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Edited Transcript of DESP.N earnings conference call or presentation 16-Nov-17 10:30pm GMT

Thomson Reuters StreetEvents

Q3 2017 Despegar.com Corp Earnings Call

BUENOS AIRES Jan 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Despegar.com Corp earnings conference call or presentation Thursday, November 16, 2017 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ines Lanusse

Despegar.com, Corp. - IR and External Communications Manager

* Damian Scokin

Despegar.com, Corp. - CEO

* Mike Doyle

Despegar.com, Corp. - CFO

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Conference Call Participants

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* Kevin Kopelman

Cowen and Company - Analyst

* Brian Nowak

Morgan Stanley - Analyst

* Brad Erickson

KeyBanc Capital Markets - Analyst

* Eric Sheridan

UBS - Analyst

* Mark May

Citigroup - Analyst

* Lukas Okita

Copernico - Analyst

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Presentation

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Operator [1]

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Good afternoon and welcome to the Despegar third-quarter 2017 earnings call. A slide presentation is accompanying today's webcast, which is available in the investors section of the Company's website, www.investor.despegar.com. (Operator Instructions). Today's conference call is being recorded. And as a reminder, all participants will be in listen-only mode.

Now I would like to turn the call over to Ms. Ines Lanusse, Investor Relations and External Communications Manager. Please go ahead.

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Ines Lanusse, Despegar.com, Corp. - IR and External Communications Manager [2]

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Thank you. Good afternoon, everyone, and thank you for joining us today. If you have not seen the press release, a copy is posted on our corporate website in the Investor Relations section. With me on today's call are Damian Scokin, Chief Executive Officer; and Mike Doyle, our Chief Financial Officer.

We will make forward-looking statements during this call, so I will repeat our usual Safe Harbor statement. Today's call may contain forward-looking statements, and I refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

In addition to reporting financial results in accordance with US generally accepted accounting principles, GAAP, we discuss certain non-GAAP financial measures. Investors are encouraged to review the reconciliation of these non-GAAP financial results, which can be found in the press release.

I would now like to turn the call over to our CEO, Damian Scokin.

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Damian Scokin, Despegar.com, Corp. - CEO [3]

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Thank you, Ines, and thank you all for joining us today for our first earnings call as a public company. As many of you know, we completed our initial public offering on September 20. We are pleased today to be discussing a very solid quarter with improvements in all key metrics. As this is our first earnings call, and many of you may be new to the story, I am going to take a few minutes to discuss the Company and our strategy. I will then discuss the highlights of the quarter, and later Mike will take you through our financial results. We will then open the call to your questions.

Turning to slide 3, a little bit about our IPO. We issued approximately 15 million shares at an IPO price of $26 per share. Our shares trade only in the US on the New York Stock Exchange. Net proceeds to the Company were $254 million, providing financial flexibility and resources to continue our growth strategy.

Moving now to slide 4, we have been around a while, close to two decades. Over that period, we have grown into the leading OTA, online travel agency, in Latin America with a customer base in excess of 60 million. We have leading brand recognition in online travel in key markets, including Brazil and Argentina, as well as in the expanding markets of Mexico, Colombia, and Chile, where we are growing and gaining market share as well. In total, we operate across 20 different markets.

We provide our customers with a broad product selection, from air only to complete travel packages, which includes air, hotel, tours, et cetera. Importantly, our customers can access the Despegar travel site via whatever device they want, including mobile. I'll come back and discuss this a little bit later in my presentation as it is a key part of our growth strategy.

Let's move to slide 5. Let me put some context around the size and growth of the marketplace and why we are excited about the growth opportunities ahead of us. With a population approximately twice the size of the United States, an expanding middle-class, and increasing adoption of Internet and mobile Internet, the Latin American online travel market is expected to grow at a rapid pace, about 12% per year for the next few years, increasing from $30 billion today to around $48 billion in 2020.

Additionally, compared to other markets, Latin America is underpenetrated in terms of online travel: around 30% of total travel bookings as compared to about 50% in the US and Western Europe.

