Q2 2020 Booking Holdings Inc Earnings Call
[music].
Looking holdings would like to remind everyone that this call may contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act up 1995.
These forward looking statements are not guarantees of future performance and are subject to certain risks uncertainties and assumptions that are difficult to predict therefore actual results may differ materially from those expressed implied or forecasted and any such forward looking statements.
Expressions of future goals or expectations, and similar expressions, reflecting something other than historical fact are intended to identify forward looking statements.
We list of factors that could cause booking holdings actual results to differ materially from those described any forward looking statements. Please refer to the safe Harbor statements at the end of booking Holdings earnings press release.
As well as booking holdings, most recent filings with the Securities and Exchange Commission.
Unless required by law booking holdings undertakes no obligation to update publicly any forward looking statements whether as a result in new information future events or otherwise.
A copy of Bugging Holdings earnings press release, together with an accompanying financial and statistical supplement is available for the for investors section of booking holdings website, Www Dot booking holdings Dot com.
Now I'd like to get introduced booking holding speakers for this afternoon, Glenn Fogle and David Golden Go ahead gentlemen.
Thank you.
Welcome to booking holdings second quarter conference call.
I'm joined this afternoon, our CFO David.
We felt the full impact you called it might change during the second quarter, which reported room nights, which includes the impact of cancellations declining 87% year over year.
Your Lieberman.
Excluding the impact of cancellations declined 68% in the quarter.
No I cancellation rate pre cobot bookings, which we witnessed in March April and body, but with the overall, we travel demanded barb significantly impacted our revenue and EBITDA this quarter.
Revenue declined 84% versus last year, and we recorded an adjusted EBITDA loss of $376 million.
The first time, we have produced quarterly EBITDA loss since 2001.
We witness the greatest negative impact from the virus in April is new we booked room nights in that <unk> declined over 85% year over year.
After April.
Trends have steadily improved with nearly book the nights in July declining about 35% year over year.
The improved booking trends were primarily driven by domestic travel with international trends seeing much more limited improve.
In July we reach slightly positive year over year growth <unk> overall domestic newly book impact, though of course, there are many countries that still have negative year over year growth rates. In addition, it isn't obvious point that our domestic business is benefiting from prohibitions and restricts.
And our international travel, which forces consumers, who want a holiday to travel domestically.
Almost all of our global market showed improvement through the core youre in the United States had the highest contribution to be improved domestic booking trends.
As a reminder, very high percentage of our new bookings have been made with flexible cancellation policies and may be cancelled in the future.
And as we see new it outbreaks of Koby 19 cancellations may increase again.
Well, we are pleased to see signs recovering domestic travel we want to emphasize that it is impossible to tell how the coming months will unfold.
Unfortunately, many areas of the world continued to have very high infection rates and in some regions, they're dealing with new outbreaks after having significantly lowered their infection rates as a result, after a period of relatively steady improvement in many geographies in recent weeks we're seeing these.
Birthrates worsen in some countries.
We continue to believe they order recovered to pre coded levels, we will need to have a vaccine or effective treatment, which will take time to her to produce and distribute globally at the scale neither.
We're pleased to a recently read news about progress on this front, but we believe it will be years and not quarters before the travel market returns to pre coated volumes.
In those countries and regions, where shelter in place rules were relaxed and economies reopened we witness booking trends improve quickly.
We believe part of this initial burst that demand is due to people's pent up desire to go somewhere after being a lock down situation.
It also demonstrates people's desire to travel providing it to say.
Throughout this initial reopening phase, we have seen new customer booking and travel patterns emerge inline with our growth in domestic travel we're seeing that bookers are choosing to stay closer to home and are more interested in less urban areas stand pretty code.
Share these types of bookings on our platform has increased meaningfully this quarter.
We also see that our customers are booking more alternative accommodations that in the past, which often have the benefit of reduced potential interaction with other trouble.
In Q2.
Booking dotcom alternative accommodations represented about 40% of all new bookings in the quarter.
We've all seen increase in travelers booking stays with more flexible cancellation policies due to the uncertain traveling bargains, we currently face.
Our platform is well positioned to capture these travel demand patterns due to our very capable marketing teams global footprint extensive accommodation choice and diversification of cancellation policy and read types.
We have adapt more marketplace to operate more efficiently in this new travel demand environment did benefit both our supply partners and customers. We're working closely with our supply partners. So they can more effectively market our platform to capture the growing travel demand.
