decolar financial statements q2 2017 revised · the unaudited condensed consolidated financial...

UnauditedcondensedconsolidatedFinancialStatementsasof

June30,2017andDecember31,2016andforthesix-monthperiodsended

June30,2017and2016

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

2

Despegar.com,Corp.

UnauditedConsolidatedBalanceSheetsasofJune30,2017andDecember31,2016

(inthousandsU.S.dollars)

AsofJune30, AsofDecember31, 2017 2016

ASSETS

Currentassets

Cashandcashequivalents 92,107 75,968

Restrictedcashandcashequivalents 39,186 22,738

Shortterminvestments 238 -

Accountsreceivable,netofallowances 158,287 121,098

Relatedpartyreceivable 3,626 2,240

Othercurrentassetsandprepaidexpenses 26,425 27,184

Totalcurrentassets $ 319,869 $ 249,228

Non-currentassets

Restrictedcashandcashequivalents 10,000 20,459

Propertyandequipment,net 14,719 13,717

Intangibleassets,net 33,960 31,412

Goodwill 39,615 38,894

Totalnon-currentassets $ 98,294 $ 104,482TOTALASSETS $ 418,163 $ 353,710

LIABILITIESANDSHAREHOLDERS’DEFICIT

Currentliabilities

Accountspayableandaccruedexpenses 38,736 25,335

Travelsupplierspayable 115,915 102,237

Relatedpartypayable 81,214 71,006

Loansandotherfinancialliabilities 13,882 7,179

DeferredRevenue 23,242 29,095

Otherliabilities 54,879 49,686

Contingentliabilities 4,002 3,613

Totalcurrentliabilities $ 331,870 $ 288,151

Non-currentliabilities

Otherliabilities 1,633 409

Contingentliabilities 20,847 22,413

Relatedpartyliability 125,000 125,000

Totalnon-currentliabilities $ 147,480 $ 147,822TOTALLIABILITIES $ 479,350 $ 435,973

CommitmentsandContingencies(SeeNote13)

SHAREHOLDERS’DEFICIT

Commonstock(1) 6 6

Additionalpaid-incapital 314,261 312,155

Otherreserves (728) (728)

Accumulatedothercomprehensiveincome 16,455 16,286

Accumulatedlosses (391,181) (409,982)

TotalDeficitattributabletoDespegar.com,Corp. $ (61,187) $ (82,263)

TOTALLIABILITIESANDSHAREHOLDERS’DEFICIT $ 418,163 $ 353,710

(1) 58,518sharesissuedandoutstandingatJune30,2017andDecember31,2016.


3

Despegar.com,Corp.

UnauditedConsolidatedStatementsofOperationsforthesix-monthperiodendedJune30,2017and2016


Six-monthperiodendedJune30, 2017 2016

Revenue(1) 248,461 193,912

Costofrevenue (66,227) (67,246)

Grossprofit $ 182,234 $ 126,666

Operatingexpenses

Sellingandmarketing (78,835) (57,710)

Generalandadministrative (37,487) (29,146)

Technologyandproductdevelopment (33,052) (31,503)

Totaloperatingexpenses $ (149,374) $ (118,359)

Operatingincome $ 32,860 $ 8,307

Financialincome 915 3,923

Financialexpense (8,682) (7,962)

Incomebeforeincometaxes $ 25,093 $ 4,268 Incometaxexpense (6,292) (4,824)

Netincome/(loss) $ 18,801 $ (556)

(1) Includes$18,900and$13,300forrelatedpartytransactionsfortheperiodsendedJune30,2017and2016,

respectively.Seenote14.

2017 2016Earningspershareavailabletocommonstockholders:

Basic 0.32 (0.01)

Diluted 0.32 (0.01)

Sharesusedincomputingearningspershare(inthousands):

Basic 58,518 58,518

Diluted 58,609 58,518


4

Despegar.com,Corp.

UnauditedConsolidatedStatementsofComprehensiveIncome/(Loss)forthesix-monthperiodendedJune30,2017and2016


Six-monthperiodendedJune30, 2017 2016

Netincome/(loss) $ 18,801 $ (556)

Othercomprehensiveincome/(loss),netoftax

Foreigncurrencytranslationadjustment(1) 169 (16,249)

Comprehensiveincome/(loss) $ 18,970 $ (16,805)

(1) Notaximpact

Theaccompanyingnotesareanintegralpartofthesecondensedfinancialstatements.5

Despegar.com,Corp.

UnauditedConsolidatedStatementsofChangesinShareholders’DeficitfortheperiodendedJune30,2017andDecember31,2016


CommonstockAdditionalpaid-

incapitalOther

reserves

Accumulatedother

comprehensiveincome

AccumulatedLosses TotalDeficitNumberof

shares(inthousands)

Amount

BalanceasofDecember31,2015 58,518 6 311,581 (728) 33,787 (427,779) (83,133) Stock-basedcompensationexpense - - 100 - - - 100Foreigncurrencytranslationadjustment - - - - (16,249) - (16,249)

Netlossfortheperiod - - - - - (556) (556)BalanceasofJune30,2016 58,518 6 311,681 (728) 17,538 (428,335) (99,838) BalanceasofDecember31,2016 58,518 6 312,155 (728) 16,286 (409,982) (82,263) Stock-basedcompensationexpense - - 2,106 - - - 2,106Foreigncurrencytranslationadjustment - - - - 169 - 169

Netincomefortheperiod - - - - - 18,801 18,801BalanceasofJune30,2017 58,518 6 314,261 (728) 16,455 (391,181) (61,187)

Theaccompanyingnotesareanintegralpartofthesecondensedfinancialstatements.6

Despegar.com,Corp.

