Despegar.com (DESP) 20-F2021 FY Annual report (foreign)

We operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report. The words “believe,” “may,” “should,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “will,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, capital expenditures, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this Annual Report because of new information, future events or other factors. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are not guarantees of future performance and the future events and circumstances discussed in this Annual Report may not occur or come into existence. In particular, thepandemic, and governments’ extraordinary measures to limit the spread of the virus, have been disrupting the global economy and the travel industry, and consequently adversely affecting our business, results of operation and cash flows and, as conditions remain uncertain and changing, it is difficult to predict the full extent of the impact that the pandemic will have. Considering these limitations, you should not make any investment decision in reliance on forward-looking statements contained in this Annual Report. In evaluating forward-looking statements, current and prospective shareholders should specifically consider various factors, including the risks listed below and those discussed under the caption “Item 3. Key Information—D. Risk Factors” in this Annual Report.

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. During 2020, our gross bookings decreased by 70% as compared to 2019. However, during 2021, our gross bookings increased by 76% as compared to 2020, although demand for travel has not reachedlevels. In addition, we have incurred additional customer service costs in connection with servicing travelers affected by the pandemic, which also has a negative impact on our results of operations.

As an intermediary in the travel industry, a significant portion of our revenue is affected by the operations of our travel suppliers. The effects of the pandemic and governments’ measures have forced many travel suppliers to reduce operations and to seek government support in order to maintain their businesses. The suspension or termination of services by major travel suppliers, in particular airlines, negatively impacts the products we can offer to our travel customers. We cannot predict the long-term effects of thepandemic on our travel suppliers or the ways that the pandemic may fundamentally alter the travel industry. In particular, we may need to adjust to a travel industry with fewer and different suppliers as well as structural changes to certain types of travel.

While we have undertaken actions to mitigate the effects ofon our business, our cost-savings activities may lead to disruptions in our business, inability to enhance or preserve our brand awareness, reduced employee morale and productivity, increased attrition, and problems retaining existing and recruiting future employees, all of which could have a material adverse impact on our business, financial condition, results of operations and cash flows.

As thepandemic and government containment measures evolve over time, it is difficult to estimate with accuracy the impact to our future revenues, results of operations, cash flows or liquidity. The impacts have been, and are expected to continue to be, significant and could continue to have a material adverse effect on our business, financial condition, results of operations and cash flows for the foreseeable future.

As an intermediary in the travel industry, a significant portion of our revenue is affected by prices charged by travel suppliers. During periods of poor economic conditions, airlines, hotels and other travel suppliers tend to reduce rates or offer discounted sales to stimulate demand, thereby reducing our commission-based income. A slowdown in economic conditions may also result in a decrease in transaction volumes and adversely affect our revenue, including our consumerincome. It is difficult to predict the effects of the uncertainty in global economic conditions. If economic conditions decline globally or in Latin America, our business, financial condition and results of operations could be adversely impacted.

The current invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) and Russia. The United States and other NATO member states, as well asstates, have announced new sanctions against Russia and certain Russian banks, enterprises and individuals. These and any future additional sanctions and any resulting conflict between Russia, the United States and NATO countries could have an adverse impact on our business. This invasion, ongoing military conflict, resulting sanctions and related countermeasures by NATO states, the United States and other countries are likely to continue to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets which could have an adverse impact on our business and results of operations. In particular, we may be affected by the rise in the price of oil which may impact jet fuel and affect airfares. Additionally, international travel by Latin American customers to developed countries such as the United States and NATO countries may be reduced in the extent that the conflict escalates.

Additionally, foreign exchange exposure also arises fromtransactions, where we accept upfront payments for bookings in the travel customer’s home currency, but payment to the hotel is not due until after the travel customer checks out and is paid by us in the hotel’s home currency. We are therefore exposed to foreign exchange risk between the time of the initial reservation and the time when the hotel is paid.

