Mondee - Q2 2022

Transcript

Operator (participant)

Good day, and welcome to the Mondee Q2 2022 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity. Now I'd like to turn the conference call over to Jeff Houston, Senior Vice President. Jeff, please go ahead.

Jeff Houston (SVP)

Hey, thank you, and good morning, everyone. Welcome to Mondee Q2 2022 conference call. With me today are Chairman, CEO, and Founder Prasad Gundumogula and Chief Financial Officer Dan Figenshu, who will present our results. Also available, Jim Dullum. 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 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. 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 on our press release that was issued this morning. During the call, we also refer to non-GAAP financial measures. Reconciliations of these are available at investors.mondee.com. Note that our second quarter results are for the three months ended June 30, 2022, and Mondee stock began trading on the Nasdaq after them. During the Q2, legacy Mondee is not required to file its Form 10-Q with the SEC.

While we are not required to publish an earnings release or host an earnings call, we decided to hold the updated investor presentation, which is available on the website, and you can flip through at your leisure, so that we can provide an update on our business and financial performance now instead of waiting until November when we plan to report third quarter earnings. With that, I would like to turn the call over to Prasad. Prasad?

Prasad Gundumogula (Founder, Chairman and CEO)

Thank you, Jeff, and welcome everyone to Mondee Q2 earnings call. Whether you're a client, supplier, business partner, employee, prospective shareholder, or analyst. I will begin today's call with a summary of our business highlights. Our CFO, Dan Figenshu, for a more detailed review of our financial results and outlook. We will conclude the session with time to answer a few questions. I'm excited to announce that in the Q2 of 2022, legacy Mondee continued to deliver profitable growth. Gross revenue of $614.8 million year over year, while net revenue of $42.7 million was up 81% year over year. In addition, as we scale, we continue to deliver $4 million, up from breakeven in Q2 2021 and doubled quarter-over-quarter.

Among many accomplishments in the Q2, and set us up well for the H2 of the year. First, we capitalized on the ongoing travel market recovery. Second, we continued to improve and evolve M&A growth with our public market debut. Starting with the recovery in the leisure travel market. The travel industry, especially international travel, which was subdued during most of 2021, began a strong recovery through the Q2 of 2022. Although it was uneven in some parts of the world, which were impacted by differing post-pandemic recovery policies, ongoing effects of the war in Ukraine, inflation, and recessionary threats. Our domestic market opened first for areas more than others, based largely on regional post-pandemic reopenings.

With our agile operating culture, we were able to dynamically adjust our marketing. It sets out the mix of transactions by region in the Q2 of 2022 versus the pre-pandemic Q2 of 2019. It shows, for example, North America has recovered in line with our pre-pandemic mix. Europe overperformed in the H1 of this year, and Asia represents an opportunity for the second half of 2022. Our North America air, hotel, and ancillary transactions returned to 90% of pre-pandemic levels by June. Markets were the first to open. We focused our go-to-market resources to capitalize on the recovery. As the European and Middle Eastern regions opened next, we adjusted our marketing to add fuel to the general recovery tailwinds.

This strategy resulted in strong transaction volume and market share pickup in the European markets in the second quarter, which now represents 12% in January 2022. Overall, the European and Middle Eastern regions have now exceeded our pre-pandemic mix. However, the Asia market has more room to improve as certain regions continue to have travel restrictions during the H1 of 2022, particularly China, which was a significant market for Mondee before the pandemic. Represents a substantial opportunity for our continual recovery in the H2, and we are positioning our marketing and other resources to capitalize on that trend. In addition to the general market recovery, we have capitalized on other market channel opportunities with our TripPlanet go-to-market initiative performing well.

As a reminder, TripPlanet is our solution. A noteworthy highlight in this segment of our business is the almost 4x increase in average daily tickets booked on our TripPlanet platform. Driving some of this growth is our recent strategic partnership with EBG, a leading activities and events content provider for theme parks, events, and more, which together Gallagher Affinity and others increased our access to about 125 million members currently, up from less than 10 million in the beginning of 2022. The second driver of our performance is our technology-led revenue growth. Mondee's travel marketplace is enabled by our travel tech platform, effectively connecting our global content service hubs through our distribution channels and affiliates to target closed user groups. This continuously evolving ecosystem features the following.