UnauditedStatementsofCashFlowsforthesix-monthperiodendedJune30,2017and2016


2017 2016 Cashflowsfromoperatingactivities: Netincome/(loss) $ 18,801 $ (556)Adjustmentstoreconcilenetincome/(loss)tonetcashflowsfromoperatingactivities:

Unrealizedforeigncurrencytranslationlosses 686 994Depreciationexpense 2,705 2,528Amortizationofintangibleassets 3,556 3,646Stockbasedcompensationexpense 2,106 100Interestandpenalties 454 356Incometaxes 2,795 709Allowancefordoubtfulaccounts 743 1,397Provision(recovery)forcontingencies 779 (123)

Changesinassetsandliabilities,netofnon-cashtransactions: (Increase)/Decreaseinaccountsreceivable,netofallowances (40,544) (33,667)(Increase)/Decreaseinrelatedpartyreceivables (1,386) (110)(Increase)/Decreaseinotherassetsandprepaidexpenses 430 3,407Increase/(Decrease)inaccountspayableandaccruedexpenses 13,621 (12,348)Increase/(Decrease)intravelsupplierspayable 14,251 (33,836)Increase/(Decrease)inotherliabilities 2,528 (2,791)Increase/(Decrease)incontingencies (637) 4,901Increase/(Decrease)inrelatedpartyliabilities 10,208 22,878Increase/(Decrease)indeferredrevenue (5,815) (5,137)

Netcashflowsprovidedby/(usedin)operatingactivities $ 25,281 $ (47,652)Cashflowsfrominvestingactivities:

(Increase)/Decreaseinshort-terminvestments (238) 40,013Acquisitionofpropertyandequipment (4,122) (1,875)Increaseofintangibleassets,includinginternal-usesoftwareandwebsitedevelopment (6,157) (5,683)(Increase)/Decreaseinrestrictedcashandcashequivalents (5,473) (458)

Netcashflows(providedby)/usedininvestingactivities $ (15,990) $ 31,997Cashflowsfromfinancingactivities:

Increaseinloansandotherfinancialliabilities 9,318 2,000Decreaseinloansandotherfinancialliabilities (2,642) (1,000)

Netcashflowsprovidedbyfinancingactivities $ 6,676 $ 1,000Effectofexchangeratechangesoncashandcashequivalents 172 (1,892)Netincrease/(decrease)incashandcashequivalents $ 16,139 $ (16,547)Cashandcashequivalentsasofbeginningoftheyear $ 75,968 $ 102,116Cashandcashequivalentsasofendoftheperiod $ 92,107 $ 85,569

Supplementalcashflowinformation Cashpaidforincomeandminimumnotionalincometaxes $ 7,476 $ 6,593Interestpaid $ 454 $ 356

Despegar.com,Corp. NotestotheUnauditedFinancialStatements


7

1. OperationsoftheCompany

OnMay3,2017,thestockholdersofDecolar.com,Inc.,exchangedtheirsharesforordinarysharesofDespegar.com,Corp.tocreateanewBritishVirginIslandholdingcompany.Followingtheexchange,theCompany’sshareholdersownsharesofDespegar.com,Corp.andDecolar.com,Inc. isawholly-ownedsubsidiaryofDespegar.com,Corp.TheauditedconsolidatedfinancialstatementsasofandfortheyearendedDecember31,2016andtheunauditedcondensedconsolidatedfinancialstatementsasofJune30,2017andforthesixmonthsendedJune30,2017and2016totheextentrelatedtotheeventsandperiodspriortoMay3,2017are the consolidated financial statements of Decolar.com, Inc., which is our predecessor foraccountingpurposes.Despegar.com,Corp.(formerlyDecolar.com,Inc.),isanonlinetravelagency,whichprovidesleisureandbusinesstravelersthetoolsandinformationtheyneedtomaketravelreservationswithprovidersoftravelproductsaroundtheworld. Despegar.comistheleadingonlinetravelagencyinLatinAmericaandincludesboththeDecolarandDespegarbrands.Withapresencein20countries,Despegar’swebsitesandmobileappshelpleisureandbusinesstravelerstobookhotelrooms,airlinetickets,packages,rentalcars,cruises,destinationservices and travel insurance around the world. The Company operates primarily under the“Despegar.com”brandforSpanishandEnglishspeakingcustomersandthe“Decolar.com”brandforPortuguesespeakingcustomers.TheCompanyalsogeneratesadditionalrevenuethroughthesaleofadvertisingonitswebsites.Despegar.com provides its customers with multiple ways to save on travel-related products andmultiplealternativestopayforsuchproducts.2. Basisofconsolidation

