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Edited Transcript of DESP.N earnings conference call or presentation 5-Mar-20 1:00pm GMT

Q4 2019 Despegar.com Corp Earnings Call

BUENOS AIRES Mar 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Despegar.com Corp earnings conference call or presentation Thursday, March 5, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alberto Lopez Gaffney

Despegar.com, Corp. - CFO

* Damián Scokin

Despegar.com, Corp. - CEO & Director

* Natalia Nirenberg

Despegar.com, Corp. - Head of IR

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Conference Call Participants

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* Alaxandar Wang

Morgan Stanley, Research Division - Associate

* Edward James Yruma

KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst

* Emily Elizabeth DiNovo

Cowen and Company, LLC, Research Division - Associate

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* Rodrigo Nistor

Itaú Corretora de Valores S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. And welcome to the Despegar Fourth Quarter 2019 Earnings Conference 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. (Operator Instructions)

Now I would like to turn the call over to Ms. Natalia Nirenberg, Investor Relations. Please go ahead.

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Natalia Nirenberg, Despegar.com, Corp. - Head of IR [2]

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Good morning, everyone. And thank you for joining us today for a discussion of our Fourth Quarter 2019 results. In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, we discuss certain non-GAAP financial measures and operating metrics, including foreign exchange neutral calculation. Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand them. Non-GAAP financial measures and operating metrics should not be considered in isolation as substitute for or superior to GAAP financial measures and as providing a supplemental information only.

Before we begin our formal remarks, 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 assumption to a number of risks and uncertainties that could cause actual results to materially differ, including factors that may be beyond the company's control. For a description of these risks, please refer to our filings with the Securities and Exchange Commission and our press release.

Speaking on today's call is our CEO, Damián Scokin, who will provide an overview of the fourth quarter and update you on our strategic priorities. Alberto Lopez Gaffney, our CFO, will afterwards discuss the important financials and our outlook for the next quarter. After that, we open the call to your questions.

Damián, please go ahead.

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Damián Scokin, Despegar.com, Corp. - CEO & Director [3]

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Thank you, Natalia. Good morning, everyone, and thank you all for joining us. On today's call, first, I will describe the context in which we close 2019 after making significant progress on developing a strong competitive position; second, I will update on Q4 progress on such initiatives; and third and last, how they have been reflected in our financial results.

Following my comments, I will turn the call over to Alberto for a review of our financial and operational highlights of the quarter as well as our outlook for the first quarter, then we will take your questions.

Fourth quarter and full year 2019 were both challenging, and I am pleased with the progress we made executing against our strategy. Let me start by discussing how this year's actions tied to our core competencies described during our Investor Day in December. First, win-win value proposition for customers and partners. In 2019, we focused our efforts on developing a better value proposition for our customers, which entail more to do benefits. We have developed a strong portfolio of negotiated rates. We have become a more customer-centric company, accompanying the clients through every step of the travel journey, and we have developed a broad set of payment alternatives.

On the partners’ front, we are the clear partner of choice when relevant companies look for a robust travel-related partner in the region. Examples are many, we will go through some significant ones in the next few slides.

Second, efficient customer acquisition and retention. Due to our continuous investment in branding, we have had many achievements that have not only helped us to better navigate the current industry challenges, but also provide us with better margins, as 69% of our traffic comes from unpaid sources. Importantly, in Q4, 42% of our transactions were done through our mobile platform, which is more cost-efficient and promote loyalty among our customers.

Third, best-in-class digital product. To maintain our leading position, we know that the user experience has to be exceptional. In this regard, in 2018 ((sic)) [2019], we deployed over 4,300 initiatives that allow us to develop cutting-edge capabilities such as cross-channel interfaces, bundling abilities and the offering of a differentiated shopper experience by segment.

Fourth, rapid adaptation to local markets. Local presence allows us to be the first option when a customer is beginning their travel journey as we know and understand what they are looking for. Hence, we can meet their expectations.

We can do this, thanks to our strong local presence as it allow us to react to market dynamics quickly through the creation of other commercial events. During 2018, we invested in strengthening our teams in Brazil and Mexico, our portfolio of banking relationships, allowing Despegar to maximize its local impact. Additionally, the understanding of the local market's customs allows us to create a loyalty program that fits the aspirations of the Brazilian customer.

