Despegar.com Announces 1Q19 Year-over-Year Transaction Growth of 5% and Gross Bookings up 24% on an FX Neutral Basis

Despegar.com, Corp. (NYSE: DESP), (“Despegar” or the “Company”) a
leading online travel company in Latin America, today announced
unaudited results for the three months ended March 31, 2019. Financial
results are expressed in U.S. dollars and are presented in accordance
with U.S. generally accepted accounting principles.

First Quarter 2019 Key Financial and Operating Highlights

• Transactions up 5% year-over-year, with Room Nights up 4% YoY
• Gross bookings reached $1.2 billion, a year-over-year increase of 24%
  on an FX neutral basis (down 6% as reported)
• Excluding Argentina, transactions, room nights and gross bookings
  increased 11%, 22%, and 7% YoY, respectively
• Share of mobile transactions up 720 basis points YoY, accounting for
  38% of total transactions in 1Q19
• Net Promoter Score (NPS) up 586 bps YoY
• Revenues totaled $133.1 million, up 19% on an FX neutral basis (down
  10% as reported)
• Packages, Hotels and Other Travel Products accounted for 63% of total
  revenue in 1Q19, up 361 basis points from first quarter 2018
• Adjusted EBITDA decreased 44% year-over-year
• Operating cash flow of ($5.6) million in 1Q19, compared to $14.2
  million in 1Q18
• Agreed to acquire 100% of Viajes Falabella with operations in Chile,
  Colombia, Peru and Argentina, and entered into long-term strategic
  alliance with Falabella Financiero

Message from CEO

Commenting on the Company’s results, Damian Scokin, CEO stated, “We
continue to execute on our strategic initiatives, making disciplined
investment decisions to accelerate growth. To that end, we recently
announced that we reached an agreement to acquire Viajes Falabella, a
business with strong focus on packages and operating across our fastest
growing markets. Successful execution of our strategy resulted in a
strong first quarter 2019 performance across our key commercial and
operational metrics given the challenging macro environment,
particularly in Argentina. Importantly, profitability improved
sequentially while posting attractive growth despite tougher comps from
last year’s record first quarter. And, on an FX neutral basis, we
reported year-over-year increases in gross bookings, ASPs, revenues, and
gross profit.”

“We are focused on pursuing organic and inorganic growth and
profitability opportunities as competitive dynamics evolve in light of
the weakening macro environment unfolding. We will not lose focus
on our long-term growth strategy, while in the medium-term balancing
growth versus profitability. We have the right strategy to create
long term shareholder value, which will become increasingly evident as
our business strategy continues gaining traction in the marketplace and
macro conditions improve,” concluded Mr. Scokin.

Overview of First Quarter 2019 Results

Operating Metrics

Despegar continued to invest in driving share gains across its key
markets during 1Q19, led by Argentina and Brazil and further supported
by gains across the Company’s other five key markets (as per management
estimates based on GDS and OAG data).

During 1Q19, transactions increased 5% to 2.7 million from 2.5 million
in the year-ago quarter while FX neutral gross bookings rose 24% in the
period. Industry gross bookings continued to contract in 1Q19 as the
Company’s key markets, particularly Argentina, experienced increasing
macro volatility and currency depreciation. In this context, reported
gross bookings declined 6% year-on-year, to $1,157.5 million in 1Q19,
from $1,231.5 million in 1Q18. Importantly, this performance was better
than the high single digit contraction experienced by the travel
industry in Latin America in the first quarter.

The Company’s business is organized into two segments: (1) Air, which
consists of the sale of airline tickets, and (2) Packages, Hotels and
Other Travel Products, which consists of travel packages (the bundling
of two or more products together which can include airline tickets and
hotel rooms), as well as stand-alone sales of accommodations (including
hotels and vacation rentals), car rentals, bus tickets, cruise tickets,
travel insurance and destination services.

The share of higher-margin Packages, Hotels and Other Travel Products
transactions in 1Q19 was 43% of total transactions, improving
sequentially from the 42% reported in 4Q18, but declined from a record
high of 46% in 1Q18. This metric remains impacted by a contracting
market in Argentina, which still accounts for a significant share of
Packages, Hotels and Other Travel Products.

As mentioned in the Company’s 4Q18 Earnings Release, Despegar
successfully concluded its summer seasonal proprietary activities (Tour
Operations and allotments or “cupos”) in Argentina for flights to the
south of Brazil. This initiative ended during the month of March,
driving over 110 proprietary flights, with a load factor of 99%. This
program provided customers with the option to purchase a full travel
experience consisting of a charter flight, transportation, hotel and
activities.