Thepandemic and the extraordinary measures adopted by the governments disrupted the global economy and the travel industry in particular, and the business, results of operations and financial condition of many of our suppliers have been adversely affected, and may be further affected if the disruption to the economy and the travel industry continues. We cannot predict whether any of our travel suppliers will further significantly reduce or terminate their operations and product offerings. The effects of the pandemic and governments’ measures have forced many travel suppliers to reduce operations and to seek government support in order to maintain their businesses. The suspension or termination of services by major travel suppliers, in particular airlines, adversely affected and may continue to affect the products we can offer to our travel customers. It also adversely affected, and may continue to adversely affect, our Company’s ability to benefit from advance payments that we have made to these suppliers and could result in complaints or claims against us by travel customers seeking refunds for suspended or terminated bookings. While we believe such claims would be without merit in most of the countries in which we operate, we cannot assure that we will prevail in any such complaints or claims. Furthermore, in certain of the countries in which we operate, we could potentially be liable for suspended or terminated bookings in the event of bankruptcy by the airline or other travel service provider.

In addition, we cannot assure you that our backup systems or contingency plans will sustain critical aspects of our operations or business processes in all circumstances, many other systems are not fully redundant and our disaster recovery or business continuity planning may not be sufficient. Fire, flood, power loss, telecommunications failure,earthquakes, acts of war or terrorism, acts of God, computer viruses, electronic intrusion attempts from both external and internal sources and similar events or disruptions may damage or impact or interrupt computer or communications systems or business processes at any time. Although we have put measures in place to protect certain portions of our facilities and assets, any of these events could cause system interruption, delays and loss of critical data, and could prevent us from providing services to our travel customers and/or third parties for a significant period of time. Remediation may be costly and we may not have adequate insurance to cover such costs. Moreover, the costs of enhancing infrastructure to attain improved stability and redundancy may be time consuming and expensive and may require resources and expertise that are difficult to obtain.

Moreover, while we sometimes require our senior management to signagreements, typically for a period of one year following termination, we cannot assure you that our former employees will not compete with us in the future. In addition, theseagreements may be difficult to enforce in certain Latin-American jurisdictions.

In addition, a significant amount of traffic is directed to our websites through participation inand display advertising campaigns on search engines, including Google, and travel metasearch engines, including TripAdvisor and Trivago. A search or metasearch engine could, for competitive or other purposes, adopt emerging technologies, such as voice, or alter its search algorithms or results, any of which could cause us to place lower in search query results, or exclude our website from the search query results. If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites, or if competitive dynamics impact the costs or effectiveness of search engine optimization, search engine marketing or other traffic-generating arrangements in a negative manner, this may have a material and adverse effect on our business and financial performance. In addition, certain metasearch engines have added or may add various forms of direct or assisted booking functionality to their sites. To the extent such functionality is promoted at the expense of traditional paid listings, this may reduce the amount of traffic to our websites or those of our affiliates.

In addition, we are subject to a variety of laws, decrees and regulations across the countries where we operate that affectelectronic or mobile payments, tourism, data collection, data protection, privacy, anti-money laundering, taxation (including VAT or sales tax collection obligations), obligations to provide certain information to certain authorities about transactions which are processed through our platforms or about our users and those regulations applicable to consumer protection and businesses in general. However, it is not clear how existing laws governing issues such as general commercial activities, property ownership, copyrights and other intellectual property issues, taxation (including tax laws that require us to provide certain information about transactions consummated through our platforms or about our users) and personal privacy apply to online businesses. Many of these laws were adopted before the internet was available and, as a result, do not contemplate or address the unique issues of the internet.

We are subject to laws relating to the collection, use, storage and transfer of personally identifiable information about our users, especially financial information. Several jurisdictions have regulations in this area, and other jurisdictions are considering imposing additional restrictions or regulations. For example, in August 2018, Brazil approved its first comprehensive data protection law (or “LGPD”), which became effective beginning August 2020. If we fail to comply with these laws, which in many cases apply not only to third-party transactions but also to international transfers of information or transfers of information to third parties with which we have commercial relations, we could be subject to significant penalties and negative publicity, which would adversely affect us. As of the date of this Annual Report, although we have already implemented the principal necessary measures to comply with the data protection law, this is an ongoing process. Since January 2022, the National Data Protection Bureau (or “ANPD”) has been issuing complementary LGPD regulation, requiring the implementation of additional measures to comply with the data protection law.

Governments could adopt tax laws that increase our tax rate or tax liabilities or affect the carrying value of deferred tax assets or liabilities, including the termination ofincentives or termination of treaties for the avoidance of double taxation. Any changes to tax laws could impact the tax treatment of our earnings and adversely affect our profitability. Our effective tax rate in the future could also be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, or changes in the valuation of deferred tax assets and liabilities.

