DESPEGAR.COM, CORP., 20-F filed on 4/30/2021
Annual and Transition Report (foreign private issuer)
v3.21.1
Cover Page
12 Months Ended
Dec. 31, 2020
shares
Document Information [Line Items]  
Document Type 20-F
Amendment Flag false
Document Period End Date Dec. 31, 2020
Document Fiscal Year Focus 2020
Document Fiscal Period Focus FY
Trading Symbol DESP
Title of 12(b) Security Ordinary Shares, no par value
Security Exchange Name NYSE
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 Accelerated Filer
Entity Emerging Growth Company true
Entity Ex Transition Period true
Entity Shell Company false
Document Annual Report true
Document Transition Report false
Document Shell Company Report false
Document Registration Statement false
Entity Interactive Data Current Yes
Entity Voluntary Filers No
Document Accounting Standard U.S. GAAP
Entity Common Stock, Shares Outstanding 70,099,328
Entity Address, Address Line One Juana Manso 1069, Floor 5
Entity Address, City or Town Ciudad Autónoma de Buenos Aires
Entity Address, Postal Zip Code C1107CBU
Entity Incorporation, State or Country Code D8
Entity File Number 001-38209
Entity Address, Country AR
ICFR Auditor Attestation Flag false
Business Contact [Member]  
Document Information [Line Items]  
Contact Personnel Name Mariano Scagliarini
Entity Address, Address Line One Juana Manso 1069, Floor 5
Entity Address, City or Town Ciudad Autónoma de Buenos Aires
Entity Address, Postal Zip Code C1107CBU
City Area Code +54
Local Phone Number 11 4894-3500
Entity Address, Country AR
v3.21.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current assets    
Cash and cash equivalents $ 334,430 $ 309,187
Restricted cash 16,055 4,457
Trade accounts receivable, net of credit expected loss of 10,795 and 3,205 79,816 213,551
Related party receivable 8,174 19,555
Other assets and prepaid expenses 52,295 69,694
Total current assets 490,770 616,444
Non-current assets    
Other assets 71,795 25,351
Lease right-of-use assets 36,239 41,638
Property and equipment, net 22,462 21,205
Intangible assets, net 96,495 49,619
Goodwill 123,217 46,956
Total non-current assets 350,208 184,769
TOTAL ASSETS 840,978 801,213
Current liabilities    
Accounts payable and accrued expenses 32,161 59,673
Travel accounts payable 229,435 206,954
Related party payable 19,351 86,602
Short-term debt 8,949 19,209
Deferred revenue 9,324 8,853
Other liabilities 56,109 46,722
Contingent liabilities 8,398 6,297
Lease liabilities 8,591 6,498
Total current liabilities 372,318 440,808
Non-current liabilities    
Other liabilities 44,913 6,646
Contingent liabilities 24,949 54
Long-term debt 10,367  
Lease liabilities 28,694 34,469
Related party liability 125,000 125,000
Total non-current liabilities 233,923 166,169
TOTAL LIABILITIES 606,241 606,977
Redeemable non-controlling interest 2,621
Mezzanine Equity 141,007  
SHAREHOLDERS' EQUITY    
Common stock (1) [1] 265,698 261,608
Additional paid-in capital 379,780 327,523
Other reserves (728) (728)
Accumulated other comprehensive income (12,580) 610
Accumulated losses (470,173) (326,510)
Treasury Stock (68,267) (68,267)
Total Shareholders' Equity 93,730 194,236
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 840,978 $ 801,213
Series A Non-convertible Preferred Shares    
LIABILITIES AND SHAREHOLDERS' EQUITY    
Non-convertible and convertible preferred shares 91,686  
Series B Convertible Preferred Shares    
LIABILITIES AND SHAREHOLDERS' EQUITY    
Non-convertible and convertible preferred shares $ 46,700  
[1] Represents 70,099 shares (in thousands) issued and outstanding as of December 31, 2020 and 69,648 shares (in thousands) issued and outstanding as of December 31, 2019.
v3.21.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
shares in Thousands, $ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Allowance for credit loss on trade accounts receivable current $ 10,795 $ 3,205
Common stock, shares issued 70,099 69,648
Common stock, shares outstanding 70,099 69,648
Series A Redeemable Non Convertible Preferred Stock [Member]    
Temporary equity shares issued 150,000  
Temporary equity shares outstanding 150,000  
Series B Redeemable Convertible Preferred Stock [Member]    
Temporary equity shares issued 50,000  
Temporary equity shares outstanding 50,000  
v3.21.1
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Revenue [1] $ 131,334 $ 524,876 $ 530,614
Cost of revenue (85,518) (179,565) (172,110)
Gross profit 45,816 345,311 358,504
Operating expenses      
Selling and marketing (57,292) (187,894) (174,357)
General and administrative (94,722) (92,962) (67,240)
Technology and product development (67,043) (73,375) (71,154)
Impairment of long-lived assets and goodwill (1,917)   (363)
Total operating expenses (220,974) (354,231) (313,114)
Loss from equity investments (2,059)    
Operating (loss) / income (177,217) (8,920) 45,390
Financial income / (expense), net 12,910 (17,215) (19,167)
(Loss) / income before income taxes (164,307) (26,135) 26,223
Income tax benefit / (expense) 21,438 5,225 (7,069)
Net (loss) / income (142,869) (20,910) 19,154
Net loss attributable to redeemable non-controlling interest 282    
Net (loss) / income attributable to Despegar.com, Corp. $ (142,587) $ (20,910) $ 19,154
(Losses) / Earnings per share available to common stockholders:      
Basic $ (2.06) $ (0.30) $ 0.28
Diluted $ (2.06) $ (0.30) $ 0.27
Shares used in computing (losses) / earnings per share (in thousands):      
Basic 73,001 69,465 69,154
Diluted 73,001 69,465 71,254
[1] Includes $7,066, $38,760 and $43,975 for related party transactions for the years 2020, 2019 and 2018, respectively. See Note 22.
v3.21.1
Consolidated Statements of Income (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Revenue from related parties $ 7,066 $ 38,760 $ 43,975
v3.21.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net (loss) / income $ (142,869) $ (20,910) $ 19,154
Other comprehensive loss, net of tax      
Foreign currency translation adjustment (13,190) (2,441) (13,272)
Comprehensive (loss) / income (156,059) (23,351) 5,882
Net loss attributable to redeemable non-controlling interest 282    
Foreign currency translation adjustment attributable to redeemable non-controlling interest (170)    
Comprehensive (loss) / income attributable to Despegar.com, Corp. $ (155,947) $ (23,351) $ 5,882
v3.21.1
Consolidated Statements of Changes in Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Other Reserves [Member]
Accumulated Other Comprehensive Income [Member]
Accumulated Losses [Member]
Accumulated Losses [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Treasury Stock [Member]
Change in accounting standard ASC 326 at Dec. 31, 2017   $ 42,862           $ 42,862  
Beginning Balance at Dec. 31, 2017 $ 217,958   $ 253,535 $ 316,444 $ (728) $ 16,323 $ (367,616)    
Adjusted balance at Dec. 31, 2017 260,820   $ 253,535 316,444 (728) 16,323 (324,754)    
Beginning Balance, Shares at Dec. 31, 2017     69,097            
Stock-based compensation expense 6,766     6,766          
Foreign currency translation adjustment (13,272)         (13,272)      
Exercise of Stock Options 136   $ 1,719 (1,583)          
Exercise of Stock Options , Shares     138            
Net income (loss) for the year 19,154           19,154    
Treasury Stock, value (26,030)               $ (26,030)
Ending Balance at Dec. 31, 2018 247,574   $ 255,254 321,627 (728) 3,051 (305,600)   (26,030)
Ending Balance, Shares at Dec. 31, 2018     69,235            
Stock-based compensation expense 11,686     11,686          
Foreign currency translation adjustment (2,441)         (2,441)      
Exercise of Stock Options 564   $ 6,354 (5,790)          
Exercise of Stock Options , Shares     413            
Net income (loss) for the year (20,910)           (20,910)    
Treasury Stock, value (42,237)               (42,237)
Ending Balance at Dec. 31, 2019 194,236   $ 261,608 327,523 (728) 610 (326,510)   (68,267)
Ending Balance, Shares at Dec. 31, 2019     69,648            
Change in accounting standard ASC 326 at Dec. 31, 2019   $ (1,076)           $ (1,076)  
Adjusted balance at Dec. 31, 2019 193,160   $ 261,608 327,523 (728) 610 (327,586)   (68,267)
Stock-based compensation expense 7,312     7,312          
Foreign currency translation adjustment (13,190)         (13,190)      
Exercise of Stock Options 370   $ 4,090 (3,720)          
Exercise of Stock Options , Shares     451            
Net income (loss) for the year (142,587)           (142,587)    
Warrants, net of issuance costs 56,339     56,339          
Accretion of Series A non-convertible preferred shares (2,831)     (2,831)          
Accrual of cumulative dividends of Series A non-convertible preferred shares (4,212)     (4,212)          
Accretion of redeemable non-controlling interest (78)     (78)          
Ending Balance at Dec. 31, 2020 93,730   $ 265,698 379,780 $ (728) $ (12,580) $ (470,173)   $ (68,267)
Ending Balance, Shares at Dec. 31, 2020     70,099            
Payment of dividends to Series B convertible preferred shares $ (553)     $ (553)          
v3.21.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities:      
Net (loss) / income $ (142,869) $ (20,910) $ 19,154
Adjustments to reconcile net (loss) / income to net cash flows from operating activities:      
Net loss attributable to redeemable non-controlling interest 282    
Unrealized foreign currency (gain) / loss 5,066 6,748 (1,088)
Changes in fair value of earnout liability 2,239    
Changes in seller indemnification (2,239)    
Loss from equity investments 2,059    
Depreciation expense 7,981 6,659 4,985
Amortization expense 21,699 16,137 10,140
Disposal of property and equipment   597  
Write-off of leasehold improvements 3,661    
Impairment of long-lived assets and goodwill 1,917   363
Stock based compensation expense 7,312 11,686 6,766
Amortization of lease right-of-use assets 3,417 3,923  
Interest and penalties 2,082 1,228 494
Income tax (benefit) / expense (21,478) (9,666) 2,876
Allowance for credit expected losses 12,270 4,294 1,062
Provision for contingencies 11,096 1,603 2,021
Changes in assets and liabilities, net of non-cash transactions:      
Decrease / (Increase) in trade accounts receivable, net of credit expected loss 108,894 13,823 (54,705)
Decrease / (Increase) in related party receivable 13,897 (10,905) (3,406)
Decrease / (Increase) in other assets and prepaid expenses 27,105 19,695 (61,302)
(Decrease) / Increase in accounts payable and accrued expenses (37,750) 16,651 4,277
(Decrease) / Increase in travel accounts payable (75,888) (19,459) 42,789
(Decrease) / Increase in other liabilities (300) 4,391 3,309
Decrease in contingent liabilities (3,008) (1,990) (5,567)
(Decrease) / Increase in related party payable (63,810) 3,678 4,203
Decrease in lease liabilities (1,990) (4,573)  
Increase in deferred revenue 10 628 6,009
Net cash flows (used in) / provided by operating activities (118,345) 44,238 (17,620)
Cash flows from investing activities:      
Payments for acquired business, net of cash acquired 2,743 (228)  
Acquisition of property and equipment (3,458) (5,942) (13,085)
Increase of intangible assets, including internal-use software and website development (14,028) (24,614) (13,494)
Net cash flows used in investing activities (14,743) (30,784) (26,579)
Cash flows from financing activities:      
Net (decrease) / increase of short-term debt (14,288) (11,507) 24,637
Increase in long-term debt 640    
Decrease in long-term debt (375)    
Exercise of stock based compensation 370 564 136
Purchase of treasury stock   (42,237) (26,030)
Proceeds from issuance of preferred shares 200,000    
Issuance costs of preferred shares and warrants (12,098)    
Payment of dividends to Series B convertible preferred shares (553)    
Net cash flows provided by / (used in) financing activities 173,696 (53,180) (1,257)
Effect of exchange rate changes on cash and cash equivalents (3,767) 1,181 (13,132)
Net increase / (decrease) in cash and cash equivalents 36,841 (38,545) (58,588)
Cash and cash equivalents and restricted cash as of beginning of the year 313,644 [1] 352,189 [1] 410,777
Cash and cash equivalents and restricted cash as of end of the year [1] 350,485 313,644 352,189
Supplemental cash flow information      
Cash paid for income tax 3,427 9,106 14,423
Interest paid 4,948 5,767 $ 5,311
Financed portion of acquisition $ 10,168 $ 10,696  
[1] See Note 8.
v3.21.1
Business
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business
1.
Business
Despegar.com, Corp. (formerly Decolar.com, Inc.) is the leading online travel company in Latin America. We provide our traveler customers a comprehensive product offering, including airline tickets, packages, hotels and other travel-related products, which enables them to find, compare, plan and purchase travel products easily through our marketplace. We provide our network of travel suppliers a technology platform for managing the distribution of their travel products and access to traveler customers. We offer these travel products and services through our two brands: “Despegar”, our global brand, and “Decolar”, our brand for the Brazilian market. We refer to Despegar.com, Corp. and its subsidiaries collectively as “Despegar Group”, the “Company”, “us”, “we” and “our” in these consolidated financial statements.
On October 1, 2020, we closed the acquisition of the 100% equity interests of Viajes Beda S.A. de C.V. (“Viajes Beda”) and Transporturist S.A. de C.V. (“Transporturist”), both companies organized under the laws of Mexico (collectively the “Acquisition”). Viajes Beda and Transporturist are collectively hereinafter referred to as the “Best Day Group”. The Best Day Group operates mainly in Mexico and to a lesser extent in several countries in South America, including Argentina, Brazil and Uruguay among others, and the United States. The Best Day Group primarily provides travelers with several product offerings, including airline tickets, packages, hotels and other travel-related products, through its online platforms, call centers and offline presence, and provides travel suppliers a technology platform for managing the distribution of their travel products and access to traveler customers. The Best Day Group also provides ground transportation services and group tours to travelers principally across Mexico and the Dominican Republic main tourist destinations. The Best Day Group offers these travel products and services through its brands: “Best Day” and “BD Experience”. In addition, the Best Day Group offers hotel inventory, as well as transfers, activities, car rental, packages and tours to travel agencies through its tradename “HotelDo”. Also, the Best Day Group provides white label services for major travel vendors, including exclusive partnerships with the largest Mexican airlines operating their packages platforms. See Note 4 for a discussion of the Acquisition
.
Effect of Novel Coronavirus 2019
(COVID-19)
on these consolidated financial statements
The ongoing
COVID-19
pandemic is disrupting the global economy in general and the travel industry in particular, and consequently adversely affecting our business, results of operations and cash flows. The impact to date of the
COVID-19
pandemic on global economic conditions and on the travel industry has been severe. The pandemic has also significantly increased economic uncertainty and volatility.
 