In the opinion of the Company, the accompanying unaudited condensed consolidated financialstatementscontainalladjustments,consistingofonlynormalrecurringadjustments,necessaryforafair statementof its financialpositionasof June30,2017,and its resultsofoperations for thesixmonthsendedJune30,2017,and2016,andcashflowsforthesixmonthsendedJune30,2017,and2016.ThecondensedconsolidatedbalancesheetatDecember31,2016,wasderivedfromauditedannual financial statements but does not contain all of the footnote disclosures from the annualfinancialstatements.TheunauditedcondensedconsolidatedfinancialstatementsincludetheaccountsoftheCompanyanditssubsidiaries.ThefollowingaretheCompany’smainoperatingsubsidiaries(allwholly-owned):



8

NameoftheSubsidiary CountryofIncorporationDespegar.com.arS.A. ArgentinaDecolar.comLTDA. BrazilDespegar.comChileSpA ChileDespegarColombiaS.A.S. ColombiaDespegarEcuadorS.A. EcuadorDespegar.comMéxicoS.A.deC.V. MexicoDespegar.comPeruS.A.C. PeruDespegar.comUSA,Inc. UnitedStatesTravelReservationsS.R.L. Uruguay

The consolidated financial statements have beenprepared in accordancewith generally acceptedaccountingprinciplesintheUnitedStatesofAmerica("U.S.GAAP").Althoughthesubsidiariestransactthemajorityoftheirbusinessesintheirlocalcurrencies,theCompanyhasselectedtheUnitedStatesdollar("U.S.dollar")asitsreportingcurrency.Allsignificantintercompanyaccountsandtransactionshavebeeneliminated.ForeigncurrencytranslationThe Company’s foreign subsidiaries (except for Travel Reservations S.R.L in Uruguay and othersubsidiaries in the United States, Ecuador and Venezuela, which use the U.S. dollar as functionalcurrency)havedeterminedthelocalcurrencytobetheirfunctionalcurrency.AssetsandliabilitiesaretranslatedfromtheirlocalcurrenciesintoU.S.dollarsattheend-of-the-periodexchangerates,andrevenueandexpensesaretranslatedataveragemonthlyratesineffectduringtheperiod.Translationadjustmentsareincludedintheconsolidatedstatementofcomprehensiveincome/(loss).Gainsandlossesresultingfromtransactionsinnon-functionalcurrenciesarerecognizeddirectlyintheunauditedconsolidatedstatementsofoperationsunderthecaption“Financialincome/(expense)”.3. RecentlyissuedaccountingpronouncementsTheCompanyprovidesbelowadescriptionofthosestandardswhicharerelevanttotheCompany´sbusinessonlyandtheimpactoftheiradoptionifany.In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting StandardUpdate(“ASU”)amendingrevenuerecognitionguidanceandrequiringmoredetaileddisclosurestoenableusersof financial statements tounderstand thenature,amount, timinganduncertaintyofrevenueandcashflowsarisingfromcontractswithcustomers. InAugust2015,theFASBissuedanASUdeferring the effective date of the revenue standard so itwould be effective for annual andinterimreportingperiodsbeginningafterDecember15,2017.Inaddition,theFASBhasalsoissuedseveralamendmentstothestandardwhichclarifycertainaspectsoftheguidance,includingprincipalversusagentconsiderationandidentifyingperformanceobligations.The guidance permits two methods of adoption: retrospectively to each prior reporting periodpresented(full retrospective),orretrospectivelywiththecumulativeeffectof initiallyapplyingtheguidancerecognizedatthedateofinitialapplication(modifiedretrospective).Wecurrentlyanticipateadopting the new guidance effective January 1, 2018 using the modified retrospective method,



9

however,thisdecisionisnotfinalandissubjecttothecompletionofouranalysisoftheguidance.Whileweareevaluatingthefullimpactofthenewstandardonourconsolidatedfinancialstatements,wehavedeterminedthenewguidancewillnotchangeourpreviousconclusionsonnetpresentation.Throughthedateofadoption,wewillcontinuetoupdateourassessmentoftheeffectthatthenewrevenueguidancewillhaveonourconsolidatedfinancialstatements,andwilldisclosefurthermaterialeffects,ifany,whenknown.In January 2017, the FASB issued ASU No. 2017-04. To simplify the subsequentmeasurement ofgoodwill,theamendmentseliminateStep2fromthegoodwillimpairmenttest.Theannual,orinterim,goodwillimpairmenttestisperformedbycomparingthefairvalueofareportingunitwithitscarryingamount.Animpairmentchargeshouldberecognizedfortheamountbywhichthecarryingamountexceeds the reporting unit’s fair value; however, the loss recognized should not exceed the totalamount of goodwill allocated to that reporting unit. In addition, income tax effects from any taxdeductible goodwill on the carrying amount of the reporting unit should be considered whenmeasuring the goodwill impairment loss, if applicable. The amendments also eliminate therequirementsforanyreportingunitwithazeroornegativecarryingamounttoperformaqualitativeassessmentand,ifitfailsthatqualitativetest,toperformStep2ofthegoodwillimpairmenttest.Anentitystillhastheoptiontoperformthequalitativeassessmentforareportingunittodetermineifthequantitativeimpairmenttestisnecessary.ApublicbusinessentityshouldadopttheamendmentsforitsannualoranyinterimgoodwillimpairmenttestsinfiscalyearsbeginningafterDecember15,2019.ApublicbusinessentitythatisnotanSECfilershouldadopttheamendmentsforitsannualorany interimgoodwill impairmenttests in fiscalyearsbeginningafterDecember15,2020.AllotherentitiesshoulddosofortheirannualoranyinterimgoodwillimpairmenttestsinfiscalyearsbeginningafterDecember15,2021.EarlyadoptionispermittedforinterimorannualgoodwillimpairmenttestsperformedontestingdatesafterJanuary1,2017.TheadoptionofthisstandardisnotexpectedtohaveamaterialimpactontheCompany’sfinancialstatements.

