Q1 2020 Earnings Call
[music].
Good day and welcome to the Expedia Group incorporated quarter. One 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Michael Senno, Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and welcome to media groups financial results Conference call for the first quarter ended March 30 close 2020.
I'm pleased to be joins on the cold today, Bob or Vice Chairman and CEO, Peter corn, and our CFO or the car.
Following discussion, including responses to your questions reflects management's views as of today may 20, or 2020, only we do not undertake any obligation to update or revise this information.
As always some of the statements made on todays call or forward looking typically preceded by words, such as really expect we believe we anticipate we're optimistic we're confident that were similar statements.
Please refer to today's earnings call is and the company's filings with the FCC for information about factors, which could cause our actual results could differ materially from these forward looking statements.
You'll find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's Investor Relations website at <unk> Dot Expedia group Dot Com and I encourage you to periodically visit our IR website for other important content, including todays earnings release.
Unless otherwise stated all references to cost of revenue selling and marketing expenses general and administrative expense and technology and content expense exclude stock based compensation and all comparisons on this call will be against our results for the comparable period of 2019. Please note that the appreciate.
<unk> expense is now reported in a separate line item and prior periods have been restated to reflect this change.
Starting in the first quarter, we have updated or segment reporting to reflect our platform operating model and aligner reporting what customer segments, our new segments, our retail which includes our consumer facing brands B to B, which includes Expedia partner solutions and the Gensia Trivago and corporate.
Services provided by our technology platform and supply organizations are primarily allocated to the retail and B to B segments. Please see the 8-K, we issued earlier this week for restated segment data for the prior to yes.
With that let me turn the call over to Peter.
Thanks, very much might go and good afternoon, everyone. I Hope you are all say wherever you are your families and loved ones. Your likewise.
Let me start by saying this is our first virtual earnings call. So if we have any technical difficulties apologies in advance and likewise apologies that our chairman will not be joining us Eric and I will do our best could be as informative and transparent, but we may not be quite as quote worthy. So hope you can uh huh.
Uh huh.
But as for Eric and I, we are doing outburst form of call today, and I want to first say that the company Lucky to have Eric the seat as CFO. He's been with the company for quite a long time in number of Rals and has been a great partner.
Barry and I as we set up on this journey late last year in trying to simplify and reorganized the company to be as effective as possible and that we're lucky to have him and as for me.
First of all I'm grateful to the board for their support for putting in the ROE I'm really excited about the opportunities ahead of us I'm not crazy I know it seems like not time to take on running a travel company, but the opportunities I saw as Barry and I dug into the business or just tremendous and I think at great things are ahead for us.
And I wouldn't probably good Tony some more about that.
First I'd like to talk about Cove, it and our response do it goes without saying that as a company and as human beings. We are obviously.
Keenly aware of the health and societal impact of the virus and of course that is most important thing going on in the world, but the human side goes beyond that because many of our partners yeah people in lodging and the lodging business in the travel industry are suffering mightily and in addition to the health issues, we've got a lot of part.
There isn't brands with issues of their business survival their jobs et cetera, and we've been trying to do whatever we can to help. However, many people. We can our primary focus initially was of course on the health of our people.
And on our customers and our supply partners.
We did everything we could to try to make that as easy on everyone is possible, though of course it was not easy on anybody we saw enormous.
Cancellation levels come in as did the entire travel industry. We have customers stranded we had supply partners, who had all kinds of issues with cancellations on policy issues and we were scrambling like everybody else, but our team did a tremendous work I would say on a number of fronts not least of all trying to help the customers I would just point out.
We had levels of cancellations that work many multiples of our highest cancellation levels on any day ever experienced and at the same time at certain points because of government closures in the inability for our teams to get to the office and our service people to get to the phone centers, we had as low as 30% of our bills.
I'll call center capabilities. So it was a real struggle, but our teams on the technology side did a great job of helping to solve that and quick we put in place a number of cancellation tools self cancel tools, we deployed our voice platform more widely and really a helped a lot of people took the burden off.
Our customer service Representatives, and frankly installed in a very short time, a lot of great work that will pay huge dividends down the road for us.
We've also been working closely with our supply partners and I, we commend them all in and working through it terrible difficult time with us and trying to smooth the customer experience make the policies work and almost you know in a really unheard of time when no one knew exactly what to do.
We were not perfect. We certainly we learned a lot from this I don't think any company could have been prepared for this.
And ended as frustrated that we could not make every customer perfectly happy or service everybody at the speeds. We wanted but I think we learned a lot and we will be a much much better shape for the future and ER and as I say, we will reap a lot of benefit from what was done and finally, our other sort of immediate response to the virus was to raise at this.
No capital you all saw our announcement last month, we raised close to $4 billion of incremental capital, which we believe gives us ample resource to survive whatever.
Might come from the virus.
I'm not going to belabor the first quarter.
I know you've seen the numbers suffices to say that.
The first couple of months, we're looking pretty good we were feeling quite good about the business.
Our performance standpoint, we were installing a new.
Cost plan to take out significant costs.
And then the virus became quite real for us as it started to shutdown the globe and we of course suffered like everybody else as those shutdown sort of dominoes through through.