Moving to slide 6, now let me talk about some of our unique competitive advantages. To begin, our long history has provided us with the highest brand awareness in the region. Additionally, we have acquired a significant amount of local market expertise with respect to different consumer preferences, tax regimes, macroeconomic drivers, including currency volatility and various regulatory environments.

Lastly, navigating all these complexities has made us very nimble and responsive to meeting our customers' diverse needs. And nowhere is this more apparent than the various financing options we offer to our customers. All of these are key competitive advantages for us. And our expertise with managing the complexity of doing business in the region also provides significant barriers to entry.

Next, moving to slide 7, let me discuss a little bit about our product offerings. We have a differentiated platform, as shown on this slide. Over time we have been able to build relationships with many of the world's leading travel suppliers, providing our customers with one of the broadest product selections. Our initial product offering was focused on flights, and it is still an important customer acquisition vehicle for us. As we expanded our network of hotel packages and other travel products, we began to cross-sell higher-margin packages to our customers.

In the first nine months of 2017, hotels, packages, and other travel products accounted for 54% of our total revenue, an increase from the 50% that was the portion of revenues coming from these products in 2016. We believe there is still significant room to grow our packages and hotels and other products through targeted marketing and cross-selling initiatives. We will talk more about this as we discuss the quarter's results.

On slide 8 we have outlined our key priorities that are driving our growth. We have shown seven key priorities which we can group into four large categories: customers, suppliers, financial, and growth vehicles. And as we get into a discussion of our quarterly results, you will hear how we are working in each of them.

Moving to slide 9, now let me talk to you about the third-quarter results. Our performance during the quarter highlights our leadership team's commitment to the execution of our long-term strategy. Additionally, our initiatives to drive cross-selling and capture a higher share of wallet, to improve customer financing options, improvement in checkout, and targeted customer fee reductions are allowing us to improve conversion rates.

Now let me walk you through some of the highlights for the quarter which you can see on the slide. We are in a customer service business and we need to consistently capture new clients as well as drive repeat business from existing ones. Customer growth, up to 20% in the most recent quarter, was due to our award-winning mobile platform and comprehensive product offerings. We have very loyal customers, as evidenced by over 65% of total clients made repeat purchases in the first nine months of 2017.

Next is mobile, a key strategic pillar for us as we focus on driving more business to our mobile platform. We recently added new functionalities, which Mike will talk about, in order to further improve the customer experience. This strategy is working, as mobile transactions were up 55% in the quarter, and as a percentage of our total transactions increased almost 600 basis points year-on-year to 29%. Successful execution of our strategy and the steady macroeconomic conditions in the region allowed us to report a 32% increase in gross bookings.

This increase was achieved despite an overall softer travel market when compared with the first half of the year, which benefits from stronger-than-expected currencies in our largest market and pent-up demand after a slow 2016.

Other market factors in the quarter includes the earthquakes in Mexico and a severe hurricane in the US and the Caribbean, which caused some customers to delay or change their plans to book travel in the quarter. Revenues, in turn, expanded 24% year-on-year with growth mainly driven by a strong performance in packages, hotels, and other travel products. This includes the impact from cancellations tied to the natural disasters in the quarter.

As I mentioned at the start of my presentation, offering a broad product selection is a key competitive advantage for us, particularly as the Latin customers typically prefer to purchase packages versus air alone. We are running the unbeatable packages marketing campaign across our different countries of operation. This consists in offering the most convenient flight plus a spectacular hotel at an unbeatable price.

Other promotions include offering exclusive financial alternatives when purchasing through the app, and that has worked quite well. This strategy is yielding good results, allowing us to drive increased sales of higher-margin packages to international destinations, resulting in a 10% year-on-year increase in revenues per transaction for packages, hotels, and other travel products.

Let me also highlight the 15% year-on-year increase in adjusted EBITDA, when excluding one-time gains in both quarters that Mike will discuss in more detail. We reported also strong cash flow generated from operations of almost $11 million during the third quarter of 2017 compared with a use of cash of over $13 million in the year-ago quarter.