4. CashandcashequivalentsCashandcashequivalentsconsistofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Cash 10 10Banks 39,682 22,681Timedeposits 51,077 50,000Moneymarketfunds 1,338 3,277 $ 92,107 $ 75,968



10

5. Accountsreceivable,netofallowancesAccountsreceivable,netofallowancesconsistofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Accountsreceivable 161,640 123,267Others 696 1,344Allowancefordoubtfulaccounts (4,049) (3,513) $ 158,287 $ 121,098

6. OthercurrentassetsandprepaidexpensesOthercurrentassetsandprepaidexpensesconsistofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Taxcredits(1) 21,559 20,582Cashmanagedbythirdparties 1,639 4,337Advertisingpaidinadvance 338 715Others 2,889 1,550 $ 26,425 $ 27,184

(1) Mainlyincludes$3,459ofVATcredits,$13,184ofincometaxcredits(includingnetdeferredtaxassets),$4,253ofsalestax

creditsand$663ofothertaxcreditsasofJune30,2017;and$3,093ofVATcredits,$11,432ofincometaxcredits(includingnetdeferredtaxassets),$4,581ofsalestaxcreditsand$1,476ofothertaxcreditsasofDecember31,2016

7. Propertyandequipment,netPropertyandequipment,netconsistsofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Computerhardwareandsoftware 23,219 22,334Officefurnitureandfixture 11,363 9,071Buildings 2,752 2,298Land 72 75Totalpropertyandequipment 37,406 33,778Accumulateddepreciation $ (22,687) $ (20,061)Totalpropertyandequipment,net $ 14,719 $ 13,717

Totaldepreciationexpenseforthesix-monthperiodendedJune30,2017is$2,705andfortheyearendedDecember31,2016is$5,089.



11

8. Goodwillandintangibleassets,netGoodwillandintangibleassets,netconsistsofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Goodwill(1) 39,615 38,894 Intangibleassetswithindefinitelives

Brandsanddomains 13,882 13,882AmortizableIntangibleassets

Internal-usesoftwareandsiteinternallydeveloped

41,295

35,217

Totalintangibleassets 55,177 49,099Accumulatedamortization(2) (21,217) (17,687)Totalintangibleassets,net $ 33,960 $ 31,412

(1) FollowingisthebreakdownofGoodwillperreportingunitasofJune30,2017andasof

December31,2016: Balanceofbeginning

ofperiodOthercomprehensive

Income/(Loss)Balanceatendofperiod/year

2017 Argentina 2,187 (98) 2,089Brazil 12,959 (192) 12,767Mexico 6,909 1,011 7,920Uruguay 16,839 - 16,839

38,894 721 39,6152016

Argentina 2,665 (478) 2,187Brazil 10,816 2,143 12,959Mexico 8,234 (1,325) 6,909Uruguay 16,839 - 16,839

38,554 340 38,894

GoodwillisfullyattributabletotheAiroperatingsegment.

(2) Totalamortizationexpenseforthesix-monthperiodendedJune30,2017is$3,556andfortheyearendedDecember31,2016is$7,835.TheestimatedfutureamortizationexpenserelatedtointangibleassetswithdefinitelivesasofJune30,2017,assumingnosubsequentimpairmentoftheunderlyingassets,isasfollows: Remaining2017 3,8432018 5,5252019 5,5252020 5842021andbeyond 4,601 20,078



12

9. AccountspayableandaccruedexpensesAccountspayableandaccruedexpensesconsistofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Marketingsuppliers 23,619 15,723Provisionforinvoicestobereceived 5,166 3,353Affiliatedagencies 570 690Othersuppliers 9,381 5,569 $ 38,736 $ 25,335

10. TravelSupplierpayables

TravelSupplierpayablesconsistofthefollowing

AsofJune30,2017

AsofDecember31,2016

Hotelsandothertravelservicesuppliers(1)

94,200

96,357

Airlines 21,715 5,880 $ 115,915 $ 102,237

(1) Includes$84,988and$84,477asofJune30,2017andDecember31,2016,respectively,fordeferredmerchant

bookings,whichwillbedueafterthetravelerhascheckedout.11. Otherliabilities

Othercurrentliabilitiesconsistofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Salariespayable(1) 35,691 33,266Taxespayable(2) 16,185 14,914Others 3,003 1,506 $ 54,879 $ 49,686

(1) Includes$5,075settlementspayableswithcertainmanagementstockholders.Seenote14.

(2) Includesdeferredtaxliabilities.Seenote12.

