Despegar.com, Corp (NYSE:DESP) Q1 2020 Earnings Conference Call May 4, 2020 8:00 AM ET
Natalia Nirenberg - Investor Relations
Damián Scokin - Chief Executive Officer
Alberto López Gaffney - Chief Financial Officer
Conference Call Participants
Rodrigo Nistor - Itaú
Edward Yruma - KeyBanc Capital Markets
Eric Sheridan - UBS
Good morning and welcome to the Despegar First Quarter 2020 Earnings Call. A slide presentation is accompanying today’s webcast and is available in the Investors section of the company’s website www.investor.despegar.com. [Operator Instructions] This conference call is being recorded. As a reminder, all participants will be in listen-only mode. Now, I will turn the call over to Ms. Natalia Nirenberg, Investor Relations. Please go ahead, ma’am.
Good morning, everyone and thanks for joining us today for a discussion of our first quarter 2020 results. In addition to reporting financial results in accordance with U.S. Generally Accepted Accounting Principles, we discuss certain non-GAAP financial measures and operating metrics, including foreign exchange neutral calculation. Investors should read the definitions of these measures and metrics included in our press release carefully to ensure that they understand them. Non-GAAP financial measures and operating metrics should not be considered in isolation as substitute for or superior to GAAP financial measures and are provided as supplemental information only.
Before we begin our formal remarks, allow me to remind you that certain statements made during the course of the discussion may constitute forward-looking statements, which are based on management’s current expectations and beliefs and assumptions to a number of risks and uncertainties that could cause actual results to materially differ, including factors that maybe beyond the company’s control. This includes expectations and expansions related to the impact of the COVID-19 pandemic. For a description of these risks, please refer to our filings with the Securities and Exchange Commission and our press release.
Speaking on today’s call is our CEO, Damián Scokin who will provide an overview of the first quarter and update you on our strategic priorities. Alberto López Gaffney, our CFO, will afterwards discuss the quarter’s financials. After that, we will open the call to your questions. Damián, please go ahead.
Thank you, Natalia. Good morning, everyone and thank you for joining us. First of all, I hope that you and your loved ones are safe and healthy. We are living and operating in a time of considerable uncertainty. The COVID-19 crisis is causing companies like ours to adopt in order to overcome near-term operational challenges. These are truly unprecedented times. And for that reason, we will take a different approach to our discussion today, recognizing that the operational backdrop has changed rapidly in the last several weeks. We will spend limited time discussing our first quarter results and more time discussing how we are responding to the current situation.
As we navigate the current uncertainty, we are leveraging the strong foundations we will over the past several years. This is the information you see from the left side of the slide. For the past few years, this radar has made meaningful progress in executing our strategic initiatives. So, while this is an uncertain and challenging time, Despegar has the foundation in place to emerge from it leaner and stronger than ever. We also believe that our key initiatives and strategies are working and we will support our future worlds when we get through this pandemic.
Let me take you through some of the key highlights. We are entering this period of uncertainty from a position of strength. We have a strong balance sheet and an asset glide on profitable business model as well as an experienced leadership team. Importantly, we have sufficient liquidity and cash flow to maintain our business, admit our obligations for an extended period of time.
Let’s next talk about scale. We are the leading OTA in Latin America and have gained over 300 basis points in market share over the past 5 years. During the same period, we have delivered 25% CAGR in local currency gross bookings. We have been able to do these as we have increased our product offering to customers with a particular focus in hotels, packages and other travel products, which accounted in 2018 for 62% of total revenues, an increase of 1,300 basis points during this time period.
Lastly, we have the highest brand awareness in Latin America. Over the past two decades, Despegar has invested over $1 building our brand. It is due to our strong brand recognition that close to 70% of our website traffic is unpaid. In other words, we do not have to pay a significant amount of marketing dollars to drive traffic to our site. This strong brand recognition coupled with our leading technology platform has also translated into strong demand for our app, which is the most downloaded travel app in Latin America. We have the largest travel base in the region and are confident that we will continue to capture new customers, particularly given the accelerated shift to online purchases that has taken place in LatAm triggered by the current stay-at-home policies. These are difficult times for all of us.
Since mid-March, many countries have issued travel bans to mitigate the spread of COVID-19. Airplane capacity has been severely reduced and people are practically not travelling either domestically or internationally as most countries are in some form of lockdown around the world. In terms of our main markets, Argentina has implemented strict stay-at-home policies banning all air travels. Our Brazil and Mexico airports remain open although operating at significantly reduced capacity. Colombia has also restricted international and domestic travel, while Chile will reopen some domestic routes in May. We do not know how long these restrictions will last, but we faced challenges before and we always came out stronger on the other side.