Since releasing its interim report in 2018, the Organization for Economicand Development (“OECD”) has proposed measures to address corporate tax challenges of the digital economy. These measures include aapproach, endorsed by member jurisdictions globally, that focuses on nexus, profit allocation, and minimum tax proposals. The OECD continues to develop the technical and implementation details of the approach for future adoption by jurisdictions. As the OECD continues its work, several countries have enacted or proposed measures to impose new digital services taxes on companies. However, certain countries have agreed to withdraw these digital service taxes once the OECD’sapproach has been implemented. The enacted and proposed measures may have an adverse effect on our business.

Civil and criminal penalties may be imposed for violations of these laws. We operate in some countries which are viewed as high risk for corruption and/or economic sanctions issues. Despite our ongoing efforts to ensure compliance with the FCPA and similar laws, and economic sanctions laws and regulations, there can be no assurance that our officers, directors, employees, agents, and third-party intermediaries will comply with those laws and our policies, and we may be ultimately held responsible for any suchIf we or our officers or directors violate such laws or other similar laws governing the conduct of our business (including local laws), we or our officers or directors may be subject to criminal and civil penalties or other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition and results of operations. Any investigation of any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition and results of operations.

The failure of our businesses to comply with these laws and regulations could result in fines and/or proceedings against us by governmental agencies and/or consumers, which if material, could adversely affect our business, financial condition and results of operations. Further, if such laws and regulations are not enforced equally against other competitors in a particular market, our compliance with such laws may put us at a competitive disadvantagecompetitors which do not comply with such requirements.

Because volume and growth in the number of new travel customers are key drivers of our revenue and profitability, travel customers’ complaints or negative publicity about our customer service could severely diminish consumer confidence and use of our services. Measures we sometimes take to combat risks of fraud and breaches of privacy and security can damage relations with our travel customers. To maintain good customer relations, we need prompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense and investment in developing programs and technology infrastructure to help customer service representatives carry out their functions. These expenses, if not managed properly, could significantly impact our profitability. Failure to manage or train our customer service representatives properly, could compromise our ability to handle our travel customer’s complaints effectively. In addition, beginning in March 2020 we experienced an increase in complaints from travel customers in connection with requests for cancellation and reimbursement of bookings due to thepandemic. In light of governmentorders and other business interruptions and the increase in cancellation requests, the ability of our customer service team to ensure prompt and accurate resolution to requests, irregularities and disputes was affected. In 2021 certain resolutions passed in certain countries, such as Brazil and Colombia, have protected travel agencies from these situations. If we do not handle travel customer complaints effectively, our reputation and brand may suffer and we may lose our travel customers’ confidence.

Pursuant to the Expedia Outsourcing Agreement, Expedia pays monthly marketing fees to us, which are calculated as a percentage of the gross booking value of the bookings that we sourced through Expedia during that month. We are required to maintain a level of bookings through Expedia such that those marketing fees equal at least $5.0 million in aperiod; otherwise, Expedia may require us to pay a $125.0 million termination fee. On August 20, 2020, we entered into an amendment with respect to the Expedia Outsourcing Agreement, whereby the parties have agreed, among other things, to waive Expedia’s termination rights under the agreement relating to minimum bookings requirements during the ongoing pandemic through December 31, 2021, subject to certain conditions. The waiver of Expedia’s termination rights has expired in accordance with its terms and we have resumed compliance with the minimum booking requirements.

In addition, the agreement was amended and restated in November 2019 in order to, among other things, allow us to source a limited percentage of our hotel bookings outside of Latin America without Expedia and from certainproperties.

As a result,comparisons of our results may not be meaningful. Moreover, seasonal fluctuations in our results of operations could result in declines in our share price that are not related to the overall performance and prospects of our business.

Our ability to achieve ESG goals and initiatives is subject to numerous risks including: (1) the availability and cost of limiting or eliminating our use of carbon-based energy sources and technologies; (2) evolving regulatory requirements affecting ESG standards or disclosures; (3) our ability to work with partners and providers that can meet our sustainability, diversity, and other standards; (4) our ability to recruit, develop, and retain diverse talent; (5) the impact of our organic growth and acquisitions or dispositions of businesses or operations on our ESG goals; and (6) customers’ actual demand forproduct offerings, which may be more expensive and less available than other options.