One of our management responsibilities is to evaluate market conditions and strike the optimal balance between growth and profitability. Given how early we are in the development of the online travel industry in Latin America, we believe our focus must be on driving growth and taking market share. We are pleased with the balance struck during the quarter.

Finally, before turning the call over to Mike, let me briefly touch on a metric that is really important to all of us. Getting recognized for providing exceptional customer service is not easy; you have to work hard at this every day. I am very proud that our team is consistently able to service our customer needs, and they have responded in kind as we saw further improvement in customer Net Promoter Scores. At the end of the day, that is what it is all about. We need to exceed our customers' expectations each and every day.

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

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Mike Doyle, Despegar.com, Corp. - CFO [4]

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Thank you, Damian, and thank you all for joining us today. I am pleased to be discussing our solid financial results during our first earnings call. Please turn to slide 10 for a more detailed review of our operations.

Gross bookings increased 32% year-on-year in the quarter to over $1.1 billion, while transactions were up 25% to 2.3 million. This good performance came about despite overall softer travel market growth compared to the first half of the year, as Damian already mentioned, and was supported by healthy macroeconomic conditions in our markets.

Gross bookings are growing faster than transactions year-on-year, driven by the mix shift to higher average selling price products such as packages, along with higher ASP for international destinations. Overall ASPs increased 6% year-on-year.

As you can see in the blue bar chart on the left, the introduction of selective reductions in air customer fees together with enhanced financing options are proving successful in supporting cross-selling, with packages, hotels, and other travel products growing at 29% year-on-year, above the 22% growth in air transactions.

The growth was faster in the first six months of the year compared to the third quarter as the year-over-year comparisons were easier in the first half, as growth during that period benefited from a surge in consumption reflecting higher purchasing power following stronger-than-anticipated regional currencies and improving economic conditions in our two largest markets, Brazil and Argentina.

On slide 11, we are keenly focused on driving mobile. This is an important initiative. And customers believe we have the right product for them, as evidenced by the over 35 million plus cumulative app downloads at the end of the quarter, an increase of 42% year-on-year. This is an important point to reiterate. We continue to drive increased visits via mobile devices, with mobile transactions growing 55% year-on-year during the quarter.

Additionally, 29% of all transactions were completed on a mobile phone compared with 23% in the year-ago quarter, bringing the share of mobile transactions up by almost 600 basis point year-on-year.

To remain relevant to our customers as well as provide a great transaction experience and drive customer satisfaction, we must continuously enhance and upgrade the functionality of our platform. Among the new functions we added in the quarter were ancillary luggage and fee information as well as a new confirmation feature during the checkout process which improves order accuracy and reduces post-sales issues. These two key functions have allowed us to improve customer satisfaction scores.

Moving on to slide 12, we continue to drive market share gains across all of our key markets. We are seeing robust dynamics in our two largest markets, with transactions posting year-on-year increases of 29% in Brazil and 24% in Argentina. Growth in Brazil, which represented over 40% of the total transactions, was largely driven by strong performance in domestic transactions which carry lower ASPs than international.

In Mexico, transactions were up 30% year-on-year, while in Colombia we are also gaining market share despite lower passenger traffic resulting from a local pilot strike at an international airline.

Turning to the P&L on slide 13, we posted solid revenue growth of 24% year-on-year, reaching $132 million. While air remains a core product, particularly in terms of customer acquisition, our strategic initiatives to increase the share of higher-margin packages, hotels, and other travel products has been successful, and now accounts for 55% of total revenues in the third quarter, up from 49% a year ago.

We selectively reduced air customer fees in support of market share gains along with additional opportunities for cross-selling. This helped drive double-digit growth in transactions, while air revenue per transaction was 12% lower year-on-year. Importantly, commissions remain stable.

This strategy is yielding good results, allowing us to drive increased sales of higher-margin packages to both domestic and international destinations, resulting in a 10% year-on-year increase in revenues per transaction for packages and hotels and other travel products.

