Good day, and welcome to the Yatra Third Quarter 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Manish Hemrajani. Please go ahead, sir.

Thank you, Rachel. Good morning, everyone. Welcome to Yatra's fiscal third quarter 2019 earnings conference call for the period ended December 31, 2018. On the call with me today are Yatra's CEO and Co-Founder, Dhruv Shringi; and CFO, Alok Vaish. The following discussion, including responses to your questions, reflects management's views as of today, January 31, 2019. We do not undertake any obligation to update or revise the information. As always some of the statements made on today's call are forward-looking, specifically preceded by words such as we expect, we believe or similar statements. Please refer to company's filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements. Additional information concerning these statements is contained in the Risk Factors section of the company's annual report on Form 20-F filed with the SEC on July 31, 2018. Copies of this and other filings are available from the SEC and on the Investor Relations section of our website. With that, let me turn the call over to Dhruv. Dhruv, please go ahead.

Thank you, Manish, and good morning, everyone. I'm pleased to report healthy financial results in the fiscal third quarter of 2019. Our multichannel approach once again enable us to deliver a healthy growth to the significant improvement in our adjusted EBITDA loss in the quarter. We continue to make strong progress towards achieving operating breakeven in the near-term, and I've taken some concrete steps towards that. And I'll talk about these later in my remarks. Starting off, our business travel platform and consumer business continued to deliver robust adjusted revenue growth, while a combination of improved efficiency in our marketing expenses and optimization of our cost base enabled us to achieve a meaningful improvement in the adjusted EBITDA loss. The integration of the ATB acquisition is striking ahead of plan with almost 90% of their customers expect it to be migrated to the Yatra platform by end of February, resulting in further cost synergies from the next quarter onwards. Looking ahead, we continue to be confident in our ability to meet our growth objective of at least 20% adjusted revenue growth in the current fiscal year and delivering a meaningful year-over-year improvement in our adjusted EBITDA loss. More importantly, we believe we have the right strategy and continue to believe that a unique strategy of creating a symbiotic relationship between business and leisure travel is a powerful one. It enables us to capture the highest spend and loyalty of business travelers as well as to serve the more cost-conscious and opportunistic leisure travelers. We are optimistic about our prospects and we believe we are well positioned to further capitalize on India's rapidly expanding travel industry. This multichannel approach helped grow our adjusted revenue by 16.6% year-over-year. Meanwhile, operating efficiency drove cost savings, enabling us to reduce our adjusted EBITDA loss…

Thank you, Dhruv, and hello to everyone. As Dhruv mentioned in his opening remarks, we are very pleased with the performance during the quarter ended December 31, 2018. Let me provide the key financial highlights, starting with the income statement. Our adjusted revenue grew by 16.6% year-over-year to INR 2.3 billion or $33.5 million. Gross air passengers booked were 2.5 million that represents the year-over-year growth of 7.8%. Standalone hotel room nights booked were 600,000, representing an increase of 19.2% year-over-year. Adjusted revenue from our Air Ticketing business increased by 5.7% to INR 1.5 billion or $20.8 million in the quarter. This growth was driven by a 13.4% increase in gross bookings to INR 23 billion or $333 million. Gross bookings growth was offset by a decline in our net revenue margins to 6.2% versus 6.7% in the year-ago quarter, due to relatively higher airfares and the change in mix towards international flights. I would also like to highlight that our net revenue margin for air in the December quarter increased from 5.7% margin in the sequential previous quarter, and from 5.2% margin for the three months ended June 30, 2018. For Hotels and Packages, our adjusted revenue for this segment was up 10.5% YOY to INR 483 million or $6.9 million in the current quarter. This growth was driven largely by a net revenue margin improvement to 15.1% from 12.5% in the last year's corresponding quarter, while gross bookings decreased 8% due to our decision to shut down our physical retail sales locations and outsourcing of customer contact centers in a drive towards profitability. Our net revenue margin in the December quarter increased from 13.7% margin in the sequential previous quarter and from 12.9% margin for the three months ended June 30, 2018. Other revenue including other income grew…

Thank you. [Operator Instructions] We will now take our first question from Jed Kelly with Oppenheimer. Please go ahead, sir.

Great, thanks. Thanks for taking my question. Couple of if I may – Hello?

Yes.

Hello? Can you hear me?

Yes, we can hear you Jed.

Okay, great. Yes, so thanks for taking my questions. A couple, it seems that your profitability came in what we were forecasting. Does this kind of time to give you a confidence that you sort of can accelerate your profitability goals into next year and maybe – you could generate positive EBITDA in the 2020 or positive free cash flow, just how should we think about profitability going forward over the next 12 to 24 months?

