Mondee Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 10 speakers on the call.

Operator

Today's call will be hosted by Jeff Houston, Senior Vice President. Once again, today's call will begin in just a few moments' time. Thank you for your patience. Good day, and welcome to the Mondi Third Quarter 2023 Earnings Conference Call. Please note, this event is being recorded.

Operator

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'd now like to pass the conference over to Jeff Houston, Senior Vice President. Jeff, please go ahead.

Speaker 1

Thank you, Bailey, and good morning to everyone. Welcome to Mondi's Q3 2023 conference call. With me today is Founder, Chairman and CEO, Prasad Gundamugala and Chief Financial Officer, Jesus Portillo Executive Vice President, Orestis Finticlis And Chief Operating Officer, Jim Dullum, will present our results and be available for questions and answers. Before we begin, I'd like to remind everyone that this call may contain forward looking statements, including statements about revenue, growth of our business, our management and Governance plans and other non historical statements as further described in our press release. These forward looking statements are subject to certain risks, Uncertainties and assumptions, including those related to Mondi's growth, the evolution of our industry, our product development and success, Our management performance and general economic and business conditions.

Speaker 1

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. Mandy.com.

Speaker 1

With that, it's my pleasure To turn it over to Prasad.

Speaker 2

Thank you, Jeff. We are thrilled to welcome everyone to Mondi's Q3 2023 earnings call to discuss our results and significant developments. Our robust results have been driven by reasonably strong leisure travel demand, Combined with our market leading technological accomplishments and market share gains as well as enhancements to our monetization strategies. As we get into the details of our results, it is important to note that at the start of the quarter, we divested LBF US, An underperforming non core B2C Air Business Unit, which we have owned since 2019. This will be discussed more thoroughly throughout the presentation as we provide comparisons of results on a pro form a basis with this portion of our business fully executed.

Speaker 2

Turning to Slide 4 of our presentation. Gross bookings of $597,000,000 grew 15% year over year. On a pro form a basis, excluding LBF U. S, Net revenue of $55,000,000 represents growth of 66% over the pro form a of the same quarter last year. This growth is driven by extraordinary take rate expansion, which has doubled since pre pandemic levels to 9% this quarter, The highest in normal market conditions.

Speaker 2

Adjusted EBITDA of approximately $6,000,000 was not only 54% Higher than same period last year, but also the highest reported quarterly EBITDA in our history. We expect our EBITDA to continue growing In future quarters, the increased profitability translated into a record operating cash flow generation of 6,000,000 after adjusting for $7,000,000 of 1 off transition outflows related to the LPF divestiture. Now that We are through October and about halfway in November. We are excited by what is looking to be an even stronger Q4. While these results are encouraging, we are motivated and focused on the near and long term prospects and targets for Monty.

Speaker 2

This includes expanding our marketplace, widening our technological needs, particularly when it comes to fully integrated AI and materially enhancing profitability and free cash flow. For the overall market, we continue to experience solid demand In most of our core business sectors and immense upside potential in emerging sectors for a new era distributors, experts and influencers, This is where Mondi is best positioned with our fully integrated AI platform and global marketplace. Now I will hand it over to Jim Dellam, Mondi's Chief Operating Officer. Jim?

Speaker 3

Good morning, and welcome, everyone, wherever you are. Let me start with the market outlook and some external drivers to our gross bookings growth using Slide 5. Across the globe, many of Mondi's main markets such as China and the India subcontinent continue to perform strongly with good upside. There are early signs of some post recovery moderation of consumer travel demand in certain markets, such as North America and Europe. In addition, some more specific markets are impacted by war and other conflicts in Ukraine and the Middle East.

Speaker 3

Overall, with Mondi's agile business model, adaptive AI platform and business position across the global markets, We expect to navigate these market conditions effectively and continue to enjoy an overall positive demand picture. In addition, we see more significant upside based on our increasing pace of market share penetration of the emerging social media experience driven sectors. With more than 80% of our business related to international leisure Travel. We continue to benefit from tailwinds from the recovery of certain geographies. For example, travel from North America to China, which was approximately 10% of our business in 2019, has recovered meaningfully during 2023 From its extended COVID lockdowns in 2022 when it was minimal.

Speaker 3

Year to date in U. S. Dollars, Our China business was back to 90% of 2019 levels. Along similar lines, The Latin American market in which Mondi has increased its presence with recent acquisitions and organic growth remains very resilient. On the other hand, as mentioned before, geopolitical tensions driven by the continued Ukraine war The Middle East Discord have a dampening impact on outbound travel from North America to these regions.