NPS continued to improve, increasing 586 basis points YoY in 1Q19 driven
by ongoing investments in Customer Service to enhance customer
satisfaction, a key strategic priority.

The average selling price (“ASP”) in 1Q19 increased 17% year-over-year
on an FX neutral basis, but was down 11% to $436 per transaction as
reported. This was mainly the result of year-on-year quarterly average
currency devaluation of 54% in Argentina, one of Despegar’s key markets,
which more than offset the successful continued mix-shift to higher ASP
packages. In addition, the mix-shift from domestic to international
travel across some key markets, supported by a reduction in industry air
travel prices in certain markets, had a positive impact on ASPs in the
quarter.

Despegar continues to make progress in driving mobile transaction growth
with total downloads reaching over 52 million at quarter end. During
1Q19, the number of transactions via mobile increased 30%
year-over-year, with 38.3% of all transactions completed on the mobile
platform, compared with 31.1% in 1Q18.

Geographic Breakdown

During 1Q19, Brazil, Despegar’s largest market, accounting for 39% of
total transactions reported a year-over-year increase of 3% in
transactions. On an FX neutral basis, gross bookings rose 20%
year-over-year and ASPs 16% year-over-year. However, as reported gross
bookings increased 3% year-over-year and ASPs were flat at $446 as
continued mix-shift from domestic to international travel and mix-shift
to higher ASP packages were offset by the impact from the 16% currency
depreciation in the period.

Argentina continued to experience challenging macro conditions with
annualized inflation at 55% and the currency in 1Q19 posting a 54%
year-over-year depreciation against the U.S. dollar. The Company’s
ability to quickly adjust to changing market dynamics, coupled with its
leading market position, continued to drive market share gains, despite
reporting an 9% decline in transactions reflecting the overall market
contraction. On an FX neutral basis, gross bookings increased
year-over-year by 34% and ASPs rose 46%. On a reported basis, gross
bookings and ASPs in Argentina declined year-over-year by 32% and 26%,
respectively.

Across the Rest of Latin America, Despegar reported increases of 20% in
transactions and 12% in gross bookings, while ASPs declined 7%
year-over-year to $421 reflecting currency depreciation in the region.
On an FX neutral basis, gross bookings rose 18%, while ASPs decreased 1%.

Revenue

Total FX neutral revenue in 1Q19 increased 19% year-on-year as the
Company continued to gain market share. However, as reported, revenue
decreased 10% to $133.1 million in 1Q19, from $148.6 million in the
year-ago period. This was principally due to the 11% year-on-year
decline in ASP from the FX translation impact from currency
depreciation. Additionally, a reduction in industry prices to adjust for
lower purchasing power brought about by the unfavorable macro conditions
in Argentina, was a contributing factor. These factors more than offset
a positive reversal in mix shift in 1Q19 towards international travel
versus domestic in some key markets.

Revenue margin declined 57 basis points year-on-year, to 11.5% in 1Q19.
Two key factors contributed to this: 1) reductions in customer fees and
discounts in package transactions taken place in the second quarter of
2018 to drive further share gains and 2) a reduction in air supplier
volume bonuses as a result of lower demand. Sequentially, revenue margin
increased 50 basis points due to customer fee increases and lower
Package discounts during 1Q19 in certain markets. The improvement is
notable as Q1 is a seasonally lower.

The year-on-year decline in revenue was mainly the result of lower
revenues from Air and to a lesser extent from Packages, Hotels & Other
Travel Products segments.

• Air segment revenue was $49.7 million in the 1Q19, decreasing 18%
  year-over-year from $60.9 million in 1Q18. Transactions increased 11%
  year-on-year driving market share gains despite softer overall market
  growth. Higher volumes were more than offset by a 27% decline in
  average revenue per transaction, principally driven by the decline in
  ASPs resulting from the FX translation impact on domestic
  transactions, lower supplier pricing and the above noted Company’s
  strategy of lowering air customer fees in several markets last year to
  support share gains and drive additional cross-selling opportunities.
  This, together with a reduction in supplier volume bonuses due to
  lower demand, more than offset a positive mix-shift from domestic
  towards international travel this quarter across some key markets.
• Packages, Hotels & Other Travel Products segment revenue declined 5%
  in 1Q19 to $83.4 million, from $87.7 million in the year-ago quarter.
  Transactions declined 1% impacted by the challenging macro environment
  in Argentina while revenue per transaction fell 4% impacted by the FX
  translation, lower air supplier prices, and the impact from discounts
  for package transactions introduced in 2018. This more than offset a
  positive mix-shift to international travel from domestic this quarter
  across some key markets. Excluding Argentina, transactions increased
  10% YoY. The Packages, Hotels and Other Travel Products segment
  accounted for 63% of total revenue in 1Q19, up from 59% in 1Q18.

