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Despegar.com, Corp. (NYSE:DESP)
Q2 2018 Earnings Conference Call
Aug. 16, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Despegar second quarter 2018 earnings call. A slide presentation is accompanying today's webcast, which is available in the investors section of the company's website, www.investor.despegar.com. There will be an opportunity for you to ask questions at the end of today's presentation. This conference call is being recorded. As a reminder, all participants will be in listen-only mode. Now, I will turn the call over to Mr. Javier Kelly, Investor Relations. Please go ahead.

Javier Kelly -- Investor Relations

Good morning everyone and thanks for joining us today for a discussion of our second quarter 2018 results. In relation to financial results in accordance to the US uniting accepted accounting principles, we will discuss certain non-GAAP financial measures. Investors, I encourage you to review the reconciliation of these non-GAAP financial results, which can be found in the press release. I will now like to turn the call over to our CEO, Damian Scokin.

Damian Scokin -- Chief Executive Officer

Thank you, Javier. Let me allow my welcome to all of you on the call today. We appreciate you taking the time to join us. As you are all aware and probably heard from other companies as well, it was a challenging quarter on many fronts. Latin America faced more difficult macro conditions in most of the countries in which we operate, which curved consumer and leisure travel demand. And we also faced currency devaluation and a contraction in the air booking market in some of our key markets. Competition remained strong online with continued high levels of investment but we did see some signs of pullback in offline marketing channels in the quarter.

Against this backdrop, we remained focus on our strategic priorities of driving non-air revenues, share of mobile and improving our customer experience. We leveraged our leading market position and lowered cost operating structure to improve our customer valuable position in order to gain share and put pressure on some of our competitors who struggle to match our offers. In fact, we gained share at a faster pace than prior quarters. We further reduced customer fees, in-air transactions, introduced higher package discounts and absorbed the higher cost of installments brought on by our bank partners.

We believe this is the right focus for our income strategy and performance of the business. This strategy led us to take more than one percentage points of share in our luggage markets. We grew gross bookings by 13% in Brazil in US dollar currency and 26% in local currency, several times faster than our largest competitor. Through all of these events, we never lost focus on improving our customer service as well as executing on our long-term strategic initiatives. In summary, in a much more complex market environment, we significantly outgrew the market and maintained profitability levels similar to last year. We believe we can continue to grow profitably. Let me now talk about the few key metrics from the quarter.

Where all we performed well with transactions up 18% and grossable keys in dollar terms up 12%. We were particularly pleased that three key components of our strategy continued to play out. First, the share of packages, hotels and other travel products with our total mix increased 700 basis points in the quarter year-to-year and accounted for 59% of total revenue. Second, the share of transactions with mobile devices was up 400 basis points accounting for one-third of sales. Mobile growth is being fueled by enhancements that we introduced to our platform. Third, customer service quality continues to improve as we saw significant increase in NPS of 400 basis points.

On the financial side, revenue growth was slower than past quarters as initiatives we undertook decreased our market share, such as fuel reactions, negatively impacted revenue. We were also hurt by weaker local currencies. EBITDA was down year-to-year primarily due to the investments we made in the business during the quarter and the currency devaluation. We are confident we can see a return to margin function once macro conditions improve.

Let's move to slide four. Our results in the quarter benefited from a reduction increase on higher package discounts, our focus on driving sales of higher margin packages, hotels, and other products and more efficient marketing to better balance growth and profitability, also continuative to this performance. As a reminder, in the second quarter of 2017, we had the benefit of Easter travel, which was a Q1 event this year. Gross selling of packages is a key initiative for us and continues to perform well with transactions in packages growing 41% year-over-year. Growth is being driven by the reduction in air fees, higher package discounts, as well as more attractive finance options for installment sales. Packages, hotels, and other travel products now account for 59% of total revenue. And we believe that there is room for further growth. Let me make a brief comment about non-air.