Fifth, low-cost delivery model uniquely suited for LatAm. Technology allows us to have streamlined processes with banks and financial institutions. As a result, we can offer a wide variety of payment solutions to our customers. Additionally, having such processes also translates into extremely low buy failure rates on our side and low fraud endeavors. By way of example of what we have achieved on the payment front in the [Argentina] region, 21% of sales are completed through alternative payment methods. Also, we are the only platform that offers boleto parcelado purely online in Brazil.

Sixth, strong financial position to lead industry consolidation. Our strong balance sheet has provided us the flexibility to rapidly adjust to changing macro conditions as well as to pursue selective acquisition targets such as like Viajes Falabella and Best Day.

Lastly, we have opportunistically repurchased shares as we felt the price did not fully reflect the long-term value we see for the company.

Moving next to Slide 4. Throughout 2019, and to date, in 2020, we have continued strengthening our competitive levels. Most importantly, we've expanded our geographic reach across platforms presence through the announced acquisition of Best Day, earlier this year. I will discuss this later in my presentation. Also we are thrilled to develop a new white label through a commercial agreement with Tarjeta Naranja in Argentina. We'll continue to drive growth in sales of higher-margin packages, hotels and other products, which accounted for a greater percentage of our total sales.

Year-over-year, we've grown 18% in package transactions. We opportunistically increased our customer fees in the quarter, helping to drive revenue growth. In turn, we've gained market share in a street [fielding] market.

Third, we have also made progress on our mobile strategy, increasing 466 basis points, our percentage of sales from our mobile app.

Fourth, we are focused on continuing to provide an excellent value proposition for our customers. To that end, we launched our loyalty program in Brazil during the fourth quarter. And subsequent to quarter end, we launched our co-branded credit card with Banco Santander and Visa. Overall, we are encouraged with the progress we have made in successfully executing on our key strategic initiatives, even when taking into account the volatile macro environment, we have been operating in during the past 2 years.

Moving next to a discussion of transactions and gross bookings on Page 5. The fourth quarter was not without its challenges, including social unrest in Chile, which curtailed travel to and from that country, and the ongoing recession in Argentina. The implementation by the Argentine government of the new 30% tax on international travel purchases also impacted gross bookings in that country. The impending start date of this tax in Argentina drove customers to accelerate their travel purchases ahead of this tax implementation, driving strong growth in transactions in that country. As we have been able to do successfully in the past, we were also able to make adjustments to respond to this changing market condition and opportunistically act on our business levers, contributing to a strong increase in gross bookings and revenues in Argentina.

Total transactions were up 7% in the quarter with air transactions and Packages, Hotels and Other Travel products increasing 6% and 7%, respectively, year-over-year. The growth in non-air was driven by an 18% increase in stand-alone packages. Once again, our fastest growing product. These key strategic initiative is also benefiting from the Viajes Falabella acquisition and once the Best Day acquisition is closed, we expect this to be an important contributor as well.

Gross bookings increased 26% of an FX-neutral basis. As reported, gross bookings were up 6%. This better-than-industry performance is reflective of the success we are having by staying focused on our key strategic initiatives, even as we faced challenging market conditions.

Moving next to Page 6, where I will discuss some of our recent business initiatives. A significant event for us during the fourth quarter was our first Analyst Investor Day, where we outlined an acquisition criteria and our key strategic initiatives. Since then, we have been very busy, and the new year has only just begun.

On the next 2 slides, I am going to discuss a few of our recent events and how they further push our strategy.

Starting with Best Day, this will be our second and largest acquisition to date. As we have already had a conference call to discuss the transaction, on this slide, you can see the key points about Best Day. Today, I will discuss how this fits into our overall strategy. As outlined at the Investor Day, Mexico and Brazil are key focus markets for us. On the B2C front, Best Day is the second most recognized travel brand in Mexico after Despegar. So not only we will quickly expand into an important market, but we will also be acquiring a well-recognized brand, further strengthening our leadership in terms of brand awareness.

We will also gain approximately 190 kiosks, as we continue to build out our cross platform. The company's strategic fit with Despegar is extremely high.

Best Day's B2C business model is in line with Despegar's. Best Day is primarily an online company with approximately 70% of sales generated from this channel. And 95% of revenue is generated from banks, hotels and other travel products. Additionally, we are very excited about gaining expertise in in-destination services and ground transportation from Best Day and potentially rolling this out to other markets, where we already are seeing high traffic growth. Both Despegar and Best Day have growing B2B business with very little overlap, providing the opportunity for both companies to leverage each other's strength.