Through the globe, but as it spread.
The numbers started to become less and less meaningful and really the response was the only thing a matter and so I would encourage you not to get terribly caught up in the noise first quarter or only that we were going to good spot before it happened. The virus has been painful we'll talk a little bit about how much damage. It did.
And where the trough was but but I'd encourage you not to focus too much on those numbers.
On the bus side, we had begun as we mentioned in our lab conversation at the end of last year to make changes to simplify the company.
We have done a large reorder GVR.
Of our tech capabilities and created a platform to serve both our consumer and business the business spacing enterprises and does that work has been terrific. Our teams have done a great job, we're already starting to see significant benefit from that and and Thats not just on the bottom line on cost savings, but that's also in Cape.
Abilities are data teams have done remarkable work and again all of those things will be usually powerful on the other side at this virus.
We were ahead of the game because we also as I mentioned in February began installing our plan to save on the cost side.
You'll remember that this was a plan that went across the waterfront. It was people a real estate licenses you name. It we were looking at every part of the business at the time, we had scope that at about a three to 500 million dollar annualized savings.
And all I would say about that is that since the virus here.
It obviously created even more urgency and focus in the organization and I would say our ambition has increased significantly and our speed has increased significantly and let me just head off questions Relator, we're not going to put a new number on it we are focused on going as fast as we can and taking out as much as we can wear.
Ever excess exists, but we're not going to re scope that number for you this quarter and when we know more you will know more about the scale of that opportunity.
We also began pushing organization to drive change as fast as it could what we saw was as everyone has seen that our volumes have been significantly impacted and we have had a history of being quite careful about changing technology pushing technology changes through as one would expect with very high volumes and very high throughput all the.
Time, but since we've had these lower levels of throughput we felt the unique opportunity to try to push through significant technology change and things that might have taken months in months or years to push through and put them on an agenda to push them through much more quickly. So the company's just wait more focused on changing.
Changing quickly and getting to the other side of a lot of what had been thorny technology issues as rapidly as we can.
We also last week announced.
We were reorganizing our retail group.
The next stage in our simplification.
The big step for US you all know that we have operated as brands for a long time and beginning last week. We are operating as one retail facing organization. We will have a marketing group that is focused entirely on marketing the whole suite of brands in the most effective way possible all over the globe.
And we have a product in tech group on retail, which is focused entirely on building the best products.
The best consumer interfaces, and the best tools for our consumers.
That can be marketed down through the retail group. So we've taken down those boundaries again, we think theres efficiency, there, but as much as there may be efficiency, we think theres a huge opportunity to have that product teams working together to build the best products deploying them as widely as possible across our consumer facing fronts and we think.
At our marketing teams will have a great opportunity to stop competing with each other and start optimizing for the group of brands instead of for a single brand against the number.
You'll note as Michael said that we've changed our segment reporting to reflect that are real view of things today is that.
There is a consumer facing retail business. There is a b to b facing business and then there's the platform in the corporate organization that serves all that and and I will say for the record we believe that all of those revenues and all those pockets of demand are equally valuable we think both businesses filling gaps in the market and we think that weekend right.
Each as the most demand possible by having those big chunks of business in retail and B to b to find all the demand all over the globe.
On the marketing point I, just want to amplify we've heard a lot of conversation about direct customer relationships.
It's a nice thing to say we believe in it.
This is more than just an emphasis point. This is about building better products doing better brand and direct marketing better merchandising, which has not been a great.
The strength of hours and in general using the data we have which again has never been pulled together as a company in has only been together for the last few months to power our ability to do all those things don't understand our customer better serve them better to serve up choices for them better everything. So we believe we have huge.
Opportunities on that front, and we believe that we've been over overly reliant and you've heard this before on performance marketing.
We've not been disciplined about it we chased unhealthy growth over the years and Google and other performance marketing channels have tried to Disintermediate us and we've made some not terribly smart choices along the way we believe that this reset of the virus will give us an opportunity I mean, we've been.
Talking about this for a while but as we weighed back into the market price to be much more disciplined to only.
Only chase real growth real valuable growth healthy growth.
And and not be stuck chasing performance marketing and entering into this economic auctions. So we intend to be much better about that we intend to keep those customers longer we intend to certain them better and keep those direct relationships going strong.
And finally I'm sure you're all interested in the recent.
Business trends.
Like some of the other companies in our space, you've probably heard that late March into April was the trough of the business that is true for US we saw gross bookings.
New lodging bookings down about 85% year on year, which of course was terrible.
And cancellations were extremely high.
Since then.
We used to say so I would not get overly excited about it that we've seen.
Nice growth coming into May and essentially what we've seen is both a growing out green shoots in the areas you would expect places where.
Where movement has become possible where people can now start to think about their summer holidays et cetera.
We see that very quickly when that happens.
And cancellations have settled down there is still at elevated levels, but they have stabilized so the combination of those things.
Has may looking considerably better than the trough.
We're not making any predictions we of course cannot control the virus. So we are merely adapting to it as it comes in trying to be smart about where the business is what we can do to help the business along in places where it exists and be smart again about about how we attract the demand that is out there.