Moving next to how we are currently responding to COVID. This is the info you see on the right side of the slide. The full impact of COVID-19 won’t be known for several months. However, what is important right now is that we are proactively managing the immediate challenges. The important points I would like to emphasize are that we will prioritize the health and safety of all the Despegar employees and customers and we will maintain the sustainability of our business. Priority number one, protect the health and safety of our employees. We have taken proactive actions to protect our employees. This includes implementing social distancing protocols and work-from-home policies. Our response continues to evolve in line with best practices and in accordance to the recommendations from the national health authorities and the World Health Organization, whereas our focus is on our customers and doing our best to assist them with adjustments to their travel plan by providing them with the possibility to postpone their trips. We have a culture of innovation and one of the best IT teams in the region. As a result, we were able to quickly adjust our website adding automation, so that our customers could manage their bookings themselves in an effort to support our call centers.
Next, ensuring the sustainability of the company, we are prudently managing the business through the near-term volatility while continuing to strengthen the long-term health of the company. We are accomplishing these in several ways. First, we leant our response for COVID-19 in March and formally established a set of task forces to coordinate our efforts. We are focused on ensuring business continuity and we are developing robust contingency plan to address a wide range of scenarios.
Next, we are aggressively reducing all structural and discretionary operating expenses and challenging what is essential and making sure every dollar spent is worthy. Later in my presentation, I will go over what we are doing on the expected cost savings. It is worth pointing out that we have begun a cost saving program in the first quarter of 2019 and we also took some additional cost-cutting measures early January and February even before COVID-19. The benefits from those early efforts are already apparent in our first quarter 2020 results as our structural costs were down 16% from the fourth quarter of 2019. Now, more than ever, we will continue to stay focused on cash management. We believe we have significant cash on hand to weather the coronavirus impact, $226 million at quarter end.
Lastly, we are currently having positive discussions with the Best Day team with respect to the acquisition we announced in January. While it is too early to provide specifics, our expectation is that the final agreement will have significant changes there since the original one as we expect to postpone any cash outlays related to this acquisition for at least 2 years. However, we cannot be assured whether the proposed changes to the purchase agreement will be accepted. A failed negotiation may trigger a cancellation of the deal. The situation continues to evolve so rapidly that it’s difficult to predict the future with much certainty. While comparisons can certainly be drawn to weather-related disruptions or natural disasters or recessions the reality is that we have never seen the current scenario on such a global scale. Nevertheless, we are committed to being transparent about what we are seeing in the marketplace and what we are doing to respond. We will continue to be forthcoming as we navigate this uncharted territory and we believe we will have more visibility in the coming months as the situation stabilizes.
Moving next to a quick overview of first quarter transactions and gross bookings, over time, we have been able to successfully increase both total transactions and gross bookings, while gaining market share. We have been able to accomplish these despite sometimes challenging macro conditions in Latin America by adjusting opportunistically our business model and adding more products and services for our customers. We are now being impacted by unprecedented global health crisis. As you can see in this chart, total transactions were down 23% in the quarter, with packages, hotels and other travel products decreasing faster than the air transactions. Total packages, hotels and other travel products transactions were down 28% in the quarter on a reported basis and accounted for 40% of total transactions, while air transactions declined 20% in the period.
Gross bookings decreased 19% on an FX neutral basis. As reported, gross bookings were down 32%, reflecting the impact of COVID-19 on global travel, weaker demand in Argentina as well as some pull ahead of bookings in fourth quarter 2019 in anticipation of the new tax imposed from toll outside the country, and lastly the depreciation of the Brazilian real. The largest impact to our business occurred in the second half of March at the time most global economies shutdown. In turn, we saw a 95% decrease in gross bookings in this period compared to the second half of March of the prior year. Unfortunately, we expect that trend to continue throughout the second quarter.
Turn now to Page 5 for a more detailed discussion as to how we are reducing costs and the associated benefits projected for the next two quarters. This is a global pandemic. Each country is preventing the outbreak of the virus differently and accordingly our markets will progress through these and recover on different timelines. These add some complexity from a geographic point of view. We have been aggressive in cost take-out in light of the impact that the crisis is having in our revenue. We define structural costs as the fixed portion of our cost of revenue and operating expenses. It would include items such as the fixed portion of the call center spend that remains after outsourcing the operation, the fixed portion of selling and marketing, primarily personnel, G&A as well as tech and product development. We do not include non-cash items such as depreciation and impairment and other costs associated with severance packages and the announced acquisition of Best Day.
