Mondee - Q2 2023

Transcript

Operator (participant)

Good day, and welcome to the Mondee second quarter 2023 earnings conference call. Please note, this event is being recorded. I would now like to turn the conference call over to Jeff Houston, Senior Vice President. Jeff, please go ahead.

Jeff Houston (SVP)

Thank you, operator. Good morning, everyone. Welcome to Mondee's second quarter 2023 conference call. With me today is Founder, Chairman, and CEO, Prasad Gundumogula, and Chief Financial Officer, Jesus Portillo, who will present our results. Also available for questions and answers is our Vice Chairman, Chief Strategy and Business Development Officer, Orestes Fintiklis, and Chief Operating Officer, 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 government 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.

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 (Founder, Chairman, and CEO)

Thank you, Jeff. This morning, we are excited to welcome everyone to Mondee's second quarter 2023 earnings call to discuss our results and significant developments. We appreciate your interest, whether you are a shareholder, a client, supplier, business partner, employee, prospective shareholder, or analyst. I'll begin today's call with our business highlights and strategy, and then I will turn the call over to our CFO, Jesus Portillo, for a more detailed review of our financial results and outlook. We will then conclude the session with time to answer a few questions.

Starting on slide four, there are three key points to emphasize in our second quarter results. First, Mondee is once again disrupting the travel market through AI innovation and next-gen technology deployment.

We are thrilled that on the first anniversary of our Nasdaq public listing, Mondee released the first fully integrated AI travel marketplace, opening a world of new market opportunities and solidifying our status as pioneers in the travel industry. Our journey has naturally led us to this transformational intersection. In the past 12 years, we assembled the components that disrupted a significant segment of the North American travel market and created a highly successful Mondee 1.0 marketplace platform. The technology marketplace for travel experts, suppliers, travelers, and organizations.

With our newly released disruptive AI platform and Mondee 2.0 marketplace, we are broadening our addressable customer base to include the vibrant ecosystem of travel social influencers, freelancers, and the tech-savvy Millennial and Gen Z travelers. Moving to slide five.

Key elements of this transformation included a one-of-a-kind modern tech platform, extensive world-class privately negotiated content deployed through a powerful network of experts and travelers. This positions us to generate increasingly hyperlocal content for personalized experiences, as well as establishing Mondee as a technology leader when it comes to AI in travel. Coming to the second point, now that we have all of these assets in place, we are now perfectly positioned to launch a series of robust modern marketing campaigns with the help of our expanded world-class marketing team.

This strategic push aims to fully capitalize on our disruptive market position as we approach 2024. AI is not new to us. Mondee has been investing in AI technology for the past few years. Because of this, we are uniquely positioned to lead and bring a fully integrated advanced AI platform to the travel industry.

Over the past few quarters, a favorable market window opened, allowing us to leverage our established assets to position Mondee as a leader in the AI marketplace. These developments were: first, rapid popularity and proven breakthroughs in the generative AI platform, such as ChatGPT and Google Bard. Secondly, Gen Z and Millennial travelers are receptive to and actively seeking AI solutions for creating personalized travel experiences. Thirdly, social media influencers have become more relevant to introduce new travel experiences to their followers.

With these developments, coupled with the deployment of our advanced technology, expanded global content, and innovative marketing programs, we are stepping into a new realm poised to bring travel experiences to a wider audience. As a result, we decided to accelerate our investments in deploying the technology, building the marketing programs, the content scope and curation, as well as the business delivery infrastructure.

We believe that the symbiotic relationship between AI advancements and Mondee's leadership in AI travel technology justify our intensified focus on these initiatives. Our incremental investments here will facilitate the process of engaging travelers through social media influencers, closed user groups, and organizations more quickly. We fully expect our revolutionary AI travel marketplace to contribute to further market share gains, improve the rate of net revenue growth, and enhance profitability in 2024 and thereafter.

The third point, we continue to grow at a fast pace and perform well financially. Turning to slide six, we are proud of the performance of our Mondee Marketplace, which has delivered explosive, organic, and inorganic growth, as well as positive EBITDA. Culminating into yet another stellar financial results in the second quarter, exemplifying our commitment to growth with innovation and excellence.

In second quarter of this year, with take rate, which we define as net revenue divided by gross revenue, increasing to 8% from 7.2% in the second quarter of 2022. Net revenue of $57 million was 124% of the second quarter of 2022. In the first half of 2023, we exceeded the net revenue guidance communicated to the investment community, and we remain on track to continue performing well.