Best Day's B2B business is largely a white label services web platform for major travel vendors and online hotel aggregators, servicing travel agencies worldwide. This is a unique core competence at Best Day.

Taking into account, Despegar's already strong presence and product offering and combining it with Best Day's expertise in in-destination services and wholesale hotel offerings, we are clearly enhancing our value proposition.

Similarly, at the Investor Day, we also spoke about our competitive levers. Let me talk about how Best Day will further strengthen them.

First, our value proposition to customers will enhance as we increase our inventory and add new capabilities and product offerings. Second, we gained instant retail local market knowledge of the key Mexican market, particularly related to in-destination services. And third, Best Day will benefit from Despegar's low-cost delivery model, which was customized to meet the unique needs of the LatAm travel, further leveraging Despegar's operating scale. We are extremely pleased with this acquisition. Not only that Best Day complement our existing business, it provides growth opportunities via new products and services.

Additionally, we expect to achieve operational synergies. This is a significant milestone in our consolidation strategy and in our goal to continue expanding our operations in Mexico.

Moving next to Slide 7, where I will discuss 2 recent commercial agreements. Partner of choice, being known as such is strategically important for us. We have spent over 2 decades investing in building our brand and evolving into the leading OTA in LatAm. This leadership position is not going unnoticed by other leading companies, and we are the partner of choice when they are looking to partner to enhance their products or services for customers. It is the same for us.

During the fourth quarter, we launched Passaporte Decolar, our loyalty program in Brazil, our largest market. Passaporte Decolar has many unique characteristics versus other loyalty programs. Some of the key attractive advantages included: First, belong to the buyer and not to the passenger, allowing for faster point accumulation in a single account. Points can be converted into any product that is part of the extensive inventory sold at Despegar. There are no blackout dates. Recently, we improved the loyalty benefits even further by partnering with Santander and Visa Brazil to launch a co-branded credit card and have added even more benefits to our loyalty members.

Using the co-branded card, loyalty members can accumulate points 3 ways with one purchase. On the credit card, to purchases at Despegar and with airline, hotel membership program. Additionally, utilizing our strong IT capabilities, we were able to make signing up for these new card as simple as one click on our website. Even before making the first travel purchase, our loyalty program has been well received by customers. And today, we have already accumulated more than 430,000 members in Brazil.

Given the success of the program, we plan to introduce it across our other key markets over time. As a quick note aside, we have included a link in the PowerPoint presentation with a short video showing how easy it is for customers to obtain the co-branded card with Santander and Visa in our website. Additionally, the commercial agreement, I want to talk about next is Tarjeta Naranja. This is a 10-year agreement with Tarjeta Naranja, which is a leading branded proprietary credit card issuer in Argentina and a subsidiary of the Grupo Financiero Galicia. We will provide a white label online marketplace to Naranja to jointly sell our travel products. We gained access to over 5 million potential new customers that were not our natural customer base.

Along with the potential new clients, we are expanding our business via cross-channel platform.

I will now turn the call over to Alberto to discuss our financial results.

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Alberto Lopez Gaffney, Despegar.com, Corp. - CFO [4]

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Thank you, Damián, and good morning, everyone. Please turn to Slide 8 for a review of our operations on a regional basis. Overall, we reported higher gross booking growth rates across our key markets, both as reported and on an FX-neutral basis. Brazil, our largest market, which accounted for 39% of total transactions, performed well, taking into account the 7% depreciation of the Brazilian real in the quarter and the resulting mix shift in packages from international to domestic.

Note the country experienced a reduction in international air capacity in the fourth quarter.

Transactions in this market were up 2% year-on-year, with FX-neutral increases of 7% in gross bookings and 5% in ASPs. On an as-reported basis, gross bookings and ASPs declined low single digits, reflecting the currency depreciation.

Next, Argentina. While the country remains impacted by the overall recessionary environment, customers in Argentina advanced travel purchases this quarter in anticipation of a new 30% duty on resident international travel spend that became effective towards the end of December. This has driven a 13% year-on-year increase in transactions.