Cost of Revenue and Gross Profit

Cost of revenue, which mainly consists of credit card processing fees,
bank fees related to customer financing installment plans offered and
fulfillment center expenses, increased 4% year-on-year to $45.2 million
in 1Q19 compared to $43.6 million in 1Q18. As a percentage of revenue,
cost of revenue expanded by 462 basis points to 34.0% from 29.4% in 1Q18.

The year-on-year increase in cost of revenue was primarily driven by
higher installment plan costs mainly reflecting increased interest rates
despite a reduction in the availability and duration of installments in
Argentina. To a lesser extent, higher fulfillment costs also contributed
to higher cost of revenue, partially offset by a continued reduction in
fraud. However, fulfillment cost per transaction declined 6%
year-on-year reflecting higher operating leverage. These
customer-oriented initiatives drove a 586-basis point year-on-year
increase in after trip NPS.

On an FX neutral basis, gross profit increased 6% to $111.4 million.
However, as reported gross profit, declined 16% year-on-year to $87.9
million in 1Q19, impacted by increases in cost of installments and to a
lesser extent in fulfillment costs as discussed above.

Operating Expenses

Total operating expenses in 1Q19 decreased 2% year-over-year to
$80.3 million, mainly benefitting from regional currency depreciation,
principally in Argentina, which accounts for approximately half of total
operating expenses. As a percentage of revenues, however, total
operating expenses increased 545 basis points to 60.3%.

• Selling and marketing (S&M) expenses declined 12%
  year-over-year to $40.9 million, from $46.4 million in 1Q18. On a per
  transaction basis, Despegar achieved savings of 18%, with S&M
  declining to $15.1 from $18.5 per transaction in 1Q18. Measured as a
  percentage of revenues, these expenses declined 48 basis points to
  30.8% in 1Q19, mainly benefitting from more efficient marketing spend
  and the impact of regional currency depreciation on costs.
• General and administrative (G&A) expenses increased 30%
  year-over-year to $20.6 million, from $15.9 million in 1Q18. As a
  percentage of revenues, G&A increased 481 basis points to 15.5% in
  1Q19 from 10.7% in 1Q18 reflecting the impact of export rights tax on
  services introduced in Argentina in January 2019 equivalent to $1.9
  million, a $1.8 million increase in stock-based compensation, and a
  $0.8 million increase in administrative and professional fees in
  connection with the Company’s strategic initiatives.
• Technology and product development expenses declined 3% year-over-year
  to $18.7 million in 1Q19, from $19.2 million in the prior year quarter
  reflecting lower USD expenses from currency depreciation in Argentina
  where the majority of headcount is based, partially offset by a 16%
  year-over-year increase in headcount as the Company continues to
  introduce new services and functionalities on its platform. As a
  percentage of revenue, technology and product expenses increased by
  112 basis points year-over-year to 14.1%.

Financial Income/Expenses

In 1Q19, the Company reported a net financial expense of $5.2 million
compared to $2.8 million in 1Q18. The increase was primarily due to
higher credit card receivable factoring expenses in Brazil due to the
increase in the discounted amounts and foreign exchange losses given the
currency devaluation in Argentina and Brazil. Financial expenses were
partially offset by higher interest income from invested cash balances.

Income Taxes

The Company reported an income tax expense of $0.5 million in 1Q19,
compared to $4.2 million in 1Q18. The effective tax rate in 1Q19 was
20.3%, compared to 20.6% in 1Q18. The decrease in the effective rate is
primarily driven by the geographical mix of profits and losses.

Adjusted EBITDA & Margin

Adjusted EBITDA declined 44%, or $12.1 million, to $15.2 million in 1Q19
from $27.3 million in 1Q18.

Adjusted EBITDA margin contracted to 11.4% from 18.4% in the prior year
quarter, primarily resulting from lower year-on-year customer fees in
air and price discounts in packages introduced in 2018 to support top
line growth and lower supplier bonuses from softer volumes. Higher
installment expense to drive top line growth and lower operating
leverage also impacted Adjusted EBITDA margin.

Balance Sheet and Cash Flow

Unrestricted cash and cash equivalents, including restricted cash, at
March 31, 2019 was $316.0 million. During the quarter, cash and cash
equivalents decreased by $36.1 million, while the total debt balance
decreased by $22.7 million.

