Mondee Holdings, Inc. (NASDAQ:MOND) Q2 2023 Earnings Call Transcript

Mondee Holdings, Inc. (NASDAQ:MOND) Q2 2023 Earnings Call Transcript August 15, 2023

Mondee Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.22 EPS, expectations were $0.06.

Operator: 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: Thank you, operator. And 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 would 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: 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 partners, employee, prospective shareholders 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 4, 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 A.I. 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 5, 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 hyper local 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 air travel marketplace to contribute to further market share gains, improve the rate of net revenue growth and enhanced profitability in 2024 and thereafter. The third point, we continue to grow at a fast pace and perform well financially.

Turning to Slide 6, 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 Q2 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 personnel expenses in anticipation of the Mondee AI marketplace launch. Jesus will delve deeper into financial results and specific guidance numbers shortly. But 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 5, 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 sell any type of customers well. For travelers, we have crafted immersive travel experiences using intuitive self-service exploration tools driven by AI. But 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 travelers’ 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 e-mail. Experts and travelers are able to discover the world at their fingertips with access to over 500 airlines, one 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, and 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 7, 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 accretively 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 diversified revenue streams to our customers.

Moving on to additional net-worthy accomplishments in the quarter, back to Slide 6. 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 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’s 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 Kymber 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 Kristi Berg. The marketing team has launched a set of marketing initiatives around Abhi, Mondee’s fully integrated – platform to promote Mondee’s now fully AI-enabled marketplace to customers and prospects, including travel experts, influencers, organizations and SMBs. In addition, as we round out our infrastructure for rapid scalable growth, we continue to add key executive of subject matter experts in AI strategy and road map development, vendor relationship management, financial discipline such as soft 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: Thank you, Prasad. And thanks again to our audience for attending. We generated strong results in the second quarter, as Mondee continues to expand geographically leverage our enhanced technology and capitalize on the international travel market recovery. As we referenced, we present the summary of our second quarter results on Slide 8 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. Furthermore, we are 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% versus 5.1% in the same quarter last year. As we enhance 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, the infrastructure to continue supporting our exceptional growth. Adjusted EBITDA was $4.4 million for the quarter, 118% or $3.8 million in Q2 of 2022, as we continue to deliver profitable growth despite the incremental marketing of onetime 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 noncash and/or nonrecurring items such as $3.8 million of depreciation and amortization, $4.8 million of stock-based compensation, $2 million of tax provisions, $0.5 million of changes in fair value earn out and liabilities, $0.3 million of M&A costs, noncash 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 Q2 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 of 2023. The small decrease in cash reserves was mainly due to acquisitions and working capital increase. Turning to our 2023 outlook and 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 road map. 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 are updating our 2023 adjusted EBITDA guidance to be in the range of $25 million to $30 million, which would represent a 250% of our 2022 adjusted EBITDA measured at the midpoint. Finally, and before turning the call over to Prasad, we would like to formally welcome Deloitte as our new auditor effective July 6, 2023.

We’re very excited about this partnership and the capabilities and experience that Deloitte will contribute to Mondee. Thank you. And over to you now, Prasad.

Prasad Gundumogula: 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 am especially proud of our entire team for making this happen, while continuing to deliver a very strong second quarter and 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 marketplace, led by the increasing traveler demand for socially based collaboration and personalization of their travel experiences.

With our rapidly expanding on segmented distribution network and AI-enabled trip creation, our comprehensive solution also provides supplier 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 privately negotiated value content, but also full fintech solution and ancillary and 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 enhanced and expanding distribution. We are uniquely positioned once again to continue disrupting and serving the clover market, which is approximately $2 billion in size.

Thanks for attending our first quarter earnings call, and we look forward to your ongoing support.

Jeff Houston: Operator, we’re ready for questions now.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Darren Aftahi from ROTH MKM. Darren your line is now open, please go ahead.

Darren Aftahi: Hey good morning. Thanks for taking my questions. First one, just some clarification on the commentary about the $20 million investment in the AI marketplace, like I guess you guys kind of called out $1 million in the second quarter. So, it does assume the bulk of that investment is going to be made in the second half. And then I am kind of curious in the context of that number, where is that money going to besides marketing? And what is the rationale that’s sort of onetime in nature?

Orestes Fintiklis: Yes. Thank you, Darren. I will add some thoughts…

Jim Dullum: Hi, Darren.

Orestes Fintiklis: Jim, go ahead and I’ll add.

Jim Dullum: Yes, Orestes I’ll start and then you go. Yes, Darren, I was just going to say that, look, we’re – as we go to the market now with this just this really industry-leading AI platform, 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 substantial numbers 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.

And so this is the time for us to go ahead and accelerate our investments to go in and really get significant penetration. So 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: Thank you, Jim. And 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. So being a first-mover and having this advantage, it makes total sense to deploy additional marketing resources before a few years from now when other players may develop their own AI platforms, right? So 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 U.S., 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. And then 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. So this is an enhancement to our marketing team to focus on the new era experts of social media influencers, freelancers, et cetera. And now that we have assembled this team, we feel much more confident, but also we can quantify the types of marketing campaigns that are necessary to attract these new era customers of ours.