DESPEGAR.COM, CORP., 20-F filed on 4/24/2018
Annual and Transition Report (foreign private issuer)
v3.8.0.1
Document and Entity Information
12 Months Ended
Dec. 31, 2017
shares
Document And Entity Information [Abstract]  
Document Type 20-F
Amendment Flag false
Document Period End Date Dec. 31, 2017
Document Fiscal Year Focus 2017
Document Fiscal Period Focus FY
Trading Symbol DESP
Entity Registrant Name Despegar.com, Corp.
Entity Central Index Key 0001703141
Current Fiscal Year End Date --12-31
Entity Well-known Seasoned Issuer No
Entity Current Reporting Status Yes
Entity Filer Category Non-accelerated Filer
Entity Common Stock, Shares Outstanding 69,097,610
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Current assets    
Cash and cash equivalents $ 371,013 $ 75,968
Restricted cash and cash equivalents 29,764 22,738
Accounts receivable, net of allowances 198,273 121,098
Related party receivable 5,253 2,240
Other assets and prepaid expenses 29,405 23,587
Total current assets 633,708 245,631
Non-current assets    
Other assets 4,658 3,597
Restricted cash and cash equivalents 10,000 20,459
Property and equipment, net 16,171 13,717
Intangible assets, net 35,424 31,412
Goodwill 38,733 38,894
Total non-current assets 104,986 108,079
TOTAL ASSETS 738,694 353,710
Current liabilities    
Accounts payable and accrued expenses 45,609 25,335
Travel suppliers payable 174,817 102,237
Related party payable 84,364 71,006
Loans and other financial liabilities 8,220 7,179
Deferred Revenue 30,113 29,095
Other liabilities 39,751 48,684
Contingent liabilities 4,732 3,613
Total current liabilities 387,606 287,149
Non-current liabilities    
Other liabilities 1,015 1,411
Contingent liabilities 7,115 22,413
Related party liability 125,000 125,000
Total non-current liabilities 133,130 148,824
TOTAL LIABILITIES 520,736 435,973
SHAREHOLDERS' EQUITY / (DEFICIT)    
Common stock [1] 253,535 6
Additional paid-in capital 316,444 312,155
Other reserves (728) (728)
Accumulated other comprehensive income 16,323 16,286
Accumulated losses (367,616) (409,982)
Total Shareholders' Equity / (Deficit) attributable to Despegar.com, Corp. 217,958 (82,263)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY / (DEFICIT) $ 738,694 $ 353,710
[1] Represents 58,518 shares issued at $0.0001 and 10,579 shares issued at $26.00 and outstanding at December 31, 2017 and 58,518 shares issued at $0.0001 and outstanding at December 31, 2016.
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]    
Common stock, shares issued 58,518,000 58,518,000
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares outstanding 10,579,000 58,518,000
Share issued price per share $ 26.00  
v3.8.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]      
Revenue [1] $ 523,940 $ 411,162 $ 421,711
Cost of revenue (142,479) (126,675) (154,213)
Gross profit 381,461 284,487 267,498
Operating expenses      
Selling and marketing (166,288) (121,466) (170,149)
General and administrative (72,626) (64,683) (78,181)
Technology and product development (71,308) (63,251) (73,535)
Total operating expenses (310,222) (249,400) (321,865)
Operating income / (loss) 71,239 35,087 (54,367)
Financial income 2,389 8,327 10,797
Financial expense [2] (19,268) (15,079) (23,702)
Income / (loss) before income taxes 54,360 28,335 (67,272)
Income tax expense (11,994) (10,538) (18,004)
Net income / (loss) $ 42,366 $ 17,797 $ (85,276)
Earnings per share available to common stockholders:      
Basic $ 0.69 $ 0.30 $ (1.49)
Diluted $ 0.69 $ 0.30 $ (1.49)
Shares used in computing earnings per share (in thousands):      
Basic 61,457 58,518 57,078
Diluted 61,548 58,609 57,186
[1] Includes $37,000, $27,008 and $22,911 for related party transactions for the years 2017, 2016 and 2015, respectively. See note 14.
[2] Includes $8,601, $10,516 and $17,218 for factoring of credit card receivables for the years ended 2017, 2016 and 2015, respectively.
v3.8.0.1
Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Revenue from related parties $ 37,000 $ 27,008 $ 22,911
Credit Card Receivable [Member]      
Factoring expense $ 8,601 $ 10,516 $ 17,218
v3.8.0.1
Consolidated Statements of Comprehensive Income / (loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]      
Net income / (loss) $ 42,366 $ 17,797 $ (85,276)
Other comprehensive income / (loss), net of tax      
Foreign currency translation adjustment [1] 37 (17,501) (6,733)
Comprehensive income / (loss) $ 42,403 $ 296 $ (92,009)
[1] No tax impact
v3.8.0.1
Consolidated Statements of Changes in Shareholders' Equity / (Deficit) - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Other Reserves [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Losses [Member]
Beginning Balance at Dec. 31, 2014 $ (89,578) $ 5 $ 192,338 $ (728) $ 40,520 $ (321,713)
Beginning Balance, Shares at Dec. 31, 2014   50,463        
Stock-based compensation expense 861   861      
Foreign currency translation adjustment (6,733) [1]       (6,733)  
Exercise of Stock Options by Employees 63   63      
Exercise of Stock Options by Employees, Shares   63        
Shareholders contributions [2],[3] 142,530 $ 1 142,529      
Shareholders contributions, Shares   9,590        
Repurchase of common stocks [3] (45,000)   (24,210)     (20,790)
Repurchase of common stocks, Shares   (1,598)        
Net income for the year (85,276)         (85,276)
Ending Balance at Dec. 31, 2015 (83,133) $ 6 311,581 (728) 33,787 (427,779)
Ending Balance, Shares at Dec. 31, 2015   58,518        
Stock issuance costs, net 2,470          
Stock-based compensation expense 574   574      
Foreign currency translation adjustment (17,501) [1]       (17,501)  
Net income for the year 17,797         17,797
Ending Balance at Dec. 31, 2016 (82,263) $ 6 312,155 (728) 16,286 (409,982)
Ending Balance, Shares at Dec. 31, 2016   58,518        
Stock issuance costs, net 0          
Stock-based compensation expense 4,289   4,289      
Foreign currency translation adjustment 37 [1]       37  
Issuance of common stock, value [4] 253,529 $ 253,529        
Issuance of common stock, shares [4]   10,579        
Net income for the year 42,366         42,366
Ending Balance at Dec. 31, 2017 217,958 $ 253,535 $ 316,444 $ (728) $ 16,323 $ (367,616)
Ending Balance, Shares at Dec. 31, 2017   69,097        
Stock issuance costs, net $ 21,530          
[1] No tax impact
[2] Net of issuance costs of $ 2,470.
[3] See note 14.
[4] Net of issuance costs of $21,530.
v3.8.0.1
Consolidated Statements of Changes in Shareholders' Equity / (Deficit) (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Stockholders' Equity [Abstract]      
Stock issuance costs, net $ 21,530 $ 0 $ 2,470
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:      
Net income / (loss) $ 42,366 $ 17,797 $ (85,276)
Adjustments to reconcile net income / (loss) to net cash flows from operating activities:      
Unrealized foreign currency translation losses 457 466 2,762
Depreciation expense 5,075 5,089 5,152
Amortization of intangible assets 8,751 7,835 9,287
Stock based compensation expense 4,289 574 861
Interest and penalties (65) 1,494 2,439
Income taxes 5,507 3,846 8,340
Allowance for doubtful accounts 818 2,548 2,142
(Recovery) / Provision for contingencies (603) 526 10,347
Changes in assets and liabilities, net of non-cash transactions:      
(Increase) / Decrease in accounts receivable, net of allowances (85,383) (71,389) (22,834)
(Increase) / Decrease Related party receivables (3,013) (293) (1,947)
(Increase) / Decrease in other assets and prepaid expenses (10,090) 3,591 (8,030)
Increase / (Decrease) in accounts payable and accrued expenses 22,363 (13,895) 22,689
Increase / (Decrease) in travel suppliers payable 78,835 (20,121) (15,079)
Increase / (Decrease) in other liabilities (12,323) 10,440 (19,835)
Increase / (Decrease) in contingencies (12,183) 618 1,170
Increase / (Decrease) in related party liabilities 13,964 13,210 57,797
Increase / (Decrease) in deferred revenue 2,461 (5,628) 5,766
Net cash flows provided by / (used in) operating activities 61,226 (43,292) (24,249)
Cash flows from investing activities:      
Sales of short-term investments   40,013  
Payments for short-term investments     (40,013)
Acquisition of property and equipment (8,746) (4,419) (7,085)
Increase of intangible assets, including internal-use software and website development (12,929) (12,159) (13,552)
(Increase) / Decrease in restricted cash and cash equivalents 3,414 (9,051) (20,336)
Net cash flows (used in) / provided by investing activities (18,261) 14,384 (80,986)
Cash flows from financing activities:      
Increase in loans and other financial liabilities 30,159 10,142 1,200
Decrease in loans and other financial liabilities (29,574) (5,000)  
Proceeds from issuance of shares (1) [1] 253,529   267,593
Repurchase of common stocks (2) [2]     (45,000)
Loans received (2) [2]     25,000
Payments of loans (2) [2]     (50,000)
Net cash flows provided by financing activities 254,114 5,142 198,793
Effect of exchange rate changes on cash and cash equivalents (2,034) (2,382) (12,478)
Net increase / (decrease) in cash and cash equivalents 295,045 (26,148) 81,080
Cash and cash equivalents as of beginning of the year 75,968 102,116 21,036
Cash and cash equivalents as of end of the period 371,013 75,968 102,116
Supplemental cash flow information      
Cash paid for income tax 18,455 6,111 16,316
Interest paid $ 942 $ 684 $ 1,519
[1] Net of issuance costs paid of $ 21,530 and $ 2,470 as of December 31, 2017 and 2015, respectively. See note 14
[2] See note 14.
v3.8.0.1
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Investment Company, Capital Share Transactions [Abstract]      
Stock issuance costs, net $ 21,530 $ 0 $ 2,470
v3.8.0.1
Operations of the Company
12 Months Ended
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Operations of the Company

1. Operations of the Company

On May 3, 2017, the stockholders of Decolar.com, Inc., a Delaware holding company, exchanged their shares for ordinary shares of Despegar.com, Corp. to create a new British Virgin Island holding company. Following the exchange, the Company’s shareholders own shares of Despegar.com, Corp. and Decolar.com, Inc. is a wholly-owned subsidiary of Despegar.com, Corp.