Demand for travel began showing early signs of weakness by the beginning of March 2020. Within a matter of days, with more news of the potentially extensive spreading of the virus to other parts of the world, travel demand began to decline significantly, and then the decline accelerated precipitously as governments implemented strict measures to limit the spread of the virus. As a result, our travel booking volumes have been and are significantly lower than prior year levels and cancellation levels have been elevated compared to
pre-COVID
19 levels.
 
 
More recently, there has been varying degrees of containment of the virus in certain countries and hence some signs of travel recovery; however, the degree of containment and the recovery in travel has varied country to country and there have been instances where cases of
COVID-19
have started to increase again after a period of decline, and even new variants of the virus have been detected recently. Additionally, many travel restrictions and quarantine orders remain in place or were reimposed. On the other hand, in December 2020, several countries officially launched their
COVID-19
vaccination campaigns and began administering vaccine doses at various levels of speed. Health authorities in the countries in which we operate are prioritizing high-risk groups, as only a limited number of doses are expected to be available in the early stages of the vaccination rollout. It is unclear whether enough people in the countries in which we operate will get vaccinated and when such countries will reach a level of herd immunity to prevent the virus from further disrupting the travel industry.
Due to the high degree of cancellations and customer refunds and lower new bookings, in 2020 we experienced a 75% decrease in revenue as compared to the prior year. We experienced unfavorable working capital trends and material negative cash flows during the year ended December 31, 2020, although the level of negative cash flow has moderated as booking trends slightly improved and cancellations stabilized in the fourth quarter of 2020. Overall, the full duration and total impact of the
COVID-19
pandemic remains uncertain and it is difficult to predict how the recovery will unfold for the travel industry and, in particular, our business. For a discussion on incremental cancellation and allowance for expected uncollectible amounts impacts, see Note 3. For a discussion of asset impairments recognized in conjunction with the pandemic, see Notes 11, 12 and 13. For a discussion of recent actions to strengthen our liquidity position in the current environment, see Notes 6 and 18.
v3.21.1
Basis of consolidation and presentation
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of consolidation and presentation
2.
Basis of consolidation and presentation
Basis of presentation
We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States (“US GAAP”).
Our consolidated financial statements include the accounts of Despegar.com, Corp., our wholly owned subsidiaries, and entities for which we control a majority of the entity’s outstanding common stock. We record
non-controlling
interest in our consolidated financial statements to recognize the minority ownership interest in our consolidated subsidiaries.
Non-controlling
interest in the earnings and losses of consolidated subsidiaries represent the share of net income or loss allocated to members or partners in our consolidated entities, which includes the
non-controlling
interest share of net income or loss from our redeemable
non-controlling
interest entity. We consolidate our subsidiaries from the date on which we obtain control. We deconsolidate any subsidiary from the date we lose control. We record our investments in entities that we do not control, but over which we have the ability to exercise significant influence, using the equity method. We have eliminated significant intercompany transactions and accounts. We change the accounting policies of subsidiaries where necessary to ensure consistency with our accounting policies. All of our subsidiaries have the same
year-end.
We believe that the assumptions underlying our consolidated financial statements are reasonable. However, these consolidated financial statements do not present our future financial position, the results of our future operations and cash flows.
The following are our subsidiaries as of the end of the years presented:
 
Name of the subsidiary
(in alphabetical order)
  
Type
  
Country of
incorporation
  
As of
December 31,
2020
   
As of
December 31,
2019
 
              
% Owned
 
Agencia de Viajes y Turismo Falabella S.A.S. (1) 
 
   Operating    Colombia      —         100
Badurey S.A.
   Holding    Uruguay      100     100
BD Travelsolution, S. de R.L. de C.V.
   Operating    Mexico      100     —    
BDTP Venture, Inc.
   Operating    United States      100     —    
Beda Transportation, Inc.
   Operating    United States      100     —    
Beda Travel & Tours, Inc.
   Operating    United States      100     —    
Beda Travel, Inc.
   Holding    United States      100     —    
Click Hoteles.com, LLC
   Holding    United States      100     —    
Decolar.com Ltda.
   Operating    Brazil      100     100
Decolar.com, Inc.
   Holding    United States      100     100
Desonproc S.L.
(6)
   Operating    Spain      —         100
Despegar Colombia S.A.S.
   Operating    Colombia      100     100
Despegar Ecuador S.A.
   Operating    Ecuador      100     100
Despegar Servicios, S.A. de C.V.
(5)
   Operating    Mexico      100     100
Despegar.com Chile SpA
   Operating    Chile      100     100
Despegar.com México S.A. de C.V.
   Operating    Mexico      100     100
Despegar.com Panama S.A.
(6)
   Operating    Panama      —         100
Despegar.com Peru S.A.C.
   Operating    Peru      100     100
Despegar.com USA, Inc.
   Operating    United States      100     100
Despegar.com.ar S.A.
   Operating    Argentina      100     100
DFinance Holding Ltda.
   Holding    Brazil      100     —    
Holidays S.A.
   Operating    Uruguay      100     100
Jamiray International S.A.
   Operating    Uruguay      100     —    
Koin Administradora de Cartões e Meios de Pagamento S.A.
   Operating    Brazil      84     —    
Rivamor S.A.
   Holding    Uruguay      100     100
Satylca S.C.A.
   Holding    Uruguay      100     100
Servicios Online 3351 de Venezuela C.A.
   Operating    Venezuela      100     100
Servicios Online S.A.S.
(1)
   Operating    Colombia      —         100
South Net Chile, LTDA
   Operating    Chile      100     —    
South Net Travel, Inc.
   Operating    United States      100     —    
South Net Turismo Colombia, S.A.
   Operating    Colombia      100     —    
South Net Turismo Perú S.R.L.
   Operating    Peru      100     —    
South-Net
Turismo Brasil, LTDA
   Operating    Brazil      100     —    
South-Net
Turismo S.A.
   Operating    Argentina      100     —    
Tecnobelt S.A.
   Operating    Uruguay      100     100
Transporturist, S.A. de C.V.
   Operating    Mexico      100     —    
Travel Reservations S.R.L.
   Operating    Uruguay      100     100
Viaceco Travel, S.A. de C.V.
(5)
   Operating    Mexico      100     —    
Viajes Beda, S.A. de C.V.
   Operating    Mexico      100     —    
 
Name of the subsidiary
(in alphabetical order)
  
Type
  
Country of
incorporation
  
As of
December 31,
2020
   
As of
December 31,
2019
 
Viajes Despegar.com O.N.L.I.N.E. S.A.
   Operating    Costa Rica      100     100
Viajes Falabella S.A.
(2)
   Operating    Argentina      —         100
Viajes Falabella S.A.C.
(3)
   Operating    Peru      —         100
Viajes Falabella SpA
(4)
   Operating    Chile      —         100
 