As our partner seek assistance to better respond to these new domestic and intra regional demand patterns. We are working to provide more information and why is as to the nature of the demand and offering the best programs on our platform that will help capture this demand.
We're also helping our partners more effectively communicate and showcase the steps they have taken to increase their own health and safety protocols at their properties.
Something we know travelers are keen to understand in order to make informed booking decisions.
Finally, we keep team to extend our payments platform to more of our supply partners and it remains a key initiative for us this year.
Developing merchant capabilities has valuable benefits for both our supply partners and bookers.
As we discussed on our Q1 earnings call, we articulated a series of class help navigate the company through these challenging times.
First phase was focused on stabilizing the business in the initial stages of the crisis, which included supporting our employees and increasing our cash position.
The second phase was focused on optimizing the business for the expected decrease in travel demand over the next few years.
A final phase is focused on positioned the business to capture travel demand as it develops so that we can emerge from the crisis on a strong footing and extend our leadership position.
We completed the stabilization phase and are now working through our optimization tricks.
These actions have allowed us to lay the important groundwork that will set us up to emerge from the pandemic any position of strength.
During our optimization phase, we assessed our total cost structure and developed plans to align it with expected market demand over the next few quarters <unk>.
We completed this work at kayak open table and Agoda in the second quarter and recently completed it at a price line in July.
Restructuring charge, we took in the second quarter only relates to the Rightsizing activities.
Hi Act open table and Agoda.
These actions had the effect of reducing headcount by approximately 22% across these brands, including some furloughed employees.
While the cost savings net of restructuring cost will be modest. This year. We expect that these cost reductions will produce over $80 million of annual personnel savings.
With respect to booking dot com, we have further developed our intentions for the appropriate level of personnel and other cost reductions in light of expected business levels.
Booking dot com isn't the process of consulting with its works councils and employee representatives and working through local legal regulations in the countries, where we operate.
We hope to finalize our plans and have more definitive news over the coming months.
We expect that up to about 25% of booking dotcoms global workforce could be impacted by these actions.
We expect that business functions, most closely tied to transaction volumes will be impacted the most.
At this time and subject to our consultations with the Dutch works Council employee Representatives and other organizations. We estimate that these cost reductions that booking dotcom could produce annual personal savings between $250 million to $300 million.
This preliminary estimate may change and we'll update you in the coming months on the expected restructuring costs associated with these reductions.
It's our hope to make all announcements to employs about these cost reductions by the end of Twentytwenty.
In conclusion, we.
We have learned from when we could not travel how important travel is to our lives.
He family or friends or to explore new places and cultures travel is fundamental to who we are.
Our wish list campaign, which drew on insights for millions of customers liking the combination that they would want to visit affirmed the a neat desire demand that will always into our for travel.
This campaign reiterates, the energy and passion that we know where means for travel.
In a challenging quarter and we've had to make some very difficult decisions.
We believe it will take years or travel for fully recover.
But I have great confidence in our employees and our capabilities and I could not be more proud of how our entire team has handled themselves. During these trying times.
I'll now turn the call over to our CFO David Gold.
Thank you Glenn and good afternoon.
I'll review, our operating results the second quarter and provide some color on the trends we saw grew quarter into July.
All growth rates are relative to the prior comparable period, unless otherwise indicated information regarding reconciliation of non-GAAP to GAAP can be found in our earnings release.
Now onto our results for the quarter.
My last earnings call in May we discussed the trends we saw early in the second quarter, including a year over year decline in newly built room nights of about 85% in April.
As a reminder, newly built room nights excludes impacts cancellations.
April ultimately prove to be the low point for new for newly built room night declines in Q2 up you saw a steady improvement in both May and June driven by increasing levels of domestic travel.
Domestic room night declines improved steadily in Europe, North America out across Asia.
However, we still less improvements in the in the domestic declines in South America Middle Eastern Africa.
Newly booked room nights of the full quarter declined about 68% as we exited the quarter down about 50% in the month of June.
Our Q2 reported room nights, which include the impact of cancellations decreased 87% for the full quarter.
Reported room nights in June declined by about 55% improving from an over 100% decline in April when we receive more cancellations the new bookings.
We saw continued improvements in the cancellation rates since April as we work through the way the cancellations for bookings made prior to October 19.
Although we're now getting closer to pre koby levels. The cancellation rates this improving trend could easily reverse if we see it come to you. If you see continued outbreaks and the virus or new imposition of travel restrictions, especially considering the very high percentage of our recent bookings the are being made with flexible cancellation policies.
[music].
Gross bookings declined 91% in Q2.