Despegar.com, Corp. (formerly Decolar.com, Inc.), is an online travel agency, which provides leisure and business travelers the tools and information they need to make travel reservations with providers of travel products around the world.

Despegar.com is the leading online travel agency in Latin America and includes both the Decolar and Despegar brands. With a presence in 20 countries, Despegar’s websites and mobile apps help leisure and business travelers to book accommodations, airline tickets, packages, rental cars, cruises, destination services and travel insurance around the world. The Company operates primarily under the “Despegar.com” brand for Spanish and English speaking customers and the “Decolar.com” brand for Portuguese speaking customers. The Company also generates additional revenue through the sale of advertising on its websites.

Despegar.com provides its customers with multiple ways to save on travel-related products and multiple alternatives to pay for such products.

During September 2017, the Company successfully completed its registration process with the United States Security and Exchange Commission and initial public offering pursuant to which the Company sold 10,578,931 shares of common stock and certain selling shareholders sold 4,106,569 shares of common stock, resulting in net proceeds to us of $ 253,529 thousand. See more details in note 20.

v3.8.0.1
Basis of Consolidation
12 Months Ended
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Consolidation

2. Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. The following are the Company’s main operating subsidiaries (all wholly-owned):

 

Name of the Subsidiary

  

Country of Incorporation

Despegar.com.ar S.A.    Argentina
Decolar.com LTDA.    Brazil
Despegar.com Chile SpA    Chile
Despegar Colombia S.A.S.    Colombia
DespegarEcuador S.A.    Ecuador
Despegar.com México S.A. de C.V.    Mexico
Despegar.com Peru S.A.C.    Peru
Despegar.com USA, Inc.    United States
Travel Reservations S.R.L.    Uruguay

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Although the subsidiaries transact the majority of their businesses in their local currencies, the Company has selected the United States dollar (“U.S. dollar”) as its reporting currency. All significant intercompany accounts and transactions have been eliminated.

 

Foreign currency translation

The Company’s foreign subsidiaries (except for Travel Reservations S.R.L in Uruguay and other subsidiaries in the United States, Ecuador and Venezuela, which use the U.S. dollar as functional currency) have determined the local currency to be their functional currency. Assets and liabilities are translated from their local currencies into U.S. dollars at the end-of-the-year exchange rates, and revenue and expenses are translated at average monthly rates in effect during the year. Translation adjustments are included in the consolidated statement of comprehensive income / (loss).

Gains and losses resulting from transactions in non-functional currencies are recognized directly in the consolidated statements of operations under the caption “Financial income” and “Financial expense”.

v3.8.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

3. Summary of significant accounting policies

The following is a summary of significant accounting policies followed by the Company in the preparation of these consolidated financial statements.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from estimates. The significant estimates underlying the Company’s consolidated financial statements include revenue recognition, including the accounting for certain merchant revenues, allowance for doubtful accounts, recoverability of intangible assets with indefinite useful lives and goodwill, contingencies, fair value of stock based compensation and fair value of financial instruments. The consolidated financial statements reflect all adjustments considered, in the opinion of management, necessary to fairly present the results for the periods presented.

Concentration of risk

The Company’s business is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines, dependence on third-party technology providers, exposure to risks associated with online commerce security and payment related fraud. It also relies on global distribution system (“GDS”) partners and third-party service providers for certain fulfillment services.

Financial instruments, which potentially subject the Company to concentration of credit risk, mainly consist of cash and cash equivalents and accounts receivable (ie. clearing house for credit cards). The Company maintains cash and cash equivalents balances in financial institutions that management believes are high credit quality. Accounts receivable are settled mainly through customer credit cards and debit cards; the company maintains allowance for doubtful accounts based on management’s evaluation of various factors, including the credit risk of customers, historical trends and other information.

 

Revenue recognition

The Company generates revenue as a result of the booking of travel products and services on its websites and mobile apps. The Company provides customers the ability to book travel products and services on both a stand-alone basis or as a vacation package, primarily through its merchant and agency business models.

The Company derives its revenue mainly from:

 

    Commissions earned from intermediating services, including facilitating reservations of flight tickets, hotel accommodations, car rentals and other travel-related products and services;

 

    Service fees charged to customers for processing air tickets, hotel accommodations, car rentals and other travel-related products and services;

 

    Override commissions or incentives from suppliers and GDS providers if the Company meets certain performance conditions; and

 

    Advertising revenues from the sale of advertising placements on the Company’s websites.

Revenue is recognized when earned and realizable based on the following criteria: (1) persuasive evidence of an agreement exists, (2) the fee is fixed or determinable and (3) collectability is reasonably assured.

The Company also evaluated the presentation of revenue on a “gross” versus a “net” basis. The consensus of the authoritative accounting literature is that the presentation of revenue as “the gross amount billed to a customer because it has earned revenue from the sale of goods or services” or “the net amount retained (i.e., the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of judgment that depends on the relevant facts and circumstances. Despegar.com has determined net presentation is appropriate for the majority of its transactions. In making an evaluation of this issue, some of the factors that were considered are as follows: (i) the Company is not the primary obligor in the arrangement (strong indicator); (ii) the Company has no general supply risk (before customer order is placed or upon customer return) (strong indicator); and (iii) the Company has latitude in establishing price. The guidance clearly indicates that the evaluations of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. The Company concludes that it performs as an agent without assuming the risks and rewards of ownership of goods, and therefore revenue is reported on a net basis.

The Company offers travel products and services through the following business models: the Prepay/Merchant Model, which represents approximately 80% of total revenue, Other Revenue including GDS incentives, advertising represents 15% and the Pay-at-destination/Agency Model, which represents approximately 5% of total revenue.

Prepay/Merchant Business Model

Through this model the Company provides customers the ability to book air travel, accommodation, car rentals, cruises, destination services and vacation packages. The Company generates revenue based on the difference between the total amount that the customer pays for the travel product and the net rate owed to the supplier plus estimated taxes. Despegar.com also earns revenue by charging customers a service fee for booking their travel reservation. Customers generally pay at the time of booking and the Company generally pays to the supplier at a later date, which is normally at the time the customer uses the travel reservation.

Depegar.com records the payments as deferred merchant bookings in travel suppliers payable in the balance sheet until the travel occurs; at that point, the Company recognizes the revenue for those refundable transactions on a net basis. For travel products that are cancelled by the customer after a specified period of time, the Company may charge a cancellation fee or penalty similar to the amount that the supplier charges for the cancellation. In nonrefundable transactions, as the Company does not have significant post-delivery obligations, the revenue is recorded on a net basis when the customer completes the reservation process in the Company’s platform.

Packages and sales transactions performed by customers through affiliated agencies are recognized following the revenue recognition policy described above for refundable / non refundable transactions.

Pursuant to the terms of the Company’s merchant supplier agreements, the Company’s travel service suppliers are permitted to bill it for the underlying cost of the service during a specified period of time. In the event that the Company is not billed by the travel supplier within a 12-month period from the check-out date, the Company recognizes incremental revenue from the unbilled amounts.

Pay-at-Destination/Agency Business Model

Through this model, the Company provides customers the ability to book hotels, car rentals and other travel-related products and services to be paid at destination. Despegar.com earns a commission paid directly by suppliers. The Company generally collects these commissions after the customer uses the travel reservation. In certain circumstances, the Company may also earn revenue by charging customers with a service fee for booking their travel reservation.

The Company generally records revenue on an accrual basis when the travel occurs and is presented on a net basis. In addition, the Company records an allowance for collection risk on this revenue based on historical experience.

Incentives

The Company may receive override commissions from air, hotel and other travel service suppliers when it meets certain performance conditions. These commissions are recognized when the amount of the commission becomes fixed or determinable, which is generally when collection is reasonably assured (i.e. upon notification of the respective air supplier).

Additionally the Company uses GDS services provided by recognized suppliers. Under GDS service agreements, the Company earns revenue in the form of an incentive payment for sales that are processed through a GDS if certain contractual volume thresholds are met. Revenue is recognized for these incentive payments on a monthly accrued basis in accordance with ratable volume thresholds.

 

Advertising

The Company records advertising revenue ratably over the advertising period or upon delivery of advertising material, depending on the terms of the advertising agreement.

Sales tax

The Company’s subsidiaries in Brazil, Argentina and Colombia are subject to certain sales taxes, which are classified as contra-revenue.

Cash and cash equivalents

Cash and cash equivalents include investments with an original maturity of three months or less. All results generated from these investmentes are recorded as financial results when earned.

Restricted cash and cash equivalents

The primary purpose of restricted cash and cash equivalents is to collateralize operations with suppliers of travel products and services and related service providers such as IATA. In addition, the Company maintains $10,000 as security deposit with Expedia, as established in the Expedia Outsourcing Agreement.

Accounts receivable, net of allowances for doubtful accounts

Accounts receivables are recorded net of an allowance for doubtful accounts. The Company determines its allowance based on the aging of its receivables. While management uses the information available to make evaluations, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the evaluations. Management has considered all events and/or transactions that are subject to reasonable and normal methods of estimations, and the consolidated financial statements reflect that consideration.

Property and equipment, net

Property and equipment are stated at acquisition cost, less accumulated depreciation. Depreciation expense is calculated using the straight-line method, based on the estimated useful lives of the related assets.

The estimated useful lives (in years) of the main categories of the Company’s property and equipment are as follows:

 

Asset

  

Estimated useful life (years)

Computer hardware

   3

Office furniture and fixture

   10

Buildings

   50

Expenditures for repairs and maintenance are charged to expense as incurred. The cost of significant renewals and improvements is added to the carrying amount of the respective asset and its depreciated over the life of the contract.

 

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations.

Goodwill and Intangible assets, net

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not subject to amortization, but is subject to an annual assessment for impairment, or more frequently, if events and circumstances indicate impairment may have occurred, applying a fair-value based test.

Intangible assets resulting from the acquisition of companies were estimated by management based on the fair value of assets received. Identifiable intangible assets are comprised of trademarks and internet domains. Trademarks and domains are not subject to amortization, but subject to an annual impairment assessment.

Certain costs incurred related to the development of internal-use software are capitalized. Development costs incurred during the application development stage and upgrades and enhancement to existing software that provides additional functionality are capitalized. Costs incurred related to the preliminary project and post-implementation phases are expensed as incurred.

Software internally developed is amortized over a period of three years according to its expected useful life, using the straight-line method. In addition, the asset value of the software is evaluated for impairment periodically.

Financial systems are amortized over a period of 10 years, using the straight-line method.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill and intangible assets with indefinite lives are reviewed at least annually for impairment, generally as of December 31, or more frequently if events and circumstances indicate impairment may have occurred. Impairment of goodwill is tested at the reporting unit level by comparing the reporting units carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. No impairments were recognized during the reporting years for goodwill or intangible assets with indefinite life.

