Mondee Holdings, Inc. (NASDAQ:MOND) Q4 2022 Earnings Call Transcript

Mondee Holdings, Inc. (NASDAQ:MOND) Q4 2022 Earnings Call Transcript February 28, 2023

Operator: Good day and welcome to the Mondee Fourth Quarter and Full-Year 2022 Earnings Conference Call. Please note this event is being recorded. I’d now like to turn the conference over to Jeff Houston, Senior Vice President. Jeff, please go ahead.

Jeff Houston: Thank you, Harry, and good morning everyone. Welcome to Mondee’s fourth quarter and full-year 2022 conference call. With me today our Chairman, CEO and Founder, Prasad Gundumogula; and Chief Financial Officer, Dan Figenshu who will present our preliminary results. Also available are 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 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.

I would also like to point out that the fourth quarter and full-year 2022 results are preliminary and subject to final audit. 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 Prasad, I would like to turn the call over to you. Prasad?

Prasad Gundumogula: Thank you, Jeff, and welcome everyone to Mondee’s fourth quarter and full-year 2022 earnings call. We appreciate your interest, whether you are a shareholder, a client supplier, business partner, employee, prospective shareholder or analyst. I will begin today’s call with a summary of our business highlights and strategy, and then I will turn the call over to our CFO, Dan Figenshu, for the more detailed review of our preliminary financial results and outlook. We will then conclude this session with time to answer a few questions. I’m excited to announce that in the fourth quarter of 2022, Mondee continued to deliver profitable growth. Gross revenue of $512 million, increased 42% year-over-year, while net revenue of $40 million was up 19% year-over-year.

For the full-year 2022, gross revenue of $2.2 billion was 2.2x about 2021, $966 million of gross revenue. As you may recall in 2021, we equaled our 2019 benchmark revenue of $93 million, despite still being in the middle of the pandemic. And now in 2022, our net revenue of more than $159 million grew 171% over 2021s net revenue. Even though the international travel market only recovered to about 70% from its pre-pandemic peak. Equally important as our continuing growth trend is that we continue to deliver profitability as we scale. Fourth quarter adjusted EBITDA was $6 million, representing an improvement of more than $7 million from the same period last year. Full-year 2022 adjusted EBITDA was $16 million, up more than $20 million from 2021s adjusted EBITDA.

Turning to Slide 4 to look at the major industry trends impacting Mondee’s business. While 2022, North America domestic air was about 91% recovered to 2019 levels. International travel, which is our main business was just 69% recovered in 2022. A positive trend is that international improved to 77% in the fourth quarter of 2022. China in particular finally reopened for in-bound travel in January 2023, and we expect to experience more rapid recovery of our North America outbound travel to China in the back half of 2023. Given the lead time necessary for travelers to typically plan and schedule Asia destination trips. And pandemic led labor shortages in 2022 added to basic undersupply in air and hotel. However, in 2023, the labor shortage is generally expected to improve.

And the air seat capacity is expected to ramp back up in 2023 and thereafter. For example, Air India invested $70 billion to buy 470 planes. Another positive trend for Mondee is the Gen Zs and Millennials’ purchasing power and influence. New platforms are required to meet the needs of these growing consumer cohorts, such as real time always on curated content combined with conversational and social e-commerce. On the headwind side, inflation and high fuel costs are driving price increases, while recession fears may impact both operating costs and business demand in the short to medium-term. however, Mondee is well positioned to mitigate this headwinds through its tech platform and value-based content. Turning to Slide 5, which presents Mondee’s geographic and destination mix.

This provides a better sense of the potential impact China’s reopening could have on our business. Asia, which is about half China represented approximately 20% of our transactions pre-pandemic in fourth quarter 2019, and in the fourth quarter of 2022 was just 15% of the mix. We expect to return to that same level and potentially even higher in late 2023 and into 2024. Outside of China, this chart shows that we continue to capitalize on the ongoing travel recovery in other international markets. For example, Europe increased 22% in fourth quarter 2022 from 15% in fourth quarter 2019, and India increased to 21% from 16% on the same period. It is also important to highlight that our impressive growth is not just travel recovery driven, because our net revenue recovery has far surpassed the recovery of international travel.