Over the past year, we have been adding more directly contractive hotels to our portfolio, which grew by 22% year-on-year and we're gaining traction in terms of growth in room night. Room night growth in Q2 was 24%. While this is not one of the KPIs we share on an on-going basis, it is indicative of the success we are having executing our strategy and we have done so in appeal of overall smaller market growth environment. Gross bookings in dollar currency increased 12% in the quarter and 16% year-on-year for the first six months of 2018. Lower than deception growth, reflecting lower ASPs from mix shifts to domestic, lower purchasing power and weaker supply of pricing capabilities. This was due to the softer travel market and currency depreciation impact on domestic travel markets, particularly Argentina.

On a local currency basis, gross bookings grew 29% year-on-year. As we have stated in previous communications, our international business is typically based on US dollar prices and adjusted in local currency terms very quickly in previous of devaluation. However, supply is for our domestic business has less ability to increase prices based purely on devaluation. We estimate that devaluation reduced two gross bookings growth by approximately five percentage points in the quarter. Of course, devaluation has a negative impact on overall demand as well, especially in the occasional repurchases such as leisure travel. It also impacts this nation mix shift in demand from international to domestic destinations where ASPs and margins are lower. International order mix declined by 95 basis points year-on-year in the second quarter.

Moving onto slide five. We continue to identify opportunities to enhance the customer experience whether it's through product innovation, interaction with our customer service centers or providing a captive promotion. Last quarter, we mentioned that we had recently launched call center operations in several Latin countries as a means to drive additional sales. To date, we are pleased with customer response. For example, gross bookings generated by these call centers was up almost 50% quarter-over-quarter with ASPs significantly above those of online bookings. We pride ourselves at excelling at customer service and our envious scores have been a testament to that. NPS after trip experience improved by 400 basis points in the second quarter of 2018.

But you can never be good enough in this area of our business where we have been actively investing. Some of the recent steps that we took included: taking a more proactive approach working with airlines and hotels to better address customer issues. We also expanded phone coverage easing customers' ability to reach Despegar and introduce chat and Whatsapp to further enhance our customer service. Good customer service also creates loyalty and we have a very loyal customer base. We want to reward them for their loyalty. We are currently working on developing a loyalty program to be launched in 2018. We have already signed an agreement to program credit cards with Visa and MasterCard.

We will provide more details over time but these two partnerships are aimed at co-developing products and services to improve the traveler experience. Let me end my presentation by discussing enhancements we have undertaken on the technology front to improve the booking experience. New product features recently introduced include a faster checkout on our mobile and web platforms with passenger information fields autocompleted to reduce friction when purchasing. And we redesigned "My Trips" section in our app to improve post-sale reservations and allow for self-management. We also welcomed an integrated two new low-cost carriers to our system, Viva Colombia, and Wingo. Introduced an automatic notification of super deals on flight tickets. I will now turn the call over to Mike to discuss the second quarter financial results.

Mike Doyle -- Chief Financial Officer

Thank you, Damian, and thank you all for joining us today. Moving onto slide six. As evidenced by third party GDF data, we continue to drive market share gains across each of our four key markets, Argentina, Brazil, Colombia, and Mexico. This came about despite travel industry contraction in some segments of the travel industry due to tougher macro conditions in many of our markets. Brazil, our largest market, delivered a robust performance as we continue to drive growth in higher margin packages and hotels both domestic and international. We also experienced a recovery in lower margin domestic air, which historically has represented a sizable share of transactions. As a result, transaction growth accelerated to 21% year-on-year with gross bookings in US dollars increasing 13% despite the 15% depreciation of the Brazilian real in the period. In Argentina, transactions were up 11% year-on-year, despite the overall market contraction.