First, in our global content hub, where we are already the leader in North American private airfares, we are rapidly expanding in theme park and event tickets and aggressively exploring options to add cruises and tour content. In addition, our technology is now positioned to add user-generated content through crowdsourcing. Second, in our service hub, we provide full coverage for customer and traveler needs on a 24/7 basis and expect to expand local expertise on an outsourced basis. The service hub provides a full suite of support for our leisure, closed user groups, and retail distribution channels and customers. Last but not least, the content management, service support, and distribution capability are enabled by our continuously evolving gig tech platform, which now in commerce features this next-gen tech platform and continues to achieve solid traction, and we expect it to fuel improved results going forward.

It is driving additional benefits for our over 50,000 travel advisors and emerging gig economy travel workers whom we connect with our high-value content from more than 500 airlines over millions. As a reminder, Mondee sources, prices, and assembles travel combinations at scale that is comparable to the largest global online travel agents. Demonstrating the current momentum and ability of our platform in the Q2, we facilitated approximately 550,000 transactions, up 46% year over year from approximately 460,000 in Q2 2021. We define transactions as the consumer's complete trip and travel experience, so a single transaction could include multiple flights and hotels or vacation rentals as well as ancillary solutions. In addition, our platform provides fintech ranging from virtual cards and fraud protection solutions to social media and digital campaign and travel insurance.

A further example of the success of this platform is the result from our fintech offering for Q2 2022, which were an impressive 184% growth year-over-year. More excitingly, we made solid strides on our tech-led evolution on our next gen gig economy platform and are piloting with customers in the gig worker space, including a major leisure-focused travel company. We expect to move into full deployment of our next gen platform in the H2 of the year. We also offer our tech platform, TripPlanet, to member organizations, closed user groups, and SMEs. Our platform extends the benefits of the Mondee ecosystem to individuals in these various organizations and closed user groups for their personal and leisure travel needs. As mentioned above, transactions in this channel have increased almost 4x since the beginning of 2022.

Turning to our recent Nasdaq listing, which is our third area of accomplishment and positioning for the future. On July 19th of this year, Mondee began trading on the Nasdaq under the ticker symbol MOND, M-O-N-D. Becoming a public company is a significant milestone, and I would like to thank all of our shareholders, employees, customers, suppliers, and partners for their continued support and hard work. We are thrilled to commence our journey as a Nasdaq-listed company. We look forward to leveraging our public market status and post-merger capital structure to enable us to execute acquisitions of companies that fit our strategic vision aggressively. We have a history of well-calibrated and successfully integrated M&A transactions delivering strong revenue and cost synergies. We plan to aggressively execute a targeted accretive acquisition strategy which will help accelerate our growth plans.

We have identified a number of accretive acquisition targets that we believe are a good fit for our platform as we continue to disrupt and transform the travel industry. I will now pass the call over to Dan Figenshu, CFO of Mondee, for a review of our financial performance and outlook.

Dan Figenshu (CFO)

Thank you, Prasad, and thanks again to our audience for attending. We are proud of the legacy company's second quarter financial performance, particularly the continued growth of Adjusted EBITDA profitability, especially given that this performance was driven entirely by organic revenue growth. We've used part of the liquidity provided by our entry to the public markets to optimize our capital structure, and we are now turning our attention toward commencing our planned M&A strategy, as Prasad just mentioned. Q2 gross revenue grew 180% year-over-year to $615 million. Net revenue grew 81% year-over-year to $43 million. The aforementioned growth drivers in the quarter more than offset some pockets of pressure.