This is being driven by many factors including market share gains, expanding disruption into product segments of the market beyond flights such as hotels, tech driven improvements in our diversified revenue streams such as FinTech and ancillaries. These results in improved revenue per transaction and take rates. Digging deeper into our main accomplishments in 2022 and so far in 2023, there were four key areas that continued to drive our strong financial and operating results and will support us further during 2023. First, we made significant improvements to our capital structure in 2022. After our successful debut on NASDAQ on July 19th by raising $85 million of preferred stock with an instrument that is not convertible to common equity, and hence not diluted to our shareholders.

Moreover, we purchased all 12 million of our public warrants. Another important step to limiting potential dilution of Mondee’s common equity, creating value for common shareholders. These actions fortified our balance sheet in a way that facilitates our organic and inorganic growth strategies. In fact, we deployed about $20 million of this capital towards acquiring Orinter just a few weeks ago, which brings us second point. Orinter strengthens Mondee’s position in Brazilian and broader LATAM travel market. Their portfolio includes 4,900 travel experts as well as complimentary local hotel packages and ground transport relationship that will be added to Mondee’s content and distribution marketplace. Mondee plans to leverage Orinter’s outstanding and proven management team, strong market position and expertise to further expand regionally in LATAM and globally.

M&A is not a new endeavor for us. We have a history of well calibrated and successfully integrated transactions, which have delivered strong revenue and cost synergies. Orinter is the beginning of our third wave of acquisitions. We plan to continue aggressively executing a targeted accretive acquisition strategy, which will help accelerate our growth and expansion into new geographies as well as offerings of new production services. We plan to continue expanding our operations in Brazil and LATAM region, while also exploring opportunities in other regions such as Europe and parts of Asia. We believe that by diversifying our operations, while expanding new products and services, we can better leverage our platforms and marketplace as well as achieve sustainable growth and enhance our position as a leader in the travel industry.

Third, we continue to improve and evolve our tech platform, which parse our modern marketplace and consequently our revenue streams. We facilitated approximately 2.1 million transactions in 2022, up 62% from 2021. Each transaction could include multiple flights and hotels or vacation rentals as well as ancillary solutions. These diversified solutions are providing higher margin revenue streams and driving higher take rate. Our FinTech revenue grew 186% in 2022 from 2021. These FinTech products include alternate payment and settlement methods, wallets, fraud protection tools, and FinTech ancillaries. In addition, we expect to use our stronger balance sheet to further support growth of our FinTech offerings and revenue generating items. Further, our transaction growth is supported by the launch of our TripPlanet platform last year, which has grown to access to over 125 million organization members.

Fourth, in January, 2023, we introduced the Mondee Expert and Influencer Affiliate Network Program designed to enhance current customer offerings and their travelers experiences, as well as increased distribution and reach by collaborating with new travel companies, experts and other businesses. Affiliates can more holistically engage Mondee’s technology and marketplace to create expanded travel related experience while earning enhanced commissions on booking made through the platform. Before turning the call over to Dan, as we look into 2023, we thought it would be helpful to briefly describe Mondee’s marketplace positioning and our vision. We believe Mondee is very well positioned for the rapidly developing modern travel ecosystem. As shown on Slide 6, our global content hub features direct connectivity with over 500 airlines and more than 1 million hotels, vacation rentals and rental cars, and we are aggressively expanding into cruises and other activities.

This expanding content is differentiated in the market by combining discount rates, long-term contracts, real time pricing data, and integration with revenue management systems or strategies across a wide variety of offerings. Technologies at the core of our business and further differentiates us in the travel industry. Our platform enabled marketplace is highly scalable and flexible, featuring FinTech, InsureTech, marketing tech, conversational commerce and ancillaries. And later this year we plan to roll our NextGen platform that we believe to be many years ahead of what is currently available in the market. Without stealing too much thunder from this upcoming launch events, I can tell you that features include real time social commerce, gross content, and local experts on .