Against the challenging macro backdrop and 30% currency depreciation, growth was mainly driven by the lower margin domestic travel market. Transactions in Mexico rose 15% year-on-year despite slower market conditions and currency depreciation in anticipation of the presidential elections last month, the complex external environment, and the soccer World Cup. This good performance was mainly led by a strong expansion in higher margin packages further supported by broad growth across all products. In our smaller markets, we saw Colombia host a solid recovery with transactions up 20%, the highest rate of growth in the past five quarters mainly driven by strong growth in international packages along with higher growth in domestic air passenger traffic. Peru and Ecuador also performed well posting our highest rates of growth across the portfolio.

Now turning to the P&L on slide seven. Revenues were up 4% year-on-year, reaching 128 million impacted by several factors. First, in addition to the reduction in air customer fees driving cross-selling of higher margin packages, we took this strategy one step further in Q2 and introduced customer discounts and packages to accelerate market share gains. To put this into context, overall customer fees including discounts as a percentage of total revenue decreased year-on-year by 700 basis points and it gained market share at a faster pace than prior quarters. Second, we experienced a mix shift from international to lower margin domestic travel.

In Argentina, the 148 basis points reflecting a challenging macro environment as travelers opted for shorter, less expensive trips. And third, was the impact of the overall currency to its depreciation on domestic travel, mainly in Argentina and Brazil. This was due to both a mix shift from international to domestic travel and domestic suppliers having limited ability to increase prices solely based on devaluation in both the Argentina and Brazil domestic markets.

The combination of these factors resulted in a 4% decline in revenues per transaction and the packages, hotels, and other travel products segment, and a drop of 22% in the air segment driving an 80 basis point contraction in revenue margin to 10.8% in the quarter. However, the continued strategy of lower fees has allowed us to gain market share at a faster pace than in the past as well as increase to share of higher margin packages and hotel transactions. These products now account for 59% of total revenues up from 51% in the year-ago quarter.

Turning to slide 8, currently, we are achieving better returns in our marketing investments by investing in financing installments, lowering air fees, and offering discounts on packages than on incremental investment in traditional marketing. In this context, we are taking a more efficient approach to marketing spend, which remained relatively flat year-on-year and declined 120 basis points as a percentage of revenue to 33.9%. And importantly, we achieved its improvement on the lower revenue base. By contrast, we've amplified other strategic initiatives to accelerate market share growth and drive customer satisfaction levels. Let me highlight a few.

First, we reduced customer fees in air transactions and increased discounts offered in packages supported by higher supplier margins. Second, we continued to offer travelers an attractive selection of customer financing and installment plans, a key marketing tool in driving conversion. Note that we also experienced higher installment plan costs primarily in Argentina from the sharp increase in interest rates in the quarter.

Third, in line with our goal of improving customer satisfaction, we continue to introduce enhancements to our fulfillment center this quarter, hiring customer service agents both internally and through a third party service provider driving up NPS. As in the prior quarter, we also had a higher mix of transactions where we were the credit card merchant of record instead of the airline suppliers, allowing us to offer more attractive customer financing options. These costs were partially offset by lower fraud and chargebacks. While these initiatives are allowing us to further strengthen our competitive position for the long-term, gross profit declined 2% year-on-year with gross margin contracting almost 440 basis points slightly over 67%.

Moving on to profitability. As you can see on slide nine, our strategy is to prioritize top-line growth and strengthen our market position resulting in a 9% year-on-year decline in adjusted EBITDA and 130 basis point contraction in adjusted EBITDA margin to 9.3% in the quarter. To reiterate what Damian said, we are confident we will see a return to margin expansion when the macro environment improves. Financial expenses for the quarter increased to $5 million from close to $2 million a year ago.

Higher credit card receivable factoring expenses in Brazil, driven by growth in gross bookings, together with higher FX losses from currency fluctuations, more than offset higher interest income from invested cash balances. Income taxes declined almost 90% year-on-year reflecting a lower effective tax rate from the full recognition of deferred tax assets in certain subsidiaries that were reduced by evaluation allowance in previous years. Finally, we generated operating cash flow of $300,000 compared to $7.3 million reported a year ago, impacted by reduced earnings, an increase in prepaid expenses, higher capex, and higher VAT tax credits related to a technology incentive program.