To address the anticipated impacts of COVID-19, we are taking steps to ensure that costs remain aligned with the decrease in demand. Let me detail some of the main measures we have already taken to lower structural costs and support our free cash flow. First, we’ve temporarily reduced salaries of the Executive Committee, Board of Directors and senior management by 50% and middle management by 25%. This reduction will stay in place through the second quarter of 2020. We also eliminated first half of 2020 bonuses to all employees and we are limiting inflation salary increases.
Next, to better match staffing levels with demand activity, we have implemented a hiring freeze, have reduced part of our workforce, reduced working hours and implemented unpaid leave in certain locations. Third, we acquired Viajes Falabella last year and are moving ahead with the consolidation of the business and accelerating the capture of synergies. Fourth, we are attacking all discretionary operating expenses and are challenging what is essential and making sure every dollar spent is appropriate. We are also taking a similar approach with our suppliers. This is an important area to effectively manage as we look to improve terms and conditions. Likewise, we are reviewing all contracts and commitments. Last, we have post all capital spend other than what is absolutely essential or has already been committed. By moving quickly and decisively, we are avoiding unnecessary spend and are gaining maximum flexibility for the second half of the year as we see more clarity on the outlook.
Now, what does these all translate into? On the left side of the slide, we have provided a bar chart showing the progression of our estimated structural costs. We have already realized a 16% reduction from fourth quarter 2019 to the first quarter 2020. This was driven by the restructuring implemented in the fourth quarter and the outsourcing of our call center in January 2020, which resulted in a more by-all customer care cost structure. By the third quarter of this year, we anticipate our structural costs to be 45% lower than year-end 2019. Importantly, this is based on a zero revenue scenario. We’ve been nimble in response to the developing situation. We will continue to drive costs as low as necessary to mitigate the profitability pressure from lower revenues. But we will be deliberate and thoughtful about how we do this, so we do not undermine core capabilities and the enablers that have driven our success over the last few years.
Moving to Slide 6 for a discussion of our liquidity position, we are prudently managing our strong balance sheet and liquidity position in this environment. At the end of the first quarter, we had $226 million in cash, cash equivalents and restricted cash on our balance sheet and no long-term debt. Our short-term debt of $17.5 million at quarter end was lower by close to $2 million sequentially. As of March 31, 2020, our total net operational short-term obligations amounted to $52.9 million, down for a net aggregate payable of $120 million at year-end 2019. We are also implementing a series of measures to assist customers with refunds and rescheduling, including issuing vouchers that our customers can use during this year or in some cases early next year. We will continue to evaluate the situation moving forward and plan to prioritize cash utilization to meet our liquidity needs. Our strong free cash flow and healthy balance sheet continued to remain a core strength and a competitive advantage in these uncertain times.
Now on the cost side, as a result of the measures I just spoke about on the previous slide, we currently anticipate that the run rate for structural costs for this year as compared to 2019 will continue to improve with full savings expected by Q3 2020. We estimate that the run-rate for structural costs will be approximately $34 million in second quarter of 2020 and approximately $28 million by the third quarter of 2020. In addition, from a cash flow perspective, savings associated with our CapEx reductions will add to our liquidity buffer. These measures are all part of our balanced approach to address the impact of the pandemic and are aimed at supporting our free cash flow in 2020 as we navigate through these uncharted waters. While we feel there is too much uncertainty at this point to provide a reasonable estimate for the full year financial impact that is related to COVID-19, we want to provide reassurance that we are being both proactive and agile in managing our financial position as the pandemic unfolds.
I will now turn the call over to Alberto to discuss first quarter results as well as further comment about COVID and how we are responding.
Alberto López Gaffney
Thank you, Damián and thank you all for joining us today. Let me echo what Damián said. I hope you, your families and colleagues are all safe and well. I will start with highlights from our first quarter results, including the impact from COVID-19 and then pivot to expectations for financial performance moving forward in light of the evolving pandemic. We experienced a decline in transactions and gross bookings across key markets both as reported and on an FX-neutral basis, reflecting travel disruptions worldwide driven by travel bans and lower demand due to COVID-19 started in the second half of March. This was further exacerbated by currency volatility, particularly in Argentina and Brazil. In Brazil, we saw year-on-year declines of 18% in transactions and 18% in FX-neutral gross bookings driven by COVID-19 and an overall industry contraction. While FX-neutral ASPs remain unchanged, the 18% depreciation of the Brazilian real led to a low-double digit drop in as reported ASPs and a 29% decline in as reported gross bookings.