On the profitability front, we delivered an Adjusted EBITDA of $4.4 million, which is 118% of Adjusted EBITDA in the same period last year. We achieved this result, even after investing approximately $1 million of additional marketing and personal expenses in anticipation of the Mondee AI Marketplace launch.

Jesus will delve deeper into financial results and specific guidance numbers shortly, first, I would like to underscore the reasons for our enthusiastic growth outlook and additional insights on the potential of our AI travel marketplace and distribution channels. Turning back to slide five, our AI travel marketplace is transforming the travel marketplace with a range of innovative features that will completely change how trips and personal travel experiences are conceived, planned, and booked.

We are enabling travel influencers, local experts, and agents with unprecedented access and complete travel content in our unified marketplace, as well as travel-centric cutting-edge technology, such as Abhi, the AI platform with conversational commerce, to conveniently create and deliver personalized travel experiences. It adds the global knowledge of experts to their local expertise to be able to serve any type of customers well.

For travelers, we have crafted immersive travel experiences using intuitive self-service exploration tools driven by AI. That's not all. We have taken it a step further by connecting travelers with on-demand local experts from around the world. Through our AI-driven marketplace, these experts bring local knowledge and tap into global network to add a unique touch to inspire travel adventures. At the heart of our mission is bringing joy to the traveler's journey, making it personal, surprising, and meaningful. We believe in curating localized experiences that matter.

With the only fully integrated AI travel platform today, our marketplace empowers travel experts and influencers to provide exactly what their clients desire, saving time while creating their personal travel experiences.

Our all-in-one platform offers a wide range of travel content available in about 20 languages, and our customer support has been expanded with our growing, always connected expert network to ensure your trip is smooth from start to finish, with assistance available via phone, chat, and email. Experts and travelers are able to discover the world at their fingertips with access to over 500 airlines, 1 million hotels and vacation rentals, 30,000 rental car pickup locations, and now 50 cruise lines, all at negotiated rates that guarantee exceptional value.

What truly sets the Mondee Marketplace apart is our groundbreaking, fully integrated AI platform. Innovation is our passion. We have harnessed the power of generative AI, deep learning, computer vision, and a recommendation engine, along with conversational commerce, to transform the travel booking process.

Our fintech tools provide additional choices and protection for all purchases within our marketplace, ensuring your peace of mind. Moving to slide seven. Yesterday, we announced the acquisition of Skypass, a leading travel marketplace, specializing in international, corporate, and SMB travel, continuing our accretive and disciplined M&A strategy and adding content and distribution, which is enhancing our new marketplace. This follows our three acquisitions announced earlier this year that strengthened our presence in LATAM, specifically Brazil and Mexico.

Going forward, we plan to continue our disciplined inorganic strategy to expand our existing operations while also exploring opportunities in other regions. We intend to leverage our platform and marketplace creatively to support sustainable growth and enhance our position as a leader in the global travel industry.

On the operations front, as a part of our continuous improvement, we are introducing all our new technology internally to our support teams, as well as integrating with our new operations team across all geographies to better serve all our organization customers, marketplace influencers, experts, and travelers. The ongoing enhancements of our operation and customer service elevates customer satisfaction and supports rapid growth of our business.

For example, our business to enterprise, our B2E segment, performed very well through the second quarter, with 274% increase in transactions as measured in June or January. We continue to experience momentum with joint flight and hotel transactions, providing us with increased confidence as we introduce new travel content and diversify revenue streams to our customers. Moving on to additional noteworthy accomplishments in the quarter, back to slide six. First is our addition to Russell 2000 Index.

As the largest travel tech additions in 2023, it serves as a testament to Mondee's strong fundamentals and business performance, reaffirming our role as a leader in the travel technology industry. This recognition holds significant importance and is expected to support our endeavors in enhancing long-term shareholder value, raising awareness of Mondee among the investment community, bolstering stock volume and liquidity, and diversifying our shareholder base. This development is expected to enhance visibility and trading liquidity, while also facilitating the entry of new institutional investors.

Next, we completed a successful secondary offering for $52.5 million, welcoming an additional 43 institutional investors to our shareholder base. It was a step forward in diversifying our shareholder base and incentivizes an environment that foster investor participation. Moreover, with management retaining over 40% ownership of shares, our interests remain truly aligned with those of our valued customer, investors.