Moving onto slide 10, we are currently facing a difficult macro environment. We have been operating in the region for over two decades and have faced similar challenges and have emerged each time as a leading OTA in the region. Although we are facing near-term external challenges, we are moving ahead with the execution of our strategic initiatives driving non-air revenue, mobile bookings, and improving customer service levels. We believe these are the right actions to take to further strengthen our position in the market. Additionally, as we continue to grow our already large and loyal customer base, we will be better positioned to negotiate with suppliers. Together with our fixed operating cost base, this should lead to better-cost leverage and improved margins.

As we look to the current quarter, we are not seeing any significant changes to the macro environment in currency volatility. As a result, we anticipate the third quarter order and gross bookings growth could be slightly lower than Q2 given that the sharp pace of devaluation did not begin until early May while in the third quarter the year-on-year fx translation headwind will impact the entire quarter. We are continuing in Q3 to compete aggressively through lower air fees and price discounts and packages while offering attractive installment financing options that we plan to do so profitably. Our team remains optimistic about the secular shifts happening in the market, the shift from offline to online, and to mobile as well. And we see attractive long-term growth opportunities ahead in the online travel market across Latin America.

Finally, two additional items of note: We disclosed today in our release that our board has authorized a share repurchase program of up to $75 million to be executed over the next 12 months. We believe that repurchasing our shares represents a compelling return opportunity for our shareholders. At the current share price, this represents approximately 5% of the company's outstanding common shares. Repurchases of common stock may be executed by management during the open trading window and through a rule of 10B51 plan outside the trading window. The repurchase program may be suspended or discontinued at any time based on valuation as well as other opportunities for investment, such as acquisitions.

In addition, we are filing a registration statement to register shares held by affiliates at Tiger Global. The primary purpose of this registration statement is to enable Tiger to distribute its shares to its limited partners as one of its funds near its end of life. We expect a majority of the shares being registered will be distributed to Tiger's LPs. That ends our prepared remarks. We'd be happy to take your questions. Operator, please open the lines for Q&A.

Questions and Answers:

Operator

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press * then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. We ask at this time that you please limit yourself to one question and a follow-up. If you have additional questions, you may reenter the question queue to allow time for others. Thank you and at this time we will pause momentarily to assemble the roster.

The first question comes from Brad Erickson with KeyBanc Capital Markets.

Brad Erickson -- KeyBanc Capital Markets -- Analyst

Hi, guys, thanks. Mike, I think you called out some better efficiencies or return on investment -- maybe I missed it, but was that a reference at all to marketing spending? And then how should we take the comments around eventual market expansion in the context of I think some ongoing sales and marketing deleverage? Just help us with that if you can. Thanks.

Mike Doyle -- Chief Financial Officer

Sure. Our comments on marketing efficiency do represent some improvements we made in marketing spend in online and offline channels in the quarter. What we have besides strategically given some the current macro headwinds was to focus our investment on conversion of shoppers to customers in providing lower fees on transactions and more attractive installment plans instead of deeper investments in more traditional marketing channels driving traffic to the site. So this is a temporary shift in strategy where we've done heavy testing.

We know that this is yielding the best results on conversion but with more attractive market growth and an increase in traffic and shoppers available. We plan to be very aggressive in marketing, including additional investments in offline and online channels. So when that happens you can expect some margin deleverage in marketing as we invest more heavily in the future.

Brad Erickson -- KeyBanc Capital Markets -- Analyst

Got it. And then just any help with the mix of brand versus performance as you lean into these channels going forward. Is one going to be a heavier focus than the other?

Mike Doyle -- Chief Financial Officer

The mix of spend has not shifted significantly. So we spend about a third of our marketing investments offline. The remaining investments in paid performance channels. And we have seen some change in the composition of spend in the marketplace in the quarter where with some peers pulling back notably in offline spend. That's true with at least one of the global players and several of our regional OTA peers.