For example, according to the Brazilian Institute for Geography and Statistics (, or “IBGE”), Brazil real GDP increased 1.1% in 2019 and decreased 4.1% in 2020. For 2021, the IBGE has preliminarily estimated an increase in GDP of 12.3%. In addition, the credit rating of the Brazilian federal government was downgraded in 2015 and 2016 by all major credit rating agencies and is no longer investment grade.

According to the Mexican National Institute for Statistics and Geography (or “INEGI”), Mexico’s real GDP decreased 0.3% in 2019 and decreased 10.0% in 2020. For 2021, the INEGI has preliminarily estimated an increase in real GDP of 5%.

In Argentina, inflation has materially undermined the Argentine economy and the government’s ability to foster conditions that permit stable growth. According to measurements from INDEC of the national consumer price index, cumulative consumer price inflationfor 2019 was 59.8%, for 2020 was 36.1%, and for 2021 was 50.9%.

We report under the Exchange Act as acompany and a “foreign private issuer,” as such term is defined under U.S. securities regulations. Because we qualify as a foreign private issuer, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (2) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Formcontaining unaudited financial and other specified information, or current reports on Formupon the occurrence of specified events. In addition, we are not required to file our Annual Report on Formuntil 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their Annual Report on Formwithin 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, even though we are required to furnish reports on Formdisclosing whatever information we have made or are required to make public pursuant to BVI law or distribute to our shareholders and that is material to our Company, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the Annual Report on Formrequires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus and equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the Annual Report on Formpermits foreign private issuers to disclose compensation information on an aggregate basis. We will also have to mandatorily comply with U.S. federal proxy requirements, and our executive officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers. Such transition and modifications will involve additional costs and may divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

These rights and responsibilities are to a large extent governed by the BVI Business Companies Act, 2004 as amended from time to time (the “BVI Act”) and the common law of the BVI. The common law of the BVI is derived in part from judicial precedent in the BVI as well as from English common law, which has persuasive, but not binding, authority on a court in the BVI. In addition, BVI law does not make a distinction between public and private companies and some of the protections and safeguards (such as statutoryrights, save to the extent expressly provided for in the memorandum and articles of association) that investors may expect to find in relation to a public company are not provided for under BVI law.

Latin America online travel bookings are expected to continue growing in the coming years, once the effects of thepandemic have subsided. Factors driving the growth in online travel bookings include the increase of internet penetration, further adoption of smartphones, tablets and other mobile devices and a growing middle class with greater access to banking services and credit products, together enabling a larger segment of the growing population to transact online or on mobile devices.

In the second quarter of 2020, the travel market in Latin America –as in other parts of the world– came to a complete halt as a consequence of the ongoingpandemic and governments’ measures to limit the spread of the virus. Governments around the world, including in Latin America, imposed travel restrictions and bans, closed borders, established restrictions on public gatherings, instructed residents to practice social distancing, required closure ofbusinesses, issued stay at home advisories and orders, implemented quarantines, mandated vaccinations and similar actions. During 2021 and the start of 2022, governments have continued to adopt measures in response to new variants of the virus, including most recently in response to the Omicron variant.

While it is impossible to predict at this moment how the travel industry, globally and in Latin America, will ultimately be impacted, we believe that the Latin American travel industry will continue to grow, and the following trends will largely continue in the longer term once the effects ofpandemic have subsided.

We provide our travel customers with access to over 42 full service andairlines. We obtain inventory from these airlines either through a GDS or, primarily in the case ofairlines, via direct connections to the airlines’ booking systems. We believe our platform provides comprehensive information to our travel customers in a time efficient and transparent manner. Travel customers are quickly and easily able to evaluate a broad range of fares and airline combinations, and may search for flights based on their preferred travel dates, destinations, number of passengers, number of stops and class of travel, or they may use our more advanced search tool and include additional search parameters. Travel customers can also filter and sort the results of their search easily according to their preferences.

Travel customers may search for hotels based on their destination and preferred dates forand checkout, and may filter and sort our search results easily by selecting star ratings, specific hotel chains and location.

Currently, we offer a large selection of approximately 379,000 vacation rentals worldwide, mainly through our Expedia Outsourcing Agreement and through direct sourcing in Latin America.

As from October 2020 with the closing of the Best Day acquisition, we offer a wide range ofservices as an opportunity for us to offer attractions, tickets, tours and activities and local concierge services in more than 200 hotels, to package with other products and as a way to encouragetransactions. The wide array of options offered is intended to suit varying budgets and preferences of potential travel customers. In order to guarantee the best experience, our team provides support and advice during the full customer’s journey.