As I mentioned earlier, we have significantly enhanced our leadership and marketing teams in the first half of 2023. Most recently, Miten Mehta, previously a leader at Google, joined Mondee's executive team to oversee AI strategic planning and initiatives. With a professional background of over 25 years, including a wealth of experience in the field of AI, Miten will play a crucial role in our AI marketplace. He brings a growth-focused approach that emphasizes client-centricity, revenue generation, and results-driven leadership.

Furthermore, former Accenture executive, Geetika Gupta, who led a distributed workforce of 22,000 across geographies, including the United States, India, Singapore, and Malaysia, joined Mondee as Chief People Officer, bringing her HR transformation experience from Accenture Consulting on Fortune 100 projects to aid in scaling Mondee's infrastructure.

Under CMO Kimber Lowe's leadership, the marketing team welcomed 14 new members, with a focus to drive substantial growth of the company over the coming years. The team now includes online and social media experts from companies such as Google, Amazon, and Microsoft, including Rachel Van Nortwick and Christie Berg.

The marketing team has launched a set of marketing initiatives around Abhi, Mondee's fully integrated AI genius pro platform, to promote Mondee's now fully AI-enabled marketplace to customers and prospects, including travel experts, influencers, organizations, and SMEs. As we round out our infrastructure for rapid, scalable growth, we continue to add key executive and subject matter experts in AI strategy and roadmap development, vendor relationship management, financial disciplines such as SOX compliance, as well as operational program management.

We are now well along the path of building an all-star team to take Mondee up significant levels of profitable growth. I will now pass the call over to Jesus for a review of our financial performance and outlook. Jesus?

Jesus Portillo (CFO)

Thank you, Prasad. Thanks again to our audience for attending. We generated a strong result in the second quarter as Mondee continues to expand geographically, leverage our enhanced technology, and capitalize on the international travel market recovery. For your reference, we present a summary of our second quarter results in slide eight of the presentation. Gross revenue of $708 million was 112% of second quarter of 2022, while net revenue of $56.8 million was 124% of second quarter 2022.

Take rate continued to be in line with our expectations and closed at 8% in the second quarter, a substantial increase from pre-pandemic levels of 4% to 5%. It also represents a substantial increase when compared to 7.2% achieved during the second quarter of 2022.

This expansion in take rate is driven mainly by the uptake of hotel content and the diversification of revenue streams like travel ancillaries and fintech. We expect this very important metric to continue expanding with the addition of cruises and a greater mix of hotels, events, and activities. We're happy with the momentum of our business, with over 721,000 transactions in the second quarter of 2023, up from 550,000 in the second quarter of 2022.

Turning to expenses, GAAP sales and marketing as a percentage of gross revenue was 5.7%, which was 5.1 in the same quarter last year, as we enhanced our marketing function and accelerated approximately $1 million of investment that was initially planned for 2024 to capitalize on our AI travel marketplace.

G&A, as a percentage of net revenue, was 9.2%, up from 4.4% a year ago, as we incorporated new public company expenses and provide the infrastructure to continue supporting our exceptional growth. Adjusted EBITDA was $4.4 million for the quarter, 118% over $3.8 million in second quarter of 2022, as we continue to deliver profitable growth despite the incremental marketing of one-time expenses. Note that reconciliation of GAAP to non-GAAP are available in today's earnings release.

On a GAAP basis, the net loss was $14.6 million, including approximately $14 million of non-cash and/or non-recurring items, such as $3.8 million of depreciation and amortization, $4.8 million of the stock-based compensation, $2 million of tax provisions, $0.5 million of changes in fair value of earn-out liabilities, $0.3 million of M&A costs, non-cash financing cost of $1.5 million.

And one-time marketing costs associated with our new AI platform launch of approximately $1 million. Comparatively, net loss was $2.1 million in second quarter of 2022. On a non-GAAP basis, adjusted net loss was $5 million, versus a loss of $2.9 million last year.

Looking at our balance sheet, at the end of second quarter, we had approximately $58 million in cash and $153 million of debt, compared to $67 million and $150 million, respectively, at the end of first quarter 2023. The small decrease in cash reserves was mainly due to acquisitions and working capital increase. Turning to our 2023 outlook and guidance, guidance, we're increasing our 2023 net revenue guidance by $5 million and expect to continue delivering profitable growth.