(1)
Merged with and into Despegar Colombia S.A.S.
(2)
Merged with and into Despegar.com.ar S.A.
(3)
Merged with and into Despegar.com Peru S.A.C.
(4)
Merged with and into Despegar.com Chile SpA.
(5)
Merged with and into Despegar.com México S.A. de C.V. on January 1, 2021.
(6)
Liquidated as of December 31, 2020.
Use of estimates
We use estimates and assumptions in the preparation of these consolidated financial statements in accordance with US GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of these consolidated financial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. The actual financial results could differ significantly from these estimates. The significant estimates underlying these consolidated financial statements include revenue recognition; allowance for credit expected losses; recoverability of long-lived assets, indefinite-lived intangible assets and goodwill; income and transactional taxes; loss contingencies; stock-based compensation and accounting for derivative instruments. The consolidated financial statements reflect all adjustments considered, in the opinion of management, necessary to fairly present the results for the periods presented.
Foreign currency translation
We have selected the U.S. dollar as our reporting currency. For local currency functional locations, assets and liabilities are translated at
end-of-period
rates while revenues and expenses are translated at average rates in effect during the period. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income / (loss).
For U.S. dollar functional currency locations, foreign currency assets and liabilities are remeasured into U.S. dollars at
end-of-period
exchange rates, except for
non-monetary
balance sheet accounts, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the
non-monetary
balance sheet amounts, which are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in “Financial income / (expense), net” in our consolidated statements of income.
As from July 1, 2018, our subsidiary in Argentina changed its functional currency from Argentine Pesos to U.S. dollars due to the current highly inflationary status of the Argentine economy. A highly inflationary economy is one that has cumulative inflation of approximately 100% or more over a three-year period.
Concentration of risk
Our business is subject to certain risks and concentrations including our dependence on relationships with travel suppliers, primarily airlines and Expedia, dependence on third-party technology providers, exposure to risks associated with online commerce security and payment related fraud. We also rely on global distribution systems (“GDS”) providers and other 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.
We maintain cash and cash equivalents balances in financial institutions that we believe are high credit quality. Our receivables are settled mainly through customer credit cards and debit cards. We maintain allowance for doubtful accounts based on management’s evaluation of various factors, including the credit risk of customers, historical trends and other information. See Note 9 for details.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel services. The majority of our operations, such as Brazil and Argentina, are located in the Southern hemisphere where summer runs from December 1 to February 28 and winter runs from June 1 to August 31. Our most significant market in the Northern hemisphere is Mexico where summer runs from June 1 to August 31 and winter runs from December 1 to February 28. Accordingly, traditional leisure travel bookings in the Southern hemisphere are generally the highest in the second and fourth quarters of the year as travelers plan and book their winter and summer holiday travel. The number of bookings typically decreases in the first quarter of the year. In the Northern hemisphere, bookings are generally the highest in the first three quarters as travelers plan and book their spring, summer and winter holiday travel. The seasonal revenue impact is exacerbated with respect to income by the nature of variable cost of revenue and direct sales and marketing costs, which is typically realized in closer alignment to booking volumes, and the more stable nature of fixed costs.
The continued growth of international operations or a change in product mix may influence the typical trend of the seasonality in the future, and there may also be business or market driven dynamics that result in short-term impacts to revenue or profitability that differ from the typical seasonal trends.
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these consolidated financial statements may not be the same as those for any subsequent quarter or the full year.
Due to the
COVID-19
pandemic, which led to significant cancellations for future travel during the first half of 2020 and impacted new travel bookings for the majority of 2020, we have not experienced our typical seasonal pattern for bookings, revenue and profit during the year ended December 31, 2020. In addition, with the decrease in new bookings and elevated cancellations in the merchant business model, our typical, seasonal working capital source of cash has been significantly disrupted resulting in unfavorable working capital trends and material negative cash flow since the second quarter of 2020 when we typically generate significant positive cash flow. It is difficult to forecast the seasonality for the upcoming quarters given the uncertainty related to the duration of the impact from the
COVID-19
pandemic and the shape and timing of any sustained recovery. In addition, we are experiencing much shorter booking windows, which could also impact the seasonality of our working capital and cash flow.
v3.21.1
Summary of significant accounting policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Summary of significant accounting policies
3.
Summary of significant accounting policies
Revenue recognition
We offer traditional travel services on a stand-alone and package basis generally either through the
pre-pay/merchant
or the
pay-at-destination/agency
business models. We primarily generate revenue as a result of facilitation services, either directly or through the use of affiliated travel agencies. We consider both the traveler and the travel supplier as our customers.
Under the
pre-pay/merchant
model, we provide travelers access to book hotel rooms, airline seats, car rentals and destination services through our contracts with our network of travel suppliers. Our travelers pay us for merchant transactions generally when they book the reservation. We pay our travel suppliers later, generally when the travelers use the travel service. Under these transactions, we generally earn a commission from travel suppliers and service fees from travelers. Travel suppliers generally bill us for travel products sold within a
12-month
period from
check-out
date. We recognize breakage incremental revenue from unbilled amounts when the period expires. Our revenues under the
pre-pay/merchant
model represented more than 75% of our total consolidated revenues for all years presented.
Under the
pay-at-destination/agency
model, travelers pay the travel supplier directly at destination and travel suppliers pay us our earned commissions later, generally after checkout. We receive service fees from travelers up front. Our revenue under the
pay-at-destination/agency
model represented less than 5% of our total consolidated revenues for all years presented.
Our primary sources of revenue are commissions and service fees, incentive fees and advertising comprising more than 90% of our consolidated revenue for all years presented.    
Commissions and service fees
We facilitate our travel suppliers the sale of their travel products and services to our travelers and travel agencies. We generally receive commissions in consideration of our facilitation services. Generally, we charge a service fee to our travelers, although this may vary depending on marketing strategies. We do not provide significant post-booking services to travelers. We consider any post-booking services beyond minor inquiries or minor administrative changes to the reservation (i.e. modifications to the original terms of the reservations) as new bookings. Accordingly, we may charge a new booking fee and administrative fees for these services. Also, if the requested change results in an incremental price of the reservation to the traveler set by the travel supplier, we receive an incremental commission from the travel supplier.
We recognize revenue upon the transfer of control of the promised facilitation services to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those facilitation services. Generally, we recognize revenue when the booking is completed, paid and confirmed, less a reserve for cancellations based on historical experience.
We present revenue on a net basis for the majority of our transactions because the travel supplier is primarily responsible for providing the underlying travel services, we do not control the service or travel product provided by the travel supplier to the traveler and we do not bear inventory risk. Taxes assessed by a government authority, if any, are excluded from the measurement of transaction prices that are imposed on the travel related services or collected from customers (which are therefore excluded from revenue). We present revenue on a gross basis for some bookings when we
pre-purchase
flight seats. These transactions have been limited to date.
We partner with banks to allow our travelers the possibility of purchasing the product of their choice through financing plans established, offered and administered by such banks. Banks bear full risk of fraud, delinquency or default by travelers. When travelers elect to finance their purchases, we typically receive full payment for our services within a short period of time after booking is completed and confirmed, regardless of the payment plan selected by the traveler. However, in certain countries, we receive payment from the bank as installments become due regardless of when traveler actually makes the scheduled payments. In most cases, we receive payment before travel occurs or during travel and the period between completion of booking and reception of scheduled payments is typically one year or less. We have made use of the practical expedient in ASC
606-10-32-18
and we do not adjust the amount of consideration for the effects of a significant financing component. Beginning in late August 2020, we began providing financing to certain risk-profiled travelers only in Brazil. This activity has been very limited to date.
Our revenue from commissions and service fees represented 77%, 81% and 81% of our total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
Incentive fees
We may receive incentive fees from our travel suppliers or GDS providers if we meet certain performance conditions, for example contractually agreed volume thresholds. We recognize revenue on an accrual basis in accordance with the achievement of contractual thresholds on a
case-by-case
basis.
Incentive fee revenues represented 13%, 14% and 15% of our total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
Advertising
We record advertising revenue ratably over the advertising period or upon delivery of advertising material, depending on the terms of the advertising agreement.
Advertising revenues represented 4%, 3% and 3% of our total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
Other revenue:
We also derive revenue from other sources. Our other sources of revenue are not material:
Destination services
In October 2020 we began offering tours, activities and transportation services to travelers through a fleet of dedicated vans. We recognize revenue as services are provided. We present revenue on a gross basis for these transactions because we are the primary responsible for providing the underlying travel services. Our destination services represented 2% of our total consolidated revenue for the year ended December 31, 2020.
Loyalty revenue
In late 2019 we began to operate a loyalty program through which we award loyalty points to travelers who complete purchases on our websites or use the services of other program participants, such bank
co-branded
credit cards. Loyalty points can be redeemed for free or discounted travel products.
For loyalty points earned through travel product purchases, we apply a relative selling price approach whereby the total amount collected from each travel product sale is allocated between the travel product and the loyalty points earned. The portion of each travel product sale attributable to loyalty points is initially deferred and then recognized in loyalty revenue when the points are redeemed. Due to our recent launch of our loyalty program, lack of historical data and redemption patterns, we recognize breakage when the likelihood of the traveler exercising its remaining rights becomes remote.
For loyalty points earned through
co-branded
credit card partners, consideration received from the sale of loyalty points is variable and payment terms typically are within 30 days subsequent to the month of sale of loyalty points. Sales of loyalty points to business partners are comprised of two components: loyalty points and marketing (i.e. the use of intellectual property, including our brand and access to customer lists and databases, which is the predominant element in the agreements, as well as advertising, collectively, the marketing component). We allocate the consideration received from these sales of loyalty points based on the relative selling price of each product or service delivered. Accordingly, we recognize the marketing component in other revenue in the period of the loyalty points sale following the sales-based royalty method. The loyalty points component is initially deferred and then recognized in revenue when points are redeemed. This activity has been limited to date.
Interest revenue
Revenue from interest earned on financing granted to certain risk-profiled customers in Brazil is recognized over the term of the financing and is based on effective interest rates. This activity has been immaterial and very limited to date.
In the aggregate, these other revenues represented 6%, 2% and 1% of our total consolidated revenues for the years ended December 31, 2020, 2019 and 2018, respectively.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held with banks and other short-term liquid investments with original maturities of three months or less. Gains or losses on short-term investments are recognized in financial expenses or financial income when incurred.
Accounts receivable and allowances
Accounts receivable are generally due within thirty days and are recorded net of an allowance for expected uncollectible amounts. We consider accounts outstanding longer than the contractual payment terms as past due. The risk characteristics we generally review when analyzing our accounts receivable pools primarily include the country of origin, type of receivable, collection terms and historical or expected credit loss patterns. For each pool, we make estimates of expected credit losses for our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history continually updated for new collections data, the credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions and other factors that may affect our ability to collect from customers. The provision for estimated credit losses is recorded as “General and administrative” expenses in our consolidated statements of income. During the year ended December 31, 2020, we recorded $7,199 of incremental allowance for expected uncollectible amounts, including estimated future losses in consideration of the impact of
COVID-19
pandemic on the economy and the Company. Actual future bad debt could differ materially from this estimate resulting from changes in our assumptions of the duration and severity of the impact of the
COVID-19
pandemic. See Note 9 for a discussion of the adoption of ASC ASU
2016-13
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”).
Property and equipment, net
We record property and equipment at acquisition cost, net of accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets. Land is not depreciated. We depreciate leasehold improvement using the straight-line method, over the shorter of the estimated useful life of the improvement or the remaining term of the lease.
The estimated useful lives (in years) of the main categories of our property and equipment are as follows:
 
Asset
   Estimated useful life (years)
Computer hardware
   3
Vans
   4
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 it is 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 our consolidated statements of income.
 
Business combinations
We use the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the ass
e
ts transferred, the liabilities incurred, and the equity interests issued, if any. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and trademarks and tradenames, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
We have a period of 12 months as from the date of acquisition (the “measurement period”) to finalize the accounting for a business combination. We report provisional amounts when the accounting for a business combination is not complete by the end of the reporting period in which the business combination occurred. Any changes to provisional amounts identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined.
Goodwill
We record goodwill as the amount by which the aggregate of the fair value of consideration transferred, the acquisition date fair value of any previously held interest and any
non-controlling
interest exceeds the fair value of the assets and liabilities acquired. Goodwill is not subject to amortization and is tested at least annually for impairment, or earlier if an event occurs or circumstances change and there is an indication of impairment.
See Note 13 for further information.
Intangible assets, net
Intangible assets acquired in business combinations are initially recorded at fair value. We determine the fair value of intangible assets using standard valuation techniques, including the income approach (discounted cash flows) and/or market approach, as considered appropriate, and based on market participant assumptions.
Indefinite-lived intangible assets such as certain trademarks and tradenames are not subject to amortization and are tested at least annually for impairment, or earlier if an event occurs or circumstances change and there is an indication of impairment.
Definite-lived intangible assets such as customer relationships, licenses and certain trademarks and tradenames are amortized over their respective estimated useful lives.
We also capitalize certain direct development costs associated with website and
internal-use
developed technology and include external direct costs of services and payroll costs for employees devoting time to the software projects principally related to platform development, including support systems, software coding, designing system interfaces and installation and testing of the software. These costs are recorded as definite-lived intangible assets and are generally amortized over a period of 3 to 10 years beginning when the asset is substantially ready for use. Costs incurred for enhancements that are expected to result in additional features or functionalities are capitalized and amortized over the estimated useful life of the enhancements. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.
See Note 12 fo
r
 further information.
 