I'd say, it's important to keep in mind that.
Because we have a global footprint and because we are essentially every lineups of travel business. That's significant we get demand wherever it lifts. So I know there's been a lot of questions that international versus domestic local regional et cetera. The truth is we have a way to capture whatever demand is out there wherever it exists in the world.
And whether it is local regional domestic or international we have a way to participate so I would say, we're well hedged against however, it comes back and what we're seeing clearly is what you've been hearing that local regional domestic is certainly coming back.
Stronger sooner and I would just pointing out a bright spot for us has been verbal where we have seen really markedly better.
Performance and that clearly seems to be around people, who have been stuck in their city dwellings, or wherever and are looking forward to being able to get away from those cities to someplace, where vacation with their family This summer and.
We're pleased to see the demand it's clear that the verbal focus on the whole home experience is a real advantage over the competition right now we propose nada not enough not big in cities, it's not big in rooms, and other homes and those kinds of things that is really a four wall whole home experience.
And we've seen some really nice signal.
Out of that vacation rental business.
So with that I would pass it over to Eric and say Thank you for your time again don't get too focused on.
On a quarterly numbers I don't think they're meaningful we are entirely internally focused right now trying to do the most good we can to both navigate the situation help our customers help our partners reignite their businesses and most importantly from our perspective get our business right and our product right and our offerings right. So when we can.
Matt. This is tried as it is we will be stronger and better than we were so with that Eric.
Right.
Thank you Peter I appreciate it and that kind words as well so before I get started I also wanted to echo Peter's comments around thanking the employees hi, it's a very stressful time, it's quite difficult and I have seen.
Heroic efforts across the organization to tag also tackle some pretty difficult problems.
For our fellow employees and customers and partners as well. So thank you to all those involved in that really.
Put in tons of effort and very stressful time, and I just want to say thank you on behalf thoughts myself and CLTV add up Pierre Barry as well so thank you.
Coming into the air and as I mentioned that in Q1.
Driving margin expansion and improving unit economics were key priorities for us and with Kogut hitting we move with even more urgency on these efforts and took additional action further improve our cost structure and preserve capital and the near term.
I want to take through the major cost items, just to give you a sense for what what were seeing and some of the actions that were taken so.
And overhead perspective.
The cost savings the cost savings initiative that we started earlier this year as truck driving significant savings and overhead costs and it's putting us on a path to reset our fixed cost basis and then in addition to that shifting to the platform operating model that Peter talked about really positions us to scale the business far more efficiently going forward. So during.
David We've made additional cost cuts to help preserve capital, but thats within a contact stops trying to reset the cost basis of our business.
From a cost of revenue standpoint, those are mostly variable our semi variable expenses. So as you can imagine as our volumes decreased as a natural offset.
Covanta best reduced volumes.
We have unlock significant cloud savings through optimization efforts benefiting from centralization centralizing the cloud management in our platform, which we talked about last quarter. We've also made temporary changes to lower cost the cloud cost as well during covance and now expect cloud costs for 2020 to be well below 22000, I cant levels for this year.
Yeah.
Our also accelerating progress on virtual agents that self service tools to make customer service more efficient and if you take the cloud plus the customer service efficiencies.
We do expect.
We do expect as they continue to contribute to better unit economics as volume.
Line goes back.
From a direct marketing standpoint, clearly, our our largest expense and it's almost entirely variable starting in mid March we cut spends and nearly zero.
Now as we started to see green shoots and as we expect the market rebounds, and we start marketing efforts, we will remain very discipline and run performance marketing channels at much higher ROI is going forward as Peter mentioned.
Operating cash burn the head count reduction that we've talked about previously as part of the overall cost plan.
It does it also drive savings and capitalized labor, so thats incremental to the piano benefit. In addition, we did to defer silver real estate capital projects and other non essential capex to preserve liquidity. However, we recently re started construction on a new headquarters since it is more efficient to do so and we now expect it to complete.
And the first half of 2021.
Across overhead Capex and interest expense pro forma for the recent debt issuances, we expect our monthly cash usage during that cobot crisis to be below $275 million within the next couple of months.
If covered word to have a protracted impact we do have additional cost levers that we can pool and we will do so at the appropriate time.
Our Q1 results did not fully reflect this cost structure, given the impact of Kelvin and timing of our cost initiatives.
A couple of specific areas I want to call out.
Cost of revenues grew 20% to a higher provision for bad debt related to future collection rest from the impact of covered nightgown customers as well as inorganic impact from bodybuilding dot com and higher cloud expenses.
We recently sold bodybuilding dot com as part of our simplification effort.
In savings as I mentioned previously this benefits will evolve and through the year.
Overhead costs were roughly flat in Q1 at the benefit from our cost savings initiatives did not kick in until March we expect overhead expenses to decline at a double digit percent starting in Q2.
So turning to cash flow in the balance sheet free cash flow was negative $1 billion in Q1, primarily due to the use of cash for working capital the working capital charge largely related to lower merchant account payable from the significant stayed room night decline late in the quarter and an increase in prepaid assets, including.
Deposits to fund future refunds.