Speaker 3

We continue to monitor these events and take steps to mitigate any overall negative impact. Furthermore, there have been macro concerns about potential softening of the The largely recovered North American travel in Q4 and into 2024. It is important to note But Mondi's agile business model is resilient during such periods because on the demand side, end travelers tend to search for more cost effective travel experiences, which is what Mondi provides. And on the supply side, During uncertain economic times, suppliers tend to improve the conditions and pricing for content they provide through opaque, privately negotiated channels like Mondi. In summary, travel suppliers value even more The ability to target certain consumer cohorts with precision, while end travelers seek more customized itineraries, Both trends that play well with Mondi's AI technological capabilities and leadership.

Speaker 3

Moving forward, we continue enhancing our marketplace. Mondi already leads a segment of the $1,000,000,000,000 assisted and affiliate Travel market and we are confident that our continued growth will establish Mondi's leadership over more parts of the entire market. The newest version of our fully integrated platform is now available to all of our existing 65,000 travel experts And New Era Travel Intermediaries. As discussed before, we are leveraging our technology to expand distribution to more new era intermediaries such as social media influencers, freelancers and concierge service providers. A few thousand of these New Year experts have already signed up and we're engaging with them 1 on 1 to receive feedback on the product And monetization model.

Speaker 3

So far, feedback has been enthusiastic and we are making a few refinements before fully investing in sales and marketing in this distribution channel. Moreover, because we are pioneering these new era distribution networks, We will be monitoring the relevant metrics over the next few quarters and report more details later. To capitalize on evolving market conditions, we have focused our deep marketing capabilities on brand development and product positioning this year. As a result, Mondi successfully released and established a cohesive brand position And Large Abi, our end to end AI integrated offering. With these accomplishments in hand, We have pivoted to more cost effective and scalable grassroots marketing activities and campaigns.

Speaker 3

These campaigns are Expected to accelerate penetration of targeted market regions and emerging New Era experts and influencer sectors, enabling Mondi to continue to increase transactions and revenue in additional ways. Using this more variable cost approach, We are optimizing our market spend while achieving substantial upside business expansion. In addition to New Era Travel Experts, we have been expanding our B2E distribution by signing up more small and Midsized businesses and membership organizations as well as partnering with platforms that provide products and services to these closed groups. Net revenue from this expanded B2E distribution has increased 149% year to date compared to the same period last year. Another reason for Mondi's sustainable growth is the use of our technology and distribution ecosystem To provide an ever expanding range of travel content through a uniform global content hub, prior to the pandemic, We only sold Eir.

Speaker 3

We have since added hotels where gross bookings grew year to date 74% Compared with the same period last year, hotels, packages and other content, which enjoy a higher take rate than air, Continue to grow rapidly. Recently, we launched cruise content to a small portion of our distribution for further user input At the same time, we've been enhancing our monetization tools by expanding ancillaries and FinTech offerings such as payment platforms, wallets and fraud protection tools. Now I pass to Arestes, Mondi's Executive Vice Chairman.

Speaker 4

Thank you very much, Jim. As Prasad mentioned in his highlights, we have been widening our technological product lead and further advancing our AI integration. In addition to enhancing the marketplace itself, we continue to improve our technology and product, remaining at the forefront of innovation in travel. Abi, our AI powered travel platform, is the only fully integrated solution on the market, encompassing conversational and expert train generative AI curated experiences, booking and itinerary management. And this is just the beginning as we continue to integrate AI beyond the direct customer interface.

Speaker 4

More on that in Q4. We enjoy a first mover advantage and will continue to build and train AI models that cater to our 65,000 travel experts with access to unique content, data and distribution. Therefore, we are confident in our ability to stay ahead as we continue to evolve and enhance our AI models. Having brought Avi to market, which considered to be only the first step in integrating AI into travel, We are now creating a next gen AI platform and finalizing clear monetization plans for AI. We expect to further strengthen our AI capabilities with the acquisition of Purple Grids, an all share transaction that was closed yesterday.

Speaker 4

Purple Gates was founded in 2017 by Joseph John and Shibi Subodharakaran. Mr. John was a leader in the Apple Music and iTunes team for 12 years. Mr. Suttakaran boasts over 2 decades of in AI ML Technologies and has served multiple leadership positions at PayPal and Sun Microsystems.