Take rates in particular, which we define as net revenue divided by gross revenue, are beginning to come more in line with expectations after significant volatility in prior periods. While take rates for the H1 of 2022 of 7.5% was in line with our expectations of 7%-8%, Q2 2022 declined somewhat to 6.9% as projected. Regardless, Q2's take rate is still up 1.5 percentage points from 2019's pre-pandemic levels due to the success of our ancillary solutions and fintech revenue. Take rates were countercyclical during the pandemic, particularly with our ancillaries, such as travel insurance solutions, as well as higher change and cancellation fees, where demand for protection, changes and cancellations spiked due to changing global travel patterns.

As expected, demands for these solutions has declined somewhat as the world has reopened. Going forward, we expect take rates to trend upward as a higher portion of our revenue mix comes from the more sticky and higher margin revenues such as ancillaries, fintech and subscription, as well as a greater mix of hotels that typically carry higher margin. This is even before taking into account the impacts of the subscription revenues of the disruptive TripPlanet and UnPub products. We're able to more than offset any headwinds due to the strategic actions Prasad mentioned. Furthermore, we are happy with our overall business trends. Over 1 million tickets sold in the first six months of 2022. Over $1 billion in gross revenue in the first six months. We doubled EBITDA quarter-over-quarter.

Turning $7 million or 90.8% of net revenue, and that's down from 99.9% in the year-ago quarter, while investing in revenue generating opportunities such as marketing, events, and product launches. Sales and marketing as a percentage of gross revenue quarter to date decreased from 6.6% as the Q1 of 2021 to 4.7% in the Q2 of 2022. G&A as a percentage of net revenue has been relatively flat on both a quarter to date and year to date basis. Our Q2 net losses were $2.1 million, and that compares to a $12.9 million loss in year-ago quarter. Our Q2 net loss per share of $0.03 compared to a $0.16 loss last year.

On a non-GAAP basis, adjusted net losses were $3 million compared with a loss of $6.3 million last year. On a per-share basis, adjusted losses per share were $0.03, compared with adjusted losses per share of $0.07 last year. Adjusted EBITDA was $4.4 million, an improvement of $4.4 million as compared to a Q2 2021 adjusted EBITDA of $0. Even after increased marketing costs to acquire lifetime customers and grow market share at this inflection. Reconciliations of GAAP to non-GAAP are available in today's earnings release. Net cash flow used from operations for the three months ended June 2022 was $1.1 million, and that's compared to $1.2 million for the three months ended June 2021.

We expect net cash flow from operations to be positive for full year 2022. Turning to our outlook, we'll provide an annual guidance on our Q4 earnings call. When we report 2022 fourth quarter results, we will establish 2023 guidance. For 2022, net revenue is projected to be in the range of $150 million-$160 million, representing year-over-year growth of 66% at the midpoint. Adjusted EBITDA is projected to be in the range of $15 million-$22 million. This represents growth of 463% year-over-year and a margin of 12% at the midpoint. In summary, we believe that Mondee is in a strong financial position to capitalize on the reopening of the travel industry and on future growth opportunities.

I will turn it back over to Prasad.

Prasad Gundumogula (Founder, Chairman and CEO)

Thanks, Dan. In summary, Mondee is a leader in travel technology with a modern platform underpinning a continuously growing next-gen focused travel marketplace. We believe we provide the best travel opaque distribution channels on the most efficient technology and tools. We believe that we are well-positioned to continue gaining market share, benefiting from the recovery of international, evolving travel experience needs of today and tomorrow's consumers over the long term. Thanks for attending our first earnings call, and we look forward to your ongoing support.

Dan Figenshu (CFO)

Operator, we are ready to open it up to Q&A.

Operator (participant)

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star then one on your telephone, followed by number two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Tom White from D.A. Davidson. Tom, please go ahead.

Tom White (Senior Research Analyst)

Great. Good morning, everyone. Thanks for taking my questions. A couple if I could. Curious to hear how your discussions with

There obviously is, you know, a number of different kind of cross currents, I guess, between people, you know, wanting to travel again and but also maybe some, you know, inflation and sort of macro pressure. Just curious how your supply partners kind of the wholesale kind of private channel in this type of environment and how you think maybe Mondee might be positioned in the economic backdrop?