Recoverability of goodwill and indefinite-lived intangible assets
Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. We assess goodwill and indefinite-lived intangible assets, neither of which is amortized, for impairment annually as of December 31, or more frequently, if events and circumstances indicate impairment may have occurred. In the evaluation of goodwill for impairment, we typically perform a quantitative assessment and compare the fair value of the reporting unit to its carrying value. An impairment charge is recorded based on the excess of the reporting unit’s carrying amount over its fair value. Periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the goodwill is more likely than not impaired.
We generally base our measurement of fair value of reporting units on an analysis of the present value of future discounted cash flows and market valuation approaches, as appropriate. The discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the Company to comparable publicly traded firms in similar lines of business. Our significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting units.
We believe the discounted cash flows and market approaches are the best methods for determining the fair value of our reporting units because these are the most common valuation methodologies used within the travel and internet industries.
In addition to measuring the fair value of our reporting units as described above, we consider the combined carrying and fair values of our reporting units in relation to our total fair value of equity plus debt as of the assessment date. Our equity value assumes our fully diluted market capitalization, using either the stock price on the valuation date or the average stock price over a range of dates around the valuation date, plus an estimated acquisition premium which is based on observable transactions of comparable companies. The debt value is based on the highest value expected to be paid to repurchase the debt, which can be fair value, principal or principal plus a premium depending on the terms of each debt instrument.
In our evaluation of our indefinite-lived intangible assets, we typically first perform a quantitative assessment and an impairment charge is recorded for the excess of the carrying value of indefinite-lived intangible assets over their fair value, if necessary. We base our measurement of fair value of indefinite-lived intangible assets, which primarily consist of trade name and trademarks, using the relief-from-royalty method. As with goodwill, periodically, we may choose to perform a qualitative assessment, prior to performing the quantitative analysis, to determine whether the fair value of the indefinite-lived intangible asset is more likely than not impaired.
Recoverability of intangible assets with definite lives and other long-lived assets
Intangible assets with definite lives and other long-lived assets are carried at cost and are amortized on a straight-line basis over their estimated useful lives of 3 to 10 years and 50 years for buildings. We review the carrying value of long-lived assets or asset groups, including property and equipment, to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value.
Assets held for sale, to the extent we have any, are reported at the lower of cost or fair value less costs to sell.
See Notes 11 and 12 for further information.
Equity method investments
We use the equity method to account for investments in companies, if our investment provides us with the ability to exercise significant influence, but not control, over operating and financial policies of the investee. Our judgment regarding the level of influence over each equity method investment includes considering key factors such as our ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. We include the total of our investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities, and goodwill, if any, within
“Non-current
other assets” in our consolidated balance sheets. We include our proportionate share of earnings and/or losses of our equity method investees in “Loss from equity investments” in our consolidated statements of income.
In the event that net losses of the investee reduce our equity-method investment carrying amount to zero, additional net losses may be recorded if we have committed to provide financial support to the investee. We regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether our equity-method investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay their liabilities when they come due. When our share in the net assets of associates is negative, we include the balance within
“Non-current
other liabilities” in our consolidated balance sheets. In the event we no longer have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the investment under the equity method.
Redeemable
non-controlling
interests
We have a
non-controlling
interest in a majority owned entity which was valued at fair value at acquisition date. The
non-controlling
interest contains certain rights, whereby we have the right but not the obligation to acquire, and the minority shareholders have the right but not the obligation to sell to us, the additional shares of the company for cash at a fixed price other than fair value. The
non-controlling
interest is not currently redeemable, but it is probable of becoming redeemable (the redemption depends solely on the passage of time). Accordingly, we record the
non-controlling
interest at the greater of (i) its acquisition date fair value as adjusted for its share (if any) of earnings, losses, or dividends or (ii) an accreted value from the date of the acquisition to the earliest redemption date, February 20, 2022. The accretion of the
non-controlling
interest to February 20, 2022 is recorded using the interest method.
We adopted a policy to charge the carrying value adjustment to retained earnings or, absent retained earnings, additional
paid-in
capital and will reduce net income available to our common shareholders in the calculation of earnings per share in accordance with the
two-class
method. We record the
non-controlling
interest amount in the “mezzanine” section of our consolidated balance sheet as of December 31, 2020, outside of shareholders’ equity.
The details of the balances and changes in the redeemable
non-controlling
interest are presented in Note 5.
Travel accounts payable
Travel accounts payable comprises trade accounts payable to airlines, hotels and other travel suppliers for products and services offered. Airline suppliers are generally within thirty days of a confirmed air booking reservation. Under the
pre-pay
model, hotel suppliers are generally paid after traveler checks out. Generally, our contracts with hotels and other suppliers provide for a
12-month
time period for invoicing us for past services. If an invoice is not received after that period, we recognize breakage revenue for the unbilled payable.
Severance payments
We recognize 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.
Pension information
We do not maintain any pension plans. Certain countries in which we operate 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.
Contingent liabilities
We have a number of tax, regulatory and legal matters outstanding, as discussed further in Note 21.
Periodically, we review the status of all significant outstanding matters 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, we record the estimated loss in our consolidated statements of income. We provide disclosure in the notes to the consolidated financial statements 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 be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and whether such liability is reasonably estimable. We base accruals made on the best information available at the time which can be highly subjective. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.
Derivative financial instruments
We carry derivative instruments at fair value on our consolidated balance sheets. The fair values of the derivative financial instruments generally represent the estimated amounts we would expect to receive or pay upon termination of the contracts as of the reporting date. As of December 31, 2020 and 2019, our derivative instruments primarily consisted of foreign currency forward contracts. We are exposed to various market risks that may affect our consolidated results of operations, cash flows and financial position. These market risks include, but are not limited to, fluctuations in foreign currency exchange rates. Our primary foreign currency exposures are to the currencies of Argentina, Brazil and Mexico, in which we conduct a significant portion of our business activities. As a result, we face exposure to adverse movements in foreign currency exchange rates as the results of our international operations are translated from local currencies into U.S. dollars upon consolidation. Additionally, foreign currency exchange rate fluctuations on transactions denominated in currencies other than the functional currency of an entity result in gains and losses that are reflected in net income.
We use foreign currency forward contracts to economically hedge these exposures. Our goal in managing our foreign exchange risk is to reduce, to the extent practicable, our potential exposure to the changes that exchange rates might have on our earnings, cash flows and financial position. Our foreign currency forward contracts are typically short-term and, as they do not qualify for hedge accounting treatment, we classify the changes in their fair value in “Financial income / (expense), net” in our consolidated statements of income in the period that the changes occur and are classified within “Net cash provided by operating activities” in our consolidated statements of cash flows. We do not hold or issue financial instruments for speculative or trading purposes. We report the fair value of our derivative assets and liabilities on a gross basis in our consolidated balance sheets in “Other assets and prepaid expenses” and “Other liabilities”, respectively.
Leases
We determine if an arrangement is a lease, or contains a lease, at inception. Operating leases are primarily for office space, customer service centers and a fleet of dedicated vans, and, as of January 1, 2019 with the adoption of the new guidance for leasing arrangements, are included in operating lease
right-of-use
(“ROU”) assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For operating leases with a term of one year or less, we have elected to not recognize a lease liability or ROU asset on our consolidated balance sheet. Instead, we recognize the lease payments as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to our consolidated statements of operations and cash flows.
Our lease agreements have insignificant
non-lease
components and accordingly we have elected the practical expedient to combine and account for lease and
non-lease
components as a single lease component.
Financial income / (expense), net
We incur in financial results such as factoring interest and commissions on receivables, gains or losses on derivative financial instruments, interest income from financial investments, interest paid on financial liabilities and foreign exchange gains or losses.
Stock-based compensation
We measure and amortize the fair value of restricted stock units (“RSUs”) and stock options as follows:
Restricted Stock Units.
RSUs are stock awards that are granted to employees entitling the holder to shares of common stock as the award vests, typically over a 3 or
4-year
period, but may accelerate in certain circumstances. During the year ended December 31, 2020, we started issuing RSUs as our primary form of stock-based compensation, some of them vest 33% after one year and others vest 25% after one year and will then vest yearly over the following 3 or 4 years, as appropriate. We measure the value of RSUs at fair value based on the number of shares granted and the quoted price of our common stock at the date of grant. We amortize the fair value as stock-based compensation expense over the vesting term on a straight-line basis.
Stock Options.
Our employee stock options consist of service-based awards. We measure the value of stock options issued or modified, including unvested options assumed in acquisitions, if any, on the grant date (or modification or acquisition dates, if applicable) at fair value, using appropriate valuation techniques, including the Black-Scholes and Monte Carlo option pricing models. The Black-Scholes valuation models incorporate various assumptions including expected volatility, expected term and risk-free interest rates.
The expected volatility is based on historical volatility of our common stock and other relevant factors. We base our expected term assumptions on our historical experience and on the terms and conditions of the stock awards granted to employees. We amortize the fair value over the remaining explicit vesting term in the case of service-based awards. The majority of our stock options vest over 6 years.
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive these awards, and subsequent events are not indicative of the reasonableness of our original estimates of fair value.
Marketing and advertising expenses
We incur advertising expense consisting of offline costs, including television and radio advertising, and online advertising expense to promote our business. We expense the production costs associated with advertisements in the period in which the advertisement first takes place. We expense 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. Our advertising expenses were $27,661, $147,693 and $151,372 for the years ended December 31, 2020, 2019 and 2018, respectively.
Accounting for income taxes
We are organized as a British Virgin Islands corporation. However, under the “anti-inversion” rules of Section 7874 of the U.S. Internal Revenue Code, we are treated as a U.S. corporation for U.S. federal tax purposes. Accordingly, we are subject to U.S. federal income tax on our worldwide income. We are subject to foreign income taxes in the jurisdictions where we operate in accordance with the respective local tax laws.
We account for income taxes under the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations or effective tax rate.
Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenues and expenses that qualify for preferential tax treatment, and segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we believe that our estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.
In estimating future tax consequences, all expected future events are considered other than enactments of changes in tax laws or rates. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized. We consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, the carryforward periods available for tax reporting purposes and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to earnings at such time.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We account for these uncertain tax issues pursuant to ASC 740, Income Taxes, which contains a
two-step
approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings, refinement of estimates or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.
We treat taxes on global intangible
low-taxed
income (“GILTI”) introduced by the U.S. Tax Cuts and Jobs Act (the “Tax Act”) as period costs.
See Note 19 for further information.
Earnings per share
We compute basic earnings per share by dividing our net loss or income for the year attributable to Despegar.com, Corp. common shareholders, as adjusted for preferred stock accretion and dividends accrued, by our weighted-average outstanding common shares during the year on a basic and diluted basis. Since we issue warrants for nominal consideration which vest and are exercisable as from the issuance date, we include the shares of common stock underlying the outstanding warrants when calculating our basic earnings per share.
We compute diluted earnings per share using our weighted-average outstanding common shares including the dilutive effect of stock options and convertible preferred stock as determined under the
if-converted
method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards and convertible preferred stock from the diluted loss per share calculation as their inclusion would have an antidilutive effect.
We present basic and diluted earnings per share using the
two-class
method required for participating securities. We consider that our Series B preferred stock to be participating securities and, in accordance with the
two-class
method, earnings allocated to participating securities and the related number of outstanding shares of participating securities are excluded from the computation of basic and diluted net loss per common share. If a dividend is paid on common stock, the holders of Series B preferred stock are entitled to a proportionate share of any such dividend as if they were holders of common stock (on an
if-converted
basis). As the holders of our Series B preferred stock do not have contractual obligation to share in the losses of the Company, the net loss attributable to common stockholders for each period is not allocated between common stock and participating securities. Accordingly, preferred stock is excluded from the calculation of basic and diluted net loss per share as the effect would have been antidilutive.
For additional information on how we compute earnings per share, see Note 24.
Fair value recognition, measurement and disclosure
The carrying amounts of cash and cash equivalents and restricted cash reported on our consolidated balance sheets approximate fair value as we maintain them with various high-quality financial institutions. The accounts receivable are short-term in nature and are generally settled shortly after the sale.
We disclose the fair value of our financial instruments based on the fair value hierarchy using the following three categories:
Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
For additional information on items measured at fair value on a recurring or
non-recurring
basis, see Note 23.
Recently adopted accounting policies
Simplifying the Test for Goodwill Impairment
In January 2017, the Financial A
c
counting Standards Board (“FASB”) issued a new accounting update to simplify the test for goodwill impairment. The revised guidance eliminates the previously required step two of the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment. Under the revised guidance, a goodwill impairment loss will be measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. 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. We adopted and applied this update in the first quarter of 2020.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued a new accounting update on the measurement of credit losses for certain financial assets measured at amortized cost and
available-for-sale
debt securities. For financial assets measured at amortized cost, this update requires an entity to (1) estimate its lifetime expected credit losses upon recognition of the financial assets and establish an allowance to present the net amount expected to be collected, (2) recognize this allowance and changes in the allowance during subsequent periods through net income and (3) consider relevant information about past events, current conditions and reasonable and supportable forecasts in assessing the lifetime expected credit losses. We adopted this update in the first quarter of 2020 and applied it on a modified retrospective basis. The adoption did not have a material impact on our consolidated financial statements. See Note 9 for details of the adoption of the new standard.
Disclosure requirements on fair value measurements
In August 2018, the FASB issued ASU
2018-13
“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The update is related to the disclosure requirements on fair value measurements, which removes, modifies or adds certain disclosures. We adopted this update in the first quarter of 2020 and applied it on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued a new accounting standard to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also added certain disclosure requirements related to implementation costs incurred for
internal-use
software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an
internal-use
software license). We adopted this update in the first quarter of 2020 and applied it on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.
 