On an FX-neutral basis, gross bookings were up an impressive 81% year-on-year, with ASPs increasing 61%, reflecting our flexibility to rapidly increase fees and the positive market conditions. As reported, gross bookings were up 13% and ASPs 1%, impacted by a 37% peso depreciation. The impending tax duty drove advanced purchases in Argentina in the fourth quarter pulling sales forward. As a result, we expect to see some contraction in this country in the first quarter.

Finally, the rest of Latin America. We reported an 8% increase in transactions, with FX-neutral gross bookings up 12%, and ASPs rising 4%. Reported ASPs rose 1% year-on-year, while reported gross bookings were up 9% in the period.

A good performance in Mexico, further supported by currency appreciation in the region, was partially offset by weaker growth in Chile, given the social unrest experienced in the country that also drove an 8% currency depreciation.

Now turning to the P&L on Slide 9. FX-neutral revenues were up 34% year-on-year in the quarter, despite ongoing market contraction, which was low single digits this quarter. As reported, revenues were also solid, up 10% year-on-year. The strong advanced sales in Argentina this quarter was one of the drivers behind the robust revenue performance during the period. We continue to drive higher-margin revenue mix with the share of Packages, Hotels and Other Travel products, increasing 100 basis points year-on-year to 63% of total revenues and with higher revenue per transaction in non-air.

Let me also call out the 30 basis point improvement in revenue margin this quarter, we reached 11.4%, the highest level of the past 7 quarters. Our strategy to drive growth in higher-margin stand-alone packages, the positive impact from Viajes Falabella with higher ASPs and our agile and flexible approach to managing profitability in Argentina contributed to this good performance. This more than compensated the reductions in revenue margin resulting from the implementation of our loyalty program in Brazil on lower air supplier volume balances.

Now please turn to Slide 10. Gross profit, as reported, was up 14% year-on-year, reaching slightly over $94 million and was up 34% on an FX-neutral basis. Gross margin increased 222 basis points year-on-year, reaching 64.7%. While we selectively increase customer fees this quarter, the benefits were partially offset by our initiative to increase customer financing and installment plans in Argentina to support growth, a key lever in driving conversion. By contrast, financing costs benefited somewhat from lower average interest rates in the country.

This quarter, we also had a higher number of transactions where Despegar was the merchant of record versus airline suppliers, which enabled us to offer more attractive customer financing options. In addition, cost of revenue for the quarter includes a $1.9 million impact from Viajes Falabella. Note that early February, we outsourced a significant portion of our customer service activities. We expect this initiative will allow us to obtain important savings in our cost of revenues going forward. Moving on to our operating expenses.

We have been quickly adapting our cost basis to changing market dynamics. In the near term, as we grow the business, we are adding expenses, the Viajes Falabella acquisition, for example, but at the same time, we are streamlining other parts of the business. Over time, we expect these cost savings and synergies to become more apparent. Selling and marketing expenses. Excluding the operation of Viajes Falabella as well as a one-time severance charge of $0.5 million this quarter, sales and marketing expenses would have increased 5% to $45 million. This increase was mainly due to the launch of our loyalty program in Brazil, partially offset by efficiencies in direct marketing. On a per transaction basis, excluding this onetime charge, selling and marketing expenses increased nearly 7% year-on-year to $17.2 million, and as a percentage of revenues, were up 133 basis points to 34%.

Viajes Falabella contribution to sales and margin expenses accounted to $4.1 million which include the operational cost of its stores and telesales operations. Comparable G&A expenses were up 14% year-on-year. This number excludes a $2 million onetime bad debt charge, $700,000 in severance charges in the quarter as well as $3.2 million in G&A expenses at the Viajes Falabella. The higher cost reflects the export rise tax on services in Argentina introduced in January 2019, partially offset by lower personnel expenses. Excluding extraordinary charges and as a percentage of revenues, expenses were up 269 basis points, accounting for 16% of revenues.

Finally, technology and product development, excluding a onetime $1 million severance charge and Viajes Falabella declined 1%. As a percentage of revenue and excluding the one-time charge, technology and product expenses declined by 21 basis points year-on-year to 12.1%, reflecting higher cost dilution in the quarter. Of note, fourth quarter '19 results do not reflect the expected synergies from Viajes Falabella position of integration process is expected to be completed during the first half of 2020. So far, we finalized the technological integration of the platforms of both Despegar and Viajes Falabella in Argentina and Peru. Therefore, 100% of the Despegar's hotel inventory is available on these Viajes Falabella platform, while also introducing new features. These developments will allow Viajes Falabella to better serve customer needs.