Moving to Argentina, transactions and FX-neutral gross bookings were down 47% and 33% respectively year-on-year. In addition to the complete lockdown that began in mid-March as response to COVID-19 outbreak, demand was impacted by the overall recessionary environment as well as a new 30% duty on residents international travel spend that became effective toward the end of last year. This resulted in advanced travel purchases in fourth quarter ‘19 as well as lower demand for international travel in the first quarter. As-reported gross bookings were down 58%, in line with 58% peso depreciation. Finally, for the rest of Latin America, we saw year-on-year declines of 14% in transactions and 12% in FX-neutral gross bookings. On an FX-neutral basis, ASPs were up 3%, mainly driven by a better performance in packages in Mexico, Colombia and Chile. As-reported ASPs were down 4%, while gross bookings fell 17% in the period.
Now moving on to the P&L on Slide 8, FX-neutral revenues were down 34% year-on-year in the quarter. In addition to the significant impact of the global health crisis on overall travel demand on our business, weather-related factors also contributed to the sharp drop in revenues, which were offset by the revenue contribution of Viajes Falabella. First, customer refunds reflecting cancellation in the quarter. Second, in this quarter, we also provisioned for anticipated customer refunds for the second quarter. And in the case of Argentina, cancellations were provisioned until September 1 due to the recent ban in Air purchases before that date. Lastly, we also lowered customer fees and provided other incentives to drive demand in this tried environment. Importantly, despite this difficult environment, we were able to monetize the bookings made in the quarter. Comparable revenue margin, excluding the impact from actual and cancellations allowance, would have been 11.2%, compared with 11.5% in the year ago quarter.
Now, please turn to Slide 9. As you can see on the three charts on this page the measures taken in fourth quarter ‘19 to further streamline operations in support areas as well as fulfillment centers along with initiatives rapidly implemented in the first quarter to adjust our cost basis to these unprecedented market dynamics are already starting to drive important cost reductions across the business. Starting with cost of revenue which was down 26% year-on-year, in addition to the drop in transactions in the second half of March, cost of revenues benefited from the outsourcing in early January of a significant portion of our customer service activities, in addition to the restructuring implemented in the fourth quarter of last year. As a result of both these actions, on a per transaction basis, cost of revenue declined to $16.0 from $17.1 in the first quarter ‘19. Also note that cost of revenue is fully variable except for fulfillment center costs. Therefore, we expect to see a further absolute drop in this line item while the impact of COVID-19 on travel persists.
Next, sales and marketing, it declined 22% year-on-year, reflecting the cancellation of all direct marketing spend since March 13. On a per transaction basis, sales and marketing increased 65 basis points year-on-year, reflecting the inclusion of Viajes Falabella marketing costs and allocation of structural marketing costs for lower number of transactions. However, this was 150 basis points below comparable levels for full 2019. In addition to direct marketing, selling and marketing expenses also include fixed marketing costs, which are part of the structural costs that we expect will be further reduced, driven by the reorganization implemented in April. Finally, tech and content and G&A costs declined 11% year-on-year. Excluding costs associated with Viajes Falabella and severance expenses for the business reorganization implemented this quarter, tech and content expenses would have been 26% lower in the period. We expect to see further reductions in both tech and content and G&A from the cost savings initiatives implemented in April. These cost savings and synergies are anticipated to become more apparent in the coming quarters and contribute to further increase the flexibility of the company’s cost structure. All in all, we expect that this restructuring will drive Despegar cost structure with just 30% of fixed costs measured on 2019 activity levels.
Moving on to profitability on Slide 10, comparable adjusted EBITDA was a negative $1.4 million compared with a positive $15.2 million in the prior year quarter. Comparable adjusted EBITDA excludes $14.2 million in the following extraordinary charges: exceptional cancellations due to COVID-19 for March; provisions for Q2 across the region; provisions for Argentina until September 1; and non-recurring restructuring charges.
