Mondee Holdings, Inc. (NASDAQ:MOND) Q3 2023 Earnings Call Transcript
Mondee Holdings, Inc. (NASDAQ:MOND) Q3 2023 Earnings Call Transcript November 14, 2023
Mondee Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.29 EPS, expectations were $-0.06.
Operator: Good day, and welcome to the Mondee Third Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. [Operator Instructions] I would now like to pass the conference over to Jeff Houston, Senior Vice President. Jeff, please go ahead.
Jeff Houston: Thank you, Bailey. And good morning to everyone. Welcome to Mondee’s third quarter 2023 conference call. With me today is Founder, Chairman and CEO, Prasad Gundumogula; and Chief Financial Officer, Jesus Portillo, Executive Vice President, Orestes Fintiklis; and Chief Operating Officer, Jim Dullum will present our results and be available for questions-and-answers. Before we begin, I would like to remind everyone that this call may contain forward-looking statements, including statements about revenue, growth of our business, our management and government’s plans and other non-historical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Mondee’s growth, the evolution of our industry, our product development and success, our management performance and general economic and business conditions.
Copyright: grinvalds / 123RF Stock Photo
We undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to have a material difference from these forward-looking statements are discussed in our reports filed with the SEC and in our press release that was issued this morning. During the call, we also refer to non-GAAP financial measures. Reconciliations of the most comparable GAAP measures are also available in the press release, which is available at investors.mondee.com. With that, it’s my pleasure to turn it over to Prasad.
Prasad Gundumogula: Thank you, Jeff. We are thrilled to welcome everyone to Mondee’s third quarter 2023 earnings call to discuss our results and significant developments. Our robust results have been driven by a reasonably strong lease and travel demand, combined with our market-leading technological accomplishments and market share gains as well as enhancements to our monetization strategies. As we get into the details of our results, it is important to note that at the start of the quarter, we divested LBF US, an underperforming non-core B2C air business unit, which we have owned since 2019. This will be discussed more thoroughly throughout the presentation, as we provide comparisons of results on a pro forma basis with this portion of our business fully executed.
Turning to Slide 4 of our presentation, gross bookings of $597 million grew 15% year-over-year, on a pro forma basis, excluding LBF US., net revenue of $55 million, represents growth of 66% over the pro forma of the same quarter last year. This growth is driven by extraordinary take rate expansion, which has doubled since pre-pandemic levels to over 9% this quarter, the highest in normal market conditions. Adjusted EBITDA of approximately $6 million was not only 54% higher than same period last year, but also the highest reported quarterly EBITDA in our history. We expect our EBITDA to continue growing in future quarters. The increased profitability translated into a record operating cash flow generation of $6 million, after adjusting for $7 million of one-off transition outflows related to the LBF Divestiture.
Now that we are through October and about halfway in November, we are excited by what is looking to be an even stronger fourth quarter. While these results are encouraging, we are motivated and focused on the near and long-term prospects and targets for Mondee. This includes expanding our marketplace, widening our technological needs, particularly when it comes to fully integrated AI and materially enhancing profitability and free cash flow. For the overall market, we continue to experience solid demand in most of our core business sectors and immense upside potential in emerging sectors for new Era distributors, experts and influencers. This is where Mondee is best positioned with our fully integrated AI platform and global marketplace. Now I will hand it over to Jim Dullum, Mondee's Chief Operating Officer.
Jim?
Jim Dullum: Good morning, and welcome, everyone, wherever you are. Let me start with the market outlook and some external drivers to our gross bookings to our gross bookings growth using Slide 5. Across the globe, many of Mondee's main markets such as China and the India sub-continent, continue to perform strongly with good upside. There are early signs of some post-recovery moderation of consumer travel demand in certain markets, such as North America and Europe. In addition, some more specific markets are impacted by war and other conflicts in Ukraine and the Middle East. Overall, with Mondee's agile business model, adaptive AI platform and business position across the global markets, we expect to navigate these market conditions effectively and continue to enjoy an overall positive demand picture.