As we finalize the integration, we will be better positioned to achieve operating leverage. Moving on to profitability on Slide 11, and despite the challenging environment, comparable adjusted EBITDA was $12.5 million in fourth quarter '19, down 10% year-on-year with a margin of 8.6%, almost 200 basis points lower than the same period of the prior year. Taking into account $2.2 million in severance charges across the business from the streamlining of our operating structure to drive future cost savings and $2 million in nonrecurring bad debt charges related to Avianca Brasil, as reported adjusted EBITDA declined 40% in the period to slightly over $8 million.

As a reminder, with respect to Avianca Brasil, we rolled off part of our exposure back in second quarter '19, and we're still pursuing full recovery of the guaranteed amount. Although we have faced near-term challenges, which have impacted our financial results, we continue to execute on our strategic priorities to better position the company for the long term. That finishes my comments about our fourth quarter sales and earnings performance. Now let me change subject and make just a few comments about our balance sheet and cash flow.

Please move to Slide 12. Our balance sheet at the end of 2019 was in excellent shape. Our cash level is up. We have no long-term debt, and our capital base is strong and growing. Additionally, we generated a significant amount of cash flow and we're employing a disciplined return centric approach to deploying our cash. Operational and capital investments in the quarter were mainly software and platform development. While we continue to review and prioritize our capital needs, we remain committed to making the required investments in our company to help position us for our long-term success.

Additionally, during 2019, we took the opportunity to repurchase in excess of 3.5 million shares for a total of $42.2 million and leaving approximately $78.5 million available under the current $100 million authorization buyback program. In sum, our balance sheet and financial conditions are strong, which gives us a solid foundation for future growth. In addition to providing value to our shareholders through share repurchase programs, our strong cash flow from operations should allow us to continue to invest in our infrastructure and maintain our flexibility to take advantage of opportunities as they may arise. We will also continue to be very disciplined in expense management and maintaining a healthy balance sheet, enabling self-funded growth and free cash flow generation.

Summing up, we had many accomplishments during the fourth quarter, as shown on this slide. Here are few highlights. We delivered solid top line growth with increases of FX-neutral gross bookings of 26% and revenues up 34%. While the team remains committed to enhancing customer satisfaction, NPS declined 50 basis points year-on-year in the quarter due to several contingencies in the air segment in our portfolio. These include a wide range of events, including a cessation of operation of an airline in Peru, several flight cancellation and incidents that led to higher-than-average rescheduling of flights across the region.

Increase in mobile transactions have been an important initiative for us. And this quarter, we delivered strong growth in mobile transactions, up nearly 470 basis points year-on-year, while mobile accounting for 41% of transactions in the quarter. Our competitive position and the strength of our balance sheet, allow us to opportunistically take actions to gain share, which resulted in a 20 basis points increase in air market share in the quarter. We continue to gain share even in periods of contracted industry demand.

In sum, we are pleased that we have been able to drive solid financial results in a challenging environment while simultaneously investing in new growth opportunities, and also returning value to our shareholders via share repurchases throughout the year. The past year has not been without some macro and industry volatility. Despite this, we have been able to opportunistically react to changing market conditions and are pleased with the results we delivered during the past 2 quarters. At the same time, we are committed to executing on our 5-year growth strategy. In the near term, we expect Q1 2020 to be challenging. Contributing factors are driven mainly by coronavirus and its related effects, including its impact on emerging market currencies and capacity contraction and specific Argentina events. These conditions have and are expected to negatively impact Q1.

Although we do not provide guidance, given the current market discontinuity, specifically coronavirus, we would like to share that we expect Despegar to experience a low-teens contraction in gross bookings in dollar terms in this coming Q1 2020 quarter.

Importantly, we will continue to focus on executing against our strategy. Drive our innovation program and transforming how we engage with consumers in the digital arena. We will also continue to enhance productivity and drive cost savings to support our investments and grow margins.

Our 5-year goals remains intact. 2019 2nd half results support such a [need]. Sustainable 20% local currency gross bookings growth with take rate in the 11.5-plus area and EBITDA levels above 20%. As we discussed at our Investor Day. As always, we will continue to focus on creating long-term shareholder value. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for that.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Edward Yruma of KeyBanc Capital Markets.