Recent accounting policies not yet adopted
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued a new accounting update relating to income taxes. This update provides an exception to the general methodology for calculating income taxes in an interim period when a
year-to-date
loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a
non-income-based
tax, (2) requires an entity to evaluate when a
step-up
in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public business entities, this update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The amendment related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. We have evaluated the impact to our consolidated financial statements of adopting this update and we do not expect it to have a material impact.
v3.21.1
Acquisitions
12 Months Ended
Dec. 31, 2020
Temporary Equity Disclosure [Abstract]  
Acquisitions
4. Acquisitions
2020 Acquisition Activity
During the year ended December 31, 2020, we completed two business combinations, as follows:
Acquisition of Best Day Group
On October 1, 2020 (the “Closing Date”), we consummated the acquisition of the 100% equity interests of Viajes Beda and Transporturist, both companies organized under the laws of Mexico (collectively the “Acquisition”), pursuant to an Amended and Restated Stock Purchase Agreement dated June 11, 2020, as further amended on September 9, 2020 (the “Acquisition Agreement”). Viajes Beda primarily operates in Mexico and to a lesser extent in South America, including Argentina, Brazil and Uruguay among others, and the United States. Transporturist primarily operates in Mexico. Viajes Beda and Transporturist are collectively referred to as the “Best Day Group”.
The Best Day Group primarily provides travelers with several product offerings, including airline tickets, packages, hotels and other travel-related products, through its online platforms, call centers and offline presence, and provides travel suppliers a technology platform for managing the distribution of their travel products and access to traveler customers. The Best Day Group also provides ground transportation services and group tours to travelers principally across the main tourist destinations in Mexico and the Dominican Republic. The Best Day Group offers these travel products and services through its brands “Best Day” and “BD Experience”. In addition, the Best Day Group offers hotel inventory, as well as transfers, activities, car rental, packages and tours to travel agencies through its tradename “HotelDo”. Also, the Best Day Group provides white label services for major travel vendors, including exclusive partnerships with the largest Mexican airlines operating their packages platforms.
The purchase price was fixed at $10,288 after application of net indebtedness and working capital adjustments and will be payable in cash on October 1, 2023. In addition, the Acquisition Agreement provides for an earnout for the benefit of certain sellers ranging from $0 to $20,000 based solely on the performance of our share price during a measurement period of six months prior to the fourth anniversary of the Closing Date. The earnout, if any, will be payable in cash on October 1, 2024.
Under the Acquisition Agreement, the sellers contractually agreed to indemnify us for certain contingencies and uncertain tax positions. We recognized and measured the seller indemnification based on the same basis as the indemnified items. Indemnified items are partially covered by a fixed amount of $10,288 plus any amount payable under the contingent consideration agreement. Changes in the amount recognized for the seller indemnification which are not the result of qualifying measurement-period adjustments, are recognized in earnings in the same period as changes in the indemnified items are recognized. See Note 10.
We have made a preliminary allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values at acquisition date. The preliminary estimated fair value of assets acquired and liabilities assumed was determined with the assistance of a third-party valuer. Goodwill was recognized as the excess of the aggregate of the fair values of consideration transferred over the fair value of assets acquired and liabilities assumed. We have made significant assumptions and estimates in determining the preliminary estimated purchase price, including the contingent consideration comprising a portion of the total consideration, and the preliminary allocation of the estimated purchase price in these consolidated financial statements. The acquisition accounting is dependent upon certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. Therefore, these preliminary estimates and assumptions are subject to change during the measurement period as we finalize the valuations of the net intangible and tangible assets. The final allocation may include changes to (1) the fair values of property and equipment; (2) the fair values of customer relationships and
off-market
components of certain contracts; (3) the recognized amounts of contingencies and liabilities for unrecognized tax benefits; and (4) assets and liabilities, as more information becomes available.
These final valuations may change significantly from our preliminary estimates. Differences between these preliminary estimates and the final acquisition accounting could have a material impact on these consolidated financial statements and our consolidated future results of operations and financial position. We expect to finalize the purchase price allocation during the second quarter ended June 30, 2021.
The following table summarizes the estimated preliminary purchase price:
 
Consideration:
        
Fair value of purchase price payable on October 1, 2023
     8,642  
Fair value of contingent consideration payable on October 1, 2024
     1,526  
    
 
 
 
Total consideration as of acquisition date
   $ 10,168  
    
 
 
 
Recognized amounts of assets acquired and liabilities assumed:
        
Cash and cash equivalents
     5,404  
Restricted cash
     2,763  
Trade accounts receivable, net of credit expected loss
     9,122  
Related party receivable
     2,337  
Lease
right-of-use
assets
     7,415  
Property and equipment, net
     8,836  
Intangible assets, net
     51,758  
Deferred tax assets
     12,851  
Seller indemnification
     11,814  
Other assets and prepaid expenses
     33,446  
    
 
 
 
Total assets acquired
   $ 145,746  
    
 
 
 
Accounts payable and accrued expenses
     7,948  
Travel accounts payable
     82,170  
Related party payable
     266  
Short-term and long-term debt
     10,618  
Lease liabilities
     7,955  
Contingent liabilities
(1)
     22,436  
Deferred revenue
     775  
Taxes payable
(2)
     29,573  
Deferred tax liabilities
     11,015  
Promissory notes issued
(3)
     13,928  
Other liabilities
     16,534  
    
 
 
 
Total liabilities assumed
   $ 203,218  
    
 
 
 
Total net liabilities assumed
   $ 57,472  
    
 
 
 
Goodwill
   $ 67,640  
    
 
 
 
 
 
(1)
Includes $17,933 of identified acquisition-date probable contingencies related to
non-income
tax and $4,503 of identified acquisition-date probable contingencies related to social security and other matters. Amount reflects the best estimate of probable outcome. See Note 21.
 
(2)
Includes a liability of $28,955 for acquisition-date unrecognized tax benefits related to uncertain tax positions taken by the acquiree prior to our acquisition. See Note 19.
 
(3)
As part of the Acquisition Agreement, we legally assumed a debt that the acquired companies had with its previous shareholders. We issued four promissory notes for an aggregate nominal amount of $14,323 (which fair value was $13,928 as of the date of acquisition). The notes accrue interest at a fixed rate of 5% per annum and will be payable in cash on October 1, 2023.
Intangible assets acquired consisted of the following:
 
     Amount      Estimated
useful
life
(years)
 
Trademarks
     13,299        20  
Domains
     204        20  
Developed technology
     8,206        2.5  
Licenses
     634        1.3  
Customer relationships
     29,415        7  
    
 
 
          
Total intangible assets acquired
   $ 51,758           
    
 
 
          
The useful lives of the intangible assets for amortization purposes was determined considering the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive, economic or other factors that may limit the useful life of intangible assets.
We used an income approach to measure the fair value of trademarks based on the relief-from-royalty method. The relief-from-royalty valuation method estimates the benefit of ownership of the intangible asset as the “relief” from the royalty expense that would need to be incurred in absence of ownership.
We used a market approach to measure the fair value of domains.
We used a cost approach to measure the fair value of developed technology based on the reproduction cost method, adjusted by a functional obsolescence factor. An additional cross-check analysis based on income approach has also been performed.
We used a replacement cost method to measure the fair value of licenses.
We used an income approach to measure the fair value of customer relationships based on the Multi-Period Excess Earnings Method. The excess earnings look at projected discounted cash flows of the customer relationships, considering estimated attrition rates. These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 measurements under the fair value hierarchy.
We used a replacement cost method or a market approach, as appropriate, to measure the fair value of fixed assets.
We measure the fair value of the earnout payment using a series of “digital options”. We believe this methodology can be applied because our earnout payment provides for a fixed payment to the sellers if our stock price exceeds a predetermined strike price during the earnout measurement period. In the application of this methodology, we performed a valuation in a risk neutral framework, using a Black-Scholes-Merton Digital call option formula. The significant inputs used were our share price as of the valuation date, our share price historical volatility, U.S. risk free rate, estimated term and credit-risk adjustment spread.
All other net tangible assets were valued at their respective carrying amounts, as we believe that these amounts approximate their current fair values.
A decrease in the fair value of assets acquired, or an increase in the fair value of liabilities assumed, from those preliminary valuations would result in a
dollar-for-dollar
corresponding increase in the amount of goodwill that will result from the Acquisition. In addition, if the value of the acquired assets is higher than the preliminary values above, it may result in higher depreciation and amortization expense.
Goodwill was primarily attributable to the synergistic value created from the opportunity for additional expansion in Mexico and other businesses where we did not have a presence and is
non-deductible
for tax purposes.
We incurred $2,856 and $617 of acquisition-related expenses which were included in “General and administrative” expenses in our consolidated statements of income for the years ended December 31, 2020 and 2019, respectively. We report the results of operations of the acquired business within our two reportable segments.
The following table summarizes the revenue and net loss (including purchase accounting amortization and the impact of intercompany eliminations) of the Best Day Group included in our consolidated statements of income for the year ended December 31, 2020 since October 1, 2020, the date of acquisition:
 
    
Period from
the date of
acquisition to
December 31,
2020
 
Revenue
   $ 14,125  
Net loss
   $ (14,983
The following pro forma summary presents certain consolidated information as if the acquisition of the Best Day Group had occurred on January 1, 2019:
 
    
For the years ended
December 31,
 
    
2020
    
2019
 
Revenue
   $ 165,122      $ 658,147  
Net loss
   $ (242,261    $ (38,241
These pro forma results include adjustments for purposes of consolidating the historical financial results of the Best Day Group for the periods indicated. These pro forma results also include $5,034 and $6,712 for the years ended December 31, 2020 and 2019, respectively, to reflect the incremental depreciation and amortization as a result of recording property and equipment and intangible assets at fair value. These pro forma results do not represent financial results that would have been realized had the acquisition actually occurred on January 1, 2019, nor are they intended to be a projection of future results.
Acquisition of Koin
On August 20, 2020, we completed the acquisition of an 84% equity interest in Koin Administradora de Cartões e Meios de Pagamentos S.A., a company incorporated under the laws of Brazil (“Koin”). Koin is a payment fintech which offers a financing solution to merchants’ customers, predominantly in the travel sector in Brazil.
We effected the acquisition through conversion of an outstanding trade receivable we had with Koin for $977 as of the acquisition date. The former owners remained as
non-controlling
shareholders of a 16% equity interest in Koin.
As part of the acquisition, we and the
non-controlling
shareholders entered into a Shareholders’ Agreement under which we have the option, but not the obligation, to purchase the
non-controlling
interest during a period of 36 months as from the acquisition date at a fixed price of $4,320. In addition, the
non-controlling
shareholders have the option, but not the obligation, to sell their shares back to us during a period commencing on February 20, 2022 and ending August 21, 2023 for a fixed price in cash of $2,880.
We allocated the purchase price to ide
n
tifiable tangible and intangible assets acquired and liabilities assumed, and redeemable
non-controlling
interest based on their fair values at acquisition date. Goodwill was recognized as the excess of the aggregate of the fair values of consideration transferred and the redeemable
non-controlling
interest over the fair value of assets acquired and liabilities assumed. The acquisition date fair value of the redeemable
non-controlling
interest was estimated
 at $2,655, which was calculated using an option pricing model and generally reflected the net present value of the expected future fixed redemption amount. Intangible assets include $593 allocated to trademarks and $150 allocated to developed technology.
In determining the fair value of assets acquired and liabilities assumed, we primarily used discounted cash flow analyses. Inputs to the discounted cash flow analyses and other aspects of the allocation of purchase price require judgment. The more significant inputs used in the discounted cash flow analyses and other areas of judgment include projected revenues, costs and expenses, working capital, capital expenditures and discount rate.
Goodwill was primarily attributable to the assembled workforce of Koin and synergistic value created from the opportunity for additional expansion and is not deductible for tax purposes.
The following table presents the final purchase price allocation as of December 31, 2020:
 
Consideration:
        
    
 
 
 
Fair value of purchase price
   $ 977  
    
 
 
 
   
    
 
 
 
Redeemable
non-controlling
interest:
   $ 2,655  
    
 
 
 
Recognized amounts of assets acquired and liabilities assumed:
        
Cash and cash equivalents
     322  
Restricted cash
     4  
Trade accounts receivable, net of credit expected loss
     1,194  
Lease
right-of-use
assets
     177  
Property and equipment, net
     99  
Intangible assets, net
     743  
Other assets and prepaid expenses
     66  
    
 
 
 
Total assets acquired
   $ 2,605  
    
 
 
 
Accounts payable and accrued expenses
     1,721  
Short-term debt
     1,250  
Lease liabilities
     178  
Contingent liabilities
     19  
Taxes payable
     684  
Deferred tax liabilities
     253  
Other liabilities
     479  
    
 
 
 
Total liabilities assumed
   $ 4,584  
    
 
 
 
Total net liabilities assumed
   $ 1,979  
    
 
 
 
Goodwill
   $ 5,611  
    
 
 
 
We report the results of operations of the acquired business within our two reportable segments. Transaction related expenses during the year ended December 31, 2020 associated with the completion of the acquisition totaled $279 and were charged to “General and administrative” expenses in our consolidated statements of income.
The pro forma effects of this acquisition would not materially impact our reported results for any period presented, and as a result no pro forma financial information is presented. During the period from acquisition through December 31, 2020, the business contributed revenue of $138 and a net loss of $1,786.
2019 Acquisition Activity
During the year ended December 31, 2019, we completed one business combination, as follows:
Acquisition of Viajes Falabella
On June 7, 2019, we obtained the regulatory approvals and obtained control of the outstanding capital stock of Viajes Falabella Argentina, Viajes Falabella Chile and Viajes Falabella Peru. The acquisition of Viajes Falabella Colombia was completed on July 31, 2019, after the regulatory approvals were obtained. We refer to the acquired entities collectively as “Viajes Falabella”. We acquired the Viajes Falabella entities from Grupo Falabella. The Viajes Falabella entities are engaged in the travel agency business through their online and offline presence. The acquisition purchase price totaled $23,000, of which we paid $11,500 in cash at the acquisition date, $5,750 in June 2020 and $5,750 will be paid in June 2021.
Concurrent with the acquisition, we entered into a
10-year
commercial agreement with Grupo Falabella which provides for several marketing and promotional activities and other activities to promote future business. The agreement also provides for the use of the Viajes Falabella brand in Argentina, Chile, Peru and Colombia for an initial period of 4 years, renewable for
one-year
periods at our option. We account for the use of the brand as a prepaid asset and amortizes it under the straight-line basis over the term of the contract.
We acquired Viajes Falabella and entered into the commercial agreement to enhance our position as a leading travel agency providing customers with an enhanced travel and tourism product and service offerings through online, call center and physical stores.
We allocated the purchase price to identifiable tangible and intangible assets acquired and liabilities assumed based on their fair values. Goodwill was recognized as the excess of the aggregate of the fair values of consideration transferred over the fair value of assets acquired and liabilities assumed. In determining the fair value of assets acquired and liabilities assumed, we primarily used discounted cash flow analyses. Inputs to the discounted cash flow analyses and other aspects of the allocation of purchase price required judgment. The more significant inputs used in the discounted cash flow analyses and other areas of judgment include (i) future revenue growth or attrition rates (ii) projected margins (iii) discount rates used to present value future cash flows (iv) the amount of synergies expected from the acquisition and (v) the economic useful life of assets, among others.
 