Othernon-currentliabilitiesconsistofthefollowing:

AsofJune30,2017

AsofDecember31,2016

Taxespayable 1,633 409 $ 1,633 $ 409



13

12. Incometaxes

Belowtheclassificationofdeferredtaxassets/liabilitiesbycurrentandnon-current:

AsofJune30,2017 AsofDecember31,2016

Currentdeferredtaxassets 19,335 9,173Non-Currentdeferredtaxassets 35,062 39,950 Totaldeferredtaxassets 54,397 49,123Lessvaluationallowance (50,405) (45,526)Netdeferredtaxassets 3,992 3,597 Currentdeferredtaxliabilities - (1,002)Totaldeferredtaxliabilities - (1,002)

Thefollowingisareconciliationofthedifferencebetweentheactualprovisionforincometaxesandtheprovisioncomputedbyapplyingtheblendedincometaxrate(30%)for2017and2016toincomebeforetaxes:

AsofJune30,2017

AsofJune30,2016

NetIncomebeforeIncomeTax 25,093 4,268Weightedaverageincometaxrate(3) 30% 30%Income tax expense at weighted averageincometaxrate 7,528

1,280

Permanentdifferences:

(Non-TaxableIncome)(1) (10,707) (9,217)Foreignnon-creditablewithholdingtax(2) 3,498 3,040Non-deductibleexpenses 1,059 3,566Others 35 605ChangeinValuationallowance 4,879 5,550

IncomeTaxexpense 6,292 4,824

(1) Includestaxbenefitsonexportservicestonon-freeUruguayanterritoriesfrom“FreeTradeZone”inUruguay.

(2) Includesforeignwithholdingtaxesonroyaltiesandservices.(3) TheCompanyusesablendedratefortheincometaxreconciliation,sincemostofthe

businessoperationsarerunbysubsidiarieslocatedoutsidetheU.S.,wheretheenactedtaxrateislowerthantheU.S.federalstatutoryrate.Thecalculationisperformedbasedonanaveragebetweentheenactedtaxratesoftheforeignjurisdictions.



14

13. Commitmentsandcontingencies

LeasesTheCompanyleasesofficespaceunderoperatingleaseagreementswithoriginaltermsrangingfrom2to5years.Rentexpenseamountedto$2,277and$1,174fortheperiodendedJune30,2017,andthe year ended December 31, 2016, respectively. The Company's lease obligations under non-cancellableoperatingleasesareasfollows:

PeriodendedJune30,2017 AmountWithin1year 3,7512–3years 6,7304–5years 3,109After5years 37Total 13,627

EmploymentagreementsThe Company has entered into employment agreements with certain key employees providingcompensationguidelinesforeachemployee.Pursuanttothetermsoftheemploymentagreements,the executives are generally entitled to receive compensation in the form of (i) an annual salarypayable in cash on a monthly basis and (ii) a yearly bonus subject to the fulfillment of certainperformancetargets.

Tax,legalandotherTheCompanyisinvolvedindisputesarisingfromitsordinarycourseofbusiness.Althoughtheultimateresolution on thesematters cannot be reasonably estimated at this time,management does notbelievethattheywillhaveamaterialadverseeffectonthefinancialconditionorresultsofoperationsoftheCompany.AsofJune30,2017theCompanyhadaccruedliabilitiesof$9,682forthetaxcontingencydiscussedbelowandapproximately$11,800relatedtounassertedtaxclaims.TheCompanycurrentlyestimatesunassertedpossiblelossesrelatedtomattersforwhichithasnotaccruedliabilities,astheyarenotdeemedprobableandreasonablyestimable,tobeapproximately$34,300.TheCompanyevaluatesthelikelihoodofprobableandreasonablypossiblelosses,ifany,relatedtoallknowncontingencieson an ongoing basis. As a result, future increases or decreases to its accrued liabilities may benecessaryandwillberecordedintheperiodwhensuchamountsaredeterminedtobeprobableandreasonablyestimable.

BrazilianTaxAuthorityClaimInMarch 2013, São Paulo tax authorities have asserted taxes (Brazilianmunicipal taxes “ImpostoSobreServiço”)andfinesagainsttheCompany’sBraziliansubsidiaryrelatingtotheperiodfrom2008to 2011 in an approximate updated amount of $ 21,500, including ordinary taxable services oncommissions earned. On April 2, 2013, the Company´s Brazilian subsidiary filed an administrativedefenseagainsttheauthorities’claim.InadecisionpublishedonAugust30,2014theSãoPaulotaxauthoritiesruledagainsttheBraziliansubsidiaryupholdingtheclaimedtaxesandthefinespreviously



15

imposed.AnappealtotheSãoPauloCityAdministrativeCourtwasfiledonSeptember30,2014.OnDecember4,2015,theAdministrativeCourtruledpartiallyagainsttheBraziliansubsidiaryupholdingtheclaimedtaxesandthefinespreviouslyimposed.TheBraziliansubsidiaryhasgraduallymoveditsoperationstoGuarulhosCity,Brazil;andpaystaxesinsuchjurisdiction.OnJuly5,2017,theMunicipalityofSãoPaulopublishedthetermsofaspecialinstallmentprogramcalled“ProgramadeParcelamentoIncentivado,PPI2017”.Thisprogramofferstwoalternativesforpayingthistaxliability(adjustedbyinterestandpenaltiesthroughthedatethecompanyappliestotheprogram):(i)asingleinstallmentwitha85%reductionintheinterestdueand75%reductioninthepenalties;or(ii)paymentsin120monthlyinstallments.Underthisalternative,theinterestandpenaltiesthroughthedateofapplicationwillbereducedby60%and50%,respectively.EachinstallmentaccruesinterestatthemonthlySistemaEspecialdeLiquidaçãoeCustódia(SpecialClearanceandEscrowSystemorSELIC)interestrateplus1%.Company’smanagementand its legal counselbelieve that theestimatedprobable loss is$9,682;whichhasbeenprovisionedforintheconsolidatedfinancialstatementsasofJune30,2017withinnon-currentcontingentliabilities.