Which is greater than the decline in reported room nights due to the average daily rate for combinations decreasing about 35% year over year on a constant currency basis.
No the high level of cancellations in the quarter significantly the distorted agios.
I was appointed comparison on newly books, a dog, excluding the impact of cancellations declined year over year, but only a couple of percentage points in Q2.
An increasing makes a bookings into high 80, all markets like the U.S. in Western Europe help largely offset the pressure of the broader lodging industry eight YOD declines.
I'm sorry, your revenue for second quarter was $630 million and decreased 84% year over year.
Revenue in the quarter was less negative impact you don't reported room nights on gross bookings due to factors. Some of the cancellations. We received in Q2 with a check ins or expected to occur in later quarters.
This time I created by cancellations in the quarter also substantially increased the ratio of revenue as a percentage gross bookings in the quarter.
[noise] the substantial reduction in revenue contributed to an adjusted EBITDA loss of $376 million in Q2.
While we made significant reductions in our variable expense lines like marketing sell other are more fixed expenses decreased to a lesser extent in Q2.
As I mentioned, we've taken actions across the quarter to reduce operating expenses.
Optimize a line cost structure with a new demands environments.
However, the cost benefit of these actions would not fully realized in Q2 on the cost reductions net restructuring charges are expected to be modest in 2020.
Monte expense, which is a highly variable expense item decreased 85% year over year I was we saw a significant reduction in demand into paid channels. In addition, we substantially reduce our brand marketing spend in response to diminish travel demand environments. We expect a monkey expenses will remain significantly below 2019 levels for them.
The of the yet.
Selling expenses decreased 47% year over year due primarily to reduction in expenses associated with payment transactions as well as lower outsource customer service costs as we move through the quarter I need it less support and processing reduced level of cancellations in May and June.
Bad debts and other credit losses were up about 25% year over year in the quarter. However, we saw a false small increase in provisions in Q2, then what we recognized in Q1.
We expect sales expenses will continue to be down your and yet in the second half at 2020. However, the extent the decline will be impacted by level of volume we see in the business.
Personnel expenses decreased 18% year over year on non-GAAP basis, primarily due to a 100 million dollar banquet from government a from government packages, primarily in the Netherlands and the UK.
Currently we do not anticipate further material benefits to personnel expenses from government aid in future quarters.
We expect personnel expenses in second half between 20, well declined less than we saw in Q2 I was will no longer see the benefit from government eight.
We expect the personnel cost reductions we made in Q2 Agoda tire open table plus reductions we made early in Q3, a price line to produce over $80 million annualized personnel savings starting in the second half of Twentytwenty.
As I mentioned, we further developed or intentions with appropriate levels of personnel, but can dot com and in the process. The reviewing these potential reduction to be works councils employee representatives on other organizations.
We estimate that the potential cost reductions are booking dot com Cooper juice annual personnel robbery, saving between 250 and $300 million I'm because the process as we have to go through Apple can dot com over the next few months. We expect the majority of these savings will not be realized until 2021.
As Glenn mentioned, we'll update you on the estimated cost of achieving these savings as soon as they're available at which time, we'll file a required amendments to our 8-K.
You had expenses decreased 43% year over year, largely driven by reduced discretionary spend so just kuni on other personal related expenses as well as low office expenses Jude employees working remotely we.
We expect Regina will continue to be down meaningfully year over yet in the back off the year. However, the level of decline maybe less than what we saw in the second quarter.
Information technology expenses decreased 1% you ever yet due to low low outsourced datacenter and cloud costs. We expect the ice expenses will remain roughly flat versus the prior yet in the back half of.
Finally, we broken out <unk> restructuring charges separately in the operating expenses into PNM, the $34 million restructuring charge, we recorded in the second quarter only relates to the rightsizing activity to crack open table on the go to I know these restructuring charges are included in our non-GAAP results.
On a GAAP basis, we incurred operating loss of $485 million in Q2.
We recorded GAAP net income of $122 million into quarter as we benefited from an 835 billion dollar pre tax gain on equity investments primarily related to our investments in match one.
This gain was partially offset by $55 million of FX remeasurement losses on a euro bonds, we excluded these gains and remeasurement losses from on non-GAAP results.
Now onto our cash and liquidity position.
Q2, Andy cash investment balance increased to $13.4 billion from a much ending balance of $9.2 billion, primarily due to $4.1 billion bonding convertible note offering we completed in early April.
The long term investment balances benefited from the $835 million gain on equity investments in the quarter I previously mentioned.