Prasad Gundumogula (Founder, Chairman and CEO)

Yeah. Thanks for the question, Tom. Let me give you my take. We have been valuable partners for many, many years, and we continue to be, you know, more valuable partners in the years to come. In all of our discussions we add our value to our suppliers by providing access to their content in a more narrowcast basis, not broadcasted, and also bring a better yield for them based on their yield curves. As the market is recovering, as you all well know, more and more capacity is available, as new routes get added, and it comes with the servicing issues and all the, you know, scale-related issues.

Historically, we have been helping them to handle that service issues as well as finding the niche customers where we can help to get the transactions without cannibalizing their published markets. Fueled with our technology platform, which has some unique capabilities of connecting their direct, you know, their systems directly, as well as, you know, ability to service our customers in the most efficient way adds great value. Partnership we have it with our suppliers until now, it's even greater with the addition of our, you know, distribution capabilities as well as our technology platform distribution.

Jim Dullum (COO)

Hey, Tom, it's Jim Dullum. Let me just add on to what Prasad has said. You know, he's pointed out we are the opaque channel that can help them fill during the short term. We can help them fill pockets because of some of the variability in the market. Also bear in mind that our primary business is with personal and leisure travel, which tends to have a little more extended period of booking prior to travel. Yes, we are seeing you know tickets and bookings, et cetera, that are six months and even further out. That also feeds into the partnership with the suppliers where we continue to give them those channels for future sales and revenue, which again, as Prasad pointed out, helps them manage their yield more effectively.

Orestes Fintiklis (Executive Vice Chairman)

May I add, this is Orestes Fintiklis. First one is that even though there may be an intuitive feeling that with the reduction in excess capacity there will be less of an interest from the part of suppliers to engage in. Reduction in excess capacity is not homogeneous. Airlines and hotels, they want to push demand in different directions. Mondee continues to be a very valuable partner and have improved the terms at which we are transacting as well as the incentives that they are providing to Mondee. The second point that you made about macro pressures, two points on this one.

The first is that indeed, there is an inflation which is driving an increase in the value of the tickets, which on the part of the airline. Unlike that, Mondee is benefiting from the inflationary pressure on the sales price, but we are not carrying these increased costs like increased fuel costs, increased personnel costs in this inflationary environment. The other related point to the macro pressures and the general environment is that we are seeing a very strong US dollar continue in the foreseeable future. This very strong dollar is highly beneficial to our business model because as you may recall, Mondee's business is 80%.

With more power, more purchasing power in the hands of the U.S. consumer, we anticipate, and we believe that this will fuel even further our future growth. Thank you.

Tom White (Senior Research Analyst)

Maybe for Dan, appreciate the color around kind of the different drivers of take rate and kind of explaining the delta there between the gross rev. Maybe give a little bit more color. I think you mentioned that you expect kind of take rates to rebound here in the back half of the year. You know, what are the drivers behind or at least, you know, relative to last year, is it hotels coming on in a much more meaningful way?

Dan Figenshu (CFO)

A big portion of that rebound, we believe will come from hotels, which represent a larger and larger slice of our total revenue picture. As mentioned, hotels carry a high, what will be the second half of 2022 and certainly into 2023, an important part of that take rate story.

Jim Dullum (COO)

Other parts that will impact our fintech side. Also significant is going to be our subscription business, and as mentioned, the TripPlanet and UnPub products, those are only just beginning as we've talked about, and those will have significant. Hopefully that's helpful, Tom.

Tom White (Senior Research Analyst)

Yep. Very much so. I'll get back to you. Thank you.

Operator (participant)

Thank you. Our next question comes from Mike Oppenheimer.

Speaker 8

Hey, guys. Thanks and congratulations. Can you talk a little bit about the outperformance in Europe and go to where the volume is to keep pushing that. Maybe help us understand the outperformance in Europe and kinda your confidence in Asia recovering in the second half. Then if you-

Prasad Gundumogula (Founder, Chairman and CEO)

It all started with 12% market share of our business, and now in June, we are at 27%, and July, it's continuing and continue. You know, propensity of the travelers traveling to those areas. We have deployed a very agile go-to-market strategies to capture that market and to help our marketing strategies to, you know, focus on delivering the access to the right content, to the right customers at the right time. We also open our gates to a European customer base, and to be able to take advantage of our platform.