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Edward James Yruma, KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst [2]

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First, thank you for the color on coronavirus. I don't know if you're willing to comment at this stage, but are you starting to see an impact for further outbookings? I know that you obviously have a higher leisure in package business. Do you think at this stage, it is impactful for the balance of the year? That's my first question. And then second, I know you've taken a number of charges for your streamlining. At this point, do you think that, that's all the charges you'll need for all the streamlining you have planned for the balance of the year?

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Alberto Lopez Gaffney, Despegar.com, Corp. - CFO [3]

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Ed, Alberto speaking here. And so addressing your question, and maybe I'll start with the one on charges, okay. As you know, during 2020, we will continue with the implementation of the integration of the Viajes Falabella, okay. And also, we expect to have by the closing of the second -- of the first half 2020, the incorporation of Best Day into the Despegar Group. So from that perspective, we are actually on Falabella, well advanced in the integration plans. A portion of the restructuring charges that you see over there, that we have announced this quarter are related to that because we are looking at running these operations of all the different subsidiaries in a seamless manner. So as such, we have made some good adjustments. And we expect that the results of such measures will start pouring through our financial statements in this first half in 2020.

But secondly, we will be also -- we are already looking into the integration plan for Best Day. And there will be many opportunities for us to capture, both on the top line, but particularly on the bottom line level. And as such, we will need to reaccommodate the structure. But in any case, there will be all -- a good news to the overall story of Despegar. So for now, if you ask me particularly, let's say, Q1, Q2, we believe that it will be very few of those and maybe more to come in the second quarter. But all in all, we expect that if any charges were to be taken, that will be a positive to the story. And then would you please remind me of the first question, please?

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Edward James Yruma, KeyBanc Capital Markets Inc., Research Division - MD & Senior Research Analyst [4]

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Yes. The first question is on the coronavirus. I know you gave some color as to the bookings for the first quarter. But given that you have a high buyers toward leisure, packages, is it your expectation that it should -- are you starting to see an impact for bookings that are in -- kind of 2Q, 3Q, 4Q?

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Alberto Lopez Gaffney, Despegar.com, Corp. - CFO [5]

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Sure. Let's -- I think when you look at coronavirus related factors, okay; let me start with the second one. If you have to look at what happened to currencies to particular emerging market currencies since the breakout of corona in China by the end of January, clearly, that did affect the currencies in the region, okay? As such, you see today, the real trading close to BRL 4.60, okay, per dollar. You actually see devals in Chile, again, Colombia, less so et cetera. So that is certainly what -- certainly trading levels for those currencies that are way away from consensus, okay, consensus at the beginning of the year, we're looking -- we are looking at a picture that was completely different to the one we are seeing today.

So we also tend to believe that that is certainly something that will correct as the coronavirus effect in the overall capital markets comes down.

Secondly, with regards to the business impact, okay? Our participation -- if you look at all the different regions, as you know and we have discussed, with the analyst community in the past. Today, our business is approximately 2/3 Latin America, and 1/3 approximately, let's say, travel outside the region with China and Southeast Asia being very small. But then as you go into Southern Europe -- Europe and Southern Europe and the U.S., the percentage starts increasing.

So clearly, what we have seen since the break of corona in Europe, okay. We have seen that our clients started pausing to a certain extent, on their travel plans. And that is what we actually tried to reflect on the guidance, let's say, onetime guidance that we're providing for Q1, and that is our best estimate or what will be the performance for Q1. Then with regards to how the rest of the year will shape up, at Despegar, we are very positive, very positive on the year that we're looking ahead. Ex this, let's say, interim period of coronavirus, we're looking at continuing implementing our strategy. We're excited with the -- very excited with the results we are already obtaining with Viajes Falabella, the loyalty program, how the app is working, our ability to manage margins, that has worked particularly well over the last 2 quarters. And last, we are finishing '19, with 2 quarters in a row, well ahead of our plan, and we're particularly excited about what we're seeing. Clearly, Q1 is affected not only to Despegar, but also to other -- either competitors or peers of us in other regions of the world. And I think we need to just go through, and we are very confident that we will emerge quite strong and stronger than our competitors, given our competitive position.

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Operator [6]

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The next question today comes from Eric Sheridan of UBS.

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Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [7]

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A topic that came up during the Analyst Day and good progress in this quarter on take rates. Can you give us a little bit better sense of how you're seeing take rates evolve in real time? How important it is to make investments on the inventory of the supply side to continue to allow for an upward pressure in take rates over a multiyear time frame?