These increases to our cash and investment balance were partially offset by the 1.2 billion dollar cash settlements of one of our convertible notes in June.
We had $122 million in positive operating cash flow and $52 million imposed a free cash flow in the quarter.
Change, the working capital or sort of about $300 million, a cash in the quarter compared to $820 million use of cash in Q1.
The improvement from Q1 was largely driven by a Q on prepayments of taxes in the Netherlands about $720 million that was subsequently responded in April.
The small reduction in Q2 relative to Q1, you noticed food bookings on other current liabilities balances were mostly offset by a small reduction in our accounts receivable balance in the corner.
Our improvements are improved liquidity position is the results of EPS. We took the stable use all business for the immediate shock of the crisis, we'll continue to focus on a strong liquidity position given the high level of uncertainty created by the code pandemic.
As opposed to these efforts to both all liquidity and consistent with all cost last quarter, we hosted our approach to the stock and we will not initiate repurchases through a better visibility into shape and timing of a recovery.
Now onto our thoughts for the third quarter consistent with our approach last quarter I will not provide full quarterly guidance, but will instead provide you with some color on our preliminary July results, which will help you get a better sense of recent topline trends.
[noise] as Bret mentioned on newly booked room nights in July we're down about 35% year over year of course, these new bookings maybe council in the future, especially as a very high percentage of new bookings continue to be made with flexible cancellation policies.
Yeah, Oh, your decline and reported room nights in July was about 45%.
Which is worse than a newly booked room night decline in the month of the cancellation rate remains above prior levels.
Bookings for the full for the full quota they vary from July results, depending on the level travel demand and cancellations, we experience in August and September.
We expect gross bookings in the third quarter will decline year over year by several percentage points more all reported room nights due to negative pressure on local currency 80 AWS I.
We expect revenue declines the quarter, we roughly in line, we what we see in gross bookings.
We currently expect adjusted EBITDA will be positive in the third quarter given the trends we're seeing in our business. So far through July as well as the fact that Q3 is our seasonally strongest quarter.
This expectation is based on assumptions, we do not see a meaningful increase in travel restrictions or shells in place rules or decrease in consumer related to travel as results come to you or increased code outbreaks in the quarter.
I was we've noticed I was we noted we've seen improvements in our newly built route by trends have continued into July largely driven by domestic travel.
Our newly books domestic room nights increased slightly year over year in the month of July for the first time during the cold trying demick.
Domestic room nights represent over 70% of unduly books room nights in both Q2 and July up significantly versus 2019, which was about 45%.
Our booking dot com is domestic alternative accommodation newly books room nights increased nicely year over year in July and its domestic core accommodation newly but room nights were down slightly.
We continue to manage the other changes in booking dot coms customer booking behavior, we've seen the length of the booking window to get to return to prior year levels in June after expanding versus the prior in both April and May.
Mobile bookings, particularly through a app continues to gain share in the second quarter into July and finally, we continue to see greater than 50 presents our newly built room nights come to us through the direct channel.
On a regional basis grew up in the United States would be the largest contributors to the improvement in new evil room night trends since April.
However, as Glenn mentioned in the past weeks, we've witnessed a plateauing or deterioration of new booking trends in several places the seat increasing outbreaks of Cowen 19 cases, including Spain, Belgium, Australia, Japan, Vietnam, Taiwan on the U.S.
We've also seen an associate increasing cancellation rates and many of these places.
These recent trends are remind that we're still in the very early days of a fragile recovery likely be an uneven for some time to come.
Let me emphasize this has been challenging quarter that involve some very difficult decisions on the number of all the actions that will ultimately help us optimize our business, but expect the level of market demand.
We have confidence that through these actions will be well positioned to come out the crisis and extend our leadership role in the global travel marketplace.
Without we'll now take your questions.
At this time, maybe you'd like to ask a question. Please press Star then the number one on your telephone keypad.
Well pause for just a moment to come all the kidney roster.
And your first question comes line, if Kevin Kopelman with Cowen.
Great. Thanks, a lot.
I appreciate the update and all the details on July could you talk about what you're seeing from your data in terms of market share, whether you're taking market share based on as July numbers and if so what are the key drivers there. Thanks.
Hi, Kevin Glenn.
No we don't.
You know go around trying to you about what we think car or share is up or down obviously.
You probably have a very good idea to what you think of our competitors, where they are I will say, what what David said as you know we're pleased with what we saw in July when I think was very very important. It every body keep in mind that this is a very volatile recovery and the countries that David when lifted that we've seen increased outbreaks.