As we approach year-end, please keep in mind that the mix of packages, hotels, and other travel products is seasonally the lowest in the fourth quarter, with deferred revenue benefiting results in the first quarter of the following year.

Turning to slide 14, there are several levers we pull to drive market share gains. First, we selectively lowered air customer fees to drive customer acquisition and increase cross-selling of higher-margin packages and hotels. Second, we offered our customers a wide range of financing alternatives and further enhanced the customer financing options this quarter.

In turn, this increased cost of installments and impacted cost of revenue. This service is a key driver of customer acquisition and a competitive advantage for us. As a result, gross profit in the quarter rose 24%, excluding a one-time tax recovery in the third quarter of 2016 of $4.5 million, while gross margin remained stable year-on-year at approximately 71%.

We also continue to invest in direct marketing, with selling and marketing expenses increasing 31% year-on-year, slightly below the growth in gross bookings. As Damian already mentioned, we have been running the unbeatable packages campaign at least once monthly, which largely accounts for this increase in spending.

Selling and marketing expenses for the quarter were 31.3% of revenues compared with 29.6% in the year-ago quarter, as we were more aggressive in driving hotel and package traffic.

Turning to our adjusted EBITDA performance on slide 15, third-quarter adjusted EBITDA, excluding nonrecurring tax recoveries in both quarters, increased 15% year-over-year. Comparable adjusted EBITDA margin was down year-on-year to 16% from 17.3%. Q3 2016 results include a $4.5 million withholding tax recovery in Brazil; while in Q3 2017 we reported a $2 million tax gain primarily in connection with the domestic sales tax recovery in Argentina. Including the nonrecurring tax gains, adjusted EBITDA was up 1%, with adjusted EBITDA margin reaching 17.5% in the quarter.

Moving on to the balance sheet and cash flow items on slide 16, our financial position is healthy, with unrestricted cash and cash equivalents at September 30, 2017, totaling $356 million, primarily reflecting the net IPO proceeds to the Company of $254 million after deducting all transaction-related costs. Despegar generated cash flow from operations of $10.7 million in the third quarter as compared to a use of cash of $13.3 million in third quarter of 2016.

That ends our prepared remarks. Operator, please open the lines for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Kevin Kopelman, Cowen and Company.

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Kevin Kopelman, Cowen and Company - Analyst [2]

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Congrats on the quarter. So first, just looking at the third quarter, can you give any more color on the selective lowering of customer air fees? Was that just in Mexico or Colombia -- in Colombia, or did that extend to other markets? And then I have some follow-up questions.

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Mike Doyle, Despegar.com, Corp. - CFO [3]

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Sure. I'll take that question. This is -- our evaluation of setting air fees is on a route-by-route basis across all of our markets. We're constantly testing the elasticity of customer demand based on many different trip characteristics. And so we have reduced fees in other markets -- in all markets.

However, we also take a strategic consideration into making the decision based on our objectives on market share gains and overall growth. And so we did concentrate air fee reductions in a couple of markets, notably Mexico and Colombia.

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Kevin Kopelman, Cowen and Company - Analyst [4]

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Okay, great. And then as we look to the fourth quarter here, you've had a strong first nine months of the year. Can you give us an update on what you are seeing quarter-to-date in the fourth quarter, and how you are expecting -- how you are seeing both the industry growth and your share gains within it? And also the further development of your actions in both customer fee reductions and also sales and marketing spend. Thanks.

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Mike Doyle, Despegar.com, Corp. - CFO [5]

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Sure. So we won't be providing any guidance on the Q4 results or the performance quarter-to-date. Though we have -- we are pleased with the success and the market share gains with the additional level of experimentation that we were doing with air fees. And so that is something we've continued to develop and to implement in the fourth quarter.

We, on the marketing side, have continued to be aggressive in investing in and attracting qualified customers. That's true across all of our channels. Our mix of spend has remained similar quarter to quarter, where the majority of our investments is in the performance-based channels, though we are active in off-line brand building as well.