Speaker 4

Headquartered in Silicon Valley, Purple Cris has a team of cutting edge AI professionals who have previously worked with some of the most innovative enterprise companies, Including Google, Apple, Meta, PayPal and Oracle. Purple Grids starts as a leading provider of cutting edge AI technologies. The innovative enterprise AI platform empowers businesses to build robust next generation AI applications. This platform uniquely integrates the advantages of generative AI with diverse data sources, seamlessly blending them with native enterprise integration And business intelligence capabilities. Operating on a no code, low code platform, it facilitates rapid deployment And development, ensuring a dynamic and efficient approach to leveraging AI capabilities.

Speaker 4

In addition to enhancing Our AI powered marketplace, we recently announced a transformative rebranding designed to connect with travelers and travel partners on a deeper, more authentic level, Reflect the company's adventurous spirit, capitalize on our significant investment in technological innovation and offer unparalleled travel experiences. Alongside the striking new brand identity, we released a new logo capturing Mondi's dynamic persona and powerful website With improved user experience and advanced technological features. The website further highlights Abi, our revolutionary AI trip planning tool and travel Experience Companion, the most powerful and the only fully integrated personal AI travel platform on the market. Turning to our heightened focus on profitability and cash flow generation. Innovation and sustainable growth are only one part of the equation.

Speaker 4

Monty priced itself in being a high growth disruptive player as well as an EBITDA profitable one. Given the company's commitment to cash flow generation and generating long term profitability for shareholders, we are focusing on enhancing our EBITDA And improving free cash flows into and through 2024. In our ongoing focus to strengthen profitability, As Prasad mentioned, we divested LBM U. S, an underperforming noncore B2C AR business unit To its original majority owner for the consideration of 200,000 Monti shares. The transaction is part of our strategy to transform Mondi's B2C business model to 1 centered around AI led solutions and experiences rather than selling travel booking services Via generating direct consumer calls online.

Speaker 4

Furthermore, LBF's net revenue has been declining And adjusted EBITDA losses have been increasing in recent quarters as a result of both inflationary pressure on the labor cost of these operations And in compatibility with certain supplier trends, the effect of the divestiture is to improve adjusted EBITDA while reducing net revenue. Jesus will address that in more detail in his section. In addition to the divestiture of noncore, underperforming units, We have put in place a plan to optimize our business and cost structure to further strengthen profitability for Q4 of this year and even more importantly into 2024. Having completed 5 acquisitions during 2023, We are now focused on final implementation of their integration, capitalizing in further on cross selling opportunities and synergies as well as strengthening our core business and next gen AI platform. I will now pass the call over to Jesus, our CFO, for a review of Mondi's financial performance and outlook.

Speaker 4

Jesus?

Speaker 5

Thank you, Estes, and hello, everyone. As I go over our Q3 results, I would like to point out that all growth rates for 2023 are on a year over year basis unless otherwise indicated. Let me start with our operational financial highlights on Slide number 6. We continue to generate outstanding results throughout this 3rd quarter, Producing a strong revenue growth and a record adjusted EBITDA. Evidence of our efforts for long term growth and improved operational efficiencies are producing results.

Speaker 5

Our gross bookings, previously referred to as gross revenues, were $597,000,000 in this quarter, Up 2%. If we pro form a LBA for the Q3 of 2022, growth was actually 15%. This growth was driven by an 18% increase in the number of transactions, up 47% in pro form a for LBF divestiture, which more than offset reduction in airfares by airlines. Our net revenue increased 35% to reach 54,500,000 If we pro form a for LVX divestiture for Q3 of 2022, our revenue grew 66%. This net revenue growth is the result of higher gross bookings as well as our continued improvement in take rate.

Speaker 5

Our take rate Of 91% was ahead of our expectations and up 31%. As with prior quarters, This improvement in take rate was driven mostly by the uptake of higher margin hotel content and the diversification of revenue streams, including FinTech and Ancillary Services. We expect this important metric to continue expanding into the double digits with the addition of cruises And a good mix of non air content. Turning now to expenses. Our operating expenses declined 41%.