Deferred margin bookings increased modestly on a quarter due to an increase and very about merchant bookings.
And our typical seasonal pattern deferred merchant bookings they increase in the first half of the year as customers book to travel and then declined in the second half of the air as more customers are staying and actually traveling.
This year, starting with a similar pattern through mid to late February and then as new bookings dramatically decline and cancellations spiked in March deferred merchant bookings declined significantly.
This dynamic continued in April as customers cancel travel plans, mostly for near term travel dates that were impacted by October 19.
And as of the end of April our total deferred market booking balances $4.3 billion and excluding deferred loyalty the balance was approximately $3.5 billion.
As we manage through this near term liquidity capital had Atlanta addition to cost cuts, we've taken steps to preserve and bolster liquidity.
We suspended repo share repurchases and dividends and we also closed two transactions rate than a total of nearly $4 billion and capital.
The 1.2 billion preferred equity investments Apollo and Silverlake has a dividend that can be paid unkind first three years as well as redemption options. We also issued a total of 8.4 million warrants as part of that transaction.
We also raised $2.75 billion, an unsecured senior notes. The notes were issued in two tranches one of which is callable. After two years, we plan to use proceeds from this debt raise to repay the $750 million senior notes that mature and August.
Pro forma for these transactions at the end of April our total cash balance was $6.5 billion. In addition to cash across restricted cash accounts receivable and prepaid and current assets.
We held amounts covering 40% of outstanding deferred merchant bucking, excluding deferred loyalty.
That's true up against a recurrent booking trends rebound further we expect to see immediate cash flow benefits on the merchant model, even with new booking levels well below 29 team.
We believe our liquidity affords us flexibility to elect navigate a prolonged packed with covance and position the company to be a leader as travel recovers.
While we have a higher debt balance and pro forma leverage them. A historically carried we remain committed to investment grade credit ratings and fully intend to work back toward our historical leverage levels as the business recovers.
In addition to the 750 million notes due this year, we have a tranche of notes maturing in 2022 notes callable in 2022, and the borrowings under our revolver all of which gives US a lot of flexibility to quickly got a path back to desired cap structure on the coming years.
Given the uncertain environment, we're not providing guidance for 2020.
The second occur quarter. We currently expect revenue declined some closing their recent booking trends.
And our adjusted EBITDA loss to be significantly higher than in Q1, as we'll have a full quarter of the global impact from covet.
While we remain optimistic the travel bounce back we now it could take time to return to prior levels, we're going to keep driving efficiencies and we're going to position the business to operate faster and more effectively and the passes as Peter talked earlier and when travel demand returns, we expect merged with better margins and be in position to drive the level of growth we plan for.
As we entered 2020.
Operator, we're ready to take our first question.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
We Didnt is your turn to ask a question you will hear an honorable prompt letting you know the your line is open in line. Please be sure to state your name before posing your question again. Please press star one to ask a question, we will pause momentarily to allow everyone an opportunity to signal for questions.
And we will take our first question from Mark Mahaney.
With RBC.
To the names looking considerably better than the trough I mean, I can you try to quantify that for us that would be.
I would be helpful. And then secondly, you talk about.
Taking a fresh look at the business cutting back potentially on some performance based marketing spend a Google spend that's obviously in a key part of the OTI story I don't know for two decades.
Your level of conviction that you can how you I'm just talking about how you hedge against the possibility that that the alternative marketing channels won't be a sufficient is that when do you think you'll really get visibility I know this is a hard tend to run marketing experiments. In this environment is this something that is probably going to take you a year or more to really figure out how to better optimize your mom.
Looking if you really can't optimizing and away from performance marketing. Thanks, a lot.
Sure. Thanks Mark.
So first of all on May.
No I'm not going to give you much to quantify that except to say that we've seen week by week improvement again, we are a many product business. So some businesses like verb though.
Our considerable considerably off the bottom others are more modestly off the bottom.
The assumptions and all the the Prognosticators about the come back of of travel locally regionally you know as it is it vacation rental or hotels I think we're seeing improvement everywhere, we're seeing more marked improvement in a in vacation rental right now and I would say we are.
Fortunate in that we are relatively heavily weighted towards the U.S. and the U.S. is relatively stronger but of course there are places all over the world that are beginning to open up the it parts of Asia Pac parts of AMEA et cetera. So.
I think you know we are seeing a week by week improvement if it's encouraging but we're still at greatly reduced levels and ER and the numbers candidly are not terribly meaningful right now directionally, they are meaningful and they're hopeful but.
But the delta between minus 85% and minus some other big present is not really terribly telling I think the question will be how long does this sustain itself does it continue to grow and frankly to do all of US do our park to make travel safe. So that we don't end up with any future constraints that that stop.
The improvement so I think thats all I can really give young may as far as the bigger cutting back market any OTI a story I recognize you know as Google and others have.
Chris their way into the to intermediate all of US that is created challenges I think there's also been challenges as we all try to continue to drive growth and weren't finding other bird other ways to drive it as effective way.
I would say the things that give me encouragement our first of all.
Well, we don't have the volumes to test it right now we do have an opportunity of of an entire reset because we've essentially gone to virtually no marketing and as we wait back in we're able to be more.