14. Relatedpartytransactions

SettlementwithCertainManagementStockholders

Inthelasttwomonthsof2016,theCompanyenteredintosettlementagreementsandterminatedtheemploymentoftwomanagementstockholders(“Founders”).Thesettlementagreementsincludesapayablecashamountof$5,800,asaresultofanemployeerelationshipbenefitandnoncompetitionand non disclosure agreement, out of which a 50%will be payable on July 1, 2018 or upon theoccurrenceofaliquidityevent,whichmayresultfromtheconsummationofaninitialpublicoffering,oracapitalinjectionamongotherconditions,andtherestduring2017.ExpediaOutsourcingAgreementIn March 2015, the Company entered into a Lodging Outsourcing Agreement (the “ExpediaOutsourcing Agreement”) with Expedia expanding their commercial relationship. The ExpediaOutsourcingAgreementbroadenedExpedia´spoweringofDespegar.com’shotelsupply,includingthedesignationofExpediaasproviderofhotelinventoryoutsideofLatinAmericaasfromApril1,2015.Duringthetermoftheagreement,ExpediawillpayDespegar.comamarketingfeeforeachbookingofExpedia’sinventory.TheExpediaOutsourcingAgreementincludescustomarytermsforthistypeoflong-term partnerships, and also includes: (a) the obligation to generate a minimum volume oftransactions;and(b)aterminationpenaltyof$125,000;and(c)unilaterallybyExpediaintheeventofachangeofcontroloftheCompany.Inaddition,theExpediaOutosurcingAgreementprovidedtheopportunityforExpediatoaccessDespegar’shotelsupplyinventoryinLatinAmerica.UndertheExpediaOutsourcingAgreement,“ChangeofControl”means(a)thesale,leaseortransfer,inoneoraseriesofrelatedtransactions,ofallorsubstantiallyalltheassetsoftheCompanyanditssubsidiaries,takenasawhole,toanyStrategicPartyor(b)theacquisitionbyanyStrategicParty,ina



16

single transaction or in a related series of transactions, byway ofmerger, consolidation or otherbusinesscombinationorpurchaseofbeneficialownership,ofmorethan50%ofthetotalvotingoreconomicpowerofthesecuritiesoftheCompanyoranydirectorindirectparentoftheCompany.“StrategicParty”meansanyPersonotherthanasingleindividualwhichdoesnotdirectlyorindirectlyownorcontrolanyassetsorcompaniesoperating(x)intheconsumerorcorporatetravelindustry,or(y)asanInternet-enabledprovideroftravelsearchorinformationservices.Unilateral termination of the Expedia Outsourcing Agreement by the Company, in addition totriggering the penalty described above, also gives Expedia the right to sell its shares back to theCompanyforfairmarketvalue.

OperationswithExpedia

ThebalancesbetweentheCompanyandExpediaare:$3,626and$2,240asofJune30,2017andasofDecember31,2016,respectively,recordedinRelatedpartyreceivable;and$81,214and$71,006asofJune30,2017andasofDecember31,2016,respectively,recordedinRelatedpartypayables.ThenetrelatedpartytransactionswithExpediaare$18,900and$13,300fortheperiodsendedJune30,2017and2016,respectively,recordedinRevenue.Inaddition, theCompanyhasprovidedExpediawithaguaranty in formof securitydeposits inanaggregated amount of $ 10,000. They are recorded in restricted cash and cash equivalents non-current.15. Fairvaluemeasurements

ThefollowingtablesummarizestheCompany’sfinancialassetsandliabilitiesmeasuredatfairvalueonarecurringbasisasofJune30,2017andDecember31,2016:

Description

BalancesasofJune30,2017

Quotedpricesinactive

marketsfor(Level1)

Significantother

(Level2)

BalancesasofDecember31,2016

Quotedpricesinactive

marketsfor(Level1)

Significantother

(Level2)Assets/(Liabilities) Derivatives Foreigncurrencyforwardcontract

(17)

(17)

408

408

Totalfinancialassets/(liabilities)

(17)

(17)

408

408

AsofJune30,2017andasofDecember31,2016,theCompany’sfinancialassetsvaluedatfairvalueconsistedofassetsvaluedusing;(i)Level1inputs:unadjustedquotedpricesinactivemarkets(Level1instrumentvaluationsareobtainedfromobservableinputsthatreflectquotedprices(unadjusted)foridenticalassetsinactivemarkets);and(ii)Level2inputs,whichareobtainedfromreadily-availablepricing sources for comparable instruments as well as instruments with inactive markets at themeasurementdate.AsofJune30,2017andasofDecember31,2016,theCompanydidnothaveanyassetswithoutmarketvaluesthatwouldrequireahighlevelofjudgmenttodeterminefairvalue(Level3).