Jim Dullum (COO)

It's Jim Dullum. Obviously, you know, relative to Asia as an example for the second half, we can't predict when they will open up. However, we see signs that it is improving, and we see further signs that it will continue to improve. That's our basis. We would expect that throughout the rest of the year, those markets will continue to open up. Since they have been such a large portion of our business in the past, the other thing to remember is even for Europe and the ability for us to move our marketing and sales efforts around, since a lot of our business occurs, et cetera.

Some of those will change their focus, and we simply then provide them the marketing programs as they focus on different markets to emphasize that. In other areas, tech channel, where it is going to markets that are now opened or in the midst of opening. That, that's what gives us the flexibility to move that around pretty quickly, is working through that.

Prasad Gundumogula (Founder, Chairman and CEO)

It's that Asia was almost 20% of our business prior to the pandemic, and we were able to achieve this overperformance without having that business in full throttle. We tripled the gross revenue in 2023. That is clearly more upside to come from the current levels of recovery. Now, on the European point that you made, I would make two points to basically analyze it. Mondee has the ability to target its customers. As you know, our marketing strategy is not to throw a bunch of marketing dollars on Google, but it is effectively targeting. We focused on travel advisors that sell predominantly in that area, and we increase the incentives to those cohorts of our customers.

The second point was that either went out of business or they had to reduce substantially, their marketing dollar, which gave us a window to increase market share, in this very, very important market.

Speaker 8

Hey, flipping over to your M&A strategy, in the past, you've talked about kind of a robust pipeline and, you know, a number of. Is there a way we can think about, you know, maybe what is a base case for year-end? I mean, do you think you can get a couple targets announced in $20 million-$30 million? What's a fair way to think about what you can achieve by year-end 2022?

Prasad Gundumogula (Founder, Chairman and CEO)

Yeah. I mean, yes, if we both agree to continue with that. There's a due diligence process, you know, doing an acquisition completely in the right manner. We are currently working actively with, you know, our pipeline targets, and we expect to close, you know, certain targets that are very, you know, accretive, in the months to come.

Jim Dullum (COO)

Yeah. Mike, I would just add as well that, you know, as you can see from the 14 acquisitions we've done in the past, we can bring them on and make them productive because of our platform extremely quickly. You know, to Prasad's point, we can't exactly predict when they'll happen, be able to make this happen as quickly as the process will allow. As soon as it does happen, you can expect to start to see results very quickly from.

Speaker 8

Lastly, EBG and the Arthur J. Gallagher partnerships, relationships. I know it's early for both of those, but-

Prasad Gundumogula (Founder, Chairman and CEO)

You know, offerings to each other. We are providing technology platforms to them and to tap into their distribution networks, and they are providing the content. A great partnership, and we know that we are only scratching the surface with those partnerships right now. You know, months to come, you know, and especially in the second half.

Orestes Fintiklis (Executive Vice Chairman)

May I add a point here? Parts of the joint ventures are already up and running, and they are producing very material results with thousands of flights sold. That these relationships are very symbiotic in the sense that these organizations they have vast distribution capabilities in the hundreds of millions of users on networks. This is basically where we're focusing our energy in the next few months. Thank you.

Jim Dullum (COO)

Great. Okay. Hey, thanks, guys.

Operator (participant)

Thank you. Our next question comes from Brett Knoblauch from Cantor Fitzgerald. Brett, your line is open.

Brett Knoblauch (Research Analyst)

Hi, guys. Congrats on this. Your guidance for $155 million-$160 million on the net side for the full year implies kind of the second half is more or less flat versus the first half. What do you have into those assumptions? Can you maybe walk us kind of being similar to the first half in terms of, you know, absolute dollars from net revenue?