Precise.
The more constrained watch and learn and grow into it and not just dive back in head first and.
And spend back to the levels. We were at I also think we have not done our job of a on a couple of bronze one is as I mentioned as our own brands competed whether that's broadly or locally or we were creating our own dynamics in the marketplace, but I think we probably never fully under.
Good we are now in integrated marketing team led by two great executives, who will figure out how to make sure.
That we will.
Spend appropriately and not be pushing price against ourselves.
Secondly, we've done precious little with all the data we have all the merchandise merchandising capabilities, we have and we havent done an exceptional job of retaining our customers and giving them reasons to want to come back directly to us directly to our out et cetera. It has been a growing area of business we've done a good job.
But if you think about.
Not having all the data on your customers aligned in one place not having the tools to tell them. How you went to Vegas last year. This time would you like to go to Vegas again, we just have a lot. We can do to continue to drive the business without the only idea being how about we spend a little more in performance marketing. So I think we have a lot of opportunity.
There. We've also seen that as we've gone to these very low levels of performance marketing that our brand is quite effective people come back looking for our brands because our brands have import and and we you know, it's an imprecise science, but knowing what your brands can drive themselves without performance is an important.
Part of this so I think this this low will give us more insight into that as we quite enough.
Okay. Thank you very much Peter.
You bet.
And our next question comes from Novid Khan with Suntrust.
Yeah, Thanks, a lot or just a couple of questions.
Can you maybe talk a little bit about what be integrated marketing effort does and comes off the trade off between growth, which has just marketing ought to actively and profitably.
And then if I had been just pink allowed the model isn't the business over the medium family dollar term and continuing what he has done over the last several months income so just cost takeout and streamlining.
They do think margins can win that business.
Well I'll, let Eric take the second part of that but.
I would say.
The tradeoff on marketing and growth, it's one of the benefits of having this giant reset is we're not sitting there with the run rate number and saying do we go for profit do we go for growth do we go up or whatever I think we're trying to just be smart and overall as we climbed back into the market and I think I think we want to clearly before.
Focused we have clearly said to the company, we will be focused on simplicity and profitability and efficiency, but that is not to say that we do not want to keep growing we believe we can keep growing on a more profitable base in a more healthy way retain customers more.
You don't have lifetime value increase all of those basic building blocks. So I think we're hopeful that that we can drive both we certainly won't as I said, we won't be headlong into driving topline growth just with a hell of it.
We will drive topline growth, where we think it makes sense and listen it may turn out that as we get better and better at retaining customers and creating longer term stickiness and lifetime value that we will have it you know yet another approach to performance marketing as we think about how how many customers. We keep for the long term. So these things are evolving and were.
We're going to no doubt learn a lot and all I can say as you know.
I'm not telling you. It's so I'm, telling you what we're going to do and Yo Yo Judge us on whether we deliver it or not.
But that is the orientation of the company and that is how we're going to approach the market and as for the margins I'll, let Eric talked about that but I would just point out that a lot of the work. We're doing is not only about efficiency. It's about unlocking real opportunities. So these data things many of the things. We we have done and we'll do that wheel on.
Lock efficiency will also unlock.
Opportunity on the topline I believe.
Yeah, and then from a from a margin standpoint last night.
We're not giving guidance at this for and that includes what the ultimate margin profile will look like but we are going after every cost and the company in one form or another add if you think about how the businesses run historically, which was independent brands competing out in the marketplace you can imagine and we're doing the.
Same thing and multiple places in the organization.
And there wasn't a lot of central management of areas that arguably shot. So just to give you. An example on a unit economics I talked a bit about it already but we centralized that the cloud management team and especially given cove at that team has.
Ferociously gone after that expense and I think the profile of that spend is materially different coming out the other side of of cobot.
Customer service, we started the journey of using more technology to help solve for questions from customers and delivering their needs with co bid we have accelerated that we're putting real investment behind it. The teams are energized for seen great returns from that and customers really love it as well our NPS scores when they engage with those tools.
Our quite positive two so to Peter's point, Theres cost efficiencies Theres margin opportunities and we're we're actually stepping up to the customer experience at the same time.
Heaters already talking about marketing, so won't get into detail there, but on the fixed cost basis, we're still working through the plan we've executed large parts of it.
We will come out the other side of this we will be leaner, we will be more nimble and we will we believe have more attractive and higher margins out the other side.
Great. Thank you Peter Thank you Eric.
Thank you.
And our next question comes from Eric Sheridan would you be yes [noise].
Please go ahead, thanks, so much.
Thanks, So much maybe long term question on I'm supply Peter you mentioned sort of continuing to work with suppliers through this difficult period, what are some of the long term goals about aligning your goals, which supplier goals and how do you see the supplier landscape evolving and what that might mean for the O T. A business over the medium to long.
Term and then maybe a second part historically the otcs of generally benefited from returns to normal from economic shock says suppliers are looking to sort of fulfill.
Gildan inventory you expect at this time as belt. Thanks, so much.
Yeah, Thanks, Eric I'll sort of baked that in reverse order I do think Theres no reason to assume it won't be similar to historic events and that.