Q4 for us is our peak booking period due to seasonality in our region. And so it makes sense for us to continue to be aggressive in attracting traffic during the period when customers are most interested in booking.

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Kevin Kopelman, Cowen and Company - Analyst [6]

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Great. If I could just ask one last question. Can you give us an update now, post-IPO, how you are thinking about uses of cash going forward? Thanks.

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Mike Doyle, Despegar.com, Corp. - CFO [7]

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Sure. So use of cash from the IPO is to fund growth initiatives. There are several that we are working on, already underway, and plans for further development in 2018. We will be sharing information about those as we make more progress and have some visible representation on the website that customers can see and transact with.

We are also very interested in looking at potential M&A opportunities in the region. There are no active discussions to report on. But certainly having the cash from the IPO provides flexibility for us to be opportunistic. There has been very little consolidation in our region in the space, and we think it is a central opportunity in the future.

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Kevin Kopelman, Cowen and Company - Analyst [8]

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Thanks, Mike.

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Operator [9]

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Brian Nowak, Morgan Stanley.

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Brian Nowak, Morgan Stanley - Analyst [10]

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I have two. Just the first one, is there any way you can size the rough impact of the hurricanes and the earthquakes on the transaction growth? And have you seen the business come back as we go into the fourth quarter from some of those tragic events?

And then the second one, just to go back to this point on the strategically lowering the air consumer fees, recognizing that the mix shift toward packages is enabling you to expand take rates, could you just talk about how we should think about other levers you have to continue to maintain or perhaps even grow all-in take rates over time, and even in the fourth quarter as you continue to reduce the consumer fees on air? Thanks.

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Mike Doyle, Despegar.com, Corp. - CFO [11]

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Sure. So let me take the first question regarding the hurricanes and the earthquakes in the third quarter. Well, the first is we have seen business volumes recover actually quite quickly after both events.

During the quarter itself, there were basically two impacts to the business. There were transactions that were booked prior to the events themselves that were canceled, either by customers' decisions or by some interruption in the scheduling of airlines or the conditions at the hotels themselves. So for those transactions where we had already incurred marketing expenses and other fulfillment costs, we think there was approximately $1 million of impact to operating income.

The other potential impact, and one that is more an estimate, is the foregone bookings, so customers who may have delayed their purchase decision as a result of the events into a future period. And in that regard, it is just an estimate for us, but we think it was $1 million to $1.5 million of potential revenue. The second question --

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Brian Nowak, Morgan Stanley - Analyst [12]

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And then the second one (multiple speakers)

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Mike Doyle, Despegar.com, Corp. - CFO [13]

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Yes, second question on air fees; and, going forward, how we look at that. One thing that we have been quite opportunistic about is the success we've had in shifting the mix of the business to higher-margin packages and hotels. And as the business -- as that segment of the business grows, naturally the blended take rate would improve. At the current time, we're taking advantage of that mix shift to be able to fund being more aggressive in attracting customers on the air side.

The air product for us is a great lead generator and provides a great ability for us to cross-sell hotels and other high-margin products. And so we are still very interested in attracting air transactions, and lowering fees is a way to bring that traffic to the site and have the opportunity to cross-sell.

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Brian Nowak, Morgan Stanley - Analyst [14]

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Okay. Thanks.

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Operator [15]

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Brad Erickson, KeyBanc Capital.

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Brad Erickson, KeyBanc Capital Markets - Analyst [16]

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Just had a couple follow-ups. First, you called out the mix of hotels and packages I guess being seasonally lowest in Q4, and then that deferred revenue benefit not hitting till Q1. Can you just remind us of any of the other nuanced trends we'll be lapping here in the fourth quarter from last year, in terms of either booking and/or revenue trends?

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Mike Doyle, Despegar.com, Corp. - CFO [17]

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Really that is the most significant. For us, October and through early December is the peak booking period. It's our -- as customers get ready for holiday travel and for summer vacation travel. We have different revenue recognition policies based on our products. They are quite similar to our industry peers. But for transactions that are refundable on the hotel side, the revenue gets deferred until the customer has checked out.