 

Pension information

The Company does not maintain any pension plans. The laws in the different countries in which the Company carries out its operations provide for pension benefits to be paid to retired employees from government pension plans and/or private pension plans. Amounts payable to such plans are accounted for on an accrual basis.

Severance payments

The Company may register a liability for severance payments if the following criteria are met: (a) management, having the authority to approve the action, commits to a plan of termination; (b) the plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date; (c) the plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination, in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated; (d) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn; and (e) the plan has been communicated to employees.

Contingent liabilities

The Company has certain regulatory and legal matters outstanding, as discussed further in note 13 “Commitments and Contingencies.” Periodically, the status of all significant outstanding matters is reviewed to assess the potential financial exposure. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, the Company records the estimated loss in the consolidated statements of operations.

Additionally, disclosure in the notes to the consolidated financial statements is provided for loss contingencies that do not meet both of these conditions if there is a reasonable possibility that a loss may have been incurred that would materially impact the financial position and results of operations. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable.

The Company records accruals related to commercial, labor and tax contingencies that may generate an obligation for the Company. Accruals are made on the best information available at the time; such analysis may be highly subjective. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.

 

Derivative instruments

Derivative instruments are carried at fair value on the consolidated balance sheets. The fair values of the derivative financial instruments generally represent the estimated amounts the Company would expect to receive or pay upon termination of the contracts as of the reporting date.

As of December 31, 2017 the Company maintained derivative instruments consisting of foreign currency forward contracts. The Company uses foreign currency forward contracts to hedge exposure in currencies different from the reporting currency. The goal in managing the foreign exchange risk is to reduce, to the extent practicable, the potential exposure to exchange rate fluctuations and its resulting effect on earnings, cash flows and financial position. The foreign currency forward contracts are typically short-term and do not qualify for hedge accounting treatment. Changes in fair value are recorded in financial results.

Following is the derivatives position as of December 31, 2017 and 2016:

 

    

Currency

   Notional
amount
    

Type

  

Due

   Avg Price
(1)
     Fair value  

2017

                 
   Argentine pesos    $ 2,000      Purchase    Jan-18      17.835        115  
   Chile pesos    $ 8,500      Purchase    Jan-18      634.49        (260
   Mexican pesos    $ 7,000      Sell    Jan / Feb-18      19.27        (214

2016

                 
   Brazilian Reais    $ 15,000      Sell    Jan-17      3.37        457  
   Argentine pesos    $ 5,000      Purchase    Jan-17      16.17        (49

 

(1) In each respective currency.

The changes in fair value of derivatives has been accounted for under Financial income/(expense) in the consolidated statement of operations.

Comprehensive income / (loss)

Comprehensive income / (loss) includes net income / (loss) as currently reported under U.S. GAAP and also considers the effect of additional economic events that are not required to be recorded in determining net income, but are rather reported as a separate component of shareholders’ deficit.

Other comprehensive income / (loss) includes the cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries (see Note 2 “Foreign currency translation”).

Stock-based compensation

Compensation cost related to stock-based employee compensation arrangements are accounted for at fair value at the time of grant. The calculation of fair value is affected by the Company’s stock price estimation as well as assumptions regarding a number of highly complex and subjective variables at the time of the grant. Compensation cost is recognized on a straight-line basis over the requisite service period which commences on the grant date as there exists a mutual understanding of the key terms and conditions at the date the award is approved by the board of directors or other management with relevant authority and the following conditions are met:

• The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the employer.

• The key terms and conditions of the award had been communicated to an individual recipient within a relatively short time period from the date of approval.

 

Marketing and advertising expenses

The Company incurs advertising expense consisting of offline costs, including television and radio advertising, and online advertising expense to promote the business. The Company expenses the production costs associated with advertisements in the period in which the advertisement first takes place. The Company expenses the costs of advertisement in the period during which the advertisement space or airtime is consumed. Internet advertising expenses are recognized based on the terms of the individual agreements, which is generally over the greater of (i) the ratio of the number of clicks delivered over the total number of contracted clicks, on a pay-per-click basis, or (ii) on a straight-line basis over the term of the contract.

Advertising expenses for 2017, 2016 and 2015 amounted $ 144,777, $ 102,770 and $149,814, respectively.

Accounting for income taxes

The Company is subject to U.S. and foreign income taxes. The provision for income taxes includes federal and foreign taxes. Income taxes are accounted for under the asset and liabilities method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company set up a valuation allowance for that component of net deferred tax assets which does not meet the more-likely-than-not criterion for realization. A valuation allowance is recognized for a component of net deferred tax assets, including tax loss carryforward, which is assessed as not recoverable. As of December 31, 2017 and 2016 the valuation allowance amounted to $ 42,584 and $ 45,526, respectively.

Due to inherent complexities arising from the nature of the Company’s business, future changes in income tax law, transfer pricing new regulations or variances between actual and anticipated operating results, the Company makes certain judgments and estimates. Therefore, actual income taxes could materially vary from those estimates.

 

Expedia transaction

As further discussed in note 14, in March 2015, the Company entered into a $270,000 equity transaction with (sale of common stock to) Expedia, Inc. (Expedia) while at the same time an agreement (the Expedia Outsourcing Agreement a revenue arrangement for the Company to act as an agent for Expedia in certain countries) was signed which includes a $125,000 termination fee if certain minimum revenue thresholds are not achieved or if and when the Company ultimately terminates the agreement. At the same time as these transactions occurred, the Company repurchased common stock of certain shareholders seeking liquidity at the same purchase price per share paid by Expedia to the Company under the Stock Purchase Agreement.

The termination provisions of the Expedia Outsourcing Agreement never expire and also could be triggered by Expedia if the Company does not meet certain minimum volume commitments, which is not within the Company’s control. Eventually, the Company will terminate the agreement or there may be a change of control and will need to refund $125,000 to Expedia. Accordingly, this payment is not considered as a contingent payment but rather a known payment with just a contingency as to timing of payment.

Following the guidance in ASC 505 and ASC 605-50, equity was credited at its fair value with any remaining amounts paid attributable to other elements of the arrangement.

Management has determined the fair value of the equity issued to Expedia taking into account independent valuations, resulting in an amount of approximately $145,000. Therefore, it was concluded that the Expedia transaction was issued at a premium of approximately $125,000, which was recorded as a liability to reflect the termination fee.

According to the Expedia Outsourcing Agreement, the Company must consistently generate a certain minimum volume of paid customer activity for Expedia over the term of the Expedia Outsourcing Agreement or Expedia would have the right to terminate the agreement and the Company would be subject to pay $ 125,000 in liquidated damages to Expedia. In addition, if in the future management and the Company’s directors determine that the Company should exit the Expedia Outsourcing Agreement after the minimum term of seven years, which the Company has no present intention of doing, it would be required to pay $ 125,000 to do so. As the agreement with Expedia automatically renews indefinitely and there is no way for the Company to exit the agreement and avoid this payment without agreement from Expedia, the obligation to ultimately pay Expedia upon termination of the arrangement (even if delayed) represents a long-term liability in the amount of the $ 125,000 termination fee.

The revenue derived from Expedia Lodging outsourcing agreement is fixed and determinable and is not subject to any refund beyond the $ 125,000 termination fee that has been fully accrued.

Stock issuance costs totaling $2,470 were recorded as a reduction of stock purchase price.

Recently issued accounting pronouncements

The Company provides below a description of those standards which are relevant to the Company’s business only and the impact of their adoption if any.

 

New Revenue Recognition policy

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods beginning after December 15, 2017. In addition, the FASB has also issued several amendments to the standard which clarify certain aspects of the guidance, including principal versus agent consideration and identifying performance obligations.

The Company has determined that the new guidance will not change our previous conclusion on net presentation. The Company has also determined that the standard will affect the moment in which the revenue is recognized for pre-paid refundable transactions and transactions that are paid at destination. Under this standard, companies are permitted to recognize revenue from transactions once the performance obligation has been satisfied. As an intermediary between customers and travel suppliers, the Company’s performance obligation is concluded at the completion of the transaction on the Company’s platform at the time of booking, therefore the revenue can be recognized at that time, rather than at the check-out date. Concurrently, the Company will recognize a provision for cancellations and customers failing to arrive for their reservations for all refundable pre-paid sales and all pay-at-destination reserves recognized under this criteria. The Company will adopt the modified retrospective approach and the net impact in Revenue of this change will be $43.9 million. This change will have an effect in accumulated earnings of $37.8 million, net of tax effect.

The Company has completed the overall assessment and finalized the quantification of the retained earnings impact. Additionally, the Company has identified and implemented changes on its accounting policies and practices, business processes, and controls to support the new revenue recognition standard. The Company is continuing the assessment of potential changes to its disclosures under the new standard.

On February 25, 2016 the FASB issued ASU 2016-02. The amendments in this update create Topic 842, Leases, which supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Previous GAAP did not require lease assets and lease liabilities to be recognized for most leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. Based on existing leases currently classified as operating leases, the Company expects to recognize on the statements of financial position right-of-use assets and lease liabilities. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements.

 

On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses on financial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. The new standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.

In August 2016, the FASB issued Accounting Standard Update No. 2016-15, Statement of Cash Flows (topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We plan to adopt this new guidance on January 1, 2018 using the retrospective transition approach for all periods presented. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We will adopt the new standard effective January 1, 2018, using the retrospective transition approach for all periods presented. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

 

On May 10, 2017 the FASB issued “ASU 2017-09—Compensation—Stock compensation (Topic 718): Scope of modification accounting”. The amendments in the update provide guidance about types of changes to the terms or conditions of share-based payment awards would be required to apply modification accounting under Topic 718. The new standard is effective for annual, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On September 29, 2017 the FASB issued “ASU 2017-13—Revenue recognition (Topic 605), Revenue from contracts with customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This update addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphs pursuant the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula”, effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On November 22, 2017 the FASB issued “ASU 2017-14—Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This update amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On February 14, 2018 the FASB issued “ASU 2018-02—Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Acts. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

v3.8.0.1
Cash and Cash Equivalents
12 Months Ended
Dec. 31, 2017
Cash and Cash Equivalents [Abstract]  
Cash and Cash Equivalents

4. Cash and cash equivalents

Cash and cash equivalents consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Cash

     12        10  

Banks

     344,809        22,681  

Time deposits

     —          50,000  

Money market funds

     26,192        3,277  
  

 

 

    

 

 

 
   $ 371,013      $ 75,968  
  

 

 

    

 

 

 
v3.8.0.1
Accounts Receivable, Net of Allowances
12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
Accounts Receivable, Net of Allowances

5. Accounts receivable, net of allowances

Accounts receivable, net of allowances consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Accounts receivable

     197,389        123,267  

Others

     4,048        1,344  

Allowance for doubtful accounts

     (3,164      (3,513
  

 

 

    

 

 

 
   $ 198,273      $ 121,098  
  

 

 

    

 

 

 

v3.8.0.1
Other Assets and Prepaid Expenses
12 Months Ended
Dec. 31, 2017
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Assets and Prepaid Expenses

6. Other assets and prepaid expenses

Other current assets and prepaid expenses consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Tax credits (1)

     23,866        16,985  

Cash managed by third parties

     3,473        4,337  

Advertising paid in advance

     383        715  

Others

     1,683        1,550  
  

 

 

    

 

 

 
   $ 29,405      $ 23,587  
  

 

 

    

 

 

 

 

(1) Mainly includes $ 10,833 of VAT credits, $ 7,394 of income tax credits, $ 2,965 of sales tax credits and $ 2,674 of other tax credits as of December 31, 2017; and $ 3,093 of VAT credits, $ 7,835 of income tax credits, $ 4,581 of sales tax credits and $ 1,476 other tax credits as of December 31, 2016.