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Damián Scokin, Despegar.com, Corp. - CEO & Director [8]

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Eric, this is Damián. Thanks for your question. I mean, in terms of take rate evolution, as we always say, in the short term, we manage our pricing strategy very dynamically to adapt to market conditions. And I think that the evolution of take rate in Q4 is a reflection of how we can rapidly take advantage of market conditions to, in this case, increase the take rate. As we've been saying and we stress during the Investor Day, we see a long-term positive trend, in terms of our take rate, but that doesn't mean that it's a short term in terms of -- with the objective of gaining market share. We will be more aggressive on that side. So in market conditions like the ones we are facing in Q1, at the moment, we -- it's very logical that we'll be much more aggressive with our take rate.

In terms of other strategic initiatives and inventory as a reflection of that, Best Day is an example of how our inorganic growth strategy can help us gain on that. As you know, not only Best Day has a significant proportion of non-air sales that will increase our purchasing power, but also has some interesting initiatives going on and has a hotel base, that's something that will certainly leverage our ability to increase our sourcing capabilities. So we are -- after the Best Day transaction, even more positive about the long-term trend of our take rate.

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Operator [9]

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(Operator Instructions) The next question comes from Rodrigo Nistor of Itaú.

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Rodrigo Nistor, Itaú Corretora de Valores S.A., Research Division - Research Analyst [10]

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Well, my question is regarding the competitive environment both in Brazil and from global OTAs, how it behaved during the fourth quarter and what are you seeing in the -- during the start of the year?

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Alberto Lopez Gaffney, Despegar.com, Corp. - CFO [11]

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Rodrigo, Alberto speaking here. We are -- clearly, we are in an industry as we have always discussed, that is an industry that is very open to international competition with all global players and regional players being present in all the -- in most of the countries in Latin America and have been present for a long while, okay, in numerous years in every case. So we -- as we look into our market share, okay. We are glad to say that we are improving margins, while also gaining market share. As we look into the dynamic between regional players and global players, okay. There -- we see that in an industry, in online space that continues to grow, in our -- the [news] that has a secular positive trajectory. We are seeing that we are certainly gaining market share. We monitor performance of our key competitors and the information we get and the analysis we perform is pretty encouraging. But again, it is an industry that is, as I said, open to every player. And as such, we also need to have our guard very high and continue developing all the initiatives that we have been developing. For us, the status quo in our business is continue developing new features, that's why we have the success on the app, improving customer performance, okay, particularly in that area, you actually look at -- despite the fact having an NPS coming down this quarter, if you look at, like, all the different websites for claims or customer claims, Despegar has continued to improve its current position, it's position over the past quarters.

And in -- and particularly this quarter, on the NPS side, it will not show, but importantly, as you look into how our peers and how we're faring vis-à-vis our competitors, we are doing well. We also like to see a great success on the loyalty program. And I believe that loyalty program today, as you know, we are in a period of investment, because at the beginning, you start, like, giving out the points, okay. So you have higher deferred revenue and that marginally impacts your take rate. But again, that will be -- but we are seeing -- we are starting to see good results from the loyalty program on how our customers are engaging and what the delta of their behavior, once they engage in the program vis-à-vis the performance at our platform before joining the program.

So again, we gained market share. We feel very -- we have a solid operation. But again, it's a tough competitive environment in which we feel very well, so far. And now, Damián, if would you like to add?

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Damián Scokin, Despegar.com, Corp. - CEO & Director [12]

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No, no, no. You summarized it.

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Operator [13]

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(Operator Instructions) The next question today comes from Brian Nowak of Morgan Stanley.

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Alaxandar Wang, Morgan Stanley, Research Division - Associate [14]

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This is Alex Wang on for Brian. Just two. First, can you just give an update on the loyalty program that you're seeing strong growth there, but any sort of consumer behavior findings you can share around spend per customer or frequency for loyalty members versus non-loyalty members? And any implications for a sort of long-term marketing spend, if you might see a better ROIs leaning more heavily into your loyalty program. That's part one. And then the second question, if you can just provide us an update on capital allocation, given the strong balance sheet?