So that does have an impact of lowering the quantity of revenue in the fourth quarter; and then also margin, particularly the gross margin, in fourth quarter. And then we receive the benefit of that in the first quarter.

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Brad Erickson, KeyBanc Capital Markets - Analyst [18]

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Got it. And then secondarily, just when you think about any potential for acquisitions, where do you think your opportunities lie primarily over time, more on the product technology side? Would it be, let's say, a competing smaller OTA, meta-search? Any particular areas of focus out there from an acquisition standpoint?

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Damian Scokin, Despegar.com, Corp. - CEO [19]

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Yes, as you may recall, Brad, during the roadshow we specified that we will look at consolidating opportunities through the current lenses. While certainly the ones you mentioned about products [in orderly] platforms, but also we would look in terms of geography and what that potential acquisition may generate in terms of competitive dynamics and our relevance in certain markets. So we are actively exploring options; nothing concrete at the moment. And as Mike said before, whenever there are concrete news, we will let you know.

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Brad Erickson, KeyBanc Capital Markets - Analyst [20]

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Great. Thank you.

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Operator [21]

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Eric Sheridan, UBS.

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Eric Sheridan, UBS - Analyst [22]

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Maybe just a few around the topic of mobile that you talked about in the release. With the shift to more mobile in the business, I was wondering: is there anything you're doing on a mix shift front in marketing to promote mobile, put mobile as an option in front of more of your customers, either new customers or repeat customers? And is there anything you are seeing either on conversion or size of transaction with respect to mobile that's different than the overall business that you'd want to call out? Thanks so much.

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Mike Doyle, Despegar.com, Corp. - CFO [23]

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Thank you. So there are several things that we're doing. Mobile is key area of investment for us, both on the -- both in the area of technology as well as marketing. We are focused on improving conversion across all of our platforms, and have seen conversion pick up in the quarter in both mobile and in desktop.

We are -- they are doing things such as offering differentiated installments -- customer installment options on the mobile to help attract traffic to the mobile platform and to drive app downloads, and ultimately conversion on mobile. We negotiate with suppliers for mobile-only rates to provide additional discounts to mobile customers. And we actively market the mobile app, and particularly our off-line brand spend.

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Eric Sheridan, UBS - Analyst [24]

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Great, thank you.

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Operator [25]

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(Operator Instructions). Mark May, Citi.

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Mark May, Citigroup - Analyst [26]

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Hopefully you can hear me. Regarding the cost of revenue in the additional installment costs in the quarter, is the impact that we saw from that in Q3 relative to Q2 -- is that kind of the new normal, if you will? Or will we continue to see the impact of that in cost of revenue ratio for the next couple of quarters?

And then as a -- back on the customer fee question. I know that you mentioned that you're experimenting there in certain markets. We saw that impact the business. We didn't necessarily see it show up in air transactions accelerating. So wonder if you could talk a little bit about where you are seeing the positive offsetting impact there?

And I'm trying to get a sense of where we are in that process. I think you mentioned that you're only really testing it in Mexico and Colombia, so it sounds like probably there's more to come there. Am I thinking of that correctly?

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Mike Doyle, Despegar.com, Corp. - CFO [27]

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Okay, let me first take the cost of installment question. So, the impact in cost of installments is strongest in the business in Argentina, where the banking environment is quite fluid, and there have been changes in the last 12 months in both the fees associated with credit card processing as well as the promotions being offered to us by our banking partners on the customer financing side. Where credit card fee processing fees have been reduced, the cost -- the financing promotions offered by the banks have often also been reduced from some of the banks themselves.

Now, for us, the most important thing is what the customer sees. And so we have the opportunity to fund a partial expansion of the installment promotions being offered in conjunction with the banks themselves. And that's where the increased cost has come, allowing us to extend the number of installments or to increase the frequency.