In addition, we see more significant upside, based on our increasing pace of market share penetration of the emerging social media experience-driven sectors. With more than 80% of our business related to international leisure travel, we continue to benefit from tailwinds from the recovery of certain geographies. For example, travel from North America to China, which was approximately 10% of our business in 2019 has recovered meaningfully during 2023 from its extended COVID lockdowns in 2022 when it was minimal. Year-to-date in US dollars, our China business was back to 90% of 2019 levels. Along similar lines, the Latin American market in, which Mondee has increased its presence with recent acquisitions and organic growth remains very resilient.
On the other hand, as mentioned before, geopolitical tensions driven by the continued Ukraine war and Middle East discord have a dampening impact on outbound travel from North America to these regions. We continue to monitor these events and take steps to mitigate any overall negative impact. Furthermore, there have been macro concerns about potential softening of the largely recovered North American travel in Q4 and into 2024. It is important to note that Mondee's agile business model is resilient during such periods because on the demand side and travelers tend to search for more cost-effective travel experiences, which is what Mondee provides. And on the supply side, during uncertain economic times, suppliers tend to improve the conditions and pricing for content they provide through opaque privately negotiated channels like Mondee.
In summary, travel suppliers value even more, the ability to target certain consumer cohorts with precision while end travelers seek more customized itineraries, both trends that play well with Mondee's AI technological capabilities and leadership. Moving forward, we continue enhancing our marketplace. Mondee already leads a segment of the $1 trillion assisted and affiliated travel market, and we are confident that our continued growth will establish Mondee's leadership over more parts of the entire market. The newest version of our fully integrated platform is now available to all of our existing 65,000 travel experts and new era travel intermediaries. As discussed before, we are leveraging our technology to expand distribution to more new era intermediaries such as social media influencers, freelancers and concierge service providers, a few thousand of these new era experts have already signed up, and we're engaging with them one-on-one to receive feedback on the product and monetization model.
So far, feedback has been enthusiastic and we are making a few refinements before fully investing in sales and marketing in this distribution channel. Moreover, because we are pioneering these new era distribution networks, we will be monitoring relevant metrics over the next few quarters and report more details later. To capitalize on evolving market conditions, we have focused our deep marketing capabilities on brand development and product positioning this year. As a result, Mondee successfully released and established a cohesive brand position and launch Abhi, our end-to-end AI integrated offering. With these accomplishments in hand, we have pivoted to more cost-effective and scalable grassroots marketing activities and campaigns. These campaigns are expected to accelerate penetration of targeted market regions and emerging new era experts and influencer sectors, enabling Mondi to continue to increase transactions and revenue in additional ways.
Using this more variable cost approach, we are optimizing our market spend, while achieving substantial upside business expansion. In addition to new era travel experts, we have been expanding our BTE distribution by signing up more small and midsized businesses and membership organizations as well as partnering with platforms that provide products and services to these closed groups. Net revenue from this expanded BTE distribution has increased 149% year-to-date compared to the same period last year. Another reason for Mondee’s sustainable growth is the use of our technology and distribution ecosystem to provide an ever-expanding range of travel content through a uniform global content hub. Prior to the pandemic, we only sold air. We have since added hotels where gross bookings grew year-to-date 74% compared with the same period last year.
Hotels, packages and other content, which enjoy a higher take rate than air continue to grow rapidly. Recently, we launched cruise content to a small portion of our distribution for further user input and product fine-tuning. We anticipate that cruises and activities will be a growth driver in late 2024. At the same time, we have been enhancing our monetization tools by expanding ancillaries and fintech offerings such as payment platforms, wallets and fraud protection tools. Now I pass to Orestes, Mondee's Executive Vice Chairman.
Orestes Fintiklis: Thank you very much, Jim. As Prasad mentioned in his highlights, we have been widening our technological product lead and further advancing our AI integration. In addition to enhancing the marketplace itself, we continue to improve our technology and product remaining at the forefront of innovation in travel. Abhi, our AI-powered travel platform is the only fully integrated solution on the market, encompassing conversational and expert trained generative AI curated experiences, booking and itinerary management. And this is just the beginning as we continue to integrate AI beyond the direct customer interface. More on that in Q4. We enjoy a first-mover advantage and will continue to build and train AI models that cater to our 65,000 travel experts with access to unique content, data and distribution.