Hi, Jed. This is Dhruv. Question of profitability, we clearly changed our focus for a certain extend in ensuring that we improve the bottom line [indiscernible] question, which was asked by investors. And I think the steps that we've taken should highlight to investors the ability of the business to be able to turn around and quickly get to profitability in near term. There are some other levers as well that we touched upon, which are around the ATB integration. We think that there's some further upside on the back of that. We continue to focus on driving healthy growth as well. So trying to balance both healthy growth and profitability and we feel there is some upside which is there. To address the other part of full year of profitability of 2020, while that's an endeavor. I think we're definitely working towards that. We think we should still be – we might be closer to breakeven or marginal profitability in 2020 and look to enhance on that profitability more than 2021. Our free cash flow profitability might be a bit longer, especially, we're looking at 2021 for free cash flow profitability, because there is incremental working capital that gets deployed as a corporate travel business grows. The cash flow profitability, it might take another few quarters from the time we get to operating breakeven.

Okay. And then you said the corporate travel agency industry in India grew 12% this quarter. Can you kind of – did your corporate travel segment outgrow the industry?

So the growth of corporate travel was not specifically for the quarter. That's the growth rate at which industry supports our projecting the industry to go between 2017, I think in 2020. So that's the CAGR. In the current quarter, we took some steps as a [Audio Dip] these are more one-time in nature to restructure parts our corporate travel business as well. There were some ATB customer, who was good at services tax position by the customers was not confirming to the advice of our tax advisors and we let go those customers. And if there was some low margin accounts as well that we let go off. So while, on an overall basis the growth might have been less than 12%, if I was to adjust for these one-time factors, then growth rates would be healthy.

Okay. That's helpful. And then, marketing and sales promotion, it continues to be your largest expense although. Clearly, the focus is on corporate travel. I mean, can you talk about the ability to sort of really leverage this expense item over the next 18 months and how you're thinking about competing in the leisure travel environment?

Sure. On the marketing and sales promotion side, we've see a [indiscernible] 52% to 48%. And we think there should be further opportunities as well as we continue to build on repeat buying patterns and also converting part of our large corporate travel base into leisure travelers on the platform. So combination of those two gives us at least strong belief that we should be able to see more leverage on sales and marketing spend over the course of the next 18 months.

Okay. And then on your cash balance, your net cash balance, I said, my math is about around for $38 million. I mean, are there any earn outs from ATB or any other acquisitions and how do you feel your capitalized to do further acquisitions in the corporate travel space?

Yes. So I think, the number that you're talking of is probably netting off the amount that requires, yet to be paid out from the ATB acquisition, which would probably happen sometime in this quarter. We believe it's still adequately capitalized from our cash point of view. Given the backdrop of reducing losses and some efficiencies in working capital as well. So we believe we are a bit okay there. Whatever acquisitions we might look at would be small tuck-in incremental kind of acquisition without requiring a huge amount of capital. But we were okay now, based on the current capital base that we have right now.

But just adding to that. On the capital side, the once we continue to look out for this interesting acquisitions. So there are some, which require us to look at other means of capital rising. We would be open to doing that. I think some of these acquisitions or the most of the acquisition that do generate positive cash flow, some flexibility of looking at interesting finance for these acquisitions as well. But as Alok said, all are tuck-in ones, we've got enough on the balance sheet to do it ourselves, if there is something more material then we'll continue to evaluate other means as well.

All right. Thank you.

Thank you. We will now take our next question from Vijit Jain of Citi. Please go ahead.

Yes. Hi, Dhruv. How are you guys? So my question is – yes, so my question is about the PL Worldways acquisition. Could you give us a sense of what kind of revenue earnings, EBITDA impact you're seeing or expecting from this acquisition? Will this be accretive from day one?

This should be accretive from day one. So while we haven't really – the absolute numbers, the way we are looking at some of these acquisitions and this trend would have follow in others as well that we do. What we are doing is taking on the business and taking on only a certain amount of support staff necessary. So from day one, businesses come to us with between 35% to 50% kind of operating margin. That's the way we are looking at this. So it should be accretive from day one.

I see. And how about the Agoda partnership, so that should direct just flew into your EBITDA, right? Because I'm guessing, it's a relationship where you just provide them access to your database and they pay you certain fees. Is that's correct assessment and how big could that be I guess, if you could give a sense of how big could that be? Because I think other people, other players in the space have also highlighted international incoming as one of the major growth areas. So we're just getting us – trying to get a sense of whether you think this could be a material impact on your path to achieving adjusted EBITDA breakeven?