The following table presents the final purchase price allocation as of December 31, 2019 and the reconciliation with “Payments for acquired business, net of cash acquired” line item in our consolidated statements of cash flows for the year ended December 31, 2019:
 
Consideration:
        
    
 
 
 
Fair value of purchase price
   $ 22,196  
    
 
 
 
Recognized amounts of assets acquired and liabilities assumed:
        
Cash and cash equivalents
     11,272  
Trade accounts receivable, net of credit expected loss
     11,828  
Other assets and prepaid expenses
     34,611  
Property and equipment, net
     2,420  
Intangible assets, net
     3,663  
    
 
 
 
Total assets acquired
   $ 63,794  
    
 
 
 
Travel accounts payable
     36,656  
Other liabilities
     15,807  
    
 
 
 
Total liabilities assumed
   $ 52,463  
    
 
 
 
Total net assets acquired
   $ 11,331  
    
 
 
 
Goodwill
   $ 10,865  
    
 
 
 
Intangible assets primarily consisted of customer relationships, with a weighted average useful life of 3.7 years
.
Goodwill was primarily attributable to the synergistic value created from the opportunity for additional expansion in the
off-line
channel and is not deductible for tax purposes.
We incurred $464 of acquisition-related expenses which were included in “General and administrative” expenses in our consolidated statements of income for the year ended December 31, 2019. We report the results of operations of the acquired business within our two reportable segments.
The following table summarizes the revenues and net loss (including purchase accounting amortization and the impact of intercompany eliminations) of Viajes Falabella included in our consolidated statements of income for the year ended December 31, 2019 since the date of acquisition:
    
Period from the date
of acquisition to
December 31, 2019
 
Net revenue
   $ 20,710  
Net loss
   $ (3,060
The following pro forma summary presents certain consolidated information as if the acquisition of Viajes Falabella had occurred on January 1, 2018:
 
 
  
For the years ended December 31,
 
 
  
2019
 
  
2018
 
Net revenue
  
$
532,710
 
  
$
584,986
 
Net (loss) / income
  
$
(20,872
  
$
19,770
 
 
These pro forma results include adjustments for purposes of consolidating the historical financial results of Viajes Falabella for the periods indicated. These pro forma results also include $757 and $757 for the years ended December 31, 2019 and 2018, respectively, to reflect the incremental depreciation and amortization as a result of recording property and equipment and intangible assets at fair value. These pro forma results do not represent financial results that would have been realized had the acquisition actually occurred on January 1, 2018, nor are they intended to be a projection of future results.
2018 Acquisition Activity
We have not completed any business combinations during the year ended December 31, 2018.
v3.21.1
Redeemable non-controlling interest
12 Months Ended
Dec. 31, 2020
Temporary Equity Disclosure [Abstract]  
Redeemable non-controlling interest
5.
Redeemable
non-controlling
interest
In connection with the acquisition of the 84% controlling interest in Koin on August 20, 2020 (see Note 4 for details), we recognized $2,655 for the 16% redeemable
non-controlling
interest held by the former owners. The terms of the agreement provide us with the right to call the former owners’
non-controlling
interest in Koin, and the former owners the right to put their
non-controlling
interests in Koin back to us, assuming we do not exercise our call right, at dates and prices defined in the agreement. The put price is fixed at $2,880.
The
non-controlling
interest is not currently redeemable, but it is probable of becoming redeemable (the redemption depends solely on the passage of time). Accordingly, we record the
non-controlling
interest at the greater of (i) its acquisition date fair value as adjusted for its share (if any) of earnings, losses, or dividends or (ii) an accreted value from the date of the acquisition to the earliest redemption date, February 20, 2022. The accretion of the
non-controlling
interest to the earliest redemption value is recorded using an interest method. We adopted a policy to charge the carrying value adjustment to retained earnings or, absent retained earnings, additional
paid-in
capital and will reduce net income available to our common shareholders in the calculation of earnings per share in accordance with the
two-class
method. We record the
non-controlling
interest amount in the “mezzanine” section of our consolidated balance sheet as of December 31, 2020, outside of shareholders’ equity.
During the period from acquisition through December 31, 2020 there was a $78 adjustment to reflect a redemption value in excess of carrying value. See Note 24.
Reconciliation of changes in redeemable
non-controlling
interests
 
Beginning balance as of January 1, 2020
   $ —    
Initial fair value of redeemable
non-controlling
interest of acquired businesses
     2,655  
Comprehensive loss adjustments:
        
Net loss attributable to redeemable
non-controlling
interest
     (282
Other comprehensive loss attributable to redeemable
non-controlling
interest
     170  
Additional
paid-in-capital
adjustments:
        
Adjustment to redemption value
     78  
    
 
 
 
Ending balance as of December 31, 2020
   $ 2,621  
    
 
 
 
v3.21.1
Preferred Stock and warrants
12 Months Ended
Dec. 31, 2020
Redeemable Preferred Stock And Warrants [Abstract]  
Preferred Stock and warrants
6.
Preferred Stock and Warrants
Non-Convertible
Redeemable Series A Preferred Shares and Warrants
On September 18, 2020 (the “Catterton Closing Date”), we completed the issuance and sale of our Series A Preferred Shares (as defined below) and warrants (the “Warrants”) to purchase our common stock (“Common Stock”) to LCLA Daylight LP, an affiliate of L Catterton Latin America III, L.P. (the “L Catterton Purchaser”) pursuant to our previously announced Investment Agreement, dated as of August 20, 2020, with the L Catterton Purchaser (the “L Catterton Investment Agreement”).
We issued and sold to the L Catterton Purchaser, pursuant to the L Catterton Investment Agreement, 150,000 shares of our newly created Series A Preferred Shares, no par value per share (the “Series A Preferred Shares”) and Warrants to purchase 11,000,000 shares of our Common Stock, no par value, for an aggregate purchase price of $150,000.
At closing, we paid certain fees in an aggregate amount of $2,250 to the L Catterton Purchaser.
On the terms and subject to the conditions set forth in the L Catterton Investment Agreement, from and after September 18, 2020, LCLA Daylight LP is entitled to appoint one director to our Board of Directors (the “Board”) and one
non-voting
observer to the Board, in each case until such time as LCLA Daylight LP and its permitted transferees no longer hold (a) (i) at least 50% of the Series A Preferred Shares purchased by LCLA Daylight LP under the L Catterton Investment Agreement and (ii) Warrants and/or Common Stock for which the Warrants were exercised that represent, in the aggregate and on an
as-exercised
basis, at least 50% of the shares underlying the Warrants purchased by LCLA Daylight LP under the L Catterton Investment Agreement or (b) if the Company has redeemed the Series A Preferred Shares in full (pursuant to the Company’s redemption right with respect thereto), Warrants and/or Common Stock for which the Warrants were exercised that represent, in the aggregate and on an as-exercised basis, at least 50% of the shares underlying the Warrants purchased by LCLA Daylight LP under the L Catterton Investment Agreement.
The L Catterton Investment Agreement (including the forms of our amended Memorandum of Association and Articles of Association, the terms of the Series A Preferred Shares, Warrants and Registration Rights Agreement) contains other customary covenants and agreements, including certain transfer restrictions, standstill and voting provisions and preemptive rights.
In connection with and concurrently with the closing of the transactions contemplated by the L Catterton Investment Agreement, we issued to LCLA Daylight LP Warrants to purchase 11,000,000 shares of our Common Stock at an exercise price of $0.01 per share, subject to certain customary anti-dilution adjustments provided under the Warrants, including for stock splits, reclassifications, combinations and dividends or distributions made by us on the Common Stock. The Warrants expire on September 18, 2030.
In connection with and concurrently with the closing of the transactions contemplated by the L Catterton Investment Agreement, we and LCLA Daylight LP entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which LCLA Daylight LP is entitled to customary registration rights with respect to the Common Stock for which the Warrants may be exercised.
Principal Terms of the Series A Preferred Shares
Dividends:
Dividends on each Series A Preferred Share accrue daily at a rate of 10.0% per annum and are payable semi-annually in arrears on September 30 and March 31, beginning on March 31, 2021. Dividends are payable, either in cash or through an accrual of unpaid dividends (“Dividend Accrual”), at the Company’s option. Dividends on each Series A Preferred Share accrue whether or not declared and whether or not we have assets legally available to make payment thereof. To the extent that any dividends are declared but unpaid, or any dividends are not declared in any given year, (i) such accrued and unpaid dividends and/or (ii) an amount equal to the dividend entitlement, shall compound semi-annually at the rate of 10.0% per annum (“Accumulating Dividends”). All Accumulating Dividends shall be paid in full prior to any distribution, dividend or other payment in respect of any equity securities junior to the Series A Preferred Shares.
Ranking:
The Series A Preferred Shares rank senior to the Common Stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.
Company’s Redemption Rights:
At any time on or after the third anniversary of the Catterton Closing Date but prior to the fourth anniversary of the Catterton Closing Date, we may redeem all or any portion of the Series A Preferred Shares in cash at a price equal to 105.0% of the sum of the liquidation preference of $1,000 per Series A Preferred Share plus any Dividend Accruals per Series A Preferred Share (the “Liquidation Preference”), plus, without duplication, accrued and unpaid distributions to, but excluding, the redemption date. At any time on or after the fourth anniversary of the Catterton Closing Date but prior to the fifth anniversary of the Catterton Closing Date, we may redeem all or any portion of the Series A Preferred Shares in cash at a price equal to 102.5% of the Liquidation Preference, plus, without duplication, accrued and unpaid distributions to, but excluding, the redemption date. At any time after the fifth anniversary of the Catterton Closing Date, we may redeem all or any portion of the Series A Preferred Shares in cash at a price equal to the Liquidation Preference plus, without duplication, accrued and unpaid distributions to, but excluding, the redemption date.
Holders’ Redemption Rights:
At any time on or after the fifth anniversary of the Catterton Closing Date, each holder of Series A Preferred Shares may, at its election, cause the Company to redeem all or part of such holder’s then outstanding Series A Preferred Shares in cash at a price equal to the Liquidation Preference, plus, without duplication, accrued and unpaid distributions to, but excluding, the redemption date. In addition, if the Company undergoes a qualifying change of control, each holder of Series A Preferred Shares may, at its election, cause the Company to redeem all of such holder’s then outstanding Series A Preferred Shares in cash at a price equal to 110.0% of the Liquidation Preference, plus, without duplication, accrued and unpaid distributions to, but excluding, the redemption date.
Conversion Rights:
The Series A Preferred Shares are not convertible into Common Stock.
Voting Rights:
Each holder of Series A Preferred Shares will have one vote per share on any matter on which holders of Series A Preferred Shares are entitled to vote separately as a class, whether at a meeting or by written consent. The holders of Series A Preferred Shares do not otherwise have any voting rights at any meetings of the Company’s shareholders or on any resolution of the Company’s shareholders.
The prior written approval of the holders of a majority of the Series A Preferred Shares outstanding at such time, acting together as a separate class, is required in order for the Company to (i) amend the Memorandum and Articles of Association in a manner that adversely affects the holders of Series A Preferred Shares, (ii) create or issue any shares, or any securities convertible or exchangeable into, or exercisable for shares, ranking senior or pari passu to the Series A Preferred Shares or issue any additional Series A Preferred Shares or increase the authorized number of Series A Preferred Shares, other than an additional financing meeting certain requirements, (iii) declare or pay any dividend or distribution, or repurchase or redeem any shares, subject to certain exceptions, including with respect to the Series A Preferred Shares, (iv) make any fundamental change in the nature of the business in which the Company is primarily engaged, (v) initiate, engage in or permit to occur (to the extent within our control), any liquidation, dissolution or winding up of the Company, (vi) continue or
re-domicile
the Company in any jurisdiction other than the British Virgin Islands, or (vii) take or permit certain of the foregoing with respect to our significant subsidiaries.
So long as the Catterton Purchaser holds any Series A Preferred Shares, the prior written consent of the Catterton Purchaser is required in order for us to (i) incur any indebtedness for borrowed money in excess of the greater of $60,000, and an amount equal to 1.0x the Company’s consolidated Adjusted EBITDA for the twelve month period ending at the end of the last quarter for which we have publicly reported financial results, (ii) sell, dispose of or enter into any exclusive license for any material asset (or group of related assets) of the Company or with a fair market value equal or greater to 10% of our consolidated total assets and (iii) enter into certain affiliate transactions, in each case subject to certain exceptions.
Pursuant to the L Catterton Investment Agreement, on September 18, 2020, Mr. Dirk Donath was appointed as a member of the Board and Mr. Ramiro Lauzan was appointed as a
non-voting
observer. Mr. Donath has also been appointed to serve on the Strategy Committee and Nomination and Compensation Committee of the Board.
Principal Terms of the Warrants to Purchase Common Stock
Pursuant to the L Catterton Investment Agreement, we issued to the Catterton Purchaser Warrants to purchase 11,000,000 Common Shares at an exercise price of $0.01 per share (“Penny Warrants”), subject to certain customary anti-dilution adjustments provided under the Warrants, including for stock splits, reclassifications, combinations and dividends or distributions made by the Company on the Common Shares. The Penny Warrants expire ten years after the Catterton Closing Date.
The Penny Warrants vest and are exercisable as of the issuance date.
 