Speaker 5

However, when we exclude stock based compensation, our operating expenses increased 29% Compared to our net revenue growth of 35%. Sales and marketing as a percentage of net revenues decreased from 71% to 66%, A clear signal that our sales and marketing efforts are having a positive long term effect, and we're becoming more efficient at managing this very important cost component. As a result of our strong net revenue growth and our efficiencies in sales and marketing, adjusted EBITDA grew 54% From $3,600,000 to $5,500,000 Adjusted EBITDA margin was also up 15% and reached 10.1% in this quarter as we continue to put more emphasis on operating efficiencies and profitability. On a GAAP basis, our net loss was $20,000,000 which included $15,400,000 of non cash and or non recurring items, such as $9,300,000 of net cost associated with LPF divestiture, $3,000,000 of stock based compensation and $2,500,000 of intangible assets amortization, among others. I'm turning now to Slide 7 to address the impact of LBS divestiture on our 2022 2023 financials.

Speaker 5

During the fiscal year ended December 31, 2022, LPS had net revenue of $32,800,000 and an adjusted EBITDA loss of 5,300,000 For the 6 months ended June 30, 2023, LBS had net revenue of $6,700,000 and an adjusted EBITDA loss of 5,300,000 Therefore, if we were to pro form a for the 9 months ended September 30, 2023, to exclude LDF, the company's net revenue would be 100 and $4,500,000 and adjusted EBITDA will be $19,300,000 Looking now at our balance sheet on Slide 8. At the end of this quarter, we had $48,000,000 in cash and cash equivalents and $155,000,000 of total debt compared to 58 $1,000,000 $154,000,000 respectively at the end of June 2023. The decrease in cash reserves was primarily due to cash used to complete our SkyPass acquisition And one off LDF divestiture costs. In terms of our operating cash flow, we continue making improvements. After adjusting $7,400,000 of one off cash outflows related to our recent divestiture, we generated a positive operating cash flow $6,400,000 compared to a negative $1,000,000 in Q3 of 2022.

Speaker 5

In addition to our cash and debt position, I would like to provide some background on the increase of account receivable versus prior year, which is primarily due to the consolidation of our newly acquired businesses in Brazil, While providing payment plans to travelers is a customary practice. It is important to point out that these payment plans are fully secured by banks and credit card companies, eliminating any potential risk of non collection for the company. Another notable development It's an inaugural share buyback program approved by our Board of Directors for up to $40,000,000 and launched at the end of September. As of the end of Q3, we repurchased less than $1,000,000 of our shares. Also, And in relation to our stock, after our inclusion in June to the Russell 2,000 Index, Mondi joined the S and P Total Market Index in September.

Speaker 5

This milestone underscores Mondi's strong fundamentals and business performance. We expect this new addition to raise awareness among the investment community, Increase stock volume and liquidity, diversify the company's shareholder base and enhance long term value. Now turning to our guidance on Slide number 9. For our 2023 guidance, excluding LPS divestiture on a pro form a basis from January 2023, We expect our net revenue to be approximately $210,000,000 representing a 32% growth versus 2022. If we pro form a LBA for 2022 as well, this revenue growth could be 66%.

Speaker 5

Likewise, and excluding LBS divestiture on a pro form a basis from January 2023, we expect our adjusted EBITDA to be approximately $25,000,000 representing a 110% growth versus 2022. If we perform our LBA for 2022 as well, This adjusted EBITDA growth could be 45%. In closing, we're excited about our year to date results and the momentum in the business as we move into the end of the year and beyond. With this, let me now turn it back to Jeff for Q and A. Jeff?

Speaker 1

Thanks, Jesus. Operator, we're ready for questions now.

Operator

Thank you. Our first question today comes from the line of Darren Aftahi from Roth MKM. Please go ahead. Your line is now open.

Speaker 6

Hey, guys. Good morning. Thanks for taking my questions. A couple, if I may. So with the divestiture of LBS, I'm curious what your vertical mix is now in terms of Air versus non air, I think you had referenced 80% in the past.

Speaker 6

Now with LBS kind of out of the picture, is that number A lot lower. Is that going to mean increased take rates going forward just given mix?

Speaker 2

Yes. Thank you, Annette. So the mix would be still be 80% to 70 5 percent to 80% of air and the rest of the non air, including hotels and packages and provision. Although that we have a component in which we are divesting, At the same time that we have other businesses that we acquired which has the more air mix and hence that the mix would be around between 75 to 80 For the air and rest for non air products.

Speaker 6

That's helpful. Thank you. And then maybe one for Jesus. So based on your sort of pro form a model going forward, should we expect A similar level of operating leverage, kind of given your sales growth. I think sales went up $14,000,000 year on On a pro form a basis, EBITDA was about $2,000,000 better.

Speaker 6

Is that a good run rate to think about As we kind of model this going forward or do you feel like you have some enhanced operating leverage based on some of the moves you're making?