17

AsofJune30,2017andasofDecember31,2016,thecarryingvalueoftheCompany’sfinancialassetsand liabilitiesmeasuredat amortized cost approximated their fair valuebecauseof its short termmaturity.Theseassetsand liabilities includedcashandcashequivalents; restrictedcash;accountsreceivables,net;otherreceivablesandprepaidexpenses;othernon-currentassets;accountspayableandaccruedexpenses;hotelsupplierspayable;loansandotherfinancialliabilities;salariesandsocialsecurity payable; taxes payable and other liabilities. Loans payable approximate their fair valuebecausetheinterestratesarenotmateriallydifferentfrommarketinterestrates.ThefairvaluesforthosefinancialassetsandliabilitiesoftheCompanymeasuredatamortizedcost,isequaltotheirrespectivebookvaluesasofJune30,2017andasofDecember31,2016.Inaddition,asof June30,2017andasofDecember31,2016, theCompanyhad$100,263and$93,197of cashand cashequivalents and restricted cashand cashequivalents, respectively,whichconsistedoftimedeposits.Thoseinvestmentsareaccountedforatamortizedcost,which,asofJune30,2017andasofDecember31,2016,approximatestheirfairvalues.Therehavebeennoreclasificationsamongfairvaluelevels.

16. Earningspershare

EarningspershareBasicearningspershareBasics earnings per share was calculated using the weighted average number of common sharesoutstandingduringtheperiod.DilutedearningspershareTheCompanycomputeddilutedearningspershareusing(i)thenumberofsharesofcommonstockused in the basic earnings per share calculation as indicated above (ii) if diluted, the incrementalcommonstockthattheCompanywould issueupontheassumedexerciseofrestrictedstockunits.Stockoptionsareout-of-the-moneyasthestrikepriceexceedscurrentshareprice;thereforetheyarenotincludedinthecomputationofdilutedearningspershare.Thefollowingtablepresentsbasicanddilutedearningspershare:



18

AsofJune30,2017

AsofJune30,2016

Netincome/(loss)attributabletoDespegar.com,Corp.

18,801

(179)

Earnings per share attributable to Despegar.com,Corp.

Basic 0.32 (0.01)Diluted 0.32 (0.01)Weightedaveragenumberofsharesoutstanding Basic 58,518 58,518Dilutiveeffectofrestrictedstockunits 91 -

17. Stockbasedcompensation

2015RestrictedStockUnitPlanOnMarch 6, 2015, the shareholders of the Company approved a new restricted stock unit planincluding the issuance of 90,626 restricted stock unit (the “RSUs”) in favor of an officer of theCompany.TheRSUsincludethefollowingconditions:

• Time-basedcondition:satisfiedwithrespectto

- 40,626RSUsonJanuary1,2016;- 20,000RSUsonJanuary1,2017;- 20,000RSUsonJanuary1,2018;and- 10,000RSUsonJuly1,2018;providedthattheofficerremainsincontinuousservicethrougheachapplicabledate.

• LiquidityEventRequirement:satisfiedontheearliertooccurof

- anInitialPublicOfferingoftheCompany’scommonstock,or - achangeofcontroltransaction(saleevent).

• Noadditionalvestingexistsuponcompletionofaliquidityevent.

• Restrictions:

- Repurchaserights:intheeventofachangeofcontrol,theCompanyhastherighttorepurchase certain shares contingent upon the valuation of the Company at suchtime,and

- Transfer restrictions: after the consummation of an Initial Public Offering transferrestrictionsapplylimitingtheabilitytotransfercertainsharessubjecttothevaluationoftheCompanyatsuchtime.

The Company has used the Fair Value Method for determining the value of the RSU plan. TheremainingvestingperiodasofJune30,2017is12months.



19

2016StockOptionPlanOnNovember2016,theBoardofDirectorsoftheCompanyapproved,subjecttotheapprovaloftheCompany’s Stockholders (which occurred in March 2017), to adopt a stock plan and reserve forissuanceupto4,000,000stockoptions,fromwhich3,175,000stockoptionswereeffectivelygrantedinfavorofsomeofficersoftheCompany.Theplanincludesthefollowingconditions:

• Time-basedcondition:satisfiedwithrespectto:- 5%stockoptionsonDecember1,2017;- 10%stockoptionsonDecember1,2018;- 15%stockoptionsonDecember1,2019;- 20%stockoptionsonDecember1,2020;- 25%stockoptionsonDecember1,2021;and- 25%stockoptionsonDecember1,2022;

iftheofficerremainsincontinuousservicethrougheachapplicabledate.

• LiquidityEventRequirement:satisfiedontheearliertooccurof- (i)anInitialPublicOfferingoftheCompany’scommonstock,or- (ii)achangeofcontrolevent.

• Noadditionalvestingexistsuponcompletionofaliquidityevent.