This will definitely be positive on the bottom line from day one, as you rightly highlighted from our operating model point of view. And there is a little marginal cost that we incur on this. So whatever contribution, net contribution we retain all flows through to the bottom line. In terms of the volume of business, while, we've had some dialogue with Agoda around this, we would want to wait for a quarter or two to see what kinds of trends are [Audio Dip] on this before we start putting out some number guidance to this. But needless to say, Agoda is one of the largest players in the Southeast Asian market for sure. So we do expect very healthy volume to come from there. But as I said, we'll just wait and watch for a quarter or two before we start releasing more numbers around that.

Thank you. And I have just one last final question. So you mentioned, you've added Axis Bank as one of your corporate clients this quarter. Could you give us a sense of how many large account do you have in your corporate space right now? I don't know, maybe as a percentage of your overall corporate client book or maybe as a percentage of your revenues. Thank you. So large accounts that is…

Okay. What we quantify it is about 800 large corporate customers. Now all of these might not fall in the same bucket. But the definition that we have is on the SME side, we've got SMEs who spend less than $10 million, sorry, INR 10 million rupees a year. So below that categorization as SME, above that we started qualifying them for large, but on average, our large customers of ours, we'll spend about $1.5 million a year on business travel.

I see. And how many of those will you have right now? I mean…

So as of today we have about 800.

Right? So 800 of them, which pay $1.5 million a year or which to business of $1.5 million a year, is that right?

No. So the 800 would not average $1.5 million, I'm just saying bit circumspect right now, because if I give you an average, then you just – you can backtrack into the volume of corporate sales, which is something that we don't put out at the moment.

Sure, sure. Okay. I understand.

But nice try, Vijit.

Thank you. Those are my question.

Thank you. [Operator Instructions] We will now take our next question from Jon Hickman of Ladenburg.

Hello. Thanks for taking my question. Could you talk to me about the outsourcing of your call center? Since you're – they're not in your direct control. Is there any kind of risk there that those people aren't going to do what you exactly what you want them to do? Or they're not meeting as well trained issue had previously, when you had complete control?

Sure, Jon. And that's a very good question, Jon. And that's been a primary concern of ours over the years and that's the reason why we haven't done this sooner. So while the cost opportunity has been there for awhile in terms of cost savings. But what has given us the confidence to do this, this time around is the fact that we've been able to build out a certain number of online automation tools and call center automation tools during the course of the last 12, 18 months. And [indiscernible] has helped us streamline the processes, standardized them to a pretty meaningful extent and that confidence to outsource and obviously there's a lot of tight monitoring happening around this. There are tight SLAs that we have in place with the vendors. So the combination of technology plus tight SLAs and monitoring with the vendors now gives us the confidence. But it's largely on the back of the automation that we've been able to do and streamlining the workflows that's now given us the confidence to go out and outsource.

And you think that's going to save you $2 million over the course this year.

That's right. That's right. So just in terms of absolute headcount costs that should save us $2 million.

Okay. Then the other thing is could you go over again, I know you said this a couple of times. But I just want to make sure I understand. So, you consciously got rid of some low – high cost, low profitability customers in your corporate travel side. And then you eliminated some others because of their – you didn't like their accounting. And then you also got rid of your physical stores and that caused a decline in what otherwise would have been a stronger growth quarter. Do I have that right?

That's right, Jon, yes.

Okay. Can you elaborate on, what didn't you like about like, I don't think I've ever heard of somebody dropping a customer because they didn't like their accounting. But can you elaborate?

No, Jon it wasn't really – Jon, it's not the accounting, but it's the tax position. So in India, just to give you a bit of background, there was a new Goods and Services Tax, which was introduced in July of 2017 and there was certain grayness around that tax in how companies need to account for and transact between each other. So it's talking more about the agency and principal relationship between customers and the airlines. So it's around that where the tax position taken by these companies was not in compliance with the tax position, which was recommended to us by our auditors and by our tax consultants. So if we were to adopt the tax position, which these companies we're adopting, we would have had to create an incremental charge in our P&L for the differential arising on account of these two tax treatments. So it was on account of that that we decided not to pursue these businesses because we obviously don't want to carry the tax liability and also you don't want to risk running a foul with the government. So we worked with some of the big four tax advisers in India and we decided to take a more conservative approach, which has been outlined by them from a tax compliance point of view.

Okay. And then the fat around giving up your physical locations. Why did you do that?