Our projections include both organic and inorganic growth from Mondee's recent acquisitions. Net revenue for the 2023 fiscal year is expected to range between $245 million and $250 million, representing a 155% of our 2022 net revenue, measured at the midpoint.

As Prasad mentioned earlier, we made the decision during the second quarter to ramp up our investment in marketing and accelerated execution of our AI roadmap. We expect those investments to be around $20 million over the course of the year. We believe this will facilitate capturing new market share, accelerating revenue growth in 2024, and disrupting the travel industry with our next-gen AI platform.

With all of this in mind, we're updating our 2023 Adjusted EBITDA guidance to be in the range of $25 to 30 million, which could represent a 250% of our 2022 Adjusted EBITDA, measured at the midpoint. Finally, before turning the call over to Prasad, we would like to formally welcome Deloitte as our new auditor, effective 6 July 2023. We're very excited about this partnership and the capabilities and experience that Deloitte will continue to Mondee. Thank you. Over to you now, Prasad.

Prasad Gundumogula (Founder, Chairman, and CEO)

Thank you, Jesus. We are excited with the initial results of the investments we are making in AI technology, marketing, and infrastructure to position Mondee as a driving force in the rapidly emerging world-class social commerce travel. I'm especially proud of our entire team for making this happen while continuing to deliver a very strong second quarter. More importantly, putting us on track for an even more exciting rest of 2023 and beyond.

Mondee is truly transforming the travel industry with its modern tech platform, connecting airlines, hotels, and vacation rentals with millions of travelers through an expanding network of travel experts, freelancers, and social media influencers. Mondee is now best poised to capitalize on our investments and penetrate all market segments rapidly with our next-generation AI, AI marketplace, led by the increasing traveler demand for socially based collaboration and personalization of their travel experiences.

With our rapidly expanding and segmented distribution network and the AI-enabled trip creation, our comprehensive solution also provides suppliers with a one-stop shop to best place excess capacity, unlike the online broadcast distribution channels. This is further enhanced by our ability to offer not only unique, unique, privately negotiated value content, but also full fintech solution and ancillary, many of which also benefit our supply partners.

We are thrilled by the progress we expect to make over the next several quarters and the vast opportunity now before us with our next-gen AI-enabled tech platform, expanding and deepening content, and substantially enhance and expanding distribution. We are uniquely positioned once again to continue disrupting and serving the travel market, which is approximately $2 trillion in size. Thanks for attending our first quarter earnings call, and we look forward to your ongoing support.

Jeff Houston (SVP)

Operator, we're ready for questions now.

Operator (participant)

Thank you. If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad. To revoke your question, please press star followed by two, and when preparing for your question, please ensure your phone is unmuted locally. Our first question comes from Darren Aftahi from Roth MKM. Darren, your line is now open. Please go ahead.

Darren Aftahi (Managing Director and Senior Research Analyst)

Hey, good morning. Thanks for taking my questions. First one, just some clarification on the, the $20 million investment in the, in the AI Marketplace. Like, I, I guess you guys kind of called out $1 million in the second quarter, so that assumes the bulk of that investment is going to be made in the second half. I'm, I'm kind of curious, in the context of that number, where is that money going to besides marketing, and what is the rationale that it's sort of one time in nature?

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yes. Thank you, Darren.

Jim Dullum (COO)

I'll... [crosstalk]

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

I'll add some thoughts on... Oh, Jim, go ahead, and I'll add.

Jim Dullum (COO)

No, no. Yeah, Hey, Orestes, I'll start, and then you go. Yeah, Darren, I was just going to say that, look, you know, we're, we're, we're as, as we go to the market now with, with this just, you know, this, this really industry-leading AI platform, you know, we're, we're going to be rebranding, so there is a one-time investment in branding. There are a number of very significant marketing programs that we will launch that will bring in, you know, substantial numbers of, of travel influencers, and obviously, behind travel influencers are all of their followers.

And then obviously going through our travel experts, our agents, providing them with not just these tools to do the job better, but the marketing incentives to really get this going quickly. I mean, this is a market window that is substantial.