Our B2B business platform offers online wholesale travel products to our partners, including travel agencies, banks, hotels and airlines, as well as white label services for major travel vendors, providing the most extensive travel inventory in Latin America with the best technological solutions. This business has been boosted with the incorporation of HotelDO after the acquisition of Best Day and has being growing with the recovery of the market.

Currently, we offer car rentals worldwide, with a focus in Latin America and the United States.

Beginning in July 2020, as a consequence of thepandemic we are not offering cruise tickets. Prior to July 2020 we offered cruise tickets to travel customers in Argentina, Brazil, Chile, Colombia and Mexico and had relationships with six cruise carriers.

We offer travel insurance through a third-party provider in Latin America, Universal Assistance Card, with whom we entered into an exclusivity agreement in 2021. Travel customers can choose from a range of coverage options depending on their particular needs, such as medical insurance and lost or damaged baggage. Typically, this product is requested in conjunction with a flight and hotel booking. Prior to confirming and proceeding with the reservation of and payment for a flight or hotel booking or a package booking, our travel customers are offered the opportunity to purchase travel insurance.

Beginning in July 2020, as a consequence of thepandemic we are not offering bus tickets. Prior to July 2020 we offered bus tickets in Brazil, Mexico, Argentina, and Chile and had relationships with suppliers that gave us access to more than 180 bus carriers.

Beginning in August 2020, through our subsidiary, Koin, we provide consumer lending services through itssolution that allows customers to finance their transactions through installments, on a simple to use platform, with accessible interest rates and no bureaucracy, thereby allowing them to have a higher purchasing power with limited requirements. Besides the travel industry, Koin has commenced operating in other sectors such as health-tech,home appliances, apparel, among others. During 2021, lending has been mostly limited to Despegar’s travel customers in Brazil.

We have teams dedicated to: audiovisual content generation across online and offline channels; negotiation with media and agencies to control budget; performance trends and market analysis through strong data analytics; and targeted campaign monitoring.

Through our direct relationships with key media suppliers throughout Latin America, we believe we are able to secure highly competitive rates across the region, without unnecessary interaction with intermediaries.

We have 24/7 continuity of marketing campaigns through a combination of online, television, radio, print and other channels tailored for every country and market. We run campaigns to drive maximum awareness, and we use a multi-channel approach in our top markets.

We measure marketing success across all media channels and devices by reconstructing the user’s marketing path across devices and applying our custom attribution model that feeds our optimization strategy. We have also developed proprietary tools to optimize our investment in search engine marketing (“SEM”) campaigns for Google AdWords by tracking sources of traffic and attributing a percentage of conversions to each event in a user’s marketing path.

We continuously analyze the minimum frequency needed on each media channel to deliver targeted marketing messages, events and promotions to travel customers based on the specific demographics of each market.

We focus aggressively on promotions including discounts, holiday campaigns and financing options. Our technology-driven marketing allows us to dynamically optimize promotions on a daily basis.

The acquisition of Viajes Falabella provides travel customers of both companies with access to an enhanced travel and tourism product and service offerings, wherever and however they want to book travel (mobile, online, apps, call center and store-within-store locations). This includes air, hotel and insurance travel packages, as well as significanttravel offerings. In addition, travel customers are able to access exclusive discounts, earn double CMR Points Falabella’s loyalty program, both at Viajes Falabella and Despegar, as well as an expanded product offering in exchange for CMR Points at Viajes Falabella. Following the acquisition of Viajes Falabella, as of December 31, 2021 we operated 85 sales travel locations in Chile, Peru and Colombia with Tiendas Falabella having exited the Argentine market.

Koin, a pioneer in thelandscape in Latin America with more than five years of credit experience, provides, through one single integration, a solution that allows customers to finance their transactions in installments, on a simple to use platform, with accessible interest rates and no bureaucracy, thereby allowing them to have a higher purchasing power with limited requirements. In addition for merchants andKoin generates incremental sales by imposing conversion rates and by providing access to these new customers.

The travel industry is one of the largest markets forofferings due to high average selling prices and due to Latin America’s growing adoption ofOur acquisition of Koin adds to our value proposition as we expand the alternatives for our customers to purchase travel products with a payment option that doesn’t require a credit card or bank account.