Other non-current assets consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Deferred tax assets

     4,658        3,597  
  

 

 

    

 

 

 
   $ 4,658      $ 3,597  
  

 

 

    

 

 

 

 

v3.8.0.1
Property and Equipment, Net
12 Months Ended
Dec. 31, 2017
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net

7. Property and equipment, net

Property and equipment, net consists of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Computer hardware and software

     26,001        22,334  

Office furniture and fixture

     11,915        9,071  

Buildings

     2,790        2,298  

Land

     64        75  
  

 

 

    

 

 

 

Total property and equipment

     40,770        33,778  
  

 

 

    

 

 

 

Accumulated depreciation

   $ (24,599    $ (20,061
  

 

 

    

 

 

 

Total property and equipment, net

   $ 16,171      $ 13,717  
  

 

 

    

 

 

 

Total depreciation expense for the years 2017 and 2016 is $5,075 and $5,089, respectively.

v3.8.0.1
Goodwill and Intangible Assets, Net
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets, Net

8. Goodwill and intangible assets, net

Goodwill and intangible assets, net consists of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Goodwill (1)

     38,733        38,894  

Intangible assets with indefinite lives

     

Brands and domains

     13,882        13,882  

Amortizable Intangible assets

     

Internal-use software and site internally developed

     47,980        35,217  
  

 

 

    

 

 

 

Total intangible assets

     61,862        49,099  
  

 

 

    

 

 

 

Accumulated amortization (2)

     (26,438      (17,687
  

 

 

    

 

 

 

Total intangible assets, net

   $ 35,424      $ 31,412  
  

 

 

    

 

 

 

 

(1) Following is the breakdown of Goodwill per reporting unit as of December 31, 2017 and 2016:

 

     Balance of beginning
of period
     Other comprehensive
Income / (Loss)
     Balance at end of
period
 

2017

        

Argentina

     2,187        (321      1,866  

Brazil

     12,959        (193      12,766  

Mexico

     6,909        353        7,262  

Uruguay

     16,839        —          16,839  
  

 

 

    

 

 

    

 

 

 

Total

     38,894        (161      38,733  

2016

        

Argentina

     2,665        (478      2,187  

Brazil

     10,816        2,143        12,959  

Mexico

     8,234        (1,325      6,909  

Uruguay

     16,839        —          16,839  
  

 

 

    

 

 

    

 

 

 

Total

     38,554        340        38,894  

Goodwill is fully attributable to the Air operating segment.

 

(2) Total amortization expense for the years 2017 and 2016 is $ 8,751 and $ 7,835, respectively. The estimated future amortization expense related to intangible assets with definite lives as of December 31, 2017, assuming no subsequent impairment of the underlying assets, is as follows:

 

2018

     5,986  

2019

     5,986  

2020

     5,986  

2021

     717  

2022 and beyond

     2,867  
  

 

 

 

Total

     21,542  
  

 

 

 

v3.8.0.1
Accounts Payable and Accrued Expenses
12 Months Ended
Dec. 31, 2017
Payables and Accruals [Abstract]  
Accounts Payable and Accrued Expenses

9. Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Marketing suppliers

     28,301        15,723  

Provision for invoices to be received

     6,285        3,353  

Affiliated agencies

     977        690  

Other suppliers

     10,046        5,569  
  

 

 

    

 

 

 
   $ 45,609      $ 25,335  
  

 

 

    

 

 

 

v3.8.0.1
Travel Suppliers Payable
12 Months Ended
Dec. 31, 2017
Text Block [Abstract]  
Travel Suppliers Payable

10. Travel Suppliers payable

Travel Supplier payables consist of the following

 

     As of December 31,
2017
     As of December 31,
2016
 

Hotels and other travel service suppliers (1)

     151,023        96,357  

Airlines

     23,794        5,880  
  

 

 

    

 

 

 
   $ 174,817      $ 102,237  
  

 

 

    

 

 

 

 

(1) Includes $ 137,396 and $ 84,477 as of December 31, 2017 and 2016, respectively, for deferred merchant bookings which will be due after the traveler has checked out.
v3.8.0.1
Other Liabilities
12 Months Ended
Dec. 31, 2017
Other Liabilities Disclosure [Abstract]  
Other Liabilities

11. Other liabilities

Other current liabilities consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Salaries payable (1)

     31,141        33,266  

Taxes payable

     5,517        13,912  

Others

     3,093        1,506  
  

 

 

    

 

 

 
   $ 39,751      $ 48,684  
  

 

 

    

 

 

 

 

(1) As of December 31, 2016, includes settlements payables with certain management stockholders (note 13)

 

Other non-current liabilities consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Taxes payable (1)

     1,015        1,411  
  

 

 

    

 

 

 
   $ 1,015      $ 1,411  
  

 

 

    

 

 

 

 

(1) Includes deferred tax liabilities as of December 31, 2016. See note 12.
v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes

12. Income taxes

The following table presents a summary of U.S. and foreign income tax expense components:

 

     As of December 31,
2017
     As of December 31,
2016
     As of December 31,
2015
 

Current:

        

Foreign

     (7,682      (4,459      (9,879

Federal

     (36      (50      14  

Deferred:

        

Foreign

     2,063        663        (220

Withholding:

        

Foreign

     (6,339      (6,692      (7,919
  

 

 

    

 

 

    

 

 

 

Income tax expense

   $ (11,994    $ (10,538    $ (18,004
  

 

 

    

 

 

    

 

 

 

Below the classification of deferred tax assets/liabilities by current and non-current:

 

     As of December 31,
2017
     As of December 31,
2016
 

Non-Current deferred tax assets

     47,242        49,123  
  

 

 

    

 

 

 

Total deferred tax assets

     47,242        49,123  
  

 

 

    

 

 

 

Less valuation allowance

     (42,584      (45,526

Net deferred tax assets

     4,658        3,597  

Non-Current deferred tax liabilities

     —          (1,002
  

 

 

    

 

 

 

Total deferred tax liabilities

     —          (1,002
  

 

 

    

 

 

 

Total deferred tax

     4,658        2,595  
  

 

 

    

 

 

 

The Company had adopted ASU 2015-17, which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified statement of financial position. The Company adopted the retrospective approach.

 

As of December 31, 2017, consolidated loss carryforwards for income tax purposes were $88,041. If not utilized, tax loss carryforwards will begin to expire as follows:

 

Expiration Date

  

NOLs Amount

 

Expires 2020

     6,990  

Thereafter

     14,248  

Without expiration dates

     66,803  
  

 

 

 

TOTAL (1)

     88,041  

 

(1) These tax loss carryforwards detailed above are fully reserved at December 31, 2017.

NOLs Carryforwards expiration:

 

    Brazil: $66,802. No expiration but offset limitation of 30% of the taxable income by fiscal year.

 

    USA: $6,388. Expiration after 20 years, but offset limitation of 90% of the taxable income by fiscal year.

 

    Argentina: $1,200. Five fiscal years expiration.

 

    Colombia: $2,917. Three fiscal years expiration.

 

    Venezuela: $6,989. Three fiscal years expiration, but offset limitation of 25% of the taxable income by fiscal year.

 

    Peru: $261. No expiration, but offset limitation of 50% of the taxable income by fiscal year.

 

    Mexico: $3,500. Ten fiscal years expiration.

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company has foreign subsidiaries with aggregated undistributed earnings of $ 1,847 as of December 31, 2017. We have not provided deferred income taxes on taxable temporary differences related to investments in certain foreign subsidiaries where the foreign subsidiary has or will invest undistributed earnings indefinitely outside of the United States. In the event we distribute such earnings in the form of dividends or otherwise, we may be subject to income taxes. Further, a sale of these subsidiaries may cause these temporary differences to become taxable. Due to complexities in tax laws, uncertainties related to the timing and source of any potential distribution of such earnings, and other important factors such as the amount of associated foreign tax credits, it is not practicable to estimate the amount of unrecognized deferred taxes on these taxable temporary differences.

 

The following table summarizes the composition of deferred tax assets and liabilities as of the years ended December 31, 2017 and 2016:

 

     December 31, 2017      December 31, 2016  

Deferred Tax Assets

     

Tax loss carryforwards

     33,067        39,950  

Allowance for doubtful accounts

     322        515  

Royalties

     1,379        1,249  

Provisions and other assets

     12,474        7,409  
  

 

 

    

 

 

 

Total Deferred Tax Assets

     47,242        49,123  
  

 

 

    

 

 

 

Less valuation allowance

     (42,584      (45,526
  

 

 

    

 

 

 

Total Deferred Tax Assets, net

     4,658        3,597  
  

 

 

    

 

 

 

Deferred Tax Liabilities

     

Property and equipment

     —          (54

Others

     —          (948
  

 

 

    

 

 

 

Total Deferred Tax Liabilities

     —          (1,002
  

 

 

    

 

 

 

Total Deferred Tax

     4,658        2,595  
  

 

 

    

 

 

 

 

The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the weighted average income tax rate for 2017, 2016 and 2015 to income / (loss) before taxes:

 

    As of December 31,
2017
    As of December 31,
2016
    As of December 31,
2015
 

Net Income / (Loss) before Income Tax

    54,360       28,335       (67,272

Weighted average income tax rate (3)

    33     30     30
 

 

 

   

 

 

   

 

 

 

Income tax expense at weighted average income tax rate

    17,740       8,501       (20,182

Permanent differences:

     

(Non-Taxable Income) / Non-Deductible Losses (1)

    (10,714     (6,826     2,151  

Foreign non-creditable withholding tax (2)

    6,339       6,692       7,919  

Non-deductible expenses

    2,223       2,928       26,698  

Others

    (651     (94     1,198  

Change in Valuation allowance

    (2,943     (663     220  
 

 

 

   

 

 

   

 

 

 

Income Tax expense

    11,994       10,538       18,004  
 

 

 

   

 

 

   

 

 

 

 

(1) Includes tax benefits / non- deductible losses on export services to non-free Uruguayan territories from “Free Trade Zone” in Uruguay.
(2) Includes foreign withholding taxes on royalties and services.
(3) The Company uses a weighted average rate for the income tax reconciliation. Weighted average income tax rate is calculated based on the aggregated amount of the income before taxes by country multiplied by the prevailing statutory income tax rate, derived by the consolidated income before tax.