As our B2B2C content consumers, they receive access to curated travel supply and experiences, cost savings, SaaS tools to operate efficiently and access to our tech platform. We distribute through our more than 55,000 travel experts, affiliates, intermediaries, and gig economy workers, as well as access to 125 million closed user group members. By disrupting a 70 billion sub segment of travel and becoming a leading company in selling wholesale air fare to travel affiliates in North America, Mondee is now rapidly becoming a leading tech platform and modern marketplace, connecting travel suppliers, gig economy workers, and close group travelers by providing all travel content and experiences through our expert and consumer app. Our growing segments of gig economy workers include service and concierge agents, local experts, influencers, curators, and content writers.

Our close user groups include travel affiliates and influencer network membership organizations and SMDs, which we are expanding globally. With that of our business, I will now pass the call over to Dan Figenshu, CFO of Mondee for a review to our financial performance and outlook, Dan?

Photo by Willian Justen de Vasconcellos on Unsplash

Dan Figenshu: Thank you, Prasad and thanks again to our audience for attending. We are proud of the company’s 2022 and fourth quarter financial performance, particularly the continued growth of adjusted EBITDA profitability, especially given that this performance was driven by organic revenue growth. Fourth quarter gross revenue grew 42% year-over-year to $512 million. Net revenue grew 19%, year-over-year to $40 million. For 2022, gross revenue of $2.2 billion was 2.2x 2021’s $966 million. While net revenue of over $159 million was 171% of 2021’s $93 million. Take rate, which we define as net revenue divided by gross revenue continue to be in line with our expectations. Take rate for the full-year 2022 was 7.2%, a substantial increase from 2019’s pre-pandemic level of 4.2%, driven mostly by the success of our diversified revenue streams of ancillary and FinTech solutions.

Over time, we expect take rate to trend upward as a higher portion of our revenue mix comes from the stickier and higher margin transaction add-on revenue such as ancillaries, FinTech, and subscription, as well as a greater mix of hotels and soon cruises events and activities. Furthermore, we are happy with our overall business trends. We had over 2.1 million transactions in the full-year 2022, up from 1.3 million in 2021. Turning to expenses, Q4 GAAP sales and marketing as a percentage of gross revenue decreased to 4.6% from 5.6% in the same quarter last year. G&A as a percentage of net revenue was down to 5.8% from 8.3% a year-ago, which we consider a material improvement. Adjusted EBITDA was $6 million, an improvement of $7.5 million as compared to fourth quarter 2021.

We also delivered approximately $16 million of adjusted EBITDA in 2022, up over $21 million from a negative EBITDA of about $5 million in 2021. Note that reconciliations of GAAP to non-GAAP are available in today’s earnings release. On a GAAP basis, the net loss was $13.5 million compared with a net loss of $9.2 million last year. On a non-GAAP basis, adjusted net loss was $3.7 million, an improvement from a loss of $6.9 million last year. Looking at our balance sheet, we have used part of the liquidity provided by our entry to the public markets to optimize our capital structure. At the end of the fourth quarter, we had $87.5 million of cash while our net debt was reduced to $747 million. In a nutshell, we have fortified and simplified our balance sheet, which will allow us to pursue acquisitions aggressively, support our organic growth plans and commensurate working capital needs.

And in fact, we used approximately $20 million of cash on January 31, 2023 to purchase or enter along with approximately $20 million of stock. There is also a $10 million earn out potential based on achieving additional accretive EBITDA targets in that transaction. In terms of 2023, outlook and guidance, net revenue is projected to be in the range of $230 million to $240 million representing year-over-year growth of 47% measured at the midpoint. Adjusted EBITDA is expected to be in the range of $40 million to $45 million. In summary, as Prasad alluded to previously, we believe that Mondee is in a strong financial position to capitalize on the reopening of the travel industry and on future organic and inorganic growth opportunities. I will turn it back over to Prasad.