In addition to the travel industry, Koin has commenced expanding into new verticals to further enhance its credit models and increase the repeat usage rate of their customers. Koin is already operating in some industries such as health-tech,home appliances, apparel, among others. Furthermore, Koin signed contracts with some largeplatforms as Vtex and Magento in order to increase its merchants base to commercialize its product with limited integration efforts.

We believe that we can capitalize an opportunity for Koin’s solution as Latin Americanis one of the fastest growing in the world, local customers are accustomed to paying in installments and there is a large percentage of the population underserved by traditional financial institutions.

In addition to ourcustomer service centers in Brazil, Mexico and Colombia, we rely on outsourced services to provide 24/7 support to our customers for issues that cannot be resolved through our platform. Outsourcing certain functions allows better cost controls as well as gaining flexibility.

We own our technology platform, which is comprised of applications that we developusing primarily open source software. Our technology team has adopted a continuous improvement, high-frequency testing approach to our business, aimed at improving both traffic and conversion rates, while maintaining reliability.

Although we send marketing communications to our users periodically, we use our best efforts to ensure that we respect users’ communication preferences. For example, when users register with us, they can opt out of receiving marketingfrom us. Users can modify their communication preferences at any time in the “My Account” section of our sites.

We believe that the primary competitive factors in the travel industry, in particular as consumers increasingly research, plan and book travel online, are, among other things, brand recognition, price, availability and breadth of choice of travel services and products, customer service, ease of use, fees charged to travelers, accessibility, reliability and adoption ofby travelers in the markets in which we operate. We believe our brands, scale, operational and technological capabilities, including our local knowledge, marketing expertise and technology platform, provide us with a sustainable competitive advantage.

Pursuant to Payment Arrangement Services Rule, among other provisions,entity is defined as a party of the payment arrangement that accredits a recipient to accept a payment instrument issued by a payment institution or a financial institution that is a party to the same payment arrangement, but that does not participate in the settlement process of transactions as creditor in relation to the issuer. The definition ofentity provided by the Payment Arrangement Services Rule is not precise enough to confirm that our Brazilian subsidiary would be subject to it. After carrying out several discussions with the Central Bank of Brazil, financial institutions and other participants involved in the payments arrangements, our Brazilian brand Decolar demonstrated to the Central Bank of Brazil that: (i) Resolution 3,682 does not apply to its business; (ii) Decolar should not be deemed ainstitution; and (iii) it should not be obliged to integrate its activities into the payment arrangement Services, nor be subject to the payment arrangement rules issued by the Central Bank of Brazil, which on September 2018 issued a list of the entities and companies which should not be subject to Resolution 3,682 as well as their classification. Decolar has been classified as athis is a simple business establishment, and not as a marketplace entity as provided in the Resolution.

Since March 2, 2016, the former WHT exemption was converted into a WHT imposition of 6% on remittances to cover travel expenses of Brazilian individuals abroad, within the parameters established by applicable law. This reduced WHT rate was effective until December 31, 2019. During 2018, while the motion for clarification was still pending, our Brazilian subsidiary deposited (via judicial deposits) the withheld amounts before the court in order to guarantee that (i) if the company is not successful in the plea before the court, the applicable WHT will be converted into income of the federal revenue, without the imposition of any fines or interest and (ii) if the company is successful in its plea, the amount corresponding to the WHT will be returned to our Brazilian subsidiary with monetary adjustments. The new Income Tax Regulation RIR/18 came into effect on November 23, 2018, repealing former Decree No. 3,000/1999. Under the new RIR/18,of income tax withholdings on remittances abroad was reconsidered. On January 2020, our Brazilian subsidiary submitted a partial withdrawal from the writ of mandamus (judicial complaint), and abandoned the discussion in court, for the upcoming periods.

In October 2020, the Argentine Congress approved a new Knowledge Based Economy Law. The approved regime is effective as of January 1, 2020 until December 31, 2029. Based on the amended promotional regime, eligible companies that meet new specified criteria, are entitled to (i) a reduction of the income tax burden up to 60% (60% for micro and small enterprises, 40% forenterprises and 20% for large enterprises) over the promoted activities for each fiscal year, applicable to both Argentine source income and foreign source income; (ii) stability of the benefits established by the knowledge-based economy promotional regime (as long as the beneficiary is registered and in good standing) and (iii) atax credit bond generally amounting to 70% (up to 80% in certain specific cases) of the Company’s contribution to the social security regime of every employee whose job is related to the promoted activities (caps on the number of employees are applicable). The tax credit may be used to offset federal taxes, such as VAT and income tax.