Prasad Gundumogula (Founder, Chairman and CEO)

Yeah. I mean, the seasonality-wise, out of the similar, you know, level of quarter one and quarter two. However, there are, you know, ups and downs within the intra-quarter months. As for the, you know, holidays and for fourth quarter is being done in the third quarter, wherein that we recognize some of our revenue streams, such as our overhead. We are seeing, we are expecting Q3 and Q4 to be, you know, seasonality-wise, it's in the similar size, but the recovery is continuing and hence that we see that, you know, this will be a good outcome for us in the, you know, quarters to come.

Dan Figenshu (CFO)

Yeah. Hi, it's Vic. I just wanted to add that in not just the recovery, but our own expansion and gain in market share, which will allow us to at least sort of hold the line in the second half of the year compared to the H1 of the year, which is why we feel these are on both the, you know, net and EBITDA basis.

Brett Knoblauch (Research Analyst)

I may add here a few points.

Prasad Gundumogula (Founder, Chairman and CEO)

Go ahead.

Orestes Fintiklis (Executive Vice Chairman)

What I would add is that we always strive to you know be conservative in our assumptions with the ability to overperform. That's a relevant consideration. The second one is that about a third of our revenue is back-ended in the sense that it's incentives to our suppliers. As you know, in the first quarter of the year, we had the negative headwinds of Omicron pandemic. That is impacting the back end of the very conservative picture for this year with of course you know the ability to overperform. Thank you.

Brett Knoblauch (Research Analyst)

No, that's helpful. Maybe on travel and demand for corporate travel, is that returning in line with expectations? Are you seeing maybe some of the customers who utilize Rocketrip to return to their normal spend quicker than usual? How should we think about that business and how that is performing?

Jim Dullum (COO)

Yeah, Brett, it's Jim. We are seeing recovery with some of the Rocketrip customers. Their rate of travel spend is at flow through that system. A number of our customers in Rocketrip tend to be larger corporations. Yes, on the small-medium business side, the travel patterns are recovering more quickly, we're seeing, than on the large corporate customer side. You know, they've been recovering not as fast as we would have liked to have seen, but that's just the general pattern that's happening in the marketplace. At that level, I think Rocketrip is performing well. You know, we work on continuing to add business there, add customers.

To be very honest, we have not put a huge market push on that simply because the general softness in the market. If you think about it, a lot of companies during the pandemic, because they weren't traveling and were trying to right the areas that they would have attacked. They're just in the process of rebuilding their travel departments. You know, as that happens, you know, we will continue to emphasize there now, but.

Prasad Gundumogula (Founder, Chairman and CEO)

By the way, we are enhancing Rocketrip solutions with our new tool set for their leisure travel and you know for their you know small to medium businesses requiring to have business leases and a simplified systems. We're enhancing and adding more solutions that we feel that you know is going to be required for the market and we are going to capitalize our current customer base in Rocketrip to start with and expand.

Orestes Fintiklis (Executive Vice Chairman)

is always to allocate marketing dollars in the most efficient manner at the right time of the cycle. That is why initially we focused on domestic travel, then on international U.S. outbound travel. We put resources in Europe when that market was recovering. In line with that, and the way to cautiously allocate our marketing dollars, we are kind of phasing in the forecast when we see the strong recovery on corporate travel. The second point I would make is that Rocketrip is not our only product targeting corporates, as well as small and medium enterprises. The angle there is that we are capturing not only the corporate travel of these membership organizations and small and medium enterprises, but the leisure travel of their employees.

As you can see, that is an area that we have focused and which has delivered a quadrupling of the revenues through TripPlanet in the first six months of the year. Thank you.

Brett Knoblauch (Research Analyst)

Perfect. That's very helpful. Thanks so much, guys. Really appreciate it.

Operator (participant)

Thank you. Ladies and gentlemen, currently, we have no further questions. Therefore, I would like to hand the call back to Jeff Houston for any closing remarks. Jeff, please go ahead.

Jeff Houston (SVP)

for joining our call today, and just wanna remind you that our investor presentation is up on the Mondee website, investors.mondee.com, and we're happy to answer any questions you have. Our email address is [email protected]. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.