The physical location actually has been something that we've been evaluating now for the last couple of years. More and more customers are researching online.

Yes.

And there is very limited walk-in now happening from even a holiday purchase point of view. So what actually happens now is customers research online and then they do large part of the fulfillment also online. But things like the document collection, foreign exchange, visa, for those people [Audio Dip] to do stuff like that. You don't really need to be in high street stores, you can service those document requirements from an back office as well. And we've got in different parts of our business, we've got some back office locations in pretty much most of the metro cities and some of the Tier 2 towns in India. So we thought there was a way for us to just move from a high street retail location and save the cost and combine our workforce into the back office locations or at least a part of the workforce. What we did end up losing was a little bit of sale, which used to happen in these high street locations. There were still some sale, which was happening, but this legacy sale was not enough to cover the cost structure now of the high street locations. So that was the reason for taking that call. We've lost a bit of holiday package sales, which used to happen from these locations, but we are fairly confident that that can be picked up in a matter of a quarter or so from the online channels themselves.

Okay. Thank you. Appreciate it.

Thank you. We will now take our next question from Gaurav Rateria from Morgan Stanley. Please go ahead.

Hey, Dhruv, congrats on good execution on profitability part. Firstly, a question on the domestic air aviation market. You talked about the overall growth in the sector at around 12%. As a company you would have maintained your share, you would have gained share in the domestic air market. Any sense on that will be great.

In terms of our consumer direct business, we would have gains in overall market. On an overall basis this time around, I don't think we've got any market share gain in this quarter on the back of those one-time things that we just outlined. But if you do, ignore the effect of the one-timers then obviously there is market share gain, which has happened both in our consumer business and [indiscernible] basis in the other parts of our business.

Okay. And what's your sense on this overall trend going forward? Do you think this volume growth could remain subdued for some time at least in the first half of 2019 given the volatility in the market because of what's happening with the airlines?

If you look at the volume trends right now and we think the industry growth rate in the early teens should be sustainable. It might not be the 20% number that we were witnessing in the early part of 2018 calendar year. But we do expect growth to still be in the teens from the basis of new capacity expansion, new route expansion that the airlines are undertaking. It's also being aided by the fact that fuel prices have come off from the higher rates they were in the month of September and October. So that's giving the airlines a bit of flexibility from a pricing standpoint as well.

Right. What's your sense on like the yields are – are they moving up and is that impacting the volumes or is there something else?

The yield is definitely moving up. We've seen huge move up in this quarter as well compared to the previous quarter. So there is definitely some upward movement of the yield. And on the back of that upward movement in the yields, we've seen some volume come off, but that volume is now being more than made up by the increase in the gross booking value because of the higher yield.

Okay. One question on the domestic standalone hotel room nights. The growth was little slower this quarter. If you'd be able to provide some color the slowdown was led by which particular segment, the mid segment, the budget segment or the high segment? Any color on that will be very helpful.

Yes. So on that side as well, we got impacted by one corporate customer, where on account of low margin business. So we decided to give up on that corporate customer. The decline or the relative slowdown is coming on the back of that. Had it not been there and then the impact would have been about, I think I'm just trying to do a rough math right now, about 200 to 200 – about 200 basis points higher. But from an overall industry point of view, we don't see a meaningful slowdown out here. I think, next quarter onwards it should pretty much be back on track the 25% to 30% numbers that we were looking at earlier.

Okay. And any color, like the 25%, 30% is driven majority by the budget segments or the high segment. Like where have you been getting more traction if you were to divide it into two or three broad segments of high end, mid end and the budget?

See, our growth is coming from the budget and the – sorry, the mid and the high end and more limited from the budget. The budget segment is the one where price group awning and competition continues to be intense. And given that we are driving cross sell from a corporate travel base, the corporate [Audio Dip] is most skewed the mid segment and the high end.

Fair enough. Last question from me. Dhruv, on the budget segment, you guys had done a tie up with the aggregator like OYO. Any color on how that partnership has been panning out? And has it been net-net accretive to your overall growth or how have you been looking at that? Thank you.

The impact of that on the leisure side has been marginal. I don't think it's really had a very significant impact because the supply does tend to be a certain – to be fungible to a certain extent. And the net incremental of that is still fairly limited for us. So I'm not seeing in that category a tremendous amount of lift coming on the back of having one particular operator on the platform.

All right. Thank you so much.

Sure.

[Operator Instructions] We have no further questions at this time. I'd like to hand the conference back to our host for any additional or closing remarks.

I think we're good then.

Yes. Thank you guys for joining the call today.

Thank you, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.