Item 5 of this Annual Report on Formdiscusses the Company’s operating and financial review and prospects as of and for the fiscal years ended December 31, 2021 and 2020. Item 5 “A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—Year Ended December 31, 2020 Compared to Year Ended December 31, 2019,” Item 5 “Operating and Financial Review and Prospects—B. Liquidity and Capital Resources” and Item 5 Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Cash Flows—Cash Flows for the Year Ended December 31, 2020 Compared to Year Ended December 31, 2019” included in our Annual Report on Formfor the fiscal year ended December 31, 2020 filed with the SEC on April 30, 2021 are incorporated herein by reference.

Thepandemic has significantly affected the level of economic activity around the world and had an unprecedented effect on the global travel industry. Since the first quarter of 2020, the governments of many countries implemented a variety of containment measures, including travel restrictions, bans and advisories, instructions to practice social distancing, curfews, quarantine advisories, including quarantine restrictions after travel in certain locations,orders, required closures ofbusinesses, vaccination mandates or requirements for businesses to confirm employees’ vaccination status, and other restrictions. Thepandemic has also had broader economic impacts, including an increase in unemployment levels and reduction in economic activity, which led to a recession in 2020 and further reduction in consumer or business spending on travel activities. These impacts have had a significant adverse effect on travel suppliers and travelers on whom our business relies. During 2021 economies have recovered and led to more travel activity, particularly at the end of 2021 and beginning of 2022; however, travel activity has not yet reachedlevels.

The spread of new variants ofand the timing of distribution and administration ofvaccines and other medical interventions has caused uncertainty as to when restrictions will be lifted, if additional restrictions may be initiated or reimposed, if there will be permanent changes to travel behavior patterns. While the process of vaccinating their residents against COVID-19 is underway in many countries, with various levels of success, the large scale and challenging logistics of distributing the vaccines, the unavailability of vaccines in many regions, the impact of hesitancy of some to be vaccinated, as well as uncertainty over the efficacy of the vaccine against new variants of the virus, may all contribute to delays in economic recovery.

In 2020, given the severe downturn in the global travel industry which results in unprecedented levels of cancellations and customer refunds and lower new bookings, we experienced a 75% decrease in revenue as compared to 2019. In 2021, our revenues showed signs of recovery and increased 146% as compared to 2020, although they did not reachlevels. We also experienced unfavorable working capital trends and material negative cash flows in 2020 and 2021, although the level of negative cash flow has moderated as booking trends improved and cancellations stabilized in 2021.

Following the onset of thepandemic, we accelerated the execution of several cost saving and cash preservation initiatives. As such, we implemented several actions aimed at reducing our costs and our monthly cash usage. These actions included (i) temporarily reducing salaries of our senior and middle management; (ii) suspending bonuses to all employees; (iii) reducing part of our workforce and implementing a hiring freeze and limiting inflation salary increases; (iv) reducing working hours and implementing unpaid leave in certain locations; (v) accelerating synergies from acquisitions; (vi) renegotiating supplier payment terms and conditions; (vii) reviewing and renegotiating, to the extent possible, all contracts and commitments; (viii) reducing marketing expenses andexpenditures. We continue to evaluate additional cost reduction efforts and should we make decisions in future periods to take further actions we may incur additional restructuring and reorganization charges. While some cost reduction measures taken during thepandemic were temporary and intended to minimize cash usage during this disruption, we expect to continue to benefit from the majority of the savings when business conditions return to more normalized levels.

In 2020, we issued convertible andpreferred stock and warrants to strengthen our liquidity position. The losses incurred in 2020 and 2021 due to the effects of thepandemic increased our accumulated deficit to $574.8 million, which in turn led to a shareholders’ deficit of $31.7 million as of December 31, 2021. We have taken and continue to take actions to improve our liquidity, including managing our cost structure and spending where possible to mitigate any anticipated loss of revenue.

Due to thepandemic, which led to significant cancellations and impacted new travel bookings beginning in March 2020, we did not experience our typical seasonal pattern for bookings, revenue and profit during 2020 and 2021. It is difficult to forecast the seasonality for the upcoming quarters, given the uncertainty related to the duration of the impact frompandemic 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.