We are the only ones that we believe properly positioned to take advantage of it, given our excellent tech platform. This is the time for us to go ahead and, you know, accelerate our investments to go in and really get significant penetration. Those are the characters of the types of things we're going to be doing, and we've put together a full budget for this, that our marketing team is managing now through the end of the year and into 2024.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Thank you, Jim. Just to add a few more thoughts there, I mean, the launch of the new marketplace was always a 2023 project, but the addition of the AI was always more of a 2024 one, and thanks to the advancements of our own tech team, we have created what we believe to be the most powerful and the only fully integrated AI travel platform out there.

Being a first mover and having this advantage, it makes total sense to deploy additional marketing resources before, you know, a few years from now when other players may develop their own AI platforms, right? This is a first mover advantage, and the way to capitalizing and maximize the market share is to deploy additional resources in marketing.

Another element here is, as Jim mentioned, there is a clear window of opportunity. We have seen, not only in the US, but also geographically, parts of Asia, Latin America, Europe, where we are expanding now. We have seen this movement of social media influencers and their interest in travel accelerating in the last few quarters.

Last but not least, in addition to the marketing campaigns you have seen, we have built a team of 14 individuals who came effectively from Amazon, from Google, from Microsoft, in the last six or seven months. This is an enhancement to our marketing team to focus on the new era experts of social media influencers, influencers, et cetera.

Now that we have assembled this team, you know, we feel much more confident, but also we can quantify the types of, of, of marketing campaigns that are necessary, to attract, these, new era customers of ours. I don't know if anybody else has anything to add on this.

Jesus Portillo (CFO)

Yes, I would add, this is Jesus, Darren. I would probably also add and clarify that we made the decision within the context of understanding our EBITDA is still at 255% of 2022 Adjusted EBITDA, right? you know, I, I want to be sure that we all also contemplate that.

Prasad Gundumogula (Founder, Chairman, and CEO)

We anticipate to invest in our, in our, in implementing and continuing with our AI roadmap, which is important. We are a innovation-led company. We continue to do that while we are, you know, reaping the benefits from the financially and/or, you know, capturing our market share. We will continue to invest into our AI platform roadmap.

Darren Aftahi (Managing Director and Senior Research Analyst)

That, that's all very helpful. Thank you. Just one last one for me. Is there any way to deduplicate what organic revenue and EBITDA kind of growth was in the quarter? Thank you.

Jesus Portillo (CFO)

As, as you know, I mean, usually we integrate all of our new acquisitions, get very quickly integrated in our ecosystem and platforms. We do not track revenues or EBITDA coming out of new acquisitions as simply as that.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yeah, I mean, just, and just to highlight here, again, this is Orestes. Our strategy when it comes to acquisitions is that we are buying components that we are adding into our own marketplace, right? Say we buy a company that is giving us hotel content in Latin America, we start selling to their customers, they, you know, our own content, the flight content, or they start selling to our own 65,000 customers, their content, then it's very difficult.

Even if you keep the performance separately by company, it's very difficult to pinpoint what is organic and is, is not inorganic and what inorganic. This is precisely because we are not necessarily buying companies, but we're buying components that we plug into one single and unified marketplace.

Darren Aftahi (Managing Director and Senior Research Analyst)

Great. Thank you.

Operator (participant)

Thanks, Darren. Our next question comes from Nick Jones from JMP Securities. Nick, your line is now open. Please go ahead.

Nick Jones (Analyst)

Great, thanks for taking the questions. I guess just kind of following up on the updated full year guidance. It looks like probably half of the revenue increase is coming from the Skypass acquisition, and then with this kind of incremental investment in the back half, it doesn't seem like you're expecting any kind of return on that investment this year. I guess, can you help contextualize kind of how we should think about the time to return on investment of this incremental kind of second-half investment around the, you know, the marketplace and the AI product?

Jesus Portillo (CFO)

Yes. Hi, Nick. Thank you for your question. Yeah, obviously, as Skypass will contribute slightly to that, but will not represent 100% of the increase of the guidance that we're providing on revenue.

Jim Dullum (COO)

Yeah, Nick, it's Jim. I'll also just add that bear in mind, you know, when we, when we acquire a company like that, right? We're bringing in an excellent management team, understands their market well, have tuned their operation to that market.

There are great synergies to be had from all of this, right? We, we bring these businesses in, we're able to provide them with technology they didn't have before, which then allows them to take that out to their customer base. What we have learned over the several years that we've been doing acquisitions successfully and accretively, is that you want to do it in a very organized, disciplined, and planned way.