Brad Erickson -- KeyBanc Capital Markets -- Analyst

Got it. And then finally, just any update you're able to provide on the CFO search would be great. Thanks.

Damian Scokin -- Chief Executive Officer

The board has hired a global executive firm and the process is well under way. Hopefully, we'll have good news rapidly soon.

Operator

Thank you. And the next question comes from Eric Sheridan with UBS.

Eric Sheridan -- UBS -- Analyst

Thanks for taking the questions, two if I can. One on the hotel inventory side, any sense you can give us of how much progress you continue to make on adding inventory on a country by country basis to augment your efforts on the hotel side and whether the current macro volatility might be enabling some of those conversations as people look to fill yield in hotels and look for alternatives maybe with online platforms like yourself? And then around the loyalty program, just want to understand what some of the investments are that might need to be made in the loyalty program before you launch in 2019 and what you think it would do for a conversion over the medium to long-term on the platform? Thanks, guys.

Damian Scokin -- Chief Executive Officer

Okay. Eric, on the first question on hotel inventory, we continue to add hotels through our different sourcing streams. We increased the number of hotels that we source directly. And also, we did that through our affiliate networks being Expedia, outside of the America, and the other wholesalers or providers of room inventories that we source from. So that continues growth on that front.

After the current macro conditions, the hotels are obviously looking for more ways to expand their revenue streams so that's a good context for us to continue growing on that front. But keep in mind we don't go for quantity here, we would like to keep a steady focus on a limited number of sources directly with who we can generate enough revenue for them and we can expect very good conditions. And the long time, we continue sourcing through third party providers. The second question was about loyalty programs and investment needed, is that correct?

Eric Sheridan -- UBS -- Analyst

Just the investments needed and what it might do to conversions long-term having such a loyalty program in place.

Damian Scokin -- Chief Executive Officer

Yes, well, we perceive our approach to the loyalty program is exactly that one is not a program that has the end to generate profits by itself but rather to support and enhance operations between clients and Despegar. So the asset focus of our loyalty program is increased conversion and increased repeat great of purchases.

As for the investments and the amount of that impact on conversion obviously, we have a business case that's very preliminary and we're gonna test and then from the real impact of that loyalty program on our conversion rate. We ask for specific investments. We have reached agreements with greater flags and are working on agreements with banks but we expect that we'll completely finance and pay for all investments required.

Operator

Thank you. And the next question comes from Brian Nowak with Morgan Stanley.

Brian Nowak -- Morgan Stanley -- Analyst

Thanks for taking my questions. I have two. Can you maybe talk to -- I know the macro environment is still a little bit unstable. Can you talk in terms of what you're seeing in hotel and other transaction growth at this point as we kind of get into mid-August? And then, what signs are you sort of looking for as evidence that it's time to sort of step on the performance marketing spend again to sort of focus more on traffic growth? How should we think about timing of when you look to reaccelerate that growth?

Damian Scokin -- Chief Executive Officer

As for the macro context, Brian, as you see the macro is impacting overall demand in two ways. One is for a few of our largest markets like Argentina, GDP growth expectations have been lower significantly since we last talked. In March, when we talked expectation for Argentine GDP growth were over 2% and now people are expecting an actual contraction for this year.

And in the case of Brazil, a full one-percentage point was reduced in terms of GDP growth expectations. So there's an overall demand change in scenario and on top of that, you have the foreign exchange effect in which makes international travel more expensive for Latin Americans, which not only affects overall demand by a mix shift in between international and domestic, which is obviously affecting not only demand but ASP for us.

So as we already say, we accept the context and the exact context we balance growth and profitability trying to maximize the long-term value of the company. And in that balance, obviously, marketing investments are a key part of that. As Mike mentioned before, we focus more this quarter on the efforts of driving higher conversion rather than attracting traffic because we don't believe we can in this context stimulate further demand but rather ensure that people that are undecided end up buying.