Please now turn to Slide 11. We closed the quarter with a solid balance sheet and healthy liquidity to support our operations. Cash and equivalents at the end of March, including $4.3 million in restricted cash, amounted to $225.9 million. Additionally, we have minimal working capital related debt. In terms of cash flow, we reported a $68.2 million use of operating funds, reflecting lower sales and profitability given the disruption from the COVID pandemic. Importantly, in the quarter, we canceled a significant portion of the tourist payables position we had at year end 2019, which explains the $134.6 million investment in working capital in the quarter.
Remember, the seasonality of our business has a natural impact on the first quarter of each year. However, given this unprecedented crisis, this seasonal effect was not offset by relevant new sales in the first quarter 2020. On the other hand, our receivables balance increased by $80.6 million, bringing our net aggregated operational payable position to only $52.9 million. We believe our cash position, together with expected cash flows from operations are sufficient to meet our currently anticipated cash needs beyond the next 12 months.
Moving next to Page 12 for a wrap up, we closed first quarter 2020 with a minimal level of activity beginning in the second half of March, reaching our year-over-year contraction of over 95%. April has shown a similar performance, which we expect to continue throughout Q2 2020. While the unexpected global economic shock has been felt across all our countries, we are responding accordingly and our teams are focused on three objectives: number one, we are adjusting to the current operating environment and staying vigilant in our short-term scenario planning; number two, we are maintaining our long-term strategic focus; and number 3, we are focused on emerging from this period with our business leaner and ready to ramp up as travel demand recovers.
Now, I would like to conclude with a few important messages. First, we are confident in the strength, the resilience and the overall health of our company. We will successfully navigate this pandemic. We have a strong balance sheet and sufficient liquidity and cash flow to maintain our business and meet our obligations for a prolonged period of time. Second, we have a proven low-cost operating model. We will manage our cost base to respond to market conditions and be able to quickly adjust to higher demand upon normalization in our markets. Third, we already adapted quickly to the current environment, while also best positioning ourselves to win in the post-COVID world. While this will be a challenging time with significant uncertainty, we will be focused on managing what is within our control and to mitigate the impact to the degree possible. And with our higher variable cost structure, we can accommodate a slow ramp-up. Fourth, while we are highly focused on managing through the pandemic, we are also continuing to advance strategic initiatives that will be critical levers for us to drive the business going forward.
To that end, we are currently in discussions with Best Day with a goal to minimize or eliminate cash outlays until 2022. Last, despite these near-term pressures, we see the potential for the post-crisis environment to positively impact our business. The current restrictions in our markets are temporary. Over the coming months, they will likely change and eventually we will return to a more normal operating environment. Our adaptive operating model and focus on the customer journey will help us forge relationships with customers allowing for sustained long-term growth.
As we look ahead, we expect the environment to remain volatile as COVID-19 pandemic and consumers’ financial security both evolve, and we remain confident in the strength and resiliency of our brand over the long term and our talented leaders and employees, who are executing against our strategies, reacting to current changes and capitalizing on the opportunities that this context presents.
This ends our prepared remarks. Operator, please open the lines for questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today’s first question comes from Rodrigo Nistor with Itaú. Please go ahead.
Hi, good morning and thank you for taking my question. So my first question is regarding cash burn in next few quarters. I know you released an estimate of structural costs, but I would like to have, if possible, a bit more color on your short-term obligations, when are they due, will you be able to extend maturities and whatever color you can provide on that, that would be helpful. Thank you.
Alberto López Gaffney
Rodrigo, Alberto here. Good morning. The short-term obligations the company can be pretty much, let’s say, put in two buckets; one what we call the net operating liabilities and this is payables minus receivables. The balance we have over there that actually spans for the next year is $52.9 million. While we are doing – there is – clearly, we are adjusting in most cases the terms and conditions of the travel that our clients have purchased. In many cases, we are actually providing vouchers for usage later on in the year, let’s say, third quarter, fourth quarter when we actually expect particularly in the beginning of 2021 that travel should be truly quite open. And we also, like of course, as you might imagine, in most cases, even adjusting positively to our clients and if not, we are just like – just sticking to sizing to terms of conditions of the tickets and giving the money back to our clients in those times. So again, this would be an impact on the company’s cash resources that will actually start coming down over the next 12 months. There is only another piece of short-term obligations we have that is fully backed by our receivables. That is debt that we have taken in Chile, in particular, although we have close to $17 million of debt that as said before is backed by receivables, so we pay down as we actually collect our receivables. So beyond that, the company has no other short-term obligations. So as you note, short-term obligations are just a small portion of the cash and equivalents the company has.
That was very helpful. Thank you.
Alberto López Gaffney
You’re welcome Rodrigo.