Speaker 5

Yes. So Darren, thank you for your question. I'm going to refer actually to a table that we've included on the 10 Q, We're doing a pro form a excluding the LPS business from January 2022 and including also the acquisitions that we've been doing during 20 I think that will give you a good reference of what Mondi has been performing like in 2023, excluding LBS. And just as a reference, when you look at the top line growth, organic growth was around 18% for the 9 months ended September 30

Speaker 6

Of 2023. That's helpful. Thank you. And then just a last one for me. Last quarter you mentioned some ambitious kind of marketing plans with your AI marketplace.

Speaker 6

Are you still on track for that spend level? Or have you kind of pulled back just given the dynamic nature of some things in the economy?

Speaker 4

Thank you. I'll take that one. As Jim mentioned, what we have done in addition to signing few thousand of these New Year Travel intermediaries, we are taking the time to communicate directly with most of them In order to make certain refinements to the monetization model and improvements to the platform. So certain components of that 20,000,000 Such as the $6,000,000 approximately that was going in marketing and payroll and team expenses, dollars 2,000,000 that go to the rebranding, We will continue and implement that part. But the remaining $12,000,000 or so, we will implement a fair part of that in 2023, But there may be some spillover in 2024, especially as we integrate some of these changes to the monetization model And waiting for that to be implemented before we go full on speed with more marketing campaigns.

Speaker 6

That's helpful. Thanks guys.

Speaker 4

Thank you.

Operator

The next question today

Speaker 7

Hey, guys. It's Tim on for Nick here. Just 2 if we could. Thanks for taking the questions. A lot of focus has been on the Consumer here recently, durability of trends and things.

Speaker 7

Can you just talk a little bit about what you're seeing in terms of consumer resilience within the travel space? And just one follow-up after that, if I may.

Speaker 3

Hey, Tim. It's Jim here. Basically what we're seeing is the continued Trend of leisure, personal travel staying fairly steady. The mix It is changing somewhat based on different things that are going on in different parts of the world. The patterns are changing a little bit, Consistent with sort of industry trends and industry patterns such as More travel now in urban environments as opposed to beach environments.

Speaker 3

And that's part of the whole move toward the millennial Gen Z. So we see those trends across the industry and we're seeing some of that ourselves. But the general trend of the consumer Remains pretty steady. The nice thing is some of where our acquisitions have been, We're seeing, as I mentioned in the comments, that Latin America, as an example, remains very strong, which is good. It plays into the sweet spot that we acquired there and we're building on that.

Speaker 3

So even as we'll see a little moderation in other parts of the world and maybe North America has softened a little bit as I think we've seen across the It's being balanced out nicely by the Asia market, by the LatAm, the Latin American market, etcetera. So I think that trend is fairly solid. And I mean, implied in the question is if things Often going forward, again, as we mentioned, our platform is agile enough. We're able to Point our distribution to where the markets are more strong and be able to Sort of smooth out the little dips that we might see in certain parts of the world. Does that answer your question?

Speaker 7

Yes, very helpful. Really appreciate that. And then just one follow-up, if I could. Just kind of look curious what kind of attach rates you're kind of seeing with your FinTech and

Speaker 2

We are seeing around 15% attachment rate today. And certain businesses, we have higher attachment rate and these other businesses, such as the Creative Businesses, Has some good scope, which we are working, and we are seeing an increased trend there. So as in And also we have around 15% attachment rate today.

Speaker 7

Great. Thanks so much guys.

Speaker 5

Thank you.

Operator

The next question today comes from the line of Brett Kondlaar From Cantor Fitzgerald, please go ahead. Your line is now open.

Speaker 8

Hi, guys. Thanks for taking my question. If we can start on the kind of downward revision to the full year net revenue guidance. I guess you last gave guidance on August 15, which was a month and a half after you divested LVF. So I guess, what happened after that point to kind of this point that kind of resulted in the guidance revision?

Speaker 4

Yes. So, Bret, let me clarify. When we are revising our guidance, we are attractively assuming that we are Excluding LBF from the beginning of the year. So basically, the new guidance we have gave is not on a reported number, but on a pro form a number. So despite the divestiture during Q3, we are basically in the guidance, we are removing the net revenues Of LBF during the first half of the year as well.