It was not a complete lest reduced the entire time, if we looked at every single place that have seen places that are suddenly having increases in coated so I would caution a again just what David said, yes. We are pleased to what we saw in July, but we have to be careful about the future.
Thanks, and then if I get asked a one other question on the cost cuts you mentioned 250, a 300 million and personnel.
It is that a good number for kind of overall cost savings or what would that number look like if you included all the actions you've taken across the company their right to cut back.
Yes, Kevin we give you $2. We gave you 80 million annualized for the brand that apart from will Green Dot Com and then 250 to 304 potential savings booking dot com base, a formal process cost.
He talks about so those would directly impact the personnel line. So those we've we've broken out yeah. We mentioned in some many other areas of the business our expenses are down.
But we haven't really works through all the details exactly what those are going to be as we focus upon our employing a on our employee related costs first obviously, a with less people that will be less expensive come with the into other areas. That's your work through those plans as well will make them available, but the biggest change is gonna be suppose no cost.
Thanks, David Thanks Wes.
Your next question comes from line of Lloyd Wamsley with Deutsche Bank.
Hi, it's Chris on for Lloyd.
Continues to pursue talk about the performance of your alternative accommodation business in the quarter in July or just curious if that was growing and yeah, whether or not you guys and testing new distribution channels in the quarter.
So Chris one of things I think and let me go to go to the Q2, the that 40% number they like it my opening remarks, and as we said that is an increase.
So it's a big number compared to what we've seen in in the past and it's something that we're pleased but of course, we all I think have a good sense of what's going on and that is a change in demand because people's concern about being in a larger true up in the hotel lobby.
The thing that we really have to how to think about as what do we think about in the future is this a momentary thing or is this something that's going to continue long term or not and I'll say one thing that we turned doesn't pass is how we want to continue so that's all for KEPCO that didn't want to continue to build our alternative accommodations and how we thought it was an important thing for us to continue.
The build out all the types of altera accommodations, and we recognize that were probably short in certain types, particularly the single property home type property and we want to continue to build out and we also talked about we thought that we were perhaps under indexing in terms of awareness in certain geographies like to use for example, and we want to continue to improve on that.
So we're going to do that and we certainly are going to use every single marketing channel, we can to get the information out too.
Consumers that we have a great product and that is on the they can look to us to get a great deal and that's something that I think is important.
I'm very pleased of course with the numbers we saw when it also like the fact that we are perhaps the unique in terms of all the types of accommodations, we able to provide throughout the world and that's given us I think a a great opportunity going forward.
Got it and if I could just squeeze in a quick follow up here.
Just thinking about marketing ROI is here could you talk about what you guys are saying in the performance marketing channels, yeah. It looks like you're getting a lot of share.
In Trivago and just curious if there's any any other channels you guys were seeing somewhere results.
Well I think Oh, Oh can find myself, saying look we're always looking for high quality traffic at the White price you know when I say high quality once again, well one of the low probability cancellation I wanted to come back to US later directly.
National we're going to continue to doing voice jump back, but that's no change from our previous a way to run our business.
Got it thanks.
And your next question comes line of Brian Nowak with Morgan Stanley.
Hi, This is a Alex long on for Brian First question can you just talk to us about the a new growth opportunities like the U.S. or in destination in areas, you're focused on to a improving the go to market strategy, particularly in the U.S.
Well I ask you say, you're asking what is our.
Just in general I shouldn't get our go to market in the U.S., you're saying.
Yeah, that's right your ability to sort of maybe improve sort of the brand and growth opportunities in the market by U.S. and then any difference in me I think go to market tragic.
Okay. So we have said this in the past life create even more so now we think in U.S. is a great opportunity for US. We think we under index great products are saying all types of accommodations and with what we're building with our connected trip. We think we went off an incredible value proposition to consumers. So we are absolutely excited about the long term future.
From lives right now, yes people are traveling a little bit more certainly weren't April but we all know what the situation is right now and what you don't want to be doing spending a lot of money pushing out of brand.
Message is people are not hit or not listening to it because they are not ready to travel or they can't travel. So we want to be careful about that so I think we're going to have to wait until we have a healthier environment, where people are more people are ready to listen to that message before going to start spending money on it.
Got it and just as a follow on on you know what the reported or expect you know sort of reduced head count at booking Dot com can you give more color around areas of the company that on your looking into here in particular, given I think booking dot com, it's been run pretty lean in the past and then just sort of higher level. How does this change your investment priorities.
Beyond hotels, now compare to where they were pretty confident.