Buyers broadly defined we'll look to platforms like ours to drive as much volume as they can to fill up their planes in hotels and everything else.
It's hard to say, how you know I think I don't really have a view yet on how the market will shape up or shake out I think it clearly depends on how long.
The virus persists.
How deep it all goes and how things come back, but I do think you know from our focus standpoint, there's a few areas, they're working to to collaborate better with our partners on your one is on the surface end of things, though both Eric and I've talked about the opportunity to make the service side more seamless.
To improve the customer experience.
Some of that is our own fault.
Some of that has to do with how we interact with partners.
I think we've all learned a lot from that and can do better. So I hope, we take the opportunity to do better.
I also think this has been a time when we've been focused on how can we help our supply partners come back better from a product standpoint from an offering standpoint from a data and information standpoint to help our suppliers.
Optimize their performance on our platforms.
And present themselves and best way and take as much opportunity of the demand that is out there. So I think we view this downtime to work with lots of supply side.
There is in terms of just simple basic things like.
You need better pictures, you don't have all your rates loaded there's issues like that I think we'll try to help help everybody with that I think we're going to build better tools to work better with our suppliers and I and I believe we will build better tools for the customer you know we know our suppliers want to up sell more we know they want to.
Make sure there's clarity around right now there their safety practices, but in the future other things and we have to do as good a job as we can do to.
Show all that.
Make the customer experience better and allow our suppliers to succeed more so I think between our our improvements in data.
Improvement in supply side tools or improvement in consumer facing tools and look thats. All work, we have to do still but we are pushing it hard.
I think we will you know we hope to help the entire industry come back as quickly as possible.
And we will take our next question from Deepak Mathivanan with Barclays.
Please go ahead.
Great. Thanks for taking the questions of two questions from us. So first of historically Expedia has benefited being imposed service hokey, Hey, now coming out of over 19 shock as we think about travel rebounding first away more local or even regional basis that you think you are on a little bit.
It does advantage from a market standpoint from a consumer on madness and recognition area has a certain expedia branch. If we were in the second intermediate stage, you know where and travel over the magnitude. It for a long time and then I was going to ask second question about the revaluation need to be business some of the beat to the assets.
Having strong growth opportunities for you you know window into more recent yes, like particularly the partner solutions area and as we come out of goal that you know do you expect to see trajectory difference between Green, Dan and also a b to b assets. Thank you.
Sure. Thank you be but.
Yeah, I think on your first question I think.
Media I would argue probably hasn't benefited as much as it could have from being a full service Nokia you know in fact in their minds of many consumers whether you're just you know who we're just looking for our hotel they might look at Expedia.
Bookings hotels Dot Com Travelocity, you know that's all quite similar.
Opportunities. So I think we are doing a lot of work to try to differentiate our brands. That's why we brought up brand group together into one so that we could be more clear in terms of the brand proposition the offering how we express it to the public et cetera, but I think being in the full service OTI a business long term is it.
Great place to be.
For sure Air travel, maybe John or international Air travel or maybe more challenged the domestic a little less whatever but I think over the long term.
Being really the the only folks who took on full service OTA as a real undertaking and have kept to it and there's a lot of Harry stuff that goes on in providing all those services.
Gives brand Expedia, a strong consumer proposition in the marketplace might it be a little slower because the air part doesn't come back is that maybe but you know again, we're indifferent to which brand or which line of business can grow fast enough. We just want to power now and allocate capital and resource and.
Human resource best we can to drive wherever the fastest pockets of growth ourself that in the near term if that's domestic local or per BOE, we're going to drive that and over the longer term, but over the longer term. We believe each of our brands at least as currently constructed will have an opportunity to succeed and certainly the full service hotel.
Remodeled hopefully we'll have an opportunity to succeed.
As far as the B to B business grows it has particularly our partner services business has enjoyed a quite strong growth over the last few years one of domain.
Sort of underpinnings of our strategy longer term is getting our own teams away from the idea that retails somehow better than b to b or one brand is more important than another brand. There you know a dollar worth of profit wherever it comes from as a dollar where the profit. So we see the b to B model has a great.
Opportunity to go in pockets of demand and reach pockets of demand that we are not reaching.
Or cannot reach through our retail brand so that might be geographically focused there might be offline travel agents. That's all kinds of things frankly, and our b to b business, particularly that partner services business has been.
Been very strong we think it will has tons of opportunity and can continue to be strong.
There will no doubt just like in the lodging and other businesses there may be some shakeouts because business environment is tough and some of our partners Sadly may not make it I mentioned that in the beginning you know there's a human Costa all of this business disruption.
But we believe longer term that our b to B business has lots of lags is an important.
Lag in our stool and and we will continue to drive it with as much energy and urgency as we drive our retail business.
Okay.
Okay. That's helpful. Thank you very much.
Sure. Thank you.
Our next question comes from Justin Post with Bank of America.
Please go ahead Sir.
Great. Thank you couple of question, maybe I'll start with a high level strategy.