Speaker 4

So if you look at it from that perspective, LBF effectively last year had almost $40,000,000 of net revenues. So if you make this adjustment, dollars 210,000,000 plus that is basically very much in line with the guidance that we provided in the previous quarter. And of course, we couldn't have made that adjustment Prior to completing that acquisition, therefore, this is just a mathematical calculation at point. It's not a change to our guidance. And then again, along similar lines, we are guiding on a pro form a of $25,000,000 So that's basically the mathematical explanation to your question.

Speaker 8

Well, I guess, through the first half of this year, the net revenue That's okay. That makes sense. Then maybe on the gross bookings to gross revenue, it looks like we've Change that methodology, I guess, what has gone in that change?

Speaker 4

It's just a definitional thing. I mean, it's basically a comment we From our accountant our new accountants and the new teams, so the industry and the relevant term in PCOB terms is gross bookings as opposed To gross revenue. So it's not a change in the methodology. It's just a change in the label, which is in line with the PCORB accounting rules.

Speaker 8

But that did result in some kind of corresponding changes to your historical numbers if I'm comparing your gross margin? No, no, no.

Speaker 5

And the methodology, no. No change. The methodology is exactly the same. Number would be exactly the same. We just changed the label.

Speaker 5

And as Rastas said, it's to be a little bit more consistent with methodology used in terms of terminology, no calculation by the industry.

Speaker 8

Okay, got it. And then maybe just on the take rate and maybe transaction, I guess, how should we think about transaction growth and kind of ARPT growth going into the Q4 and into next year maybe on a pro form a basis? So

Speaker 5

I mean, when you look at our transaction growth, it's been quite strong, right? When you pro form a for LBA, we're talking about a 47%. And we expect this growth to continue happening. In terms of the take rate of that, because some of these transactions are starting to be more linked to Hotels and other type of non air products, the take rate, we expect, as I said before, to get into the double digits.

Speaker 3

And Brett, this is just On the ARPT question, I mean, obviously, we're seeing airfares come down, but we're seeing Hotel ADRs and that stay stayed up much better. And that's also an industry trend. So as Prasad mentioned, our mix continues to improve in those areas. And again, some of the recent additions to our Portfolio of businesses are helping to provide more support on The transition or the move to the ancillaries and the hotel and other cruises, etcetera. So as that happens, then we're seeing ARPT.

Speaker 3

It's there's a decline because of the impact on the air side, but a lot of that's made up. So that number is it's down a little bit, but not nearly as much as Just as happening on the air side.

Speaker 4

Yes. And to add to that, I mean, we have seen the dynamic in the entire industry is a bit of a normalization after the post pandemic boom. And on top of that, you have to factor the decline in airfares, right? So despite those two trends, on a pro form a basis, we grew 66% of net revenue. This is basically extraordinary, and it's a result of increased market penetration and also this overperformance on the take rate, Which more than offset these 2 opposite dynamics in the industry, which underlines basically why our business model and our growth is sustainable Going forward into the future.

Speaker 8

Got it. Appreciate it. Thank you, guys.

Speaker 9

Hey, guys. Purple Grids, that acquisition for 1,900,000 shares, Does it what kind of revenue or adjusted EBITDA is it generating?

Speaker 4

Yes. So I'll take that. Thank you, Mike, For your question. So the logic behind that acquisition is not in the short term to either acquire EBITDA Revenue, but it's to integrate a full AI platform into travel in a travel solution, which is another pioneering step by Mondi. Effectively, Mondi, travel company buying a generic full complete AI platform.

Speaker 4

Now the impact on the revenues And the cost in the short term is going to be nonmaterial because on the revenue side, It will take some time to basically implement a clear monetization tools into AI. And like we mentioned, The objective of this acquisition is not only to enhance our front office integration of AI, but to effectively use this very powerful and leading platform To implement AI in all parts of our business, including the middle and the back office, including sales and marketing, and we'll elaborate more on that in Q4. Now on the cost side, Even though we are taking a substantial number of highly skilled employees by acquiring this company, We have been working with them very closely for a long period of time. So effectively, on the cash flow side, we are substituting Consulting fees with payroll fees. So overall, we believe it was not only a very cost efficient solution, But it underscores our commitment to this AI driven growth and our basically road map To implement AI in all parts of our business.

Speaker 9

Got it. And then with LBF, The divestiture, I think I heard that you gave the original owner 200,000 shares, But what was Jesus' comment about $7,400,000 of cash outflows? Could you just explain that?

Speaker 5

Yes. So I mean, the shares were the payment done from the acquiring in this case to Mondi, right? He happened to own Mondi stock. This was an acquisition that we did back in 2019. So that might be the confusion, right?