You know, usually we'll look at this and say, while, while there are immediate synergies to be had, we're gonna work off of more like, say, a, you know, two to three-quarter plan to get these things fully integrated, get the synergies so that you don't press too hard.

I, I think, yes, it, it's, it's somewhat additive for whatever period of months, but you, you just have to make sure, be a little, let's, let's say, conservative in how you, you, you look at the future results and not just try to add them all in and throw the synergies on top day one. We're generally a little more conservative, having done this so successfully, time and again, you know, over the last several years.

Prasad Gundumogula (Founder, Chairman, and CEO)

And remember... [crosstalk]

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Just... [crosstalk]

Prasad Gundumogula (Founder, Chairman, and CEO)

As we integrate companies to our platform, it, it creates a change, and change always brings its own challenges, and it takes a few months or a, you know, a few quarters to settle that out and to get a good ramp in, you know, in those companies. Our focus is on integration of these companies and not to expect a huge growth or synergies immediately, but to help us to fill in the components into our, you know, bigger vision.

While we're focusing, you know, organically taking those components and to produce the results. Hence that, you know, the increase in our guidance comes from our overall vision to continue with it, while, you know, the recent acquisition adds some contribution to those results, you know, in the next 4 months.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Prasad, just to answer directly the second part of Nick's question. I mean, the first part is, it has been answered sufficiently that Skypass is adding a few million out of those 5, right? You can do the back of envelope math. Which means that we are only adding about $3 million or so from the new marketplace, which to your point, Nick, yes, we anticipate most of the fruit of this incremental, of this $20 million incremental investment to come into 2024.

This is because we are targeting new era audiences. There is a lot of learning in the process, even when we sign up the social media influencers. Basically, we are conservatively assuming that most of the incremental revenue will come in 2024, with only a small part coming in 2023.

It may end up being that we get more in 2023, but again, it's much more... I mean, from the new marketplace, but it's much better to be conservative. Also, to remind you that this is our 4th quarter that we are reporting as a publicly listed company, and in the net revenue segment, we have been beating and raising every single quarter since we, we went public, right? There is an element to that as well.

Nick Jones (Analyst)

Great, thanks for taking the questions.

Operator (participant)

Thanks, Nick. Our next question comes from Brett Knoblauch from Cantor Fitzgerald. Brett, your line is now open. Please go ahead.

Brett Knoblauch (Managing Director)

Thank you. Thanks for taking my questions. I guess the first one, if I look at maybe just revenue by geography, revenue in the US is down 15% year-over-year. It looks like most of growth came from international and specifically Brazil.

I guess, I believe is coming from the Orinter acquisition, because I guess, A, can you just talk to me about why US revenues were down 15% year-over-year? B, I guess if you're not tracking organic or inorganic growth from acquisitions you made, what criteria are you using to evaluate if that acquisition was successful or not? How should we gauge if those acquisitions are successful or not?

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yeah, let me give you a few thoughts. I mean, the first part is that when we show the chart about the different geographies, everything is relative as well, right? If we get more revenues from a certain geography, the percentage of revenues that comes from the US or another geography reduces, right? That's the first, that's the first point.

The second point, with regard to the success of acquisitions, as you know, all of these acquisitions, a substantial part of the consideration is linked to future performance metrics in the form of earnouts, right? You will be seeing most of which start to be triggered a year ahead of after the acquisition itself.

One measure of the success of this acquisition will be whether those targets are met and the earnouts are paid, right? Number three, and most importantly, for us, when we are acquiring companies, like I said before, we are acquiring contracts effectively and customers.

In the contract sense, we are evaluating and comparing those contracts, and whenever one of the targets that we acquired in a certain hotel or in a certain airline, they have a better contract, then we incorporate that in our own unified content hub. Basically, from our perspective, the success is, number one, in the ability to diversify and enrich and improve the content of the entire platform.

Number two, to keep adding new customers, and new travel experts in geographies where it would have been very difficult to acquire them organically, such as the US and Canada. I don't know, Jim or Prasad, if you have any other thoughts.

Jim Dullum (COO)

No, I think you hit it correctly right at the beginning there, Aristides. You know, I think, Brett, it's you're looking at a mixed issue, right? I mean, there are relative growth across all of the platforms and all of the geographic platforms. It's just that if some of the areas are growing faster, the relative percentage of one geography over another is going to is gonna moderate somewhat. I think that may be what you're seeing.