For us, cost of installments is a key way to attract customers and to drive conversion. It does appear of course in the cost of revenue line. But we very much think about it as a marketing expense, as a way to drive users to the sites and then to convert them.

So in that regard, it is quite important for us to continue this as a way to encourage customers to book, and something that we're continuing. And the same trends are true in the fourth quarter, they're making those investments in cost of installments in Argentina.

That's one. So the second question was on the impact to the business of our being more aggressive on air customer fees. It is true that the air transaction growth was slower than packages and hotels, but that's actually the result we were looking for. We very much want to drive air transactions, of course. But the idea is to attract customers to book air, and encourage them to book multiple products.

When customers come to the site and are purchasing a package, it of course includes an air ticket. And so when that happens, the air portion of the transaction is included in both the package and hotel segment of the business.

So the 29% increase in transactions that we saw in packages and hotels is partially driven by having lower fees on the air side; encouraging customers to bundle products together, or to come back to the site after the initial air transaction and add additional products. And that is incremental volume for us, which is why we've seen a higher rate of transaction growth in the package and hotel segment.

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Mark May, Citigroup - Analyst [28]

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Thanks.

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Operator [29]

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(Operator Instructions). Kevin Kopelman, Cowen and Company.

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Kevin Kopelman, Cowen and Company - Analyst [30]

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Just another question. Can you just give us an update on the size of the Brazil credit card receivables balance in the quarter, and your latest thoughts on factoring and how we should think about factoring expense? Thanks.

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Mike Doyle, Despegar.com, Corp. - CFO [31]

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Sure. So we finished the quarter with about $66 million of Brazil credit card receivables. A key part of our currency hedging strategy is to maintain a natural balance between the supplier payables we have due, mostly to hotel suppliers in Brazil, and then the credit card receivable balance that we have as a result of our prepaid transactions from customers in Brazil.

So yes, we finished at about $66 million. That balance was down from the second quarter. And so there's two drivers basically of the factoring expense which appears in the financial expense line in the P&L. One is the volume of credit card receivables that we're actually factoring. And then the other is the interest rate charged by the banks for factoring.

We have seen a steady decrease in the interest -- in the factoring expense through the year. The average for the quarter was about 9%, which is a significant reduction year-on-year, and even from the prior quarters. But that's applied to the balance that we factor.

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Kevin Kopelman, Cowen and Company - Analyst [32]

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Got it, thank you.

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Operator [33]

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(Operator Instructions). [Lukas Okita], Copernico.

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Lukas Okita, Copernico - Analyst [34]

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My question is more from a strategic standpoint. I was wondering if you have any target regarding market share. I guess that with the funds raised from the IPO, you might get more aggressive in that matter. So I was wondering, what number of market share can you achieve with that? Or what's your target? Thank you.

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Damian Scokin, Despegar.com, Corp. - CEO [35]

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Lukas, we do not have a target for market share. We are happy we continue our trajectory of continuous market share growth, but we don't have a specific target. There's ample room for growth, and we -- it will be too soon for us to set a target.

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Lukas Okita, Copernico - Analyst [36]

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Okay, thank you.

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Operator [37]

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(Operator Instructions). There are no further questions at this time. I will now turn the call back to Mr. Damian Scokin, CEO, for closing remarks.

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Damian Scokin, Despegar.com, Corp. - CEO [38]

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Thank you. Thanks, all, for joining. There are just a few thoughts I would like to leave you with today. At Despegar, as you've seen for the results, we are focused on driving growth by executing our long-term strategy of cross-selling, improving the customer experience, and further broadening our portfolio of products to continue the strong momentum across the business.

I wouldn't like to finish the call without thanking the hard-working team at Despegar for helping us reach this point, and to our new investors for supporting our ambition to really revolutionize the travel industry in Latin America.

Thank you for your questions and your attention today, and we look forward to speaking with you again next quarter. In the interim, the team remains available to meet with you and answer any questions you might have. Thanks a lot for joining today, and have a good evening.

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Operator [39]

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