Speaker 5

So it's not that MondiPay A stock on Monday, we received a stock on Monday as part of the payment. So that's number 1. Also, as part of the agreement, We helped during the transition in primarily this Q3, as we transition out the business. And that's what we mentioned when we talk about around $7,000,000 of cash related to that divestiture.

Speaker 4

So Mike, just to clarify in one sentence, we didn't pay 200,000 shares. We received 200,000 shares. And we also agreed during the quarterly Period to bear certain transition costs, which was a very big number, which basically validates our decision to Dispose this business at this point in time. We mentioned that in the past. We tried to restructure it.

Speaker 4

We tried to resize it. And it kept Increasing actually the losses and actually the fact that the transition costs, which are basically coming to an end, We're so high, validate again why it was so important to the profitability and also the new transformation of the business model, The Transform B2C business model to dispose of this business unit.

Speaker 9

Got it. What did you pay for it in 2019?

Speaker 4

So this is it's a difficult question to answer. There was a big share component, but in 2019, we bought a number of business unit in So we basically bought 3 different businesses. The first one was the hotel part. You may recall, in 2019, we were only selling air. So basically, during the pandemic, we used the content of a business acquired together with this transaction To basically move into the adjacent hotel space, which is what's very important to our strategy, that business we're not disposing.

Speaker 4

Then there was a second part, Another business unit within the same transaction that was call centers used for servicing customers. That business, again, we are keeping. What we are disposing is a very specific business unit, which relates To selling directly to the consumer B2C travel through leads generated online And completed through call centers. So this is a segment of the market, which is releasing a lot of pressure Because on the one hand, there is inflation and the biggest inflation is in personnel and human resources, So this is a very labor intensive business with focus on selling through call centers, right? So you have this dynamic on the one hand.

Speaker 4

And then on the other half, you have suppliers Being much more strict in the trends and the way they are looking at this part of the business, which created also an incompatibility in our supplier relationships. So this is basically the unit that we have disposed as part of this divestiture.

Speaker 5

Yes. And also to add on that, Mike, when you think about The consideration that we got for the sale of this business unit and the reduction that we had On our intangibles and goodwill, we actually got a profit, right? The cost that you see here is more linked to The agreement on financing and supporting during the transition with the net working capital of this business unit.

Speaker 6

Okay, okay. Thanks.

Operator

Our next question is a follow-up question from Darren Astahi from ROTH MKM, please go ahead. Your line is now open.

Speaker 6

Yes. Guys, I have a broad question about AI in general as it relates to your business and sort of with Purple Grids. So there's a lot of development costs In training these models, so I'm curious on 2 things. 1, in your own, organic marketplace, Have you spent sort of the R and D dollars to kind of get that training up and running? If not, kind of when is that going to hit the P and L?

Speaker 6

And then for Purple Grids on their customer experience platform, has that R and D investment Then made for the most part in the company and is the product sort of fully up and running? And then as a subsequent question to that, Will the CX platform help offset any costs for kind of call centers That you guys may incur today. Said another way, will this benefit your P and L while maybe adding some more costs here and there? Thanks.

Speaker 4

Thank you for that. I'll take the first step and then Prasad Gulad. So the first part is that we have been already Training the models for a long period of time, and they are included in our CapEx. Now a big part of that training is automatic because we have already linked our AI. So the bigger part of the cost It's developing it and integrating it with the operations.

Speaker 4

And then over time, it's a declining cost to the actual training. And again, here, we're benefiting From two dynamics. First, we have a lot of data, 50,000,000 searches are done on our platform every day, which are basically integrated to the AI that learning. And then on top of that, we are training effectively the AI through connecting it with 65,000 experts. So this is more of direct connectivity in the sense that a consumer It's likely to give less feedback and interaction with the platform than an expert that by definition has a two way Exchange information with the provider of the service.

Speaker 4

So that's on the on your first question.

Speaker 2

So on the second question, the impact of This platform to our operating business and the efficiencies in our operations. So we have big plans For not only applying this AI platform and our overall

Operator

AI

Speaker 2

Businesses on call center business But also in every part of the business. So we are transforming we as Mondi, we want to transform To an AI business, inside and outside. So outside that we are giving the information with the models that we developed And the creation that we are planning to work on and with Abi as our front end foremost Application, but also on the backside that we are expecting to transform our current business in every aspect of it, Including the call centers, how that it actually takes the benefit of the ZIA driven platforms And as well as the marketing and operations and Many other aspects of the business. For example, our operations, if there's any I'll give you an example. If there is a small piece of cost of sales that we have it is with the debit memos or chargebacks and all.