Brett Knoblauch (Managing Director)

If revenue in the US is down 15%, should I assume that less people are traveling in the US and more of your transactions are, you know, international transactions in the quarter?

Prasad Gundumogula (Founder, Chairman, and CEO)

I mean, we don't see that it's 15% down, as, you know, Jim and Orestes mentioned. It is, it is, the market share of that segment is, you know, on the market, that, US market is down by 15%, but not the actual, you know, year numbers, is down. However, the other markets are growing fasterly. By the way, for us, the international is a sweet market, and, we see that as a, a, improvement there, is what we wanted to anticipate and what we, we are working for, to create a good value for our customers. Historically, which we have a good share of market share in those segments.

Jim Dullum (COO)

Also contributes significantly.

Prasad Gundumogula (Founder, Chairman, and CEO)

And contribute... [crosstalk]

Brett Knoblauch (Managing Director)

Yeah. I guess if I could... got it. Maybe just one last question. The second quarter, from a seasonality perspective, has historically been your largest quarter for the year. I guess your guidance implies we're gonna see, you know, a relatively stronger back half of the year relative to the first half of the year, at least on a, a net revenue basis. I guess any puts or takes as to, you know, why it's gonna be different from a seasonality perspective this year relative to, you know, the previous two years?

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yeah, I mean, let me give you a few... [crosstalk]

Jim Dullum (COO)

Yeah.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

A few points there. Okay, Jim, go ahead, and then I'll add.

Jim Dullum (COO)

No, I was just gonna say, part of that, Brett, is again, with some of these international acquisitions, that will change a little bit the seasonality, because there are.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Mm-hmm.

Jim Dullum (COO)

You know, there are different seasonalities in different parts of the world. If you think about it, you know, you even have different weather patterns, as an example. Given that, what we will see is a little shift in the seasonality.

The other part, the second part of it is also with the, you know, with what we've just introduced, the new technologies, the new markets that we're opening up, you know, our seasonal pattern is probably going to be off a little bit simply because we will overwhelm that seasonal pattern with, you know, the organic growth of the business in all of these different market segments that previously we really weren't playing in very strongly.

Prasad Gundumogula (Founder, Chairman, and CEO)

The other two factors... [crosstalk]

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yeah.

Prasad Gundumogula (Founder, Chairman, and CEO)

That impact seasonality. The other two factors that adds the factors to the seasonality is the prices in the second quarter, the price of these, you know, the airline tickets or the transactional cost, okay, is very high. People have usually, when the prices are high, they look for alternative options and look for the other quarters to travel, and we see the trend based on this, you know, shopping request, what we are receiving for the future periods.

This is supported and which we believe that we're going to continue, you know, in the future period and may increase the transaction count there. The second aspect is the recovery. Remember that we are only recovered up 88% of our in the pre-pandemic levels.

As you know, the international markets are opening and, you know, that more and more travel is coming, so it is, it is changing these dynamics day by day. It's not a linear thing or to follow the historical trends, but also we have to factor in all these important changes and the trends into consideration, and which we believe that, you know, the second and third and fourth quarter would be better than second or first quarter. Thirdly... [crosstalk]

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yeah.

Prasad Gundumogula (Founder, Chairman, and CEO)

We are, you know, a growing business. We are not thinking about ourselves as just following the trend of last year and doing that. It's about how we take the market share. The market may be, you know, having the, you know, same seasonality effect. We plan to take more market share, you know, okay, from other players, and that will increase our numbers. That may be different from the previous quarters. What do you add, Orestes?

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Yeah, and one last point. I mean, I think Prasad and Jim covered all the points, but one last point is that if you look at the last 12 years of our history, second quarter is not our strongest quarter. I mean, second quarter in 2022 was a very strong quarter, particularly because you had Omicron in first quarter, so a lot of the travel that was going to happen in first quarter happened in second quarter, right? You have that element of the equation for 2022 in particular.

As far as demand is concerned, traditionally, you know, our, our, our strongest quarters were towards the end of the year, specifically fourth quarter. To that, you have to add all the elements that Jim mentioned, you know, the, the changing seasonality and geographies we have added, the growth that Prasad mentioned. If you add all these three, four variables, we, we are very confident that third quarter and fourth quarter will be much stronger than second quarter, which itself is an exceptional quarter, so...