The following table presents the changes in the Company’s valuation allowance as of December 31, 2017, 2016 and 2015:

 

     Balance of beginning of period      Increase      (Decrease)      Balance at end of period  

2017

     45,526        4,716        (7,658      42,584  

2016

     46,189        1,897        (2,560      45,526  

2015

     45,969        9,039        (8,819      46,189  

v3.8.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

13. Commitments and contingencies

Leases

The Company leases office space under operating lease agreements with original terms ranging from 2 to 5 years. Rent expense amounted to $ 4,413 and $ 2,348 for the years ended December 31, 2017 and 2016, respectively. The Company’s lease obligations under non-cancellable operating leases are as follows:

 

Year ended December 31, 2017

   Amount  

Within 1 year

     4,036  

2 – 3 years

     7,023  

4 – 5 years

     2,171  
  

 

 

 

Total

     13,230  
  

 

 

 

 

Employment agreements

The Company has entered into employment agreements with certain key employees providing compensation guidelines for each employee. Pursuant to the terms of the employment agreements, the executives are generally entitled to receive compensation in the form of (i) an annual salary payable in cash on a monthly basis and (ii) a yearly bonus subject to the fulfillment of certain performance targets.

Tax, legal and other

The Company is involved in disputes arising from its ordinary course of business. Although the ultimate resolution on these matters cannot be reasonably estimated at this time, management does not believe that they will have a material adverse effect on the financial condition or results of operations of the Company.

As of December 31, 2017 the Company had accrued liabilities of approximately $7,910 related to unasserted tax claims. The Company currently estimates unasserted possible losses related to matters for which it has not accrued liabilities, as they are not deemed probable and reasonably estimable, to be approximately $23,100. The Company evaluates the likelihood of probable and reasonably possible losses, if any, related to all known contingencies on an ongoing basis. As a result, future increases or decreases to its accrued liabilities may be necessary and will be recorded in the period when such amounts are determined to be probable and reasonably estimable.

Brazilian Tax Authority Claim

In March 2013, São Paulo tax authorities asserted taxes (Brazilian municipal taxes “Imposto Sobre Serviço”) and fines against the Company’s Brazilian subsidiary relating to the period from 2008 to 2011 in an approximate updated amount of $ 21,500, including ordinary taxable services on commissions earned. On April 2, 2013, the Company’s Brazilian subsidiary filed an administrative defense against the authorities’ claim. In a decision published on August 30, 2014 the São Paulo tax authorities ruled against the Brazilian subsidiary upholding the claimed taxes and the fines previously imposed. An appeal to the São Paulo City Administrative Court was filed on September 30, 2014. On December 4, 2015, the Administrative Court ruled partially against the Brazilian subsidiary upholding the claimed taxes and the fines previously imposed. The Company accrued liabilities of $ 9,928 for the contingency.

On July 5, 2017, the Municipality of São Paulo published the terms of a special installment program called “Programa de Parcelamento Incentivado, PPI 2017”. On September 12, 2017 the Company applied for the program and was permited to pay in a single installment of $ 8,900 with a reduction in the interests and penalties due.

v3.8.0.1
Related Party Transactions
12 Months Ended
Dec. 31, 2017
Related Party Transactions [Abstract]  
Related Party Transactions

14. Related party transactions

Settlement with Certain Management Stockholders

In the last two months of 2016, the Company entered into settlement agreements and terminated the employment of two management stockholders (“Founders”). The settlement agreements includes a payable cash amount of $ 5,800, as a result of an employee relationship benefit and non competition and non disclosure agreement, out of which 50% was payable on July 1, 2018 or upon the occurrence of a liquidity event, which may result from the consummation of an initial public offering, or a capital injection among other conditions. On September 20, 2017, the Company completed its initial public offering; and the settlement was fully paid in December 2017.

 

In 2015, the Company terminated the employment of two management stockholders and entered into settlement agreements with each of them. The settlement agreement included the payment of a cash amount for approximately $ 5,400 and the repurchase by the Company of a portion of their shares.

Transaction with Expedia, Inc.

Common stock agreement

On March 3, 2015 (“Transaction Date”), Expedia invested $ 270,000 to purchase 9,590,623 of common stock, representing 16.36% of the Company’s issued and outstanding shares on a basic shares count basis as of that date. See note 3 – Expedia transaction, for an explanation of the accounting for this transaction.

In order to facilitate the transaction, the Company issued common shares to Expedia on the Transaction Date and then, as mandated in the agreement, repurchased 1,598,434 shares from selling shareholders. The repurchase of shares was made above the fair value at the Transaction Date.

The agreement specifically indicates the following use of the proceeds: (i) $ 50,000 to repay certain Loans furnished by the shareholders; (ii) $ 45,000 to repurchase shares from all shareholders (including founders and employees) other than the controlling shareholder; and (iii) $ 175,000 for general corporate purposes.

Expedia Outsourcing Agreement

In conjunction with the Stock Subscription Agreement, the Company entered into a Lodging Outsourcing Agreement (the “Expedia Outsourcing Agreement”) with Expedia expanding its commercial relationship. The Expedia Outsourcing Agreement broadened Expedia’s powering of Decolar.com’s hotel supply, including the designation of Expedia as provider of hotel inventory outside of Latin America as from April 1, 2015. During the term of the agreement, Expedia will pay Decolar.com a marketing fee for each booking of Expedia’s inventory. The Expedia Outsourcing Agreement includes customary terms for this type of long-term partnership, and also includes: (a) the obligation to generate a minimum volume of transactions; and (b) a termination penalty of $ 125,000; (see comment in note 3 – Expedia transaction), and (c) unilaterally by Expedia in the event of a change of control of the Company. In addition, the Expedia Outsourcing Agreement provided the opportunity for Expedia to access Decolar’s hotel supply inventory in Latin America.

Under the Expedia Outsourcing Agreement, “Change of Control” means (a) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all the assets of the Company and its subsidiaries, taken as a whole, to any Strategic Party or (b) the acquisition by any Strategic Party, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership, of more than 50% of the total voting or economic power of the securities of the Company or any direct or indirect parent of the Company. “Strategic Party” means any Person other than a single individual which does not directly or indirectly own or control any assets or companies operating (x) in the consumer or corporate travel industry, or (y) as an Internet-enabled provider of travel search or information services.

 

Unilateral termination of the Expedia Outsourcing Agreement by the Company, in addition to triggering the penalty described above, also gives Expedia the right to sell its shares back to the Company for fair market value.

Balances and operations with Expedia

Starting in March 2015, as a result of the execution of the Expedia Outsourcing Agreement executed with Expedia, the Company recognized balances and operations with Expedia as a related party.

The balances between the Company and Expedia are: $ 5,253 and $ 2,240 as of December 31, 2017 and 2016, respectively, recorded in Related party receivable; and $ 84,364 and $ 71,006 as of December 31, 2017 and 2016, respectively, recorded in Related party payables.

The net related party transactions are $37,000, $ 27,008 and $22,911 for the years ended December 31, 2017, 2016 and 2015, respectively, recorded in Revenue.

In addition, the Company has provided Expedia with a guaranty in form of security deposits in an aggregated amount of $ 10,000. They are recorded in restricted cash and cash equivalents non-current.

Shareholders’ loans

In 2013, Decolar.com Inc. received loans (the “Loans”) from the following shareholders: Tiger Global Private Investment Partners IV, L.P., Tiger Global Investments, L.P., Scott Shleifer 2011 Descendants’ Trust, Ventoux V LLC and Metal Monkey Trust (the Lenders) for $ 25,000. The Loans were instrumented through promissory notes, which included the following conditions:

 

    Interest rate: no interest shall accrue or be payable

 

    Voluntary prepayment: at the option of the Company, in whole or in part, at any time, without premium or penalty

In February 2015, Decolar.com Inc. received a loan (the “February loan”) from the following shareholders: Tiger Global Private Investment Partners IV, L.P., Tiger Global Investments, L.P., Scott Shleifer 2011 Descendants’ Trust, Ventoux V LLC and Metal Monkey Trust (the Lenders) for $ 25,000. The February loan was instrumented through a promissory note.

On March 2015, the Loans and the February loan were prepaid in full with the proceeds of the Expedia transaction.

v3.8.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements

15. Fair value measurements

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016:

 

Description

   Balances
as of
December 31,
2017
    Quoted
prices in
active
markets for
(Level 1)
     Significant
other
(Level 2)
    Balances
as of
December 31,
2016
     Quoted
prices in
active
markets for
(Level 1)
     Significant
other
(Level 2)
 

Assets

               

Derivatives

               

Foreign currency forward contract

     —         —          —         408        —          408  

Liabilities

               

Derivatives

               

Foreign currency forward contract

     (359     —          (359     —          —          —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total financial assets

     (359     —          (359     408        —          408  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

As of December 31, 2017 and 2016, the Company’s financial assets valued at fair value consisted of assets valued using; (i) Level 1 inputs: unadjusted quoted prices in active markets (Level 1 instrument valuations are obtained from observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets); and (ii) Level 2 inputs, which are obtained from readily-available pricing sources for comparable instruments as well as instruments with inactive markets at the measurement date. As of December 31, 2017 and 2016, the Company did not have any assets without market values that would require a high level of judgment to determine fair value (Level 3).

As of December 31, 2017 and 2016, the carrying value of the Company’s financial assets and liabilities measured at amortized cost approximated their fair value because of its short term maturity. These assets and liabilities included cash and cash equivalents; restricted cash; accounts receivables, net; other receivables and prepaid expenses; other non-current assets; accounts payable and accrued expenses; hotel suppliers payable; loans and other financial liabilities; salaries and social security payable; taxes payable and other liabilities. Loans payable approximate their fair value because the interest rates are not materially different from market interest rates.