Despegar reported a use of cash flow from operating activities of $5.6
million in 1Q19 compared to cash generation of $14.2 million in 1Q18.
This usage of cash resulted mainly from a decrease in the Company’s
travel supplier payables resulting from lower year-over-year sales, an
increase in other assets and prepaid expense balances, and lower net
income. This was partially offset by a decrease in the credit card
receivables balance driven by Brazil and Argentina reflecting higher
factored amounts and lower US$ gross bookings growth, respectively.

During 1Q19, the Company’s capital expenditures were $7.9 million
compared to $6.1 million during the same quarter in the prior year.
Funds were primarily used for technology hardware and office expansion.

Argentina Considered Hyperinflationary Market

As of July 1, 2018, as a result of a three-year cumulative inflation
rate greater than 100% and following the guidance of ASC 830 the U.S.
dollar became the functional currency of the Company’s Argentine
subsidiary. This change in functional currency is being recognized
prospectively in the financial statements. As a result, starting 3Q18
the impact of any change in currency exchange rate on the Company’s
balance sheet accounts is reported in the Net financial income/(expense)
line of the income statement instead of Other comprehensive income.

Recent Events

Despegar Agrees to Acquire 100% of Viajes Falabella and Enters into
Long-Term Strategic Alliance with Falabella Financiero

On April 15, 2019, Despegar announced it entered into an Agreement with
Falabella Financiero, a subsidiary of Falabella, through which both
companies plan to establish a 10-year commercial agreement in Chile,
Colombia, Peru, and Argentina, the term of which could be extended.
Included in the transaction is the transfer of 100% share ownership of
Viajes Falabella’s operations to Despegar. The acquisition of Viajes
Falabella in Chile, Colombia, Peru and Argentina, together with the
license to use the Viajes Falabella brand name has been agreed for a
total consideration of US $27 million. The transaction assumes the
transfer of these operations free of any financial debt.

According to Viajes Falabella, during 2018 the company recorded revenues
and EBITDA of approximately US$ 50 million, and US$ 3.5 million,
respectively. Approximately 65% of its revenues are derived from tourist
packages reinforcing Despegar’s strategy of offering higher value-added
products oriented to enhancing the travel experience of its customers.

With this agreement, clients of both companies will have access to an
enhanced travel and tourism product and service offering, through an
omnichannel service model (online, call center and physical stores). In
addition, customers will be able to access exclusive discounts, earn
double CMR Points Falabella’s loyalty program, both at Viajes Falabella
and Despegar, as well as an expanded product offering in exchange for
CMR Points at Viajes Falabella.

Despegar Rebranding

The Company recently launched a rebranding campaign centered around
“Continuous Travelling” through which it seeks to inspire customers to
travel more frequently and elevate the trip experience. This new
positioning is reflective of Despegar’s customer centric approach,
strong technological commitment and new product initiatives. To that
end, Despegar is reinforcing in the travelers’ mind that Despegar
accompanies customers every step of the way – from the moment they dream
about a trip until they share their memories from such experience.

1Q19 Earnings Conference Call

Definitions and concepts

Average Selling Price (ASP): reflects gross bookings divided by the
total number of transactions.

Gross Bookings: Gross bookings is an operating measure that represents
the aggregate purchase price of all travel products booked by the
Company’s customers through its platform during a given period. The
Company generates substantially all of its revenue from commissions and
other incentive payments paid by its suppliers and service fees paid by
its customers for transactions through its platform, and, as a result,
it monitors gross bookings as an important indicator of its ability to
generate revenue.

Foreign Exchange (“FX”) Neutral calculated by using the average
monthly exchange rate of each month of 2018 and applying it to the
corresponding months in the current year, so as to calculate what the
results would have been had exchange rates remained constant. These
calculations do not include any other macroeconomic effect such as local
currency inflation effects.

Number of Transactions: The number of transactions for a period
is an operating measure that represents the total number of customer
orders completed on our platform in such period. The number of
transactions is an important metric because it is an indicator of the
level of engagement with the Company’s customers and the scale of its
business from period to period but, unlike gross bookings, the number of
transactions is independent of the average selling price of each
transaction, which can be influenced by fluctuations in currency
exchange rates among other factors.

Revenue: The Company reports its revenue on a net basis, and in some
cases on a gross basis, deducting cancellations and amounts that it
collects as sales taxes. Despegar derives substantially all of its
revenue from commissions and other incentive payments paid by its
suppliers and service fees paid by its customers for transactions
through its platform. To a lesser extent, Despegar also derives revenue
from the sale of third-party advertisements on its websites and from
certain suppliers when their brands appears in the Company
advertisements in mass media.