The Penny Warrants also include customary anti-dilution adjustments.
Initial and Subsequent Accounting:
The Series A Preferred Shares are classified within temporary equity on our consolidated balance sheet as of December 31, 2020 due to the provisions that could cause the equity to be redeemable at the option of the holder and the terms of the Series A Preferred Shares which do not include an unconditional obligation to redeem at a specified or determinable date, or upon an event certain to occur. The Penny Warrants qualify for classification in stockholders’ equity and are included in our consolidated balance sheet as of December 31, 2020 within “Additional
paid-in
capital”.
As indicated above, if a qualifying change of control occurs, then each holder of Series A Preferred Shares may, at its election, cause the Company to redeem all of such holder’s then outstanding Series A Preferred Shares in cash at a price equal to 110.0% of the Liquidation Preference, plus, without duplication, accrued and unpaid distributions to, but excluding, the redemption date (the “Change of Control Put”). There is a substantial premium as the Company is required to pay 110.0% upon a change of control. The Change of Control Put requires bifurcation. However, it is uncertain whether or when a qualifying change of control would occur that would obligate the Company to pay the substantial premium liquidation preference to holders of the Series A Preferred Shares and at the balance sheet date, these circumstances were not probable. Thus, no value was assigned at inception. A subsequent adjustment to the carrying value of the Series A Preferred Shares may be made only when it becomes probable that such a change of control event will occur.
The gross proceeds received from the issuance of the Series A Preferred Shares were allocated to the Series A Preferred Shares and Warrants on a relative fair value basis.
In determining the fair value of the Series A Preferred Shares, we primarily used discounted cash flow analyses. Inputs to the discounted cash flow analyses and other aspects of the valuation require judgment. The more significant inputs used in the discounted cash flow analyses and other areas of judgment include assumptions on term, cash flows, and market yield.
In determining the fair value of the Warrants, we primarily used the Black Scholes Option Pricing Model (“BSOPM”). Inputs to the BSOPM and other aspects of the valuation require judgment. The more significant inputs used in the BSOPM and other areas of judgment include the starting stock price or value of the underlying assets, the strike price, the time to expiration, and volatility and risk-free rate. In order to consider the
two-year
transfer restriction of the Warrants, considered to be security specific, we applied a Discount for Lack of Marketability with the Finnerty Method.
Therefore, the Series A Preferred Shares were initially recognized at an allocated amount on a fair value basis of $84,643, net of $5,415 in initial discount and issuance costs. The Penny Warrants were recognized at an allocated amount on a fair value basis of $56,339, net of $3,604 in issuance costs. Penny Warrants were recorded as additional
paid-in
capital.
 
The Series A Preferred Shares are not redeemable at December 31, 2020; however, they will become redeemable on September 18, 2025. Since only the passage of time is needed to occur in order for the Series A Preferred Shares to become redeemable, it is considered to be probable that it will be redeemable. As such, we elected to accrete the difference between the initial value of $84,643 and the redemption value of $150,000 over the five-year period from the date of issuance through September 18, 2025 (the date at which the holder has the unconditional right to redeem the shares, deemed to be the earliest likely redemption date) using the effective interest method. The accretion to the carrying value of the redeemable preferred shares is treated as a deemed dividend, recorded as a charge to additional
paid-in-capital
(since there is a deficit in retained earnings) and deducted in computing earnings per share (analogous to the treatment for stated dividends paid on the redeemable preferred shares). The accumulated accretion as of December 31, 2020 is $2,831 resulting in an adjusted redeemable preferred share balance of $91,686.
The Series A Preferred Shares accumulated $4,212 of total accrued dividends from issuance date through December 31, 2020 recorded as a charge to additional
paid-in-capital.
Convertible Redeemable Series B Preferred Shares
On September 21, 2020 (the “Waha Closing Date”), we completed the issuance and sale of our Series B Preferred Shares (as defined below) to Waha LATAM Investments Limited, an affiliate of Waha Capital PJSC (the “Waha Purchaser”) pursuant to our previously announced Investment Agreement, dated as of August 20, 2020, with the Waha Purchaser (the “Waha Investment Agreement”).
We issued and sold to the Waha Purchaser, pursuant to the Waha Investment Agreement, 50,000 shares of our newly created Series B Preferred Shares, no par value per share (the “Series B Preferred Shares”) for an aggregate purchase price of $50,000.
At closing, we paid certain fees in an aggregate amount of $1,000 to affiliates of the Waha Purchaser.
On the terms and subject to the conditions set forth in the Waha Investment Agreement, from and after September 21, 2020, the Waha Purchaser is entitled to appoint one director to our Board and one
non-voting
 
observer to the Board, in each case until such time as (i) the Waha Purchaser no longer holds at least 50% of the Series B Preferred Shares purchased by the Waha Purchaser under the Waha Investment Agreement and (ii) in the event that the Waha Purchaser or the Company converts the Series B Preferred Shares to Common Shares in full, the Waha Purchaser will be entitled to appoint one director to the Board and one
non-voting
observer to the Board, in each case, until such time as the Waha Purchaser no longer holds at least 50% of the issued and outstanding Common Shares issued to the Waha Purchaser at the conversion date. 
The Waha Investment Agreement (including the forms of our amended Memorandum of Association and Articles of Association, the terms of the Series B Preferred Shares and the Waha Shelf Registration Rights Agreement) contains other customary covenants and agreements, including certain transfer restrictions, standstill and voting provisions and preemptive rights.
Pursuant to the Waha Investment Agreement, we and the Waha Purchaser entered into a Shelf Registration Rights Agreement (the “Waha Shelf Registration Rights Agreement”), pursuant to which the Company filed a Registration Statement on Form
F-3
covering the resale of the Common Shares for which the Series B Preferred Shares may be converted. The issuance of the Series B Preferred Shares pursuant to the Waha Investment Agreement is intended to be exempt from registration under the Securities Act, by virtue of the exemption provided by Section 4(a)(2) of the Securities Act.
 
Principal Terms of the Series B Preferred Shares
Dividends:
Dividends on each Series B Preferred Share accrue daily from and including the Waha Closing Date at a rate of 4.0% per annum and are payable quarterly in arrears commencing on December 31, 2020. Dividends on each Series B Preferred Share accrue whether or not declared and whether or not the Company has assets legally available to make payment thereof.
Dividends are payable, at the Company’s option, either (i) in cash or (ii) by increasing the amount of Accrued Dividends in an amount equal to the amount of the dividend to be paid. If the Company does not declare and pay in cash a full dividend on each Series B Preferred Share on any dividend payment date, then the amount of such unpaid dividend shall automatically be added to the amount of accrued dividends on such share on the applicable dividend payment date without any action on the part of the Company.
In addition, the Series B Preferred Shares are entitled to participate in dividends and other distributions declared and made on the Common Stock on an
as-converted
basis.
Ranking:
The Series B Preferred Shares rank on a parity basis to the Series A Preferred Shares and senior to the Common Stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.
Liquidation Rights:
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of the Series B Preferred Shares shall be entitled, out of assets legally available therefor, before any distribution or payment out of the assets of the Company may be made to or set aside for the holders of any Common Shares, and subject to the rights of the holders of any Senior Shares or Parity Shares and the rights of the Company’s existing and future creditors, to receive in full a liquidating distribution in cash and in the amount per Series B Preferred Share equal to the Liquidation Preference with respect to such Series B Preferred Share.
Conversion Rights:
The Series B Preferred Shares are convertible, at the option of the holder, at any time into Common Stock at an initial conversion price of $9.251 (the “Initial Conversion Price) per share and an initial conversion rate of 108.1081 Common Shares per Series B Preferred Share, subject to certain anti-dilution adjustments. As of December 31, 2020, there were no conversions of the Series B Preferred Shares.
Each holder of Series B Preferred Shares has the right, at such holder’s option, to convert all or a part of such holder’s Series B Preferred Shares at any time into (i) the number of Common Shares per Series B Preferred Share equal to the quotient of (A) the sum of the Stated Value plus, without duplication, any accrued and unpaid Dividends with respect to such Series B Preferred Share as of the applicable Conversion Date (to the extent such accrued and unpaid Dividend is not included in the Stated Value already) (such sum, the “Conversion Amount”) divided by (B) the Conversion Price as of the applicable Conversion Date.
At any time from the third to the fifth anniversary of the Waha Closing Date, if the volume weighted average price (“VWAP”) of the Common Shares exceeds $
13.88
(150
% of the Initial Conversion Price) as may be adjusted pursuant to the Memorandum and Articles of Association, for at least
10
consecutive trading days, the Company may convert all of the Series B Preferred Shares into the number of Common Shares equal to the quotient of
(1)
105
% of the conversion amount as of the conversion date divided by
(2)
 the conversion price of such share in effect as of the conversion date.
At any time from the fifth to the seventh anniversary of the Waha Closing Date, if the VWAP of the Common Shares exceeds $12.49 (135% of the Initial Conversion Price), as may be adjusted pursuant to the Memorandum and Articles of Association, for at least 10 consecutive trading days, the Company may convert all of the Series B Preferred Shares into the number of Common Shares equal to the quotient of (1) 105% of the conversion amount as of the conversion date divided by (2) the conversion price of such share in effect as of the conversion date.
In addition, at any time from the seventh anniversary of the Waha Closing Date, if the VWAP of the Common Shares exceeds the Initial Conversion Price, as may be adjusted pursuant to the Memorandum and Articles of Association, for at least 10 consecutive trading days, the Company may convert all of the Series B Preferred Shares into the number of Common Shares equal to the conversion amount divided by the lower of (1) the VWAP per Common Share on the 15 trading days immediately preceding the conversion date or (2) the price per Common Share on the trading day immediately preceding the conversion date.
Redemption Rights:
At any time on or after the seventh anniversary of the Waha Closing Date, the Company may redeem all of the Series B Preferred Shares in cash at a price equal to the sum of (i) (x) the initial stated value of $1,000 per Series B Preferred Shares plus (y) any Dividend Accruals (such sum, the “Stated Value”) plus (ii), without duplication, any accrued and unpaid distributions to, but excluding, the redemption date.
Change of Control Redemption:
If the Company undergoes a qualifying change of control prior to the seventh anniversary of the Waha Closing Date, the Company must redeem, subject to the right of each holder to convert its then outstanding Series B Preferred Shares into Common Shares, all of the then outstanding Series B Preferred Shares for a cash price per share equal to the greater of (x) 110.0% of the Stated Value plus, without duplication, any accrued and unpaid distributions to, but excluding, the redemption date, and (y) the amount such holder would have received in respect of the number of Common Shares that would be issuable upon conversion thereof.
If the Company undergoes a qualifying change of control on or following the seventh anniversary of the Waha Closing Date, the Company must redeem, subject to the right of each holder to convert its then outstanding Series B Preferred Shares into Common Shares, all of the then outstanding Series B Preferred Shares for a cash price per share equal to the greater of (x) 100.0% of the Stated Value plus, without duplication, any accrued and unpaid distributions to, but excluding, the redemption date, and (y) the amount such holder would have received in respect of the number of Common Shares that would be issuable upon conversion thereof, subject to certain conditions.
 