The fair values for those financial assets and liabilities of the Company measured at amortized cost, is equal to their respective book values as of December 31, 2017 and 2016.

In addition, as of December 31, 2017 and 2016, the Company had $ 39,764 and $ 93,197 of cash and cash equivalents and restricted cash and cash equivalents, respectively, which consisted of time deposits. Those investments are accounted for at amortized cost, which, as of December 31, 2017 and 2016, approximates their fair values.

There have been no reclasifications among fair value levels.

v3.8.0.1
Earnings Per Share
12 Months Ended
Dec. 31, 2017
Earnings Per Share [Abstract]  
Earnings Per Share

16. Earnings per share

Earnings per share

Basic earnings per share

Basics earnings per share was calculated for the year ended December 31, 2017, 2016 and 2015 using the weighted average number of common shares outstanding during the period.

 

Diluted earnings per share

For the year ended December 31, 2017 and 2016, the Company computed diluted earnings per share using (i) the number of shares of common stock used in the basic earnings per share calculation as indicated above (ii) if diluted, the incremental common stock that the Company would issue upon the assumed exercise of restricted stock units. For the year ended December 31, 2017, the incremental common stock that the Company would issue upon the assumed exercise of the stock option plan was not included in the diluted earnings per share even when they were in-the-money, as under the treasury stock computation method they have an antidilutive effect as the sum of the proceeds, including unrecognized compensation expense, exceeds the average stock price. For the year ended December 31, 2016, stock options were out-of-the-money as the strike price exceeded the current share price; therefore they are not included in the computation of diluted earnings per share. There is no antidilutive effect for the year ended December 31, 2015.

The following table presents basic and diluted earnings per share:

 

     2017      2016      2015  

Net income / (loss) attributable to Despegar.com Corp.

     42,366        17,797        (85,276

Earnings per share attributable to Despegar.com Corp.

        

Basic

     0.69        0.30        (1.49

Diluted

     0.69        0.30        (1.49

Weighted average number of shares outstanding

        

Basic

     61,457        58,518        57,078  

Dilutive effect of restricted stock units

     90        90        n/a  
v3.8.0.1
Stock Based Compensation
12 Months Ended
Dec. 31, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Based Compensation

17. Stock based compensation

2015 Restricted Stock Unit Plan

On March 6, 2015, the shareholders of the Company approved a new restricted stock unit plan including the issuance of 90,626 restricted stock unit (the “RSUs”) in favor of an officer of the Company.

The RSUs include the following conditions:

 

    Time-based condition: satisfied with respect to

 

    40,626 RSUs on January 1, 2016;

 

    20,000 RSUs on January 1, 2017;

 

    20,000 RSUs on January 1, 2018; and

 

    10,000 RSUs on July 1, 2018;

provided that the officer remains in continuous service through each applicable date.

 

    Liquidity Event Requirement: satisfied on the earlier to occur of

 

    an Initial Public Offering of the Company’s common stock, or

 

    a change of control transaction (sale event).

 

    No additional vesting exists upon completion of a liquidity event.

 

    Restrictions:

 

    Repurchase rights: in the event of a change of control, the Company has the right to repurchase certain shares contingent upon the valuation of the Company at such time, and

 

    Transfer restrictions: after the consummation of an Initial Public Offering transfer restrictions apply limiting the ability to transfer certain shares subject to the valuation of the Company at such time.

The fair value of RSU granted during the year ended December 31, 2015, was estimated at the date of grant using the income approach valuation technique, including the Black-Scholes and Monte Carlo option-pricing models, assuming the following weighted average assumptions:

 

Expected volatility

     41.69

Expected life (in years)

     10  

Weighted-average estimated fair value of options granted during the year

   $ 7.47  

The remaining vesting period as of December 31, 2017 is 6 months.

The following table presents a summary of the Company’s RSU activity:

 

     RSU’s      Weighted Average Grant
Date Fair Value

per share
 

Balance as of January 1, 2015

     —          —    

Granted

     90,626        7.47  
  

 

 

    

 

 

 

Balance as of December 31, 2015

     90,626        7.47  

Granted

     —          —    

Vested / (Cancelled)

     —          —    
  

 

 

    

 

 

 

Balance as of December 31, 2016

     90,626        7.47  

Granted

     —          —    

Vested / (Cancelled)

     —          —    
  

 

 

    

 

 

 

Balance as of December 31, 2017

     90,626        7.47  

2016 Stock Option Plan

On November 2016, the Board of Directors of the Company approved, subject to the approval of the Company’s Stockholders (which occurred in March 2017), to adopt a stock plan and reserve for issuance up to 4,000,000 stock options, from which 3,175,000 stock options were effectively granted in favor of some officers of the Company.

 

The plan includes the following conditions:

 

    Time-based condition: satisfied with respect to:

 

    5% of stock options vest on December 1, 2017;

 

    10% of stock options vest on December 1, 2018;

 

    15% of stock options vest on December 1, 2019;

 

    20% of stock options vest on December 1, 2020;

 

    25% of stock options vest on December 1, 2021; and

 

    25% of stock options vest on December 1, 2022;

if the officer remains in continuous service through each applicable date.

 

    Liquidity Event Requirement: satisfied on the earlier to occur of

 

    (i) an Initial Public Offering of the Company’s common stock, or

 

    (ii) a change of control event.

 

    No additional vesting exists upon completion of a liquidity event.

The Company has used the Fair Value Method for determining the value of the stock options plan. The remaining vesting period as of December 31, 2017 is 59 months.

The fair value of stock options granted during the year ended December 31, 2017, was estimated at the date of grant using the income approach valuation technique, including the Black-Scholes and Monte Carlo option-pricing models, assuming the following weighted average assumptions:

 

Risk-free interest rate

     1.49

Expected volatility

     40.1

Expected life (in years)

     10  

Weighted-average estimated fair value of options granted during the year

   $ 10.737  

The fair value of stock options granted during the year ended December 31, 2016, was estimated at the date of grant using the income approach valuation technique, including the Black-Scholes and Monte Carlo option-pricing models, assuming the following weighted average assumptions:

 

Risk-free interest rate

     1.84

Expected volatility

     39.9

Expected life (in years)

     10  

Weighted-average estimated fair value of options granted during the year

   $ 6.90  

The following table presents a summary of the Company’s stock option activity:

 

     Options      Weighted
Average
Exercise Price

per share
     Remaining
Contractual
Life
 

Balance as of December 31, 2015

     —          —          —    

Granted

     3,175,000        26.02     

Balance as of December 31, 2016

     3,175,000        26.02        6  

Granted

     600,000        26.02     

Balance as of December 31, 2017

     3,775,000        26.02        5  

 

As of December 31, 2017, there was approximately $24,600 of unrecognized stock-based compensation expense related to unvested stock-based awards, which is expected to be recognized in expense over a weighted-average period of 4.8 years. Compensation cost will not be impacted upon completion of a liquidity event.

On August 10, 2017, the Board of Directors and Company’s Stockholders approved Amended and Restated 2016 Stock Incentive Plan and reserve for issuance 861.777 shares, which increases total stock subject to the plan to no more than 4.861.777 shares.

On March 1 and April 1, 2018, the Board of Directors and Company’s Stockholders granted an additional 375,000 options to certain employees of the Company. In addition, 250,000 options were forfeited by departing employees. As of the date of these financial statements, there are 3,900,000 issued options outstanding. Additionally, the Board of Directors and Company’s Stockholders approved 465,518 restricted share units which have not yet been granted.

v3.8.0.1
Guarantees
12 Months Ended
Dec. 31, 2017
Guarantees and Product Warranties [Abstract]  
Guarantees

18. Guarantees

The Company is required to be accredited by the International Air Transport Association (“IATA”) to be permitted to sell international airlines tickets of airlines affiliated with IATA.

During 2017, certain Despegar.com subsidiaries granted guarantees for $ 39,764 for the benefit of the IATA, Expedia and other suppliers in the form of time deposits or bank and insurance guarantees, which were recorded as Restricted cash and cash equivalent in the consolidated balance sheet at December 31, 2017 and also granted a mortgage in favor of IATA on a building in Argentina.

v3.8.0.1
Valuation and Qualifying Accounts
12 Months Ended
Dec. 31, 2017
Valuation and Qualifying Accounts [Abstract]  
Valuation and Qualifying Accounts

19. Valuation and qualifying accounts

The following table presents the changes in the Company’s valuation and qualifying accounts.

 

     Balance of
beginning of
period
     Increase /
(Decrease)
     Utilization     Other
comprehensive
Income / (Loss)
    Balance at end
of period
 

2017

            

Allowance for doubtful accounts

     3,513        818        (984     (183     3,164  

2016

            

Allowance for doubtful accounts

     3,401        2,548        (2,515     79       3,513  

2015

            

Allowance for doubtful accounts

     7,493        2,142        (5,388     (846     3,401  
v3.8.0.1
Initial Public Offering
12 Months Ended
Dec. 31, 2017
Text Block [Abstract]  
Initial Public Offering

20. Initial Public Offering

In September 2017, the Company successfully completed its registration process (the offering) with the United States Securities and Exchange Commission (SEC) through which 12,770,000 shares of common stock were sold to the underwriters at $ 26 per share less an underwriting discount of 5.75%. From this total, 8,663,431 shares were sold by the Company and 4,106,569 shares were sold by stockholders.

 

The Company granted to the Underwriters an option, exercisable for 30 days, from September 20, 2017, to purchase up to 1,915,500 additional shares at the public offering price less the underwriting discount. The option was exercised on September 20, 2017, for all the shares available.

The net proceeds of the offering totaled $253,529 after deducting the underwriting discount and offering expenses payable by the Company. The proceeds will be used for general corporate purposes.

v3.8.0.1
Segment information
12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Segment information

21. Segment information

In order to make operating decisions and assess performance, the Company’s chief operating decision function organized the Company’s business in two operating segments, namely “Air” and “Packages, Hotels and Other travel products”, each of them having their own respective segment management.

The “Air” operating segment derives its revenue from commissions earned from facilitating reservations of flight tickets, service fees charged to customers for processing flight tickets and override commissions or incentives from suppliers and GDS if the Company meets certain volume thresholds.

The “Packages, Hotels and Other travel products” operating segment derives its revenue from commissions earned from facilitating reservations of packages, accommodations, car rentals and other travel related products and services, service fees charged to customers for processing bookings, advertising revenue from the sale of advertising placements on the Company’s websites and override commissions or incentives from suppliers if the Company meets certain volume thresholds. Packages are bundle deals where the customer selects and buys multiple products, within the same session. In these transactions the Company acts as an intermediary. Packages transaction may include airline tickets. The air portion of these package transactions is included within the “Packages, Hotels and Other travel products” operating segment.