When you made your comments about coming more efficient are you thinking about maybe expedia being little smaller market share, but that much higher margins or do you think you can have at all where you kind of maintain your share but also get the margins up I know, you're not going to give us a target, but but how are you thinking about that and then secondly, I just wondering when.
You look back to last year, how inventory constrained, where you where their markets, where you just didn't have any inventory availability and going forward do you think a lot of that what would open up and when do you see start seeing some really good deals or maybe unique deals on expedia. Thank you.
Yes sure.
I don't believe we have to give up share could be more profitable. We will be we were just at the same volumes as before.
We would be much more profitable today than we were a year ago.
Now my hope is that as we have that benefit as we get more benefit. Even then we've got so far and as we improve our marketing efficiencies our product efficiencies conversion and everything else that in fact, we will be able to continue to grow.
Certainly and at pace to maintaining and and hopefully grow share and still be more relatively profitable. So I don't think it's a trade off I think you know we have a lot of work to do on ourselves.
To get to the right place, but but this isn't about okay. Everything has been optimized to the nth degree and now we're just deciding if we'd like to make him an extra dollar and give up the dollar revenue I do not believe we are at that place or even close to that place we have a ton of opportunity to be more efficient too.
Throughout the process throughout the product throughout our own internal operating.
Features and if we do all of that that should give us more margin more ability to invest in growth now whether that may not be performance marketing growth that may be brand. There maybe other tools that maybe you know merchandising and all kinds of things, but I believe there's there's no reason, we should assume that one has to give up growth to get greater.
Margins.
Now it cannot be bumpy will is it a straight line from year to they're probably not but over the course of coming out of the virus and everything else everything's going to be bumpy. So.
We believe we can play for both.
As far the in inventory question goes I don't think we were inventory constrained last year I would say, though that there's always opportunity and gaps and this is as much information question as it is just the.
Cooperation question. So you know hotels very often.
You know may not have all their rates in every place they may not have.
They may think they have a deal on offer but it's only in one place or the map at the on offer somewhere that kick into the while then is offered in places they didn't intend it too. So I think our issue is not about not getting inventory, we want but getting all of the opportunities that a supply side company has to win in our markets. So if they have some rates.
For loyalty or something else, where we're not participating those are all opportunities. So I think we did not feel inventory constrained as than we were bumping up against nothing too. So I don't think that was the issue at all I think it's really just our supply partners.
Participating in every way they could and and it going forward can they get more out of our platform.
If we're giving them better information and there.
Responding more rapidly and everybody can take the best advantage of it that they can.
Great. Thank you.
Yep.
Well take our next question from Kevin Kopelman with Cowen.
Please go ahead Sir.
Thanks, a lot and the quick update.
A quick follow up question on our working capital dynamics, given mains band considerably better or has that working capital outflows a stabilized at this point and how do you see that playing out thanks.
Yeah, I'll take that one Peter so.
May is improved.
Obviously aren't going into details on where that's falling quite yet.
But I would say where it were still on the.
I would think about EPS still being and as Allen of where in survival Kobin mode focused on also on recovery. So we're still at a stage where.
We're still burning cash if you will.
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Peter anything that you add to that I mean, I I ultimately I'm trying to get away from giving you specific numbers associated with it but what we're still operate very small base, we're seeing green shoots that ultimately and gives us optimism for to be able to push into marketing and getting competence that consumers.
They are coming back I think those are all great things, but we're not we're not out of the words yet.
Yeah. Okay. Thanks, that's very helpful.
Yeah, I would just that Kevin you know when I say its considerably better. It's obviously percentage improvement off a low numbers it is considerably better though not awesome.
You know, we'd rather have double and triple digit improvements.
So it's not you know better is better and where we're glad we're glad to see the trends now the working capital is you obviously to go out to do with what's happening on cancellations, what's happening on on the nature of the bookings and whether they're merchant or or agency et cetera, but and there have been some exchanges.
In the short term, but I would say a you know, it's definitely improving but for Eric and I and the company. We still are on fairly defensive posture as we watch it play out and and you know we're glad to have the incremental capital on the balance sheet protect us.
Thanks Peter.
Okay. Thank you.
And our next question comes from Lloyd Wamsley with Deutsche Bank. Please.
Please go ahead.
Thanks, two questions. If I can ask first trivago suggested on their call that they expect paid search marketing to be structurally less competitive going forward. So curious beyond your company specific plans to increase ROI targets as as kind of part of abroad.
And consolidation do you think there can be structural performance marketing advantage is coming out of this across the broader protease space.
And then second secondly are.
You talked about already starting to see the benefit of the tech Reorg.
I was wondering if you can just give us some examples of some things you've been able to achieve as we think about you know the ability to over time it continue to squeeze benefit out of that.
Yeah. So on on the first point [noise].
Yes, I would say that I certainly can't speak for the rest of the industry. It does seem [laughter] logical to me that.
All of us in travel have been somewhat capital constrained by the virus in some cases highly capital constraints and ER and therefore, you know the robust performance marketing auction environment. We saw before may take a while to come back as people just don't have the money for direct marketing.
I don't know that will be the case, but I could imagine that being the case and perhaps that is what trivago was speaking to you know certainly we will we will take our own discipline to it we will do what's right for us I'm sure everybody will do the same but you know there could be a difference in the number of players and the.
