference. Those are mainly tax credits that we have with the Argentina authority that are reflected in obviously Argentine pesos. So, those tax credits will be worth less dollars. But again, it's non-cash impact.

Thank you. And we have a follow-up from Alejandra. What should we expect in terms of marketing costs for 2H '23? And also, could you expand a bit more on recovery trends of domestic versus international travel?

Yes. I will start with the second part, Ale. As I said, we've seen in Q2 and accelerating in Q3, a recovery trend towards pre-pandemic levels. But the interesting thing is that when you look at the domestic travel market, it's fully recovered slightly above pre-pandemic levels in passenger terms. When you look at the international, the international market is still below the pre-pandemic level. So there's still room for further growth and recovery on the international market. As per your question regarding marketing costs, we expect to continue investing heavily in marketing, but gaining the efficiencies we committed to in the Investor Day. There's a clarification to make here, which when you look at selling and marketing, not marketing standalone, in selling, some of our channels the ones we're investing in, for example, B2B generate additional costs that go into selling and marketing, that was the commissions, for example, of B2B. So that's a clarification on how to take into account. The pure marketing, it will be in line with our investor days and will reflect economies and scale and efficiency. We may spending -- be spending a little bit more on the sales side of it, given the growth of the B2B and some offline growth that, again, will be positive in terms of contribution, but the growth will be reflected there, too.

Thank you. Our next webcast question is from [Santi Geraton] (ph). Can you please talk about your plan to grow in countries like Colombia, Peru, Panama and Costa Rica? What's your perception of the profit pool potential in these geographies?

We have obviously an aggressive growth plans that are country-by-country specific. The ones you mentioned, Colombia is particularly relevant to us, even the third to fourth country in terms of size, and we believe there's a significant opportunity there. In Peru, again, we have a very strong position, opportunities to grow there, but not as big a market as Colombia, for example. Costa Rica, less so, I would say. As we mentioned on several occasions before, Latin America is a very different mosaic of markets that are very peculiar and our priority markets are Brazil and Mexico in the first tier, and the second tier is Colombia, Chile and Argentina.

Thank you. Our next question is from [Joao Soares] (ph) asking Damian, could you please give an update on how much penetration of B2B do you expect in Brazil? At least some medium, short-term idea of how this should represent?

Hi, Joao. We are not ready to share the specific penetration of business line by country. What I can share with you is that Brazil is the market where the B2B is growing the fastest. And we are starting for a very, very small base, and we are positively surprised by the reception of the Brazilian market to our technology platform, which we believe is the best in the market and also our commercial offering there. The results have been sort of -- been very surprising for us in Brazil. That implies in part the big growth we've seen in Brazil.

Thank you. The next question is from [Alex Gourinho] (ph) asking, talk more about the offline strategy? Does Despegar have existing stores in other markets? Are you going to be opening more stores than originally 15 planned? And what is the impact to CapEx?

Alex, thank you very much for your question. I'll take the first part. First of all, yes, we do operate stores in different regions within Latin America. Just for your reference, under our Viajes Falabella brand, we operate approximately between 80 to 90 stores in the [Indian] (ph) region, and as well under our Best Day brand, we operate around 120, 130 stores, but those stores are very asset-light stores and you should probably think of them more in their majority sales booths that are actually operating in shopping malls. So, we do definitely have experience with regards to operating offline stores. With regards to our strategy in opening stores in Argentina and Brazil, this is certainly our initial rollout strategy at this point in time. And with regard to CapEx, we're looking at somewhere around $100,000 per store, give or take, right?

Thank you. We have another question from Bruno Goldstein asking, do you have any updates regarding the preferred shares, L Catterton? Any strategy to address this liability in 2025?

Yes, [indiscernible] liability that becomes due in September 2025. We are assessing several options and looking for the most cost-efficient to be preparing time for that transition.

Next question is from Alejandra Aranda asking why rollout in Argentina versus Chile or Colombia?

Ale, that has to do with particular market conditions. As I mentioned before, the conditions of each market, the terms and attractiveness of offline and online channels vary a lot. Argentina, as you know, has one of the largest portion of the GDP is cash-driven. And that's a portion of the market that is very hard to capture using online transactions. And you see a flourishing business of cash transactions too is related in Argentina, for example. That's one of the reasons that we are looking into that opportunity.

Maybe if I can expand one more variable here Ale. Keep in mind that within Chile and within Colombia, we already do operate our Viajes Falabella offline strategy, right? We do already have an -- offline stores in those specific markets that you referenced. Thanks for your question.

And Alejandra is also asking what should we expect for 2H considering the latest currency softness seen?

Sorry, would you mind repeating the question?

Certainly. [Technical Difficulty] Apologies for that. I'll go ahead ask the question here. What should we expect for 2H considering the latest currency softness seen?

So, we...

Sorry. Presenters, are you still there? We are not able to hear you.

Yes. No. What I was saying is that we reiterate our guidance, both in terms of revenues and EBITDA. Moreover, given the positive trajectory of our performance in the market, we are optimistic we will hit the upper range of the two variables we provided as guidance.

Thank you. We have another question from Joao Soares. How much this impacts your take rate and working capital?

Joao, just to clarify, are you referring to the offline stores when you say how much this impacts? If it's the offline stores, we would say that the take rate of offline store is slightly higher than online. And working capital is the same dynamic of the rest of the business. That doesn't change in a major way.

Thank you. We'll pause for -- it appears there are no further questions at this time. So I'll turn it back over to Mr. Scokin for any closing remarks.

As usual, I would like to thank you all for the interest in the company, and we are looking forward to seeing you again when we announce the third quarter results. Thank you very much.

This concludes today's conference call. You may now disconnect.