Voting Rights:
The Series B Preferred Shares will vote on all matters together with the Common Shares on an
as-converted
basis. Until such time as the Waha Purchaser no longer holds at least 50% of the Series B Preferred Shares purchased by the Waha Purchaser under the Waha Investment Agreement, the prior written consent of the Waha Purchaser is required in order for the Company to (i) authorize, create or issue any shares senior to or on parity with the Series B Preferred Shares, excluding an additional financing meeting certain requirements; (ii) amend, modify or repeal any provision of the Memorandum and Articles of Association in a manner adverse to the Series B Preferred Shares; (iii) change the authorized number of directors of the Company; (iv) enter into certain affiliate transactions; (v) declare or pay any dividend or distribution with respect to any shares; (vi) redeem, purchase or otherwise acquire any Common Shares; (vii) liquidate, dissolve or wind up the affairs of the Company or any of its subsidiaries, effect a recapitalization or reorganization, or reincorporate the Company under the laws of a jurisdiction other than the British Virgin Islands; (viii) effect a conversion of the Company into a different legal form; and (ix) enter into any exclusive license for all or substantially all of the Company’s products or technologies to a third party, in each case subject to certain exceptions.
Pursuant to the Waha Investment Agreement, on September 21, 2020, Mr. Aseem Gupta was appointed as a member of the Board.
Initial and Subsequent Accounting:
The Series B Preferred Shares are classified within temporary equity on our consolidated balance sheet as of December 31, 2020 due to the provisions that cause the equity to be redeemable upon the occurrence of a change of control. The terms of the Series B Preferred Shares do not include an unconditional obligation to redeem at a specified or determinable date, or upon an event certain to occur.
The Series B Preferred Shares were determined to have characteristics more akin to equity than debt. As a result, the conversion at holder’s option or at the Company’s option prior to the seventh anniversary of the Waha Closing Date were determined to be clearly and closely related to the Series B Preferred Shares and therefore do not need to be bifurcated and classified as a derivative liability.
The Company’s conversion option after the seventh anniversary of the Waha Closing Date was not determined to be clearly and closely related to the Series B Preferred Shares as the feature is
in-substance
a put option as it is designed to provide the investor with a fixed monetary amount, settleable in shares. Put (call) options embedded in equity hosts are not considered clearly and closely related. However, the embedded feature does not meet the definition of a derivative. It has an underlying, a notional amount and a settlement provision, little to no initial net investment but it is not net settled. Therefore, the feature does not need to be bifurcated and classified as a derivative liability.
We also evaluated whether a beneficial conversion feature (“BCF”) should be bifurcated and separately recognized. A convertible instrument contains a BCF when the conversion price is less than the fair value of the shares into which the instrument is convertible at the commitment date. As the conversion price is above the share price and the conversion option is not priced
“in-the-money”,
we concluded that the Series B Preferred Shares did not contain a BCF and no accounting entry was required.
All of the other embedded features in the Series B Preferred Shares do not need to be bifurcated.
Accordingly, the Series B Preferred Shares were recognized at fair value of $50,000 (the proceeds on the date of issuance) less issuance costs of $3,300 resulting in an initial value of $46,700.
The Series B Preferred Shares were not currently redeemable at December 31, 2020. Also, the events that could cause the Series B Preferred Shares to become redeemable are not considered probable of occurring as of December 31, 2020. Accordingly, accretion from the initial carrying amount to the redemption amount was not required. Dividends were accrued, approved and paid in cash for $553 and as of December 31, 2020 there were no undeclared dividends.
v3.21.1
Debt
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Debt
7.
Debt
The following table sets forth our outstanding short-term and long-term debt:
 
    
Book Value
December 31,
    
Fair Value
December 31,
 
    
2020
    
2019
    
2020
    
2019
 
Loan with HSBC Mexico, S.A. principal amount 100,000,000 Mexican Pesos
     5,026        —          5,026        —    
Loan with Bank Sabadell Mexico S.A. principal amount 83,831,941 Mexican Pesos
     3,833        —          3,833        —    
Loan with Bank Sabadell Mexico S.A. principal amount 20,000,000 Mexican Pesos
     1,005        —          1,005        —    
Loan with Banco de Crédito e Inversiones principal amount 500,000,000 Chilean Pesos
     699        —          694        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Long-term debt, including current maturities
   $ 10,563        —        $ 10,558        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Less current maturities of long-term debt
     196        —          196        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Long-term debt, excluding current maturities
   $ 10,367        —        $ 10,362        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Short-term debt, including current maturities of long-term debt
     8,949        19,209        8,949        19,209  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total short-term and long-term debt
   $ 19,316        19,209      $ 19,311        19,209  
    
 
 
    
 
 
    
 
 
    
 
 
 
The changes in the balance of the total debt as of December 31, 2020 and December 31, 2019 consist of the following:
 
    
As of December 31,
2020
    
As of December 31,
2019
 
Balance, beginning of year
   $ 19,209      $ 31,162  
Acquisitions
     9,335        —    
Borrowings obtained
     640        —    
Payment of borrowings
     (375      —    
Accrued interest
     196        —    
Interest paid
     (195      —    
Foreign currency translation adjustment
     962        —    
Short-term loans, net
     (10,456      (11,953
    
 
 
    
 
 
 
Balance, end of year
   $ 19,316      $ 19,209  
    
 
 
    
 
 
 
The following table shows the details of the long-term debt outstanding as of December 31, 2020:
 
Loan
   Issuance
date
   Maturity
date
   Currency    Principal
amount in
original
currency
     Principal
amount in
U.S. dollars
     Interest rate   Interest
payment
 
HSBC Mexico, S.A.
   February 2020    March 2023    Mexican Pesos      100,000,000        5,100      TIIE
(1)
+3.25%
    Monthly  
Bank Sabadell Mexico S.A.
   January 2020    March 2023    Mexican Pesos      83,831,941        4,433      TIIE
(1)
+2.5%
    Monthly  
Bank Sabadell Mexico S.A.
   January 2020    January 2022    Mexican Pesos      20,000,000        1,058      TIIE
(1)
+3.2%
    Monthly  
Banco de Crédito e Inversiones
   June 2020    May 2024    Chilean Pesos      500,000,000        640      3.50     Monthly  
 
(1)
TIIE represents an interbank interest rate in Mexico. As of December 31, 2020, interest rates for HSBC Mexico, S.A. loan, Bank Sabadell I loan and Bank Sabadell II loan were 7.5%, 6.75% and 7.45%, respectively.
The weighted average interest rate on short-term borrowings outstanding as of December 31, 2020 and 2019 was 3.4% and 4.3%, respectively.
v3.21.1
Cash and cash equivalents and restricted cash
12 Months Ended
Dec. 31, 2020
Cash and Cash Equivalents [Abstract]  
Cash and cash equivalents and restricted cash
8.
Cash and cash equivalents and restricted cash
Cash and cash equivalents
Cash and cash equivalents consist of the following:
 
    
As of December 31,
2020
    
As of December 31,
2019
 
Cash on hand
     121        42  
Bank deposits
     201,217        118,933  
Time deposits
     45,031        153,838  
Money market funds
     88,061        36,374  
    
 
 
    
 
 
 
     $334,430      $309,187  
    
 
 
    
 
 
 
Restricted cash
We place collateralized amounts related to operations with our travel suppliers and service providers and the International Air Transport Association (“IATA”). We are required to be accredited by IATA to sell international airlines tickets of IATA-affiliated airlines. We, therefore, as part of our operations, maintain restricted cash in the form of time deposits or bank or insurance guarantees aggregating $16,055 and $4,457 as of December 31, 2020 and 2019.
The following table reconciles our cash and cash equivalents and restricted cash as reported in our consolidated balance sheets to the total amount shown in our consolidated statements of cash flows:
 
    
As of December 31,
2020
    
As of December 31,
2019
    
As of December 31,
2018
 
As included in our consolidated balance sheets:
                          
Cash and cash equivalents
     334,430        309,187        346,480  
Restricted cash
     16,055        4,457        5,709  
    
 
 
    
 
 
    
 
 
 
Total cash and cash equivalents and restricted cash as shown in our consolidated statements of cash flows:
   $ 350,485      $ 313,644      $ 352,189  
    
 
 
    
 
 
    
 
 
 
v3.21.1
Measurement of credit losses on financial instruments
12 Months Ended
Dec. 31, 2020
Receivables [Abstract]  
Measurement of credit losses on financial instruments
9.
Measurement of credit losses on financial instruments
On January 1, 2020, we adopted ASU
2016-13
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”) which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost.
As of the date of adoption, January 1, 2020 and as of December 31, 2020, substantially all our financial assets under the scope of the standard corresponded to trade accounts receivable as a result of revenue transactions recognized in accordance with ASC 606.
We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. We recorded a net increase to accumulated losses of $1,076 as of January 1, 2020 for the cumulative effect of adopting ASC 326.
The following table illustrates the impact of adopting ASC 326 as of January 1, 2020:
 
     As of January 1, 2020  
     As reported
under previous
GAAP
     Impact of ASC
326 adoption
     As reported
under ASC 326
 
Allowance for credit expected losses:
     3,205        1,076        4,281  
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less an allowance for expected credit losses.
Upon adoption of ASC 326, we grouped our trade receivables by country of origin and type (i.e. facilitation services, incentives, advertising, transportation and tour services and others) based on similar risk characteristics.
Payment terms for receivables vary depending on type and jurisdiction, generally less than one year.
As it relates to trade receivables with credit card processors which represent the majority of our trade receivables as of any given date, payment terms vary but typically are received within 30 days after booking except in those cases where transactions are effected through financing installment plans offered by banks. When travelers pay in installments, we receive payment from credit card processors at the time each installment is due generally within 12 months after booking depending on installment plan selected. However, we typically enter into factoring arrangements to cash these receivables thereby reducing days outstanding exposures. Receivables
from back-end incentives
and advertising transactions typically do not have stated payment terms, although we generally receive payment within 12 months.
Generally, we utilized a loss rate method to calculate the allowance for expected credit losses. We compiled information for a period of time before adoption and tracked historical loss information for our trade receivables by type and geography using their contractual lives. We believe that use of a period of 12 months or more prior to adoption was reasonable based on the nature and term of our receivables. We applied the historical credit loss percentages to our outstanding balances as of adoption and as of December 31, 2020. We determined that historical loss information is a reasonable basis on which to determine expected credit losses for trade receivables held at the reporting date because their composition at the reporting date is consistent with that used in developing the historical credit-loss percentages.
Historically the default or delinquency rates of our trade receivables have been low even during recessions or distressed economic periods. Recessions or other poor economic conditions had historically affected the amount of bookings by travelers and therefore generation of revenue and corresponding receivables, but they generally did not affect the collection behavior of receivables from confirmed bookings. A booking is not confirmed if credit card information is not validated by the credit card processors’ systems. Therefore, due to the nature of our receivables and counterparties, losses have been historically limited to very specific events at the counterparty level such as bankruptcy or financial difficulties.
During the year ended December 31, 2020, we recorded $7,199 of incremental allowance for expected uncollectible amounts, including estimated future losses in consideration of the impact of
COVID-19
pandemic on our operations and the economy. Actual future bad debt could differ materially from this estimate resulting from changes in our assumptions of the duration and severity of the impact of the
COVID-19
pandemic.
Our exposure to credit risk takes the form of a loss that would be recognized if counterparties failed to, or were unable to, meet their payment obligations. We are also exposed to political and economic risk events, which may cause
non-payment
of foreign currency obligations to us.
Generally, the counterparties to our trade receivables are major well-recognized and externally-credit rated credit card companies, such as MasterCard, Visa, Diners and other local or regional credit card processors; major GDS providers, such as Travelport, Amadeus and Sabre, individual major airlines; and to a lesser extent hotel chains and operators. We may seek cash collateral, letter of credit or parent company guarantees, as considered appropriate. We have not experienced significant credit problems with these customers to date. Most of these entities or their parent companies are externally credit-rated. We review these external ratings from credit agencies. Certain airlines have been severely affected by the
COVID-19
pandemic and entered into Chapter 11 protection in the United States. We have recognized incremental allowances for expected uncollectible amounts. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in our consolidated balance sheet after deducting the expected credit loss allowance.
The following table shows the activity on the expected credit loss allowance for trade receivables during the years ended December 31, 2020 and 2019: