Q4 2023 Mondee Holdings Inc Earnings Call
Participants
Jeff Houston; SVP; Mondee Holdings Inc
Prasad Gundumogula; Chairman of the Board, Chief Executive Officer, Founder; Mondee Inc
Jim Dullum; Chief Operating Officer; Mondee Inc
Orestes Fintiklis; Executive Vice Chairman; Mondee Inc
Jesus Portillo; Chief Financial Officer; Mondee Holdings Inc
Nic Jones; Analyst; JMP Securities LLC
Brett Knoblauch; Analyst; Cantor Fitzgerald & Co.
Mike Grondahl; Analyst; Northland Securities, Inc.
Presentation
Operator
Good day, and welcome to the Mondi Fourth Quarter 2023 earnings conference call. Please note, this event is being recorded.
I'd now like to turn the conference call over to Jeff Houston, Senior Vice President. Jeff, please go ahead.
Jeff Houston
Thank you, Elliot, and good morning to everyone. Welcome to Mondee's Fourth Quarter and Full Year 2023 conference call. With me today is Founder, Chairman, and CEO, Prasad Gundumogula; and Chief Financial Officer Jesus Portillo; Executive Vice Chairman Orestes Fintiklis; and Chief Operating Officer Jim Dullum. We'll present our preliminary unaudited results and be available for questions and answers.
Before we begin, I'd like to remind everyone that this call may contain forward-looking statements, including statements about revenue growth of our business, our management and governance governance plans and other nonhistorical statements as further described in our press release. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including those related to Mondi's growth, the evolution of our industry, our product development and success, our management performance and general economic and business conditions. I would also like to point out that the fourth quarter and full year 2023 results are preliminary and subject to final audit. We undertake no obligation to revise any statements to reflect changes that occur after this call or 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 Securities and Exchange Commission and in our earnings press release that was issued this morning. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. Listeners are cautioned not to place undue reliance on any forward-looking statements 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 dot monday.com. With that, it's my pleasure to turn the call over to present.
Prasad Gundumogula
Thank you, Jeff. Good morning. Good afternoon and good evening, everyone, and welcome to Mondi's Fourth Quarter and Full Year 2023 earnings call to discuss our results and significant developments. We are pleased to report that net revenues and adjusted EBITDA for 2023 surpassed full year guidance with Q4 and full year 2023, the highest on record in the 13th. Here you had history of wanting for both metrics, 2023 gross bookings of $2.6 billion grew 19%. Net revenues of $222.3 million grew 39%. 2023 Adjusted EBITDA was $21 million, another record and almost double 2022's level. This strong year-over-year growth was fueled by product and geographic expansion of our marketplace industry leading technology advancements and sustained leisure travel demand. This translated into gross bookings growth and take rate expansion, which has doubled since pre-pandemic levels to 8.7% in 2023, up from 7.4% in 2022. In the fourth quarter, our take rate was nearly 10%. Looking into the future, we are focused on achieving the following near and long-term goals, enhanced profitability and free cash flow. We will achieve this through sustained transaction volume growth, take rate improvements and implementing cost control measures, expand travel marketplace our marketplace is growing in terms of geography, products such as packages, hotels, events and activities as well as new either distribution partners. Indicatively one this entire business pre-pandemic was the air on this, whereas for 2023, air only represented only 57% while hotel packages, fintech and other represented 43% in terms of origination geography during 2023, Montie expanded within North America and into South America, maintaining technological leadership in EDA. Monte remains committed to being a leader in travel industry AI., our significant investments in R&D the first airport travel platform launched in May 2023 have established a strong foundation. We are continuing to innovate and push the boundaries of EA in travel. Moreover, as it also will detail later. The Company is focusing on optimizing its capital structure in the coming months with a new long-term loan facility. As an initial step, we have extended the maturity of our current term loan to March 31st, 2025.
I now turn the floor over to Jim Dullum, Mondee's Chief Operating Officer, who will discuss market trends and Monday's marketplace expansion. Jim, over to you.
Jim Dullum
Thanks Prasad. Good day, everyone. Turning to our market outlook and external drivers to our gross bookings growth for the industry. Overall 2023 was a very mixed bag of robust post pandemic recovery, but also headwinds from regional arm conflicts and a great deal of economic uncertainty. It is worth emphasizing that Mondi's business model flourishes in such conditions of volatility from the demand side, travelers seeking cost effective options align nicely with Monday's offerings. On the supply side, uncertain economic conditions lead to more potential excess capacity for motivating suppliers to offer better deals through opaque channels late Monday. This enables us to target our marketing to specific consumer groups while providing travelers with enhanced customized itineraries trends that are perfectly suited to Mondi's AI capabilities and leadership. Furthermore, the substantial majority of our business caters to international leisure travel, which continues to benefit from recovery and growth in certain markets like Latin America, China and the Middle East.
Looking more to our own business, we continue enhancing our marketplace where Mondi has steadily increasing its market share within the $1.1 trillion assisted affiliated travel market through focus on adding content and distribution expansion.
In terms of content diversification, you may recall pre pandemic, as precise mentioned, Monday was almost exclusively offering discounted airfares in 2023. Air all in net revenues accounted for 57%, while packages were now up to 21%, hotel only at 11%. Simtek's at 6%. And the other category, including SaaS insurance, ground transportation and other ancillaries, was it 5%. These adjacent products and markets not only significantly expand Mondi's total addressable market or TAM, but also contributed to the impressive rise in our take rate.
Moving on to distribution expansion, we leveraged our AI technology platform to continue growing our robust marketplace of 65,000 travel experts and New Era distribution partners such as local community search and social media influencers and to provide their travelers with access to personalized content and localized experiences.
As we interact with these cohorts, we continuously gain valuable feedback, allowing us to refine our platform, our monetization and our content localization strategies in the area of B2B partnerships beyond our expert lead distribution, our BDE. or business to Enterprise Partnerships have witnessed in net revenue surge year over year. As a reminder, Monday targets, enterprises and membership organizations by providing its unique technology platform and inventory access. Two, these closed user groups.
I now turn it over to Orestes Fintiklis, Mondee's Executive Vice Chairman, to discuss our widening technological leadership and focus on increased profitability and cash flows.
Orestes Fintiklis
Thank you, Jim, and good morning, everyone. As Jim mentioned, we have been widening widening our technological product lead and further that AI. integration. London remains a leader in driving innovation through pioneering a solutions like our unique platform that combines expertly trained generative AI with conversational interfaces and comprehensive booking and itinerary management upon its launch in the summer of 2023, RB establish itself as the first fully integrated AI. travel assistance. This groundbreaking technology can explore three ideas, take real-time traveler input, create itineraries, booked Travel Money, chasing oil changes and even generate customized travel guides for both travel experts and their clients by introducing RB Monday, created a new category going forward, we remain committed to not only enhancing the capabilities of our proprietary large language model, LM., which continuously learns from our unique travel expert data and millions of daily searches. But also to pushing the boundaries of the entire field. We will unveil more details about these advancements in the coming quarters.
Turning to our heightened focus on profitability and cash flow generation on Monday is not merely disrupting the travel market is achieving these while maintaining and enhancing strong profitability committed to long-term shareholder value, while redoubling our efforts to boost adjusted EBITDA and free cash flow in 2024 year over year, the Company has nearly doubled its reported EBITDA from $12 million in 2022 to $21 million in 2023. During the past year, we also completed five acquisitions. Going forward, we are focusing on realizing further organic growth and synergies through seamless integration and lucrative cross-selling opportunities.
I now give the floor to Jesus, our CFO, on this day of his birthday, for a review of Mondee's financial performance and outlook. Jesus?
Jesus Portillo
As I go over our Q4 and 2022 results. I would like to point out that all growth rate for 2023 are on a year-over-year basis, unless otherwise indicated. And the results are subject to final review by our auditors. We're pleased to start with our financial highlights. We continued to generate strong performance throughout this fourth quarter, producing record quarterly and annual net revenue and adjusted EBITDA, evidenced our efforts for sustained growth and improved profitability are producing results.
Our gross bookings were $619 million in this quarter, up 24%. This growth was driven by a 56% increase in the number of transactions. For the full year 2023 gross bookings of $2.6 billion grew 19%. Our net revenue increased 78% to reach $61 million. This growth in net revenue is the result of higher gross bookings, combined with our continued improvement in take rate, our take rate of 9.9% was ahead of our expectations and up 44% as with prior quarters. This improvement in take rate was driven mostly by the growth of higher-margin products and the diversification of revenue streams, including fintech and ancillary services. Full year 2023 net revenues of $222 million grew 39%, while take rate of 8.7% grew 17%.
Turning now to expenses. Our operating expenses increased 49% compared to our net revenue growth of 78%. Sales and marketing as a percentage of net revenue decreased from 75% to 62%. The main reasons for this improvement are the AI-driven optimization of marketing credit to our B2B distribution network as well as reductions in performance marketing spend in our B2C business. As a result of our strong net revenue growth and our efficiencies in sales and marketing. Adjusted EBITDA grew 338% from $2 million to $7 million. Adjusted EBITDA margin was also up 146% and reached 11.4% in this quarter as we continue to put more emphasis on operating efficiencies and profitability. For the full year, adjusted EBITDA was $21 million, up 77% with an adjusted EBITDA margin of 9.5%. On a GAAP basis, our net loss was $13 million, which included $11 million of non-cash and or nonrecurring items including $3 million of stock-based compensation, $3 million of intangible asset amortization, and $3 million change in fair value of acquisition earnouts among others. For the full year, GAAP net loss was $60 million, a year-over-year improvement of $30 million.
Looking now at our balance sheet, at the end of this quarter, we had $34 million in cash and cash equivalents and $162 million of total debt compared to $48 million and $155 million, respectively, at the end of September 2023. The reduction in cash reserves was primarily due to debt service and changes in net working capital in line with revenue growth were advancing on the refinance of our term loan to increase duration and improved terms. We expect these to optimize our capital structure, adding value to our shareholders. In the meantime, we have executed an amendment with our current lenders extending the existing loans maturity to March 31st, 2025. During the quarter, the company raised $11.3 million in preferred stock, $10 million of which was used to repurchase monthly common shares as part of our inaugural share buyback program.
In terms of cash flow, operating cash flow was negative $10.6 million compared to a negative $9.9 million in Q4 of 2022. For the full year, operating cash flow was negative $24 million compared to negative $10.6 million in 2022. The lower cash flow was primarily driven by higher interest payment of 5.7 million, mainly due to conversion from big to cash interest, a change in net working capital of $6.3 million and payments related to the LBF. divestiture of $7.7 million. Adjusting for these operating cash flow would have improved by $6.3 million year over year.
Turning now to our 2024 guidance, we're forecasting net revenues of $250 million to $255 million, representing growth of 14% versus 2023, expected net revenues measure at the midpoint and adjusted EBITDA of $30 million to $35 million, representing growth of 24% versus 2023 expected adjusted EBITDA measure at the midpoint. In closing, we're excited about our year end results and the momentum in the business.
Let me now turn it back to Jeff for Q&A.
Jeff Houston
Thanks, Jesus. Elliott, we are ready for questions now.
Question and Answer Session
Operator
Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When Preventia ask your question, please ensure your device is unmuted locally. First question comes from Darren Aftahi with ROTH. Your line is open. Please go ahead.
Hi, this is Dylan on for Darren. Thanks for taking my questions. I wanted to sort of start with it. The increase in take rate, it's gone up quite steadily and it seems like it's going to keep going that way. Could you sort of talk about what percentage of transactions, whether you define that as a transaction or user are actually taking advantage of sort of multiple products, whether that be in your core hotel with other sort of intake or ancillary services.
Jesus Portillo
I mean, maybe looking at the percentages that you mentioned before in terms of our revenue streams, right? You saw that our own right now, 20% of those revenues come from packages like those obviously come with a higher take rate and that might give you maybe an idea of not unlike that address your answer. But usually those will come with a higher percentage that's represent around 20% of our revenues.
But so do you sort of expect the trend line in gross revenue per transaction to continue down, but that's offset by more transactions and a higher take rate?
Jesus Portillo
Yes. I mean, the in this case, the transactions grow faster than gross booking because we saw an increase in short-haul flights. We don't see that materially increasing in 2024. So I think that economic improvements in take rate will definitely come from the continued diversification of our revenue stream, but not necessarily seen a change from in terms of growth between transaction and growth bookings.
Got it. Appreciate it. And if I could ask one more on the social slash AI influencer side, can you is there. Anything you can quantify on how big of a driver that's been towards increasing transactions or just maybe even just initial visitors to some of your sites?
Orestes Fintiklis
Yes. I mean, we mentioned it before that we have added a few thousand of these new era distribution, which includes not only social media, but also localized influencers of communities, right? So we also mentioned that we are in the process of launching and developing and more exciting, a high-power platform. So in the meantime, what we're doing, we are taking the feedback out of these new cohorts in not only optimizing and refining the monetization model, but also incorporating their needs and feedback into the enhanced version of the platform that we're working in. And that's an exciting development. We'll be providing more details in the next few quarters.
Appreciate I'll pass it on.
Operator
Nic Jones, JMP.
Nic Jones
Great. Thanks for taking the questions. I guess on as we think about 2024 guidance on kind of the midpoint of net revenue, if we assume kind of flat take rate, I guess that that kind of suggests no growth in gross revenue for 2024. I think there's some expectation that take rate will expand due to mix or roughly that the probably the answer to that maybe suggests that gross revenue might actually be down year over year in 2024?
Jesus Portillo
No. I mean, I think to your question in terms of a take rate, we we definitely long term. We continue to see evolution of this. And as we've always mentioned, we expect that to be mid-teens in the short term that we might see maybe some fluctuations. Some of these. As I said before, the recent increase in short-haul flights, a take rate on those usually are a little bit smaller so that's pretty wide in terms of the 2024 model, you might be having that question.
Orestes Fintiklis
But the short answer, I guess at the end of this is that we're not necessarily see a projecting a reduction in the gross price. I mean, we're being conservative because that's driven not only by our own growth but also by the market. And as you know, there is in the market, you know, a general expectation of some softening. But to Susan's point, the take rate in the medium term is very likely to continue growing but in the in the very short term, you're saying you may see some fluctuations from this dynamic that has mentioned. We have our technology, for example, be used now widely within short haul flights in Asia, right? So if you have a big growth within those components of our mix, then it doesn't necessarily mean that the take rate will follow a linear growth quarter over quarter.
Jesus Portillo
Something else maybe need to add to that. Also, when you compare to 2023, remember that we still have six months of our LBS business, B2C right. So maybe on a year-over-year basis, it would be also relevant to discount that when you think about the growth of the gross bookings in 24.
Nic Jones
Okay. So I guess just to be clear, I guess for '24, it sounds like the expectation is gross revenue will grow, which suggests take rate compression next year versus this year. And this is driven by flights?
Jesus Portillo
Yes. I mean, we see definitely the QA., our Q4 take rate, as you saw, was higher than we anticipated 9.9 on a yearly basis of 8.7. That's where we see our take rate going into 2024, as I said before, to the guidance that we provide in terms of revenues, when you apply that still shows a growth on gross bookings, but you also need to discount the gross bookings in 2023 coming out of our LBS business.