The Company’s primary measure of a segment’s profit or loss is Adjusted EBITDA, which includes allocations of certain expenses based on transaction volumes and other usage metrics. The Company’s allocation methodology is periodically evaluated and may change.

The Company does not have:

 

    transactions between reportable segments

 

    assets allocated by segment, or

 

    revenue from transactions with a single customer amounting to 10 percent or more of revenue.

The following tables present the Company’s segment information for 2017, 2016 and 2015. While depreciation and amortization is allocated to operating segments based on operational measures such as relative headcount and IT investment, property and equipment is not allocated to operating segments, and the Company does not report the assets by segment as this information is not regularly provided to its chief operating decision makers.

 

     2017  
     Air      Packages, Hotels and Other
travel products
     Unallocated      Total  

Revenue

     241,015        282,925        —          523,940  

Adjusted EBITDA

     58,397        31,341        (384      89,354  

Depreciation and amortization

     (1,865      (2,556      (9,405      (13,826

Stock-based compensation

     —          —          (4,289      (4,289

Operating income / (loss)

     56,532        28,785        (14,078      71,239  

Financial income

     —          —          —          2,389  

Financial expense

     —          —          —          (19,268

Income before income tax

     —          —          —          54,360  

Income tax expense

     —          —          —          (11,994

Net income

     —          —          —          42,366  

 

     2016  
     Air      Packages, Hotels and other
travel products
     Unallocated      Total  

Revenue

     205,721        205,441        —          411,162  

Adjusted EBITDA

     27,940        20,643        2        48,585  

Depreciation and amortization

     (4,099      (3,842      (4,983      (12,924

Stock-based compensation

     —          —          (574      (574

Operating income / (loss)

     23,841        16,801        (5,555      35,087  

Financial income

              8,327  

Financial expense

              (15,079

Income before income tax

              28,335  

Income tax expense

              (10,538

Net income

              17,797  

 

     2015  
     Air      Packages, Hotels and other
travel products
     Unallocated      Total  

Revenue

     219,817        201,894        —          421,711  

Adjusted EBITDA

     8,259        (34,383      (12,943      (39,067

Depreciation and amortization

     (6,350      (1,872      (6,217      (14,439

Stock-based compensation

     —          —          (861      (861

Operating income / (loss)

     1,909        (36,255      (20,021      (54,367

Financial income

              10,797  

Financial expense

              (23,702

Income / (loss) before income tax

              (67,272

Income tax expense

              (18,004

Net income / (loss)

              (85,276

Geographic information

In 2017, 26% of revenue was originated in transactions invoiced by the subsidiary in Argentina, 29% by the subsidiary in Brazil and 28% by subsidiaries in Uruguay (27%, 28% and 27%, respectively, in 2016 and 32%, 30% and 19%, respectively, in 2015). Subsidiaries in no individual country other than those detailed above accounted for more than 10% of revenue.

v3.8.0.1
Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Use of estimates

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from estimates. The significant estimates underlying the Company’s consolidated financial statements include revenue recognition, including the accounting for certain merchant revenues, allowance for doubtful accounts, recoverability of intangible assets with indefinite useful lives and goodwill, contingencies, fair value of stock based compensation and fair value of financial instruments. The consolidated financial statements reflect all adjustments considered, in the opinion of management, necessary to fairly present the results for the periods presented.

Concentration of risk

Concentration of risk

The Company’s business is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines, dependence on third-party technology providers, exposure to risks associated with online commerce security and payment related fraud. It also relies on global distribution system (“GDS”) partners and third-party service providers for certain fulfillment services.

Financial instruments, which potentially subject the Company to concentration of credit risk, mainly consist of cash and cash equivalents and accounts receivable (ie. clearing house for credit cards). The Company maintains cash and cash equivalents balances in financial institutions that management believes are high credit quality. Accounts receivable are settled mainly through customer credit cards and debit cards; the company maintains allowance for doubtful accounts based on management’s evaluation of various factors, including the credit risk of customers, historical trends and other information.

Revenue recognition

Revenue recognition

The Company generates revenue as a result of the booking of travel products and services on its websites and mobile apps. The Company provides customers the ability to book travel products and services on both a stand-alone basis or as a vacation package, primarily through its merchant and agency business models.

The Company derives its revenue mainly from:

 

    Commissions earned from intermediating services, including facilitating reservations of flight tickets, hotel accommodations, car rentals and other travel-related products and services;

 

    Service fees charged to customers for processing air tickets, hotel accommodations, car rentals and other travel-related products and services;

 

    Override commissions or incentives from suppliers and GDS providers if the Company meets certain performance conditions; and

 

    Advertising revenues from the sale of advertising placements on the Company’s websites.

Revenue is recognized when earned and realizable based on the following criteria: (1) persuasive evidence of an agreement exists, (2) the fee is fixed or determinable and (3) collectability is reasonably assured.

The Company also evaluated the presentation of revenue on a “gross” versus a “net” basis. The consensus of the authoritative accounting literature is that the presentation of revenue as “the gross amount billed to a customer because it has earned revenue from the sale of goods or services” or “the net amount retained (i.e., the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of judgment that depends on the relevant facts and circumstances. Despegar.com has determined net presentation is appropriate for the majority of its transactions. In making an evaluation of this issue, some of the factors that were considered are as follows: (i) the Company is not the primary obligor in the arrangement (strong indicator); (ii) the Company has no general supply risk (before customer order is placed or upon customer return) (strong indicator); and (iii) the Company has latitude in establishing price. The guidance clearly indicates that the evaluations of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. The Company concludes that it performs as an agent without assuming the risks and rewards of ownership of goods, and therefore revenue is reported on a net basis.

The Company offers travel products and services through the following business models: the Prepay/Merchant Model, which represents approximately 80% of total revenue, Other Revenue including GDS incentives, advertising represents 15% and the Pay-at-destination/Agency Model, which represents approximately 5% of total revenue.

Prepay/Merchant Business Model

Through this model the Company provides customers the ability to book air travel, accommodation, car rentals, cruises, destination services and vacation packages. The Company generates revenue based on the difference between the total amount that the customer pays for the travel product and the net rate owed to the supplier plus estimated taxes. Despegar.com also earns revenue by charging customers a service fee for booking their travel reservation. Customers generally pay at the time of booking and the Company generally pays to the supplier at a later date, which is normally at the time the customer uses the travel reservation.

Depegar.com records the payments as deferred merchant bookings in travel suppliers payable in the balance sheet until the travel occurs; at that point, the Company recognizes the revenue for those refundable transactions on a net basis. For travel products that are cancelled by the customer after a specified period of time, the Company may charge a cancellation fee or penalty similar to the amount that the supplier charges for the cancellation. In nonrefundable transactions, as the Company does not have significant post-delivery obligations, the revenue is recorded on a net basis when the customer completes the reservation process in the Company’s platform.

Packages and sales transactions performed by customers through affiliated agencies are recognized following the revenue recognition policy described above for refundable / non refundable transactions.

Pursuant to the terms of the Company’s merchant supplier agreements, the Company’s travel service suppliers are permitted to bill it for the underlying cost of the service during a specified period of time. In the event that the Company is not billed by the travel supplier within a 12-monthperiod from the check-out date, the Company recognizes incremental revenue from the unbilled amounts.

Pay-at-Destination/Agency Business Model

Through this model, the Company provides customers the ability to book hotels, car rentals and other travel-related products and services to be paid at destination. Despegar.com earns a commission paid directly by suppliers. The Company generally collects these commissions after the customer uses the travel reservation. In certain circumstances, the Company may also earn revenue by charging customers with a service fee for booking their travel reservation.

The Company generally records revenue on an accrual basis when the travel occurs and is presented on a net basis. In addition, the Company records an allowance for collection risk on this revenue based on historical experience.

Incentives

The Company may receive override commissions from air, hotel and other travel service suppliers when it meets certain performance conditions. These commissions are recognized when the amount of the commission becomes fixed or determinable, which is generally when collection is reasonably assured (i.e. upon notification of the respective air supplier).

Additionally the Company uses GDS services provided by recognized suppliers. Under GDS service agreements, the Company earns revenue in the form of an incentive payment for sales that are processed through a GDS if certain contractual volume thresholds are met. Revenue is recognized for these incentive payments on a monthly accrued basis in accordance with ratable volume thresholds.

 

Advertising

The Company records advertising revenue ratably over the advertising period or upon delivery of advertising material, depending on the terms of the advertising agreement.

Sales tax

The Company’s subsidiaries in Brazil, Argentina and Colombia are subject to certain sales taxes, which are classified as contra-revenue.

Cash and cash equivalents

Cash and cash equivalents

Cash and cash equivalents include investments with an original maturity of three months or less. All results generated from these investmentes are recorded as financial results when earned.

Restricted cash and cash equivalents

Restricted cash and cash equivalents

The primary purpose of restricted cash and cash equivalents is to collateralize operations with suppliers of travel products and services and related service providers such as IATA. In addition, the Company maintains $10,000 as security deposit with Expedia, as established in the Expedia Outsourcing Agreement.

Accounts receivable, net of allowances for doubtful accounts

Accounts receivable, net of allowances for doubtful accounts

Accounts receivables are recorded net of an allowance for doubtful accounts. The Company determines its allowance based on the aging of its receivables. While management uses the information available to make evaluations, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the evaluations. Management has considered all events and/or transactions that are subject to reasonable and normal methods of estimations, and the consolidated financial statements reflect that consideration.

Property and equipment, net

Property and equipment, net

Property and equipment are stated at acquisition cost, less accumulated depreciation. Depreciation expense is calculated using the straight-line method, based on the estimated useful lives of the related assets.

The estimated useful lives (in years) of the main categories of the Company’s property and equipment are as follows:

 

Asset

  

Estimated useful life (years)

Computer hardware

   3

Office furniture and fixture

   10

Buildings

   50

Expenditures for repairs and maintenance are charged to expense as incurred. The cost of significant renewals and improvements is added to the carrying amount of the respective asset and its depreciated over the life of the contract.

 

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations.

Goodwill and Intangible assets, net

Goodwill and Intangible assets, net

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not subject to amortization, but is subject to an annual assessment for impairment, or more frequently, if events and circumstances indicate impairment may have occurred, applying a fair-value based test.

Intangible assets resulting from the acquisition of companies were estimated by management based on the fair value of assets received. Identifiable intangible assets are comprised of trademarks and internet domains. Trademarks and domains are not subject to amortization, but subject to an annual impairment assessment.