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Damián Scokin, Despegar.com, Corp. - CEO & Director [15]

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Alex, this is Damián. In terms of loyalty program, as we did mention during the call, we launched the program in October 2019 in Brazil, and at the moment, we have approximately 400,000 active members. The performance of the program in terms of membership, the credit card, since we launched the co-branded credit card in February, like, 3 weeks ago. Points accumulated, points redeemed, it's better than our original expectations on our business plan. Having said that, a word of caution because, obviously, the early adopters of these programs are generally the more (inaudible), and (inaudible) Despegar. So we are looking at very positive numbers, but with caution. And the second part of your initial question about how that will affect, how this will affect marketing spend and ROI. Obviously, as we've been explaining since we introduced the program. The overall objective of the program is not to build a new profit center around our new business or around the loyalty program, but rather to intensify our relationship with our consumers. And in that way, to reduce our acquisition costs and our marketing spend. So we are extremely optimistic.

And in a nutshell, we are on track to achieving the expected benefit through a lower marketing spend in the long term. As per your second question in capital allocation, remember that along 2019, particularly on the third quarter, we made some heavy share repurchase, and we always said that that was an opportunistic action that the company took, given how the shares were in our perspective, under value in comparison to the long-term value of the company. And obviously, we make those decisions in consideration of all other capital allocation alternatives.

Given where we are now, in terms of the closed deals and the conversations we are having with other potential targets. We haven't done any of the share buyback activities during Q4. And that's the perspective we have for the, I would say, next couple of quarters.

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Alberto Lopez Gaffney, Despegar.com, Corp. - CFO [16]

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Just to complement, I think that we -- as we know, we invest in the business through the P&L, through actually capturing less of a margin than we could, okay, in order to ensure that the company continues growing and continues gaining much gaining share, M&A and share repurchases. Between the trade-off -- between these last 2, we believe that at the levels that we -- at the valuation levels that we have been able to get into deals, okay, we believe that is the best return profile getting into M&A, given all the positive synergies, how can we better serve our customers, how much more efficient we can be with our expenditures, et cetera. So you will see the company under similar circumstances, leaning more, given all the synergies that you can capture, leaning more towards M&A rather than share buybacks, as a matter of principle.

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Operator [17]

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(Operator Instructions) The next question comes from Kevin Kopelman of Cowen.

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Emily Elizabeth DiNovo, Cowen and Company, LLC, Research Division - Associate [18]

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This is Emily Lavin on for Kevin. I just wanted to ask about how your -- the mix shift in your business between international travel and domestic travel has been trending since the coronavirus news and also since the new tax in Argentina on international purchases was implemented.

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Alberto Lopez Gaffney, Despegar.com, Corp. - CFO [19]

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Emily, Alberto speaking again. As you know, the -- both -- on all, let's say, coronavirus related effects, okay. First, I'll start with the related ones, FX, okay. And on FX, clearly, what we see is, on a per country basis, because not all countries have the same, as you know, breakdown between international and domestic traveling, what you see is domestic goes up in times in which the FX of each respective -- that respective country comes down. And as you might imagine, okay, over the past weeks, okay, as you look into all the different travel destinations, okay, as there are news on Southern Europe, the bookings on a per week basis, per day basis -- on a daily basis, you have to receive booking for certain destinations coming down, okay?.

So overall, yes. What fits into the onetime guidance we've provided for this quarter is actually what we are seeing on the trade. What we're seeing on the trade is since January already with currencies devalued on all corona-related news you actually see a lower relative growth vis-à-vis excluding the corona effects, of the -- of international share and particularly as the demand starts coming down, is very much in line with where the news were coming from, Southern Europe, Asia, et cetera.

And so certainly, you will see in the upcoming Q1 2020, you will see that the share of domestic travel will actually increasing, the good news for us, to a certain extent just to be able, to a certain extent, to cope with international travel that, as you know, is more profitable for us is that the network of -- the inventory we have for domestic travel across the region is particularly strong, and we are certainly benefiting from all the good work that our teams were doing on the sourcing side for the domestic destinations as well. So all in all, I provided some color, but your assessment is correct.

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Operator [20]

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This concludes our question-and-answer session. I would like to turn the conference back over to Damián Scokin for any closing remarks.

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Damián Scokin, Despegar.com, Corp. - CEO & Director [21]

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Thank you, operator, and thanks, everyone, for joining the call today. As usual, if you have any further questions, please do not hesitate to reach to us. We'll be happy to follow-up. Thank you very much. I'm looking forward to seeing you all in our next call. Take care.

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Operator [22]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.