Orestes Fintiklis
Yes, I would add that compression is kind of a strong work here, right? So what I'm saying is that, you know, it will continue to grow in the in the medium term, but you may have a few quarters that is not 9.9%, right? So as simple as that.
Nic Jones
Got it. And then I guess just a follow-up on gross revenue per transaction. But where should we expect that to kind of trough or balance out? Or could there still be downward pressure through 24 and kind of hikes? And I guess how do we think about the mix of transaction growth versus gross revenue per transaction as kind of the key inputs to gross revenue.
Orestes Fintiklis
And for 2024, again, there are two components to it right. The first one is there is the reduction in their fares in general, right, which is beyond our control in 2023, even though the market was expecting a reduction in the airfares for most of the year. You didn't see that dynamic, right? So depending on how the airlines and supply and the demand shape, you may see a reduction in the airfares, which like Jim explained, that would may translate into less gross our gross volume. But from Monday's perspective, as a soft end market means.
And how does the economics, right? So that's the first element of the equation, which is beyond our control and is more of a prediction about future supply and demand in their industry.
The second element which is the one that we have mentioned that we are seeing growth of the use of our technology in certain parts of the world, which are more short haul flights, right that one is it is a dynamic that we have identified and is the one for which we can give an estimate. And given the strong growth of that business values may not make that is made what affects in the next few quarters to show on a per booking basis, lower dollar amounts, right? Is not that we are making less profit is not that we are the business fundamentally changing is that we have this very strong growth and from short-haul flights in geographies like Asia, for instance.
Nic Jones
Got it.
Operator
Brett Knoblauch, Cantor Fitzgerald.
Brett Knoblauch
Yes, thanks for taking my question. I guess maybe could you help break out for 2024, our growth from inorganic means from the five acquisitions you did in 2023? And how much that's really contributing to your 2024 guidance?
Jesus Portillo
Yes. I mean, as we've mentioned in prior calls. Usually we talk for us to look at that on a separate basis because we integrate platforms and bookings and alike, you're going to see again on our 10 K a table that is going to provide you with some pro forma growth of our companies as if we hadn't made the acquisitions of January 2020 to indicate you're going to see that the growth is consistent in what you could call maybe organic growth is consistent with the prior quarter, so close to 20%. And right now, the way we think about our growth in 2024 is 100% organic at this point, I think that thinking of growth of companies acquired some of the largest one at the beginning of 2023 does not make a lot of sense.
Brett Knoblauch
Got it. And then on, I guess, just profitability and looking at your guys' cash position, I guess what should we be expecting from the operating cash flow for this year and you guys don't guide to it, but that I guess cash balance continues to dwindle down and what what are you guys thinking there in terms of maybe reducing the interest burden? I know you guys talked about refinancing on your term loan debt and extend maturities out, but how should we be expecting maybe just the cash position of the company for this year?
Jesus Portillo
Yes. I think that in all you, first of all, you need to consider in 2023, we had the divestiture of LDF., which incurred close to a million dollars of extraordinary cash payments that will not be anymore. We had an increase or a change in net working capital of more than $6 million when you look at our growth of close to 40%. But right now, the growth is still strong, but not to the level. So we don't think we'll need so much cash to support our net working capital.
And last but not least, you mentioned before, right, we're working on this refinancing and we're aiming to actually obtain better terms and better economics that will allow us to have to reduce the payment of our interest.
Orestes Fintiklis
Yes. And to add to that, I mean, if you were to adjust for the interest that service, that outcome would have been a positive number, right? And there are two ways to reduce that that Bert and the first one is to reduce the actual interest rate.
Right. And then the second one is to convert a portion of the service to peak, which now and what that one was the entire term loan debt service using cash, right? So there are two levers embedded at. And then, of course, the second element of the equation is the operating cash flow increase before debt service which if you take the $21 million EBITDA for '23 and you project the guidance for 24, if it changes fundamentally the net effect on the on the positive cash flows.