Therefore, we are confident in our ability to stay ahead as we continue to evolve and enhance our AI models. Having brought Abhi to market, which considered to be only the first step in integrating AI into travel, we are now creating a next-gen AI platform and finalizing clear monetization plans for AI. We expect to further strengthen our capabilities with the acquisition of Purplegrids, an all-share transaction that was closed yesterday. Purplegrids was founded in 2017 by Joseph John and Sekaran [ph]. Mr. John was a leader in the Apple Music and [indiscernible] team for 12 years. Mr. Sekaran bodes over two decades of expertise in AI ML technologies and has served multiple leadership positions at PayPal and Sun Microsystems. Headquarter in Silicon Valley, Purplegrids has a team of cutting-edge AI professionals who have previously worked with some of the most innovative enterprise companies; including Google, Apple, Meta, PayPal and Oracle.
Purplegrids starts as a leading provider of cutting-edge AI technologies. Their innovative enterprise AI platform empowers businesses to build robust next-generation AI applications. This platform uniquely integrates the advantages of generative AI with diverse data sources, seamlessly blending them with native enterprise integration and business intelligence capabilities. Operating on a no-code local platform, it facilitates rapid deployment and development, ensuring a dynamic and efficient approach to leveraging AI capabilities. In addition to enhancing our AI powered marketplace, we recently announced a transformative rebranding, designed to connect with travelers and travel planners on a deeper, more authentic level reflect the company's adventure spirit, capitalize on our significant investment in technological innovation, and offer unparalleled travel experiences.
Alongside the striking new brand identity, we released a new logo capturing Mondee's dynamic persona and powerful website with improved user experience and advanced technological features. The website further highlights Abhi, our evolutionary AI preplanning tool and travel experience companion, the most powerful and the only fully integrated personal AI travel platform on the market. Turning to our heightened focus on profitability and cash flow generation. Innovation and sustainable growth are only one part of the equation. Mondee price itself in being a high-growth disruptive player as well as an EBITDA profitable one. Given the company's commitment to cash flow generation and generating long-term profitability for its shareholders, we are focusing on enhancing our EBITDA and improving free cash flows into and through 2024.
In our ongoing focus to strengthen profitability, as Prasad mentioned, we divested LBF US, an underperforming nonc-ore B2C air business unit to its original majority owner for a consideration of 200,000 Mondee shares. The transaction is part of our strategy to transform Mondee's B2C business model to one centered around AI-led solutions and experiences rather than selling travel booking services via generating direct consumer calls online. Furthermore, LBF's net revenue has been declining and adjusted EBITDA losses have been increasing in recent quarters as a result of both inflationary pressure on the labor cost of these operations and incompatibility with certain supplier trends. The effect of the divestiture is to improve adjusted EBITDA, while reducing net revenue.
Jesus will address that in more detail in his section. In addition to the divestiture of non-core underperforming units, we have put in place a plan to optimize our business and cost structure to further strengthen profitability for Q4 of this year and even more importantly, into 2024. Having completed five acquisitions during 2023, we are now focused on final implementation of their integration, capitalizing on further on cross-selling opportunities and synergies, as well as strengthening our core business and next-gen AI platform. I will now pass the call over to Jesus, our CFO, for a review of Mondee's financial performance and outlook. Jesus?
Jesus Portillo: Thank you, Orestes, and hello, everyone. As I go over our Q3 results, I would like to point out that all growth rates for 2023 are on a year-over-year basis, unless otherwise indicated. Let me start with our operational financial highlights on Slide number 6. We continue to generate outstanding results throughout this third quarter, producing a strong revenue growth and a record adjusted EBITDA. Evidence our efforts for long-term growth and improved operational efficiencies are producing results. Our gross bookings previously referred to as gross revenues were $597 million in this quarter, up 2%. If we proforma LBF for the third quarter of 2022, growth was actually 15%. This growth was driven by an 18% increase in the number of transactions, up 47% if we pro forma for LBF divestiture which more than offset reduction in airfares by airlines.