Revenue Margin: calculated as revenue divided by gross bookings.

Seasonality: Despegar’s financial results experience fluctuations due to
seasonal variations in demand for travel services. Bookings for vacation
and leisure travel are generally higher during the fourth quarter,
although to date and prior to the revenue recognition change beginning
in the first quarter of 2018, the Company has recognized more revenue
associated with those bookings in the fourth quarter of each year. Latin
American travelers, particularly leisure travelers, who are Despegar’s
primary customers, tend to travel most frequently at the end of the
fourth quarter and during the first quarter of each year.

About Despegar.com

Despegar is the leading online travel company in Latin America. With
over two decades of business experience and operating in 20 countries in
the region, Despegar accompanies Latin American travelers from the
moment they dream of taking a trip until they share their memories of
that trip. Thanks to the strong commitment to technological development
and customer service, Despegar offers a customized experience to more
than 18 million customers.

Despegar’s websites and leading mobile apps, offer products from over
270 airlines, more than 512,000 accommodation options, as well as
approximately 1,190 car rental agencies and approximately 326
destination services suppliers with more than 5,690 activities
throughout Latin America. The Company owns and operates two
well-recognized brands, Despegar, its global brand, and Decolar, its
Brazilian brand. Despegar is traded on the New York Stock Exchange
(NYSE: DESP). For more information, please visit www.despegar.com.

Forward-Looking Statements

This press release includes forward-looking statements. We base these
forward-looking statements on our current beliefs, expectations and
projections about future events and financial trends affecting our
business and our market. Many important factors could cause our actual
results to differ substantially from those anticipated in our
forward-looking statements. Forward-looking statements are not
guarantees of future performance. Forward-looking statements speak only
as of the date they are made, and we undertake no obligation to update
publicly or to revise any forward-looking statements.

— Financial Tables Follow —

Unaudited Consolidated Statements of Operations for the three-month
period ended March 31, 2019 (in thousands U.S. dollars, except as
noted)

Key Financial & Operating Trended Metrics (in thousands U.S.
dollars, except as noted)

Use of Non-GAAP Financial Measures

This announcement includes certain references to Adjusted EBITDA and
non-GAAP financial measures. The Company defines:

Adjusted EBITDA is defined as net
income/(loss) exclusive of financial income/(expense), income tax,
depreciation, amortization and share-based compensation expense.

Free cash flow is defined as cash flow from
operating activities less capital expenditures including capitalized
software.

Adjusted EBITDA and Free cash flow are not measures recognized under
U.S. GAAP. Accordingly, readers are cautioned not to place undue
reliance on this information and should note that these measures as
calculated by the Company, differ materially from similarly titled
measures reported by other companies, including its competitors.
Adjusted EBITDA margin refers to Adjusted EBITDA as defined above
divided by revenue.

To supplement our consolidated financial statements presented in
accordance with U.S. GAAP, we use foreign exchange (“FX”) neutral
measures.

This non-GAAP measure should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with U.S.
GAAP and may be different from non-GAAP measures used by other
companies. In addition, this non-GAAP measure is not based on any
comprehensive set of accounting rules or principles. Non-GAAP measures
have limitations in that they do not reflect all of the amounts
associated with our results of operations as determined in accordance
with U.S. GAAP. This non-GAAP financial measure should only be used to
evaluate our results of operations in conjunction with the most
comparable U.S. GAAP financial measures.

Reconciliation of this non-GAAP financial measure to the most comparable
U.S. GAAP financial measures can be found in the tables included in this
quarterly report.

The Company believes that reconciliation of FX neutral measures to the
most directly comparable GAAP measure provides investors an overall
understanding of our current financial performance and its prospects for
the future. Specifically, we believe this non-GAAP measure provide
useful information to both management and investors by excluding the
foreign currency exchange rate impact that may not be indicative of our
core operating results and business outlook.

The FX neutral measures were calculated by using the average monthly
exchange rates for each month during 2017 and applying them to the
corresponding months in 2018, so as to calculate what our results would
have been had exchange rates remained stable from one year to the next.
The table below excludes intercompany allocation FX effects. Finally,
this measure does not include any other macroeconomic effect such as
local currency inflation effects, the impact on impairment calculations
or any price adjustment to compensate local currency inflation or
devaluations.

The following table sets forth the FX neutral measures related to our
reported results of the operations for the three-month period ended
March 31, 2019:

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