What we see going forward, for a few more months we will remain this context of much lower demand that we expected. But having said that, we are leaving Latin America Despegar has gone through this processes of ups and downs before so if having the certain time around when we're gonna get back to normal is hard for me to tell but we've experienced this before and demand will come back hopefully sooner than later.

Operator

Thank you. And the next question comes from Rodrigo Nistor with Itau.

Rodrigo Nistor -- Itau -- Analyst

Hi, thank you for taking my question. If you could comment on how the elimination of the price floors on domestic flights in Argentina fits your strategy going forward and how it will impact the margins?

Damian Scokin -- Chief Executive Officer

Yes, that's for everyone on the call to clarify like a month ago the Argentine authority authorized airlines to track whatever they want. For a few of them, may be surprising, but it was a floor limit to lower air prices. That was exactly great news for us because well we say, the more people travel the more Despegar will capture new businesses and within a very adverse macro scenario, this was a good relief. Just to give you an idea, on the week that that measure took effect, sales shoot up significantly. On that week we saw perhaps domestic tickets 80% more than the same week last year.

Operator

Thank you. The next question comes from Kevin Kopelman with Cowen and Company.

Kevin Kopelman -- Cowen and Company -- Analyst

Hi, thanks a lot. I have a question on the take rate. So your actions to reduce fees and introduce discounts drove that down in the second quarter 700 basis points. To what extent were those fully implemented in second quarter or should we see a bigger impact going forward? Thanks.

Mike Doyle -- Chief Financial Officer

Kevin, this is Mike, I'll take that. So we haven't made any quarter-on-quarter changes in that strategy. So we have, there's two impacts impacting revenue margin. One is the reduction in fees. Most typically on air transactions to drive conversion of air-only customers into the package booking path. And then the other has been on packages themselves. So in this environment, we've been able to negotiate for larger discounts from suppliers on package inventory giving greater availability of inventory. And we are passing on a higher level of those margins above savings to the customer.

And so those both are headwinds to revenue margin but we think our driving conversion. Part of our strategy here as well is to put some pressure on our competitors in the region. And we believe over the longer-term that these are, as a difficult strategy to be followed, and that's true also on more attractive installment offers. We have seen some pullback from some of our regional peers in their strategies of reducing fees and increasing installments. And we've been able then also to recover some portion of the fee reduction on the quarter. So quarter-to-quarter we don't expect additional headwind.

Kevin Kopelman -- Cowen and Company -- Analyst

Okay, great, thanks. And then one other one, can you give us an update on M&A, your appetite, and the outlook in the current environment?

Damian Scokin -- Chief Executive Officer

Yeah, as we said in previous calls, Kevin, we remain in active conversations with certain potential targets. Our appetite in this context is even stronger than before but we are cautious, we want to make sure we add value through these type of activities.

Operator

Thank you. And once again, please press * and then 1 if you would like to ask a question. And the next question comes from Locaso with Colpenicko.

Locaso -- Colpenicko

Yes, good morning. Given the high volatility of the recent currencies in the countries you operate, are you doing any currency hedging to merge your current assets and current volatilities? I mean, the accounts receivables in local currency versus the accounts payable, which I presume are in your dollars, right?

Mike Doyle -- Chief Financial Officer

We are very closely monitoring our currency exposure and we do use hedging instruments when needed. In our business, which is almost entirely pre-pay transactions, we are continually collecting from our customers and then we maintain payables due to our travel suppliers. Given our portfolio of markets that we operate in, there is very complex flows across borders based on travel patterns so collecting from customers in Argentina that may check into hotels in Brazil.

So we are always monitoring our balance of credit card receivables from customers and supplier payables to our travel suppliers. We are in many cases able to naturally hedge given those flows and where we are out of alignment for whatever reason given demand in an individual market or change in travel patterns, we use hedging instruments to make sure that we're not taking currency exposure on our working capital.

Operator

And the next question comes from Manoj Shroff with Barings.