And our next question today comes from Edward Yruma with KeyBanc Capital Markets. Please go ahead.
Hi, good morning and thanks for all the very helpful details. I guess first, I know that you historically take some forward position on Air inventory and hotel inventory. I think some relates to packages. I guess is there any kind of remaining obligation forward and have you been able to ratchet down that capacity? And then second, any commentary – and I know that you have a lot of credit partners, but any commentary on the performance of your existing customers from a credit perspective and just remind us if there is any default risk or delinquency risk that you bear? Thank you.
Alberto López Gaffney
Sure. And Alberto jumping in the queue again and with regards to the second part of your question, as you recall, our business model, we are not exposed to credit risk from our clients. So from that perspective, we feel very comfortable and we do not expect to see an impact on Despegar. And we are also – as you know the company does have receivables, receivables with actually its supplier network, and depending on – and those receivables are pretty much – those exposures are pretty much either on receivables and also on sold not long tickets, okay. Like so far, we have not seen any deterioration of those metrics. But again, we need to continue monitoring that carefully, but again let me stress – but again that we don’t have credit risk when it comes to our clients. On the first part of your question, yes, as you might recall, we have been advancing on the strategy on having more inventory. However, and very importantly, today, the inventory of the company is close to zero. So we have very much immediately adjusted those inventory levels and actually decreased them to close to a zero level. So there is nothing material to report when it comes to inventory that we hold on our balance sheet.
Great. Thank you very much.
And our next question today comes from Eric Sheridan with UBS. Please go ahead.
Thanks so much for taking the question. Maybe two if I can. One in terms of thinking about the demand side of the equation and I how it might come back, how are you thinking about domestic travel versus out-of-region travel? And are you aligning any of your initiatives on the inventory side, on the marketing side, to sort of take advantage of the way you think this unwinds on the other side of COVID-19? That’s number one. Number two, any update on the relationship between the company and Expedia and some of the obligations that exist under that relationship and how they might evolve in this environment? Thanks so much.
Hi, Eric. This is Damián here. Thanks for your question. In terms of the demand side, I think we expect that demand [indiscernible] initially be more concentrated toward domestic travel and obviously we’re already working in terms of our inventory and our site features in order to be ready for that keeping in mind that in all countries, our share of the domestic travel is generally larger than international travel. So we feel that we’ll be well positioned to take advantage of that context when demand returns. As far your second question regarding Expedia, the relationship evolves – I mean has continued to be the same as usual. We have a contract obligation as you know from them our hotels outside Latin America and we are working with them to adapt that relationship and the contract to the current situation, but we are cooperating very effectively I would say.
Great. Thanks so much.
[Operator Instructions] Today’s next question comes from Kevin Kopelman of Cowen. Please go ahead.
Hi, good morning. This is Emily on for Kevin. I was just wondering if you could update us on your current cancellation policy. Do you offer customers the option of travel credit or full refunds? And given a lot of your customers paying installments, could you help us understand the mechanics of those refunds? Thanks.
Alberto López Gaffney
Sure Emily. And – Alberto, and – so the cancellation policies are pretty much the ones that are actually included and actually available for our clients the minute they actually purchase their tickets online now. So we take a lot of, let’s say, caution on our clients having readily available information on the terms of what they have purchased. Having said that, we have been working strongly with our suppliers to try to adjust in the benefit of our clients the terms and conditions of their contracts in all cases that that was possible. So in such a scenario, for argument sake, we have to adjust our non-refundable ticket to our refundable one, okay. We are allowing those clients to actually defer their travel purchases and actually get through vouchers access to similar alternatives later on in the year, fourth quarter 2020, first quarter 2021, that as you know in South America, those two quarters are peak when it comes to travel. And we – on actually the cancellation policy, when it comes to a P&L impact, okay, we have included on our earnings release a $12.5 million on either actual cancellations in Q1 and provisions for cancellations that will extend throughout Q2, and in some cases, in particular, in Argentina, that will also extend even into a relevant portion of Q3. So we have already, let’s say, provisioned the impact of what cancellations we have on our P&L from that perspective. So I’ll pause for a minute here and see you have any follow-up questions on this.
No, that’s very helpful. Thank you.
And ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the conference back over to Damián Scokin for any final remarks.
Well, I would like to thank all for joining in this particularly challenging context and I would like also to invite you to our next call, and thank you very much for being part of the conference today. Looking forward to seeing you again on our next call. Bye.
Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.