Brett Knoblauch
Perfect. Thank you.
Jesus Portillo
Welcome.
Operator
(Operator Instructions) Mike Grondahl, Northland Securities.
Mike Grondahl
Hey, thanks, guys. How would you handicap the launch of AbbVie and kind of what was the rough marketing spend on kind of promoting that during the year. What do you think it will be in '24?
Orestes Fintiklis
Yes. So we mentioned before in Q three that when we launched, we launched the IP that we are not a fairly large amount that we have spent the bulk of that for, you know, for '23. And we also mentioned that we moved forward a figure of $45 million into the next year, right? So that's how I would quantify it also bear in mind what I said before in the first question that we are working on a new version of the AI., right? So we will be cautious because we believe that is going to be much more suitable and addressing the specific needs and feedback that we got from this new distribution. So in the first few quarters, we're going to be a bit more cautious on the marketing spend. There is much more efficient to launch to incur enhanced marketing expenses when you have a newer and more efficient and more suitable technology launched.
Mike Grondahl
Right, got it. So Orestes, I sort of heard $4 million to $5 million probably later in '24, did you give a number for '23?
Orestes Fintiklis
'23, Mike, spend was around $3 million to $4 million that was spent on the launch.
Mike Grondahl
Got it. And what would you guys describe is sort of how you're incenting the travel agents today. I know in quarters past in years past there's been some discounting and I'll call it couponing. What is sort of the strategy to push and motivate agents in 24?
Jim Dullum
Hey, Mike, it's Jim. I think one of the things that we're benefiting from going into 24 is with the deployment of our AI and all of the data analytics that come off of that, we've been able to a lot more efficiently target the different segments of our distribution and target them with programs that where we can better manage the, call it discounting the incentives that are deployed and we're getting much better results from that. So I think as we as we go through 24, what you will see is a continued increase in efficiency in that marketing spend, and it's going to be almost segment by segment so rather than a broader just stuff, putting out one one big program with a set of incentives or discounts against the market generally or even up, particularly on a particular O. and D. mix, you'll see us be a lot more clinical or surgical in how that's done and the nature of the arm, the nature of the programs that we'll launch that's not something that we necessarily disclose because clearly, that's part of competitive advantage, right is how we work with our from our distribution network and how we make our most effective. But just presume that it will continue to get more efficient.
Orestes Fintiklis
Yes. And just to add to that, then I mean, we match sorry to interrupt you, Michael, you mentioned a few quarters ago that we are working on implementing a eye not just on the front end, but on many other aspects of our business, right? This is a perfect example on how AI can improve their marketing spend. And we've seen that already in the for the last quarter, it dropped from 75% to 62% of the net revenue. But how we've less spend, you can have a more positive outcome. And this is precisely because of customization, right? So in the absence of technology, you give the same incentives to everybody why certain consumer acceptance, user cohorts may value a different type of incentive or may produce the business without getting the incentive, right? So this is this is a big part of how AI it can influence also the elements of the business like marketing.
Mike Grondahl
Got it. And hey, lastly, do you have a rough date on when you're going to file the 10 K?
Jesus Portillo
Yes, right now. I mean, we're closing the audit as we speak. The line for us is tomorrow. We're working towards that date and so far, that's our objective.
Mike Grondahl
Got it. Okay.
Operator
This concludes our Q&A, and I hand back to Jeff Houston for final remarks.
Jeff Houston
Thanks, Elliot, and thank you to everyone who tuned in for a fourth quarter 2013 earnings call, whether it was live on the call, the replay or the transcript, if you do have any questions or like to learn more about Mindy, I don't hesitate to schedule a call with us, you can get more information on our IR site, which is investors dot monday.com or send an e-mail to us at IR at monday.com.
Operator
Thank you, ladies and gentlemen, today's call is now concluded, and we'd like to thank you for your participation. You may now disconnect your lines.