Certain costs incurred related to the development of internal-use software are capitalized. Development costs incurred during the application development stage and upgrades and enhancement to existing software that provides additional functionality are capitalized. Costs incurred related to the preliminary project and post-implementation phases are expensed as incurred.

Software internally developed is amortized over a period of three years according to its expected useful life, using the straight-line method. In addition, the asset value of the software is evaluated for impairment periodically.

Financial systems are amortized over a period of 10 years, using the straight-line method.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill and intangible assets with indefinite lives are reviewed at least annually for impairment, generally as of December 31, or more frequently if events and circumstances indicate impairment may have occurred. Impairment of goodwill is tested at the reporting unit level by comparing the reporting units carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. No impairments were recognized during the reporting years for goodwill or intangible assets with indefinite life.

Pension information

Pension information

The Company does not maintain any pension plans. The laws in the different countries in which the Company carries out its operations provide for pension benefits to be paid to retired employees from government pension plans and/or private pension plans. Amounts payable to such plans are accounted for on an accrual basis.

Severance payments

Severance payments

The Company may register a liability for severance payments if the following criteria are met: (a) management, having the authority to approve the action, commits to a plan of termination; (b) the plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date; (c) the plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination, in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated; (d) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn; and (e) the plan has been communicated to employees.

Contingent liabilities

Contingent liabilities

The Company has certain regulatory and legal matters outstanding, as discussed further in note 13 “Commitments and Contingencies.” Periodically, the status of all significant outstanding matters is reviewed to assess the potential financial exposure. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, the Company records the estimated loss in the consolidated statements of operations.

Additionally, disclosure in the notes to the consolidated financial statements is provided for loss contingencies that do not meet both of these conditions if there is a reasonable possibility that a loss may have been incurred that would materially impact the financial position and results of operations. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable.

The Company records accruals related to commercial, labor and tax contingencies that may generate an obligation for the Company. Accruals are made on the best information available at the time; such analysis may be highly subjective. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.

Derivative instruments

Derivative instruments

Derivative instruments are carried at fair value on the consolidated balance sheets. The fair values of the derivative financial instruments generally represent the estimated amounts the Company would expect to receive or pay upon termination of the contracts as of the reporting date.

As of December 31, 2017 the Company maintained derivative instruments consisting of foreign currency forward contracts. The Company uses foreign currency forward contracts to hedge exposure in currencies different from the reporting currency. The goal in managing the foreign exchange risk is to reduce, to the extent practicable, the potential exposure to exchange rate fluctuations and its resulting effect on earnings, cash flows and financial position. The foreign currency forward contracts are typically short-term and do not qualify for hedge accounting treatment. Changes in fair value are recorded in financial results.

Following is the derivatives position as of December 31, 2017 and 2016:

 

    

Currency

   Notional
amount
    

Type

  

Due

   Avg Price
(1)
     Fair value  

2017

                 
   Argentine pesos    $ 2,000      Purchase    Jan-18      17.835        115  
   Chile pesos    $ 8,500      Purchase    Jan-18      634.49        (260
   Mexican pesos    $ 7,000      Sell    Jan / Feb-18      19.27        (214

2016

                 
   Brazilian Reais    $ 15,000      Sell    Jan-17      3.37        457  
   Argentine pesos    $ 5,000      Purchase    Jan-17      16.17        (49

 

(1) In each respective currency.

The changes in fair value of derivatives has been accounted for under Financial income/(expense) in the consolidated statement of operations.

Comprehensive income / (loss)

Comprehensive income / (loss)

Comprehensive income / (loss) includes net income / (loss) as currently reported under U.S. GAAP and also considers the effect of additional economic events that are not required to be recorded in determining net income, but are rather reported as a separate component of shareholders’ deficit.

Other comprehensive income / (loss) includes the cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries (see Note 2 “Foreign currency translation”).

Stock-based compensation

Stock-based compensation

Compensation cost related to stock-based employee compensation arrangements are accounted for at fair value at the time of grant. The calculation of fair value is affected by the Company’s stock price estimation as well as assumptions regarding a number of highly complex and subjective variables at the time of the grant. Compensation cost is recognized on a straight-line basis over the requisite service period which commences on the grant date as there exists a mutual understanding of the key terms and conditions at the date the award is approved by the board of directors or other management with relevant authority and the following conditions are met:

• The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the employer.

• The key terms and conditions of the award had been communicated to an individual recipient within a relatively short time period from the date of approval.

 

Marketing and advertising expenses

Marketing and advertising expenses

The Company incurs advertising expense consisting of offline costs, including television and radio advertising, and online advertising expense to promote the business. The Company expenses the production costs associated with advertisements in the period in which the advertisement first takes place. The Company expenses the costs of advertisement in the period during which the advertisement space or airtime is consumed. Internet advertising expenses are recognized based on the terms of the individual agreements, which is generally over the greater of (i) the ratio of the number of clicks delivered over the total number of contracted clicks, on a pay-per-click basis, or (ii) on a straight-line basis over the term of the contract.

Advertising expenses for 2017, 2016 and 2015 amounted $ 144,777, $ 102,770 and $149,814, respectively.

Accounting for income taxes

Accounting for income taxes

The Company is subject to U.S. and foreign income taxes. The provision for income taxes includes federal and foreign taxes. Income taxes are accounted for under the asset and liabilities method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company set up a valuation allowance for that component of net deferred tax assets which does not meet the more-likely-than-not criterion for realization. A valuation allowance is recognized for a component of net deferred tax assets, including tax loss carryforward, which is assessed as not recoverable. As of December 31, 2017 and 2016 the valuation allowance amounted to $ 42,584 and $ 45,526, respectively.

Due to inherent complexities arising from the nature of the Company’s business, future changes in income tax law, transfer pricing new regulations or variances between actual and anticipated operating results, the Company makes certain judgments and estimates. Therefore, actual income taxes could materially vary from those estimates.

Recently issued accounting pronouncements

Recently issued accounting pronouncements

The Company provides below a description of those standards which are relevant to the Company’s business only and the impact of their adoption if any.

 

New Revenue Recognition policy

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods beginning after December 15, 2017. In addition, the FASB has also issued several amendments to the standard which clarify certain aspects of the guidance, including principal versus agent consideration and identifying performance obligations.

The Company has determined that the new guidance will not change our previous conclusion on net presentation. The Company has also determined that the standard will affect the moment in which the revenue is recognized for pre-paid refundable transactions and transactions that are paid at destination. Under this standard, companies are permitted to recognize revenue from transactions once the performance obligation has been satisfied. As an intermediary between customers and travel suppliers, the Company’s performance obligation is concluded at the completion of the transaction on the Company’s platform at the time of booking, therefore the revenue can be recognized at that time, rather than at the check-out date. Concurrently, the Company will recognize a provision for cancellations and customers failing to arrive for their reservations for all refundable pre-paid sales and all pay-at-destination reserves recognized under this criteria. The Company will adopt the modified retrospective approach and the net impact in Revenue of this change will be $43.9 million. This change will have an effect in accumulated earnings of $37.8 million, net of tax effect.

The Company has completed the overall assessment and finalized the quantification of the retained earnings impact. Additionally, the Company has identified and implemented changes on its accounting policies and practices, business processes, and controls to support the new revenue recognition standard. The Company is continuing the assessment of potential changes to its disclosures under the new standard.

On February 25, 2016 the FASB issued ASU 2016-02. The amendments in this update create Topic 842, Leases, which supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Previous GAAP did not require lease assets and lease liabilities to be recognized for most leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. Based on existing leases currently classified as operating leases, the Company expects to recognize on the statements of financial position right-of-use assets and lease liabilities. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements.

 

On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses on financial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. The new standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.

In August 2016, the FASB issued Accounting Standard Update No. 2016-15, Statement of Cash Flows (topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We plan to adopt this new guidance on January 1, 2018 using the retrospective transition approach for all periods presented. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We will adopt the new standard effective January 1, 2018, using the retrospective transition approach for all periods presented. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

 

On May 10, 2017 the FASB issued “ASU 2017-09—Compensation—Stock compensation (Topic 718): Scope of modification accounting”. The amendments in the update provide guidance about types of changes to the terms or conditions of share-based payment awards would be required to apply modification accounting under Topic 718. The new standard is effective for annual, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On September 29, 2017 the FASB issued “ASU 2017-13—Revenue recognition (Topic 605), Revenue from contracts with customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This update addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphs pursuant the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula”, effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On November 22, 2017 the FASB issued “ASU 2017-14—Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This update amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On February 14, 2018 the FASB issued “ASU 2018-02—Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Acts. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

v3.8.0.1
Basis of Consolidation (Tables)
12 Months Ended
Dec. 31, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of Company's Main Operating Subsidiaries

The consolidated financial statements include the accounts of the Company and its subsidiaries. The following are the Company’s main operating subsidiaries (all wholly-owned):

 

Name of the Subsidiary

  

Country of Incorporation

Despegar.com.ar S.A.    Argentina
Decolar.com LTDA.    Brazil
Despegar.com Chile SpA    Chile
Despegar Colombia S.A.S.    Colombia
DespegarEcuador S.A.    Ecuador
Despegar.com México S.A. de C.V.    Mexico
Despegar.com Peru S.A.C.    Peru
Despegar.com USA, Inc.    United States
Travel Reservations S.R.L.    Uruguay
v3.8.0.1
Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Summary Estimated Useful Lives of Property and Equipment

The estimated useful lives (in years) of the main categories of the Company’s property and equipment are as follows:

 

Asset

  

Estimated useful life (years)

Computer hardware

   3

Office furniture and fixture

   10

Buildings

   50

Summary of Derivative Position

Following is the derivatives position as of December 31, 2017 and 2016:

 

    

Currency

   Notional
amount
    

Type

  

Due

   Avg Price
(1)
     Fair value  

2017

                 
   Argentine pesos    $ 2,000      Purchase    Jan-18      17.835        115  
   Chile pesos    $ 8,500      Purchase    Jan-18      634.49        (260
   Mexican pesos    $ 7,000      Sell    Jan / Feb-18      19.27        (214

2016

                 
   Brazilian Reais    $ 15,000      Sell    Jan-17      3.37        457  
   Argentine pesos    $ 5,000      Purchase    Jan-17      16.17        (49

 

(1) In each respective currency.
v3.8.0.1
Cash and Cash Equivalents (Tables)
12 Months Ended
Dec. 31, 2017
Cash and Cash Equivalents [Abstract]  
Schedule of Cash and Cash Equivalents

Cash and cash equivalents consist of the following:

 

     As of December 31,
2017
     As of December 31,
2016
 

Cash

     12        10  

Banks

     344,809