We compared the fair value of the reporting units to their carrying values. The fair value estimates for all reporting units were based on a weighted-probability analysis of the present value of future discounted cash flows, Level 3 inputs (income approach). The income approach estimates fair value utilizing long-term growth rates and discount rates applied to the cash flow projections. The significant estimates used in the discounted cash flows model included our forecasted gross bookings; forecasted revenues, net of significant costs and expenses; and the discount rate. Our assumptions were based on the actual historical performance of the reporting units and considered operating result trends, the anticipated duration ofimpacts and rates of recovery, and implied risk premiums based on market prices of our equity and debt as of the assessment dates. We believe the discounted cash flows is the best method for determining the fair value of our reporting units because it is one of the most common valuation methodologies used within the travel and internet industries.

. 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 brands and domains, using the relief-from-royalty method. This method assumes that the brands and domains have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. 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.

. We review the carrying value of long-lived assets or asset groups 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.

We treat taxes on global intangibleincome (“GILTI”) introduced by the U.S. Tax Cuts and Jobs Act (the “Tax Act”) as period costs. See Note 20 to our consolidated financial statements for further additional information related to our income taxes.

We performed our annual goodwill impairment test as of December 31, 2021 and concluded that there was no impairment of goodwill. For our annual goodwill impairment test, in the cash flow projections, we assumed a recovery to2019 levels of financial performance (including profitability) occurring in 2024. The shape and timing of the recovery was a key assumption in the fair value calculation. The discount rate was determined based on the reporting unit’s estimated weighted-average cost of capital and adjusted to reflect the risks inherent in its cash flows, which requires significant judgments. The discount rates used for the annual goodwill impairment test ranged between 10.5% and 16.6%.

Due to the severe and persistent negative effecthad on global economies, the travel industry, and our business, as well as the uncertainty and high variability in anticipated versus actual rates of recovery, in addition to our annual goodwill impairment assessment, we deemed it necessary to perform various interim assessments of goodwill during 2021. As a result of these assessments, we recognized goodwill impairment charges during 2021 for certain of our reporting units.

In addition, during 2021, we recognized an interim goodwill impairment charge of $3.0 million related to our Mexico’sreporting unit within the Packages, Hotels and Other Travel Products segment. The goodwill impairment was primarily driven by a significant reduction in the forecasted cash flows of the reporting unit, reflecting a longer assumed recovery period to2019 levels of profitability, mainly due to the continued material adverse impact of thepandemic, including its impact on forecasted gross bookings and forecasted revenues. As of December 31, 2021, the applicable reporting unit within the Packages, Hotels and Other Travel Products segment had $14.8 million goodwill remaining after impairment.

Under themodel, we provide travelers access to book hotel rooms, airline seats, car rentals and destination services through 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 aperiod from thedate. We recognize breakage incremental revenue from unbilled amounts when the period expires. Our revenues under the prepay/merchant model represented 84% and 78% of our total consolidated revenues for the years ended December 31, 2021 and 2020, respectively.

We seek to develop and maintain long-term relationships with travel suppliers, GDSs and other intermediaries. Our travel supplier management personnel work directly with travel suppliers to optimize access to their travel products for visitors to our platform, including through promotional activity, and maximize our revenue. In most cases, we enter intocontracts with our travel suppliers, although in the case of some travel suppliers we may have informal arrangements without written contracts. Typically, supplier payment terms are negotiated on a regular basis. We have a contract with Expedia and its affiliates to offer through our platform hotel and other lodging products. The contract establishes agreed payment terms. In each of the years 2021 and 2020, 7.5% and 6.2% of our gross bookings, respectively, were attributable to supply provided by affiliates of Expedia. For more information about our relationship with Expedia, see “Item 7. Major Shareholders and Related Party Transactions —B. Related Party — Relationship with Expedia” and Note 23 of our audited consolidated financial statements. Given the fragmentation in travel suppliers in our markets, the frequency of negotiations of payment terms and competitive conditions, we have experienced what we consider to be limited volatility related to our arrangements with travel suppliers; however, we cannot assure you that we will not experience more volatility in the future.

Given that 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, we present revenue on a net basis for these transactions. 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 only when weflight seats.

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. Participating 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 ASCand 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.

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 as bankcredit cards. Loyalty points can be redeemed for free or discounted travel products.

For loyalty points earned throughcredit 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.