Our net revenue increased 35% to reach $54.5 million. If we proforma for LBF divestiture for Q3 of 2022, our revenue grew 66%. This net revenue growth is the result of higher gross bookings as well as our continued improvement in take rate. Our take rate of 9.1% was ahead of our expectations and up 31%. As with prior quarters, this improvement in take rate was driven mostly by the uptake of higher-margin hotel content and the diversification of revenue streams including fintech and ancillary services. We expect this important metric to continue expanding into the double-digits with the addition of cruises and a grater mix of non-air content. Turning now to expenses. Our operating expenses declined 41%. However, when we exclude stock-based compensation, our operating expenses increased 29% compared to our net revenue growth of 35%.
Sales and marketing as a percentage of net revenues decreased from 71% to 66%. A clear signal that our sales and marketing efforts are having a positive long-term effect and we're becoming more efficient at managing this very important cost component. As a result of our strong net revenue growth and our efficiencies in sales and marketing, adjusted EBITDA grew 54% from $3.6 million to $5.5 million. Adjusted EBITDA margin was also up 15% and reached 10.1% in this quarter as we continue to put more emphasis on operating efficiencies and profitability. On a GAAP basis, our net loss was $20 million, which included $15.4 million of non-cash and/or non-recurring items, such as $9.3 million of net cost associated with LBF divestiture, $3 million of stock-based compensation and $2.5 million of intangible asset amortization, among others.
I'm turning now to Slide 7 to address the impact of LBF divestiture on our 2022 and 2023 financials. During the fiscal year ended December 31, 2022, LBF had net revenue of $32.8 million and an adjusted EBITDA loss of $5.3 million. For the six months ended June 30, 2023, LBF had net revenue of $6.7 million and an adjusted EBITDA loss of $5.3 million. Therefore, if we were to proforma for the nine months ended September 30, 2023 to exclude LBF, the company's net revenue would be $154.5 million and adjusted EBITDA will be $19.3 million. Looking now at our balance sheet on Slide 8. At the end of this quarter, we had $48 million in cash and cash equivalents and $155 million of total debt compared to $58 million and $154 million, respectively, at the end of June 2023.
The decrease in cash reserves was primarily due to cash used to complete our Skypass acquisition and one-off LBF divestiture costs. In terms of our operating cash flow, we continue making improvements. After adjusting $7.4 million of one-off cash outflows related to our recent divestiture, we generated a positive operating cash flow of $6.4 million compared to a negative $1 million in Q3 of 2022. In addition to our cash and debt position, I would like to provide some background on the increase of accounts receivable versus prior year, which is primarily due to the consolidation of our newly acquired businesses in Brazil. We're providing payment plans to travelers as a customer practice. It is important to point out that these payment plans are fully secured by banks and credit card companies, eliminating any potential risk of non-collection for the company.
Another notable development is an inaugural share buyback program approved by our Board of Directors for up to $40 million and launched at the end of September. As of the end of Q3, we repurchased less than $1 million of our shares. Also in relation to our stock, after our inclusion in June to the Russell 2000 Index, Mondee joined the S&P Total Market Index in September. This milestone underscores Mondee's strong fundamentals and business performance. We expect this new addition to raise awareness among the investment community, increased stock volume and liquidity diversify the company's shareholder base and enhance long-term value. Now, turning to our guidance on slide number 9. For our 2023 guidance, excluding LBF divestiture on a pro forma basis from January 2023, we expect our net revenue to be approximately $210 million, representing a 32% growth versus 2022.
If we pro forma LBF for 2022 as well, this revenue growth could be 66%. Likewise, and excluding LBF divestiture on a pro forma basis from January 2023, we expect our adjusted EBITDA to be approximately $25 million, representing a 110% growth versus 2022. If we pro forma LBF for 2022 as well, this adjusted EBITDA growth would be 45%. In closing, we're excited about our year-to-date results and the momentum in the business as we move into the end of the year and beyond. With this, let me now turn it back to Jeff for Q&A. Jeff?
Jeff Houston: Thanks, Jesus. Operator, we're ready for questions now.
See also 20 Best Cheap Tequilas Under $50 for 2024 and Ken Fisher Portfolio: 12 Biggest Positions.
To continue reading the Q&A session, please click here.