Prasad?

Prasad Gundumogula: Thanks, Dan. We are very pleased by our Q4 and full-year 2022 results, and we look forward to an even stronger 2023. We are proud that Mondee’s highly disruptive business model and cutting edge technology has in a decade or so made as a leading company in the $70 billion submarket in North America. Now as a listed company with a strong balance sheet, we look forward to disrupting and driving even further within the $1 trillion marketplace, tech platform and modern marketplace, connecting travel suppliers, gig economy workers, and close group travelers by providing all travel content and experiences through our expert and traveler apps. Later this quarter, we’ll provide further updates and details on the launch of our NextGen platform and look for us to take this platform and our model for success in North America to quickly penetrate and disrupt other rapidly emerging gig economy markets throughout 2023.

Thanks for attending our fourth quarter and full-year 2022 earnings call and we look forward to your ongoing support.

Jim Dullum: Operator, just a minor correction, when Dan Figenshu, the CFO refer to the net debt figure, the correct figure is $47 million at the end of the year. Thank you.

Jeff Houston: Operator with that, we’d like to open it up for Q&A.

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Q&A Session

Operator: And our first question today is from the line of Darren Aftahi of Roth MKM. Darren, please go ahead now.

Darren Aftahi: Hey, good morning guys. Thanks for taking my questions. Nice job on the results. Couple, if I may, can you speak to the global travel environment, I know you spoke about China reopening and that being a second half catalyst, but just kind of trends you’ve seen thus far in 2023, kind of, has it changed at all, kind of good, bad, indifferent and then kind of what is your guidance really reflect?

Jim Dullum: Hey, Darren, it’s Jim Dullum. I’ll start and then the other guys can jump in. Yes, as you say, obviously the opening of, the reopening of China, the continuing growth in Asia is very helpful. That’s a great tailwind for us, given the character of our business historically and our distribution network. The other things we see is clearly we see the supply starting to open back, open up again. It’s a bit nascent at this point, but we see that coming back and as the supply comes back, obviously that gives us more options and opportunities to offer great value to our customers and to their consumers. So we see that trend continuing into and through 2023. We understand that there are some potential headwinds out there as Prasad mentioned in his piece.

We’re all talking about what might happen if economies slow down globally, but we see those as, we’re very well positioned for that. We have the type of product, we have the type of value-based pricing that in those scenarios, it gives us actually a good bit of headroom to gain even further market share. So those are the things that we see as key in 2023 as we push forward. The other — the last thing I would mention is this. Mondee has been a traditional North American footprint company, and what we see happening in the gig economy across the world says that there are other markets that continue to grow very rapidly in that space, and that for us is great headroom. It’s great white space for us to move into with the emergence of gig economies in markets such as the India subcontinent, et cetera.

So bottom-line, there are a number of areas that we see the opportunity to expand and grow, and we think the market in general will continue to recover. And we’re well positioned for it.

Dan Figenshu: Thank you. Thank you, Jim. I’ll take the second question, which was about our guidance. So as you know, in terms of net revenue we closed the year with $159 million of net revenue, and we have provided guidance for next year in the range of $230 million to $240 million. And then in relation to the EBITDA, we closed the year with $16 million of EBITDA, and we have provided guidance in the region of $40 million to $45 million, which is a very large 171% increase. On your comment about being flat or potentially being more aggressive, like Jeff mentioned, I mean, we are confident of the various growth levels in the company, but we see there is a general expectation in the overall market about the potential softening of the economy. So we want to start the year with a more conservative guidelines and adjusted throughout the year consistent with our strategy of always beating and raising the guidance that we provide to the markets.

Darren Aftahi: That’s helpful, guys. If I could squeeze in a couple more. If my math is correct, it looks like your marginal flow through on adjusted EBITDA to revenue is about 35%. I guess, how do we think about kind of every dollar of net revenue through — going through your business going forward? And I guess how influential is Orinter on ’23 relative to kind of Mondee core business?