Brett Knoblauch (Managing Director)

Understood. Thank you, guys, really appreciate it. Congrats on the quarter.

Operator (participant)

Thanks, Brett. As a reminder, if you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad. Our next question is from Mike Grondahl from Northland Securities. Mike, your line is now open. Please go ahead.

Mike Grondahl (Head of Equities, Director of Research and Senior Research Analyst)

Hey, thanks, guys. Just a couple more questions on the $20 million investment. How would you describe the mix between peer or direct marketing and personnel cost? Then secondly, would you say the marketing dollars are more targeted at influencers or agents? I'm just trying to understand, you know, in the marketing, what will the hook be for each one?

Jim Dullum (COO)

So I'll. Hey, Mike, it's Jim. I'll start. So I like the last part first. I mean, look, the hook here is if you think about the whole Millennial, Gen Z, you know, the whole Millennial, Gen Z buying population, which is now the most significant buying population in travel. I mean, these, these are tech-savvy people to begin with, right? And, and they are looking for.

They're the ones that have most embraced all of the generative AI features that have come out anywhere in, in, in any industry vertical. The, the, the hook here is you have. I mean, this is not just AI supporting a little bit of shopping. This is AI supporting the entire experience creation, the entire ability to, to go hyperlocal, et cetera.

You know, when you, when you think about that, the hook here is just gonna be. It's more than just a new toy. This is, this is truly the new way of, as an individual, building my experiences, right? As an expert, or a channel to market, of facilitating that happening most effectively, most efficiently. Our hook is not just at the end traveler, it's all the way through the chain here to include the service support, because this is. I mean, the unique thing about our platform is it is fully deployed end to end. That, that's primarily on the hook side.

In, in terms of the, the way we're, we're thinking of the investment that we'll continue to make here, you know, about 50% of it will be in the marketing programs, and then the, the other 50% is going to be in personnel, as well as continued enhancement and deployment of the AI capabilities within our platform. It's, it's generally in that, in that range.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Just to add a bit more color, right?

Mike Grondahl (Head of Equities, Director of Research and Senior Research Analyst)

Sure, go ahead.

Orestes Fintiklis (Vice Chairman, Chief Strategy, and Business Development Officer)

Just a little bit more color, Mike. You may recall that our marketing mostly on credits, right? We would go to travel experts and tell them: "Look, you know, we give you a $1,000 credit, and you can use it on the first 30 transactions that you make," right? Now, like you rightly mentioned, we are targeting the new era experts, which is more freelancers and social media influencers.

The way that these these new customers are making money is they're making 1% of all transactions of their followers that they book through our platform, and then for the traveler, the traveler gets a $10 credit, et cetera, et cetera. We need to educate the market, but to know, how would you know?

If you're an influencer, how would you know about this platform? If you are a new traveler, how would you know about the $10 credit? Now we have to do different types of campaigns, which are more performance marketing as opposed to credits, right? This basically explains also why we built an additional team to our existing marketing team, with 14 individuals with experience in this new era, expert and customer.

Mike Grondahl (Head of Equities, Director of Research and Senior Research Analyst)

Got it. Then one more. If you look at the overall transactions and take rate in the second quarter, is there anything to call out there, like air travel was better or worse, hotels, cruises, the ancillaries? Just any kind of detailed commentary on that underlying performance, if you will, you know, whether it's transactions or take rate.

Jesus Portillo (CFO)

I think, Mike, you know, one of the main things to point out is that as we continue expanding on our hotel offering, that take rate is gonna continue to improve. That's probably, as you referred to second quarter, is probably our main driver for that improvement in that take rate.

Mike Grondahl (Head of Equities, Director of Research and Senior Research Analyst)

Okay.

Operator (participant)

Thank you. That concludes the Q&A for today. I'd like to turn the call back over to Jeff Easton, Senior Vice President. Jeff, please go ahead.

Jeff Houston (SVP)

Sure. Thank you, and thanks to all who tuned in for our second quarter 2023 earnings call. Whether it was here on the live call, the replay, or reading the transcript, we really appreciate your interest in Mondee and welcome the opportunity to further connect with you. If you have any questions or would like to learn more about Mondee, please don't hesitate to schedule a call with us. You can get more information at our IR site, which is investors.mondee.com, or send an email to [email protected]. Thank you.

Operator (participant)

This concludes today's call. Thank you for your participation. You may now disconnect your lines.