Speaker 2

So with this AI platform, we wanted to predict before it happens throughout AI analyzing The whole funnel of the transactions and be able to stop it and be able to improve it for the future transactions It's a big leapfrog for whatever that we are currently doing and be able to save a lot of cost of sales dollars.

Speaker 3

Darren, it's Jim. I'll just follow-up as well just to summarize it. Basically, on the front end, So for the consumer interface and things like that, a lot of that investment already made. There's obviously ongoing enhancement and tuning, but A lot of that part of the investments already made relative to putting it across the entire infrastructure. We're expecting The cost savings to cover most of any further and ongoing investment there.

Speaker 3

We won't quite use the terminology neutral, but I think that the returns from implementation of this The particular example Prasad just gave will support most of that investment.

Speaker 4

And I think the only part of the question we And answer directly is with regard to the platform cost of Purple Bridge themselves. So Purple Bridge is a complete AI platform is not necessarily a travel platform. It's a generic AI platform, and it has been completed and evolving since 2019. So with regards to having the platform in place, those costs have already been spent since it's been in development for the last 4 years. What we have been doing already is integrating parts of this platform into our own AI, Right.

Speaker 4

So those costs are already also a big part of those costs are already in place. Of course, there will be more costs going forward in further enhancing and providing new Tools and new features to the AI utilizing this very powerful platform, which again, to highlight, it's really unique

Speaker 6

That's all really helpful. And rest is maybe if I could just ask one follow-up. Have you been paying prior to the acquisition Purple Grid's Consulting fees and if so, just any sort of sense on quantifying that to understand what you're paying them and how that changes once So the acquisition is not submitted?

Speaker 4

Yes. That is precisely how the relationship didn't start. This company hasn't been on sale or anything or not, neither did it The relationship started a year ago as working with them, integrating pieces of their technology in our own AI, right? So along the way, it became abundantly clear to us that it would be much more cost efficient and much more powerful To actually own this platform than basically keep working on a consulting basis. And number 2, it became abundantly clear to them The value of accessing Mondi's unique data because there are a bunch of AI platforms out there that people have created and spend a lot of money on, But the differentiating factor in AI is using actual data to train these models.

Speaker 4

So along the way of working with Faborgis for a period of time, it became clear to them That there was a lot of value in being connected to our ecosystem. And if it came very clear to us, there was a lot of value in owning. And that is why they have agreed to an all cash sorry, an all share transaction because they are not really selling anything. They are actually Buying a piece of Mondi and helping Mondi further on its path of AI integration.

Speaker 6

That's helpful. Thanks.

Operator

Thank you. There are no additional questions waiting at this time. So I'd like to pass the call back over to Jeff Houston for any closing remarks.

Speaker 1

Thank you, Bailey, and thanks to all who tuned in for our Q3 20 The earnings call, whether it was here live on the call, a replay or reading the transcript, we really appreciate your interest in Mondi And welcome to the opportunity to further connect with you. If you have any questions or would like to learn more about Mondi, please don't hesitate to schedule a call with us. You can get more information at our IR site, which is investors. Mandi.com or send us an email at irmandi.com. Thank you.

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Key Takeaways

  • Q3 results featured gross bookings of $597 million (15% YoY pro forma) and net revenue of $55 million (66% YoY pro forma), driving a record adjusted EBITDA of ~$6 million (54% YoY) and operating cash flow of $6 million after one-off divestiture costs.
  • Divested the underperforming LBF US B2C air unit to refocus on core, AI-led solutions, with pro forma comparisons excluding LBF US highlighting stronger profitability and streamlined operations.
  • Leisure travel demand remains robust globally, with China’s return to 90% of 2019 levels and resilient Latin American markets offsetting moderate North America/Europe slowdowns and geopolitical headwinds.
  • Advanced AI integration with the rollout of Abi, the first fully integrated AI travel platform, and acquired Purple Grids to embed generative AI across front, middle and back-office functions.
  • Expanded higher-margin non-air content—hotels up 74% YTD—alongside new-era intermediaries and B2E channels, lifting take rate to 9% (up 31% YoY) and positioning for double-digit future growth.
A.I. generated. May contain errors.
Earnings Conference Call
Mondee Q3 2023
00:00 / 00:00