Despegar.com(US:DESP)2021-04-30 20:12Financial Performance - In 2020, the company incurred a net loss of $142.6 million, operating losses of $177.2 million, and negative operating cash flows of $118.3 million[56]. - Gross bookings declined by 83% during the nine-month period ended December 31, 2020, compared to the same period in 2019, with a 94% decline in Q2 2020 compared to Q1 2020[39]. - The company has experienced unfavorable working capital trends and negative cash flow since Q2 2020 due to lower new bookings and elevated cancellations[182]. - The ongoing COVID-19 pandemic has disrupted typical seasonal patterns for bookings, revenue, and profit, making future forecasts challenging[182]. Market Conditions - Brazil accounted for 47% of transactions in 2020, while Argentina and Mexico accounted for 11% and 20%, respectively[44]. - The Brazilian real depreciated by 29% and the Argentine peso by 40.5% in 2020, impacting revenue due to currency exchange rate fluctuations[52]. - The Mexican peso depreciated by 5% in 2020 against the dollar, which could impact the company's financial condition[204]. - The inflation rate in Brazil was 3.8% in 2018, 4.3% in 2019, and 4.52% in 2020, contributing to economic uncertainty[198]. - Argentina's real GDP is estimated to have decreased by 11.8% in 2020, indicating significant economic volatility[193]. COVID-19 Impact - The company expects continued significant impacts on future revenues and operations due to the ongoing COVID-19 pandemic and related economic conditions[43]. - The COVID-19 pandemic has disrupted the travel industry, adversely affecting the financial condition of many suppliers, which may continue to impact the company's operations and offerings[78]. - The company anticipates that consumer spending on travel will remain weak due to economic uncertainty and potential recessionary conditions in Latin America[49]. - The company has experienced a significant increase in customer service costs due to the pandemic, negatively affecting operational results[39]. Competition and Market Strategy - The company operates in a highly competitive travel market in Latin America, facing pressure from both established and emerging competitors, which may adversely affect its business and results of operations[61]. - The company is focused on increasing consumer traffic and conversion rates, which may require significant increases in marketing expenditures[57]. - The company faces challenges in adapting to the shift towards mobile platforms, which is critical for maintaining market share and user engagement[169]. Supplier Relationships and Risks - The company relies heavily on maintaining relationships with travel suppliers, including airlines and hotels, with a potential $125 million termination fee if the Expedia Outsourcing Agreement is terminated[64]. - Adverse economic developments in the travel industry could impact the company's ability to maintain existing supplier relationships, potentially reducing revenue and margins[65]. - A significant portion of the company's revenue is dependent on airline ticket sales, making it vulnerable to changes in the airline industry, including consolidations and bankruptcies[76]. Regulatory and Compliance Issues - The company is subject to various laws and regulations affecting e-commerce, data protection, and taxation across multiple jurisdictions, which may lead to compliance challenges[127]. - The company is subject to payments-related fraud risks, which could lead to chargebacks and negatively affect results of operations[81]. - The company must comply with PCI DSS regulations to process credit card transactions, and failure to comply could prevent it from accepting credit cards[83]. - The company is subject to anti-corruption and economic sanctions laws, including the U.S. Foreign Corrupt Practices Act, which could negatively impact its operations if not complied with[145]. Acquisitions and Growth Strategies - The company completed the acquisition of Best Day on October 1, 2020, increasing its exposure to the Mexican market[44]. - The company completed the acquisition of Viajes Falabella in June and July 2019, expanding its presence in Chile, Argentina, Peru, and Colombia[115]. - The company acquired an 84% equity stake in Koin, a Brazilian online payment platform, enhancing its payment processing capabilities[115]. - Future acquisitions may require additional financing, and the company cannot guarantee successful identification or consummation of favorable acquisition opportunities[118]. Financial Liabilities and Taxation - As of December 31, 2020, the company has reserved $23.4 million for labor, social security, and tax contingencies, reflecting potential liabilities[120]. - The company has $32.9 million of gross unrecognized tax benefits as of December 31, 2020, which could impact its effective tax rate if recognized[123]. - The company is currently undergoing tax audits, including an examination by the Mexican Tax Authority for the 2014, 2015, and 2017 fiscal years[125]. - The company has benefited from tax exemptions and incentive programs, but the expiration or reduction of these benefits could materially increase its tax expenses[142]. Human Resources and Operational Challenges - The company faces intense competition for attracting and retaining skilled IT professionals, which is critical for its business and future growth[90]. - The company has experienced significant salary increases in Argentina, with private sector salary increases of approximately 44.5% in 2019 and 28% in 2020[159]. - The company expects to continue raising salaries due to high inflation and full employment in the tech industry, which could adversely affect its financial condition[160]. Financial Health and Liquidity - The company may face liquidity constraints and may not be able to access capital when necessary, which could adversely affect its financial condition[176]. - In September 2020, the company raised $200 million in gross proceeds through a private placement of preferred stock and warrants to improve liquidity during the COVID-19 pandemic[178]. - The company may explore additional financing sources, including equity and debt financing, to improve liquidity and lower capital costs[176]. Currency and Economic Controls - Foreign exchange controls in Brazil and Argentina may worsen, potentially impacting the ability to access international credit or capital markets[210]. - Restrictions on fund transfers may hinder the conversion of currencies into dollars and affect dividend or debt payments[211]. - Current Argentine law restricts access to the official foreign exchange market for dividend payments from Argentine subsidiaries without prior approval from the Central Bank[209].