Manoj Shroff -- Barings -- Analyst

Thanks for the call. What will be the revenue margin impact of the mix as you continue to improve or should we take the current takeaway going forward?

Mike Doyle -- Chief Financial Officer

As we mentioned on the call, we had some press run revenue margin in the quarter though we don't expect additional headwind on margin in Q3. We're continuing our strategy of fee reduction to drive conversion and also package discounts for the same reason. But are not expecting additional headwind on margin.

Manoj Shroff -- Barings -- Analyst

Right. So for the next few quarters and years, can we assume the same thing?

Mike Doyle -- Chief Financial Officer

So our strategy on fee reduction and package discounts is very much in response to the current environment so we'll evaluate that as we go and how effective it is on continuing to drive conversion. Structurally, longer term as the business continues to shift to packages and hotels, those two products are higher margin than our average and should provide some lift our tailwind the revenue margin.

Damian Scokin -- Chief Executive Officer

Remember that in the past, we mentioned that we adapt fees based dynamically on a row-by-row, market-by-market basis and in the context line we are facing now makes perfect sense to reduce our fees to encourage conversion. But as the context changes, we will permanently update that subject hopefully leading to higher fees and particularly with increase of higher margin products that will be the case.

Manoj Shroff -- Barings -- Analyst

Great. And as you said that the currency impact only happened in May so, therefore, the full impact of the weak macros probably not been felt so can you see that from the beginning of the quarter to the end of the quarter so we can see a substantial change in the good numbers we've seen in Q2 going into Q3?

Damian Scokin -- Chief Executive Officer

Yes. To be clear, the change of context to place through half of Q2, as Mike mentioned, the FX particular impact has already taken place. The remaining of Q3 where we're seeing Q3 is similar to the last portion of Q2 in terms of macro context.

Manoj Shroff -- Barings -- Analyst

Right. And also, the technology product development spend -- you managed to bring it down sharply quarter-on-quarter so has there been some shift into the balance sheet?

Mike Doyle -- Chief Financial Officer

No. So the change there -- we're actually continuing to invest in our technology team and we increased headcounts in the quarter but all of our technology headcounts is located in Argentina where given the currency devaluation, the US dollar translation effects resulted in some quarter-on-quarter difference and a smaller rate of growth year-on-year. But it is an area of the business that we continue to invest in and we have grown headcount.

Manoj Shroff -- Barings -- Analyst

Right. And that should change because you'll have salary hikes there so quarter-on-quarter that will increase eventually?

Mike Doyle -- Chief Financial Officer

Over the medium term, the plan is to continue to invest in technology, we think it's a core confidence and a big differentiator versus our competitors in the region given the scale of our business and our ability to invest. So we plan to continue to for that headcount at the pace of the business can afford. So we're not looking for leverage in this area but continuing to expand.

Manoj Shroff -- Barings -- Analyst

Thank you. I'll come back with follow-ups.

Operator

And once again, please press * then 1 if you would like to ask a question. And at this time, I would like to return the call to Damian Scokin for any closing comments.

Damian Scokin -- Chief Executive Officer

Thanks. Before I leave the call, I also want to acknowledge and thank Mike for his many years of service to the company. This was, as you all know, Mike's last earnings call but we will still benefit from his insights, commitment when he shifts his role as a new board member of the company. I sincerely want to thank Mike for all these years and the value he has brought into Despegar. And for you, again thanks for joining the call today and we look forward to speaking to you again at the end of the next quarter.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Duration: 43 minutes

Call participants:

Javier Kelly -- Investor Relations

Damian Scokin -- Chief Executive Officer

Mike Doyle -- Chief Financial Officer

Brad Erickson -- KeyBanc Capital Markets -- Analyst

Eric Sheridan -- UBS -- Analyst

Brian Nowak -- Morgan Stanley -- Analyst

Rodrigo Nistor -- Itau -- Analyst

Kevin Kopelman -- Cowen and Company -- Analyst

Manoj Shroff -- Barings -- Analyst

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