You know available capital to invest in direct relationships and the nearer term for fruit for some of the other players.
And and direct hotel and other kinds of players so.
I guess that that would be my perspective on that.
In terms of benefit of the platform.
Honestly, there Marianne and many of them are in the weeds, but Eric talked about the work our team has done a cross optimizing for cloud right. We honestly had barely done anything to optimize for clouds before it just wasn't an urgent push the greater urgency was to move to the crowd.
And we took a huge opportunity run by team in our platform to drive.
Got a level of clinical approach to cloud, we just haven't had before and that when across not just the platform, but the entire enterprise and the savings there are meaningful I'm really meaningful so we're doing that across many things. That's that's kind of on the cost side I mentioned on that.
On the data side.
We've had we probably have as much in more data than virtually anybody in the travel industry, but we've never compiled it in one place. So we had.
Bunches of different data storage, that's put aside that thats not terribly officials and it means everybody's rotating on different data in the learning on different data, but all our algorithms all our learnings are stuff was against pockets of data instead of all of the data. So when you get all the data together and you simplify it and.
To standardize it now everybody can use it the algorithms and machine learning tools can weren't much faster and we can just apply it across a much broader breadth of our business more quickly. So I think we're going to see a lot of those there really aren't putting numbers I'm, they're not like Hey, we took these people in these people on these even put them together, we save Threepi.
Going where you took out a tool like those are you know it's that simple math.
And there are some opportunities that exist like that we've obviously gotten after a lot of them, but I think the.
Probably the bigger opportunity in the one that's hard to define.
It's all of these unlocks.
That exist for us and a you know for a huge organization. We were complicated we didn't make it easy on ourselves we didn't make it easy to do things and as I say I you know I believe there's great opportunity.
In the merchandising front, but we have work that's going on in earnest on the RCM CRM tools. We have worked its going on around data you know all those things have to happen to unlock that opportunity, but is there and it's big and we're going to get out.
Thank you.
Yeah, I hope that helps [laughter].
Our next question comes from Stephen Ju with Credit Suisse. Please go ahead.
Commentary on merchandising better to your customers, presumably this means better cross selling our products and packaged tours and things of that nature, but.
I think some of your consumers are used to shopping on expedia in a certain way. So you know do you think this requires any sort of retraining or awareness marketing efforts to we educate folks or do you think you'll be able to just take advantage of existing behavior. Thanks.
Yeah, I would kind of break that Stephen thanks to the question into into two bits, which is one is we can just be stronger at the blocking and tackling we can be better in our core product, we can be better and helping people find their way through our product, we talked a little bit about our voice platform we've been thinking.
There's opportunity for with and that's been principally used as a service tool, but we think there maybe opportunities to use the underlying technology there to help people through the the buying journey.
Help them make the right decisions for them potentially help upselling. So forth. So this isn't about necessarily reinvention I mean, our product should be as good as it can be but this isn't about how you're used to going on and that during the day I'm doing this and now you're going to enter a dream in a place in something like I don't think it has to be re imagine I think theres a.
A lot of it it's just core functionality, creating great products that are really.
Engaging with the customer unhelpful for the customer in the journey. So so I think that's at its core you know what are our our consumer offerings will be online merchandising I think is oh, okay, not not necessarily except with piece, but another piece, which is once you really understand your customer once you understand their journey you know.
Where they've been on your side, what they've done what they bought before what the what what their credit elections are in the future.
You have a real opportunity to I think change the game for them and that goes everything from the letting them know about deals that are out there that might be interesting to them, whether that's through email text whatever all the kinds of usual CRM tools that exist in the world.
And or when they come to the site. The disorder is particular to them or certain things are particular to them because you understand them and they're they've logged in and you know what they've done before others just lots of opportunity to do better there and I think.
I think.
We are where at the beginning of our journey. This frankly for that because until you could understand where the customer was and where they've been and have all the data in one place and everything else. It was really hard to do any of that so where we're.
Or maybe even before the early days, we do some of this but it's hard for us to do not efficient for us to do and we have to get to a place where we can really do it at scale kind of scale, we operate at and I think we can drive a lot of business separate and apart from the core you know I go to Expedia and I talked in my day, and then and airline.
I think there's just a lot more out there for us.
Thank you.
Yeah.
At this time I would like to now hand, the call back over to management for any closing remarks.
Well, thank you everybody hope, Eric and I covered as much territory as we could in an hour obviously, a again I think our first quarter.
Numbers don't mean, a whole lot and frankly, our numbers for awhile I mean, a whole lot. We've got a lot of work to do to come out of this in a great place. We think it's there for US is as you've heard and ER and that's what we're focused on and weren't honestly not trying to talk anybody into anything we're just trying to focus on what we can affect and you'll have to judge us by by what we deliver but.
In the meantime, we wish you all safe and happy insane time through the virus and be careful out there and where mask and look forward to talking to you again. Thank you.
Thank you Aaron.
This concludes todays call. Thank you for your participation you may now disconnect.
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Uh huh.
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Yeah.
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