TheCompanyhasusedtheFairValueMethodfordeterminingthevalueofthestockoptionsplan.TheremainingvestingperiodasofJune30,2017is65months.Thefairvalueofstockoptionsgranted,wasestimatedatthedateofgrantusingtheincomeapproachvaluationtechniques,includingtheBlack-ScholesandMonteCarlooption-pricingmodels,assumingthefollowingweightedaverageassumptions:Risk-freeinterestrate 1.84%Expectedvolatility 39.9%Expectedlife(inyears) 6Weighted-averageestimatedfairvalueofoptionsgranted $ 6.90Thenumberofstockoptionsgranted(3,175,000)hasnotvariedintheperiod.AsofJune30,2017,therewasapproximately$19,900ofunrecognizedstock-basedcompensationexpenserelatedtounvestedstock-basedawards,whichisexpectedtoberecognizedinexpenseoveraweighted-averageperiodof5.5years.Compensationcostwillnotbeimpacteduponcompletionofaliquidityevent.OnAugust 10, 2017, theBoardofDirectors andCompany´s Stockholders approvedAmendedandRestated2016Stock IncentivePlanandreserve for issuance861.777shares,which increases totalstocksubjecttotheplantonomorethan4.861.777shares.



20

18. GuaranteesTheCompanyisrequiredtobeaccreditedbytheInternationalAirTransportAssociation(“IATA”)inordertopromoteandsellinternationalairpassengertransportationofairlinesconnectedtoIATA.Certain Despegar.com subsidiaries granted guarantees for $ 49,186 for the benefit of the IATA,Expediaandothersuppliers intheformoftimedepositsorbankand insuranceguarantees,whichwere recorded as Restricted cash and cash equivalent in the consolidatedbalance sheetand alsograntedamortgageinfavorofIATAonabuildinginArgentina.19. SegmentinformationInordertomakeoperatingdecisionsandassessperformance,theCompany’schiefoperatingdecisionfunction organized the Company’s business between two operating segments, namely “Air” and“Packages, Hotels and Other travel products”, each of them having their respective segmentmanagement.The “Air” operating segment derives its revenue from commissions earned from facilitatingreservations of flight tickets, service fees charged to customers for processing flight tickets andoverride commissionsor incentives fromsuppliersandGDS if theCompanymeets certainvolumethresholds.The “Packages, Hotels and Other travel products” operating segment derives its revenue fromcommissionsearned fromfacilitating reservationsofhotelaccommodations, car rentalsandothertravel related products and services, service fees charged to customers for processing bookings,advertisingrevenuefromthesaleofadvertisingplacementsontheCompany´swebsitesandoverridecommissionsorincentivesfromsuppliersiftheCompanymeetscertainvolumethresholds.Packagesare bundle dealswhere the customer selects and buysmultiple products,whichmay include airtickets,withinthesamesession,whileinthesetransactionstheCompanyactsasintermediaryasinothersales.Theairportionofthesepackagesisincludedwithinthe“Packages,HotelsandOthertravelproducts”operatingsegment.The Company’s primary measure of segment’s profit or loss is Adjusted EBITDA, which includesallocationsofcertainexpensesbasedontransactionvolumesandotherusagemetrics.TheCompanydoes not allocate certain shared expenses such as accounting, human resources and legal to itsreportable segments. The Company includes these expenses as Unallocated. The Company’sallocationmethodologyisperiodicallyevaluatedandmaychange.TheCompanydoesnothave:

- transactionsbetweenreportablesegments- assetsallocatedbysegment,or- revenue from transactions with a single customer amounting to 10 percent or more of

revenue.ThefollowingtablespresenttheCompany’ssegmentinformationfortheperiodsendedJune30,2017and 2016. While depreciation and amortization is allocated to operating segments based onoperationalmeasuressuchasrelativeheadcountandITinvestment,propertyandequipmentisnotallocatedtooperatingsegments,andtheCompanydoesnotreporttheassetsbysegmentasitwouldnotbemeaningful.TheCompanydoesnotregularlyprovidesuchinformationtoitschiefoperatingdecisionmakers.



21

Six-monthperiodasofJune30,2017 Air Packages,Hotelsand

OthertravelproductsUnallocated Total

Revenue 116,653 131,808 - 248,461AdjustedEBITDA 27,873 18,043 (4,689) 41,227Depreciationandamortization (1,340) (1,874) (3,047) (6,261)Stock-basedcompensation - - (2,106) (2,106)Operatingincome/(loss) 26,533 16,169 (9,842) 32,860Financialincome - - - 915Financialexpense - - - (8,682)Income/(loss)beforeincometax - - - 25,093Incometaxexpense - - - (6,292)Netincome/(loss) - - - 18,801

Six-monthperiodasofJune30,2016 Air Packages,Hotelsand

othertravelproductsUnallocated Total

Revenue 92,149 101,763 - 193,912AdjustedEBITDA (984) 13,515 2,050 14,581Depreciationandamortization (1,700) (2,302) (2,172) (6,174)Stock-basedcompensation - - (100) (100)Operatingincome/(loss) (2,684) 11,213 (222) 8,307Financialincome - - - 3,923Financialexpense - - - (7,962)Income/(loss)beforeincometax - - - 4,268Incometaxexpense - - - (4,824)Netincome/(loss) - - - (556)

GeographicinformationInthesix-monthperiodendedJune30,2017,23%ofrevenuewasoriginatedintransactionsinvoicedbythesubsidiaryinArgentina,28%bythesubsidiaryinBraziland32%bythesubsidiariesinUruguay(30%,28%and24%,respectively,asofJune30,2016).Subsidiariesinnoindividualcountryotherthanthosedetailedaboveaccountedformorethan10%ofrevenue.

decolar financial statements q2 2017 revised · the unaudited condensed consolidated financial...

Documents