So we've made very clear and our discussions with our employees are works council or employee organizations and everyone have to have these conversations with as you know there are different regulations around the world Trust for different types of conversation to have we made it very clear that they are higher wages garden bar.
Labor related positions because our lives are way down those are the ones and I made it very clear how much I believe in future to connected to the investments, we're making things that we believe in the long term will give us a competitive advantage over every body and I would I would I would.
I think it'd be done wrong thing if I say, we should stop trying to invest in those areas I think they're important for the long run. Yes. This is terrible time right now, yes, our financials are being hurt by this that to me does not mean, we should stop investing in our future.
Great. Thanks, Ron.
Your next question comes from climate, Eric Sheridan with CBS.
Thanks, So much for taking my question, maybe two if I can window curious what you might be doing in terms of investing on the supply side during a period of lower demand as you said the mix shift moving toward truck alternative accommodations to some degree and what people want to book is there anything you're doing in terms of changing some of the strategy of partnering on supply.
Why you're trying to bring supply on against the demand environment, you find yourself and that's number one and then maybe on the buyback I know you need to see a better environment come back to the capital return policy can you give us a little bit a sense of what that somebody that might have to look like like what should we be looking for from the outside in.
You would need to see in the business before you're back to returning capital. Thanks, so much but any color appreciate it.
Sure I'll take the personal at their talked about our.
Yep potential capital returns at some point Davinci in general so.
So.
Finally, we talked about in the past a great deal is if there wasn't a recession, what's going to happen in terms of those supply.
Relationships would they be more willing to lean in with us where they'd be more open to conversations what we can to and what we've been seeing and that's pretty much. What we thought would happen is that when demand goes away and supply is looking for demand, they're looking to do it anyway. They can't when they're open to conversation that perhaps they were in the past so our.
Teams are out there talking with on the supply side and whether it be alternative accommodations properties Orange, the big hotel chains or anybody who is in our business right now they need demand and they're looking for can use applied to me. So our teams are coming up with great of different ways to try and provide something that will help them because we know.
This number two.
Sided marketplace, we got to do good for both sides and that's what we're doing right now and I think we're making progress with it we're having some very good conversations I promise you may not have has in the past, but I think that in the future. We will hopefully have this long term better relationship with some more partners because we can change about ways that we show they're winning.
For everybody.
Yeah, and Eric on the on on the buyback side, just elaborate a little bit Homewise say, so I said, we are certainly would not initiate and so we have better visibility into shape and timing of a recovery. So what do you mean by that we mean, having been a certainty as to what the future looks like and when it's going to happen.
And what the shape the recoveries going to look like.
Nobody is predicting a V shaped recovery now I think that's.
Not what people look yet, but we're looking at some period of uncertainty right now until we figure out more about what's happening with vaccine and how that would impact People's come first and then of course is the economic impacts of the of the Kirby prices will not go to people's ability to travel to spend money. It's all these things go into it so there's not a single miles.
Stone to look war, but if you asked me to characterize the environment, we will consider.
Re initiating capital returns it would be an environment, where we had much more visibility and confidence into the shape of the future [noise].
Great. Thank you.
And your next question comes line of the Datacom with Suntrust.
Yeah, I think not a maybe a then can you maybe shed some light on the mix of directors has a thin bookings I think.
Oh, I suppose and he is talking about how they because on has on hand on any cost.
Good question, Michael part of that enough today.
And the thing that maybe in a limited level I'm getting bookings can.
And continuing to occur in the will for Mrs. Though when you think of that and the company shift and then either funnel.
Sure. So we've said listen we will continue to say how important we believe is direct booking is really where we want to be has the future is provide such great value that our customers.
Once they learned about this great they come back to us directly they don't think about going somewhere else and to the connective trip and building up all different types of Oh, let's say of lower friction tight ways to travel that it makes it. So that we are the first thought always I'm not sure David its while I give any more color to where we are now.
I'll, let him do it but I will say the system that is important to us.
I think a again as we said we continue to be over 50% direct but I think there's some important things are driving that we show which are good indicators. We mentioned the briefly a little bit on the last call as well I mentioned in my remarks earlier that we continue to see apps being an important contributor because that is really I'll stick you just can't touch point about customers because that is not only.
A place you go to book a travel but increasingly it's why you think.
Interact with drawing to travel experience, which is very important as well and we also see as we mentioned last quarter. We also see things like an increasing percentage mix from our genius customers as well this quarter as well. So these are positive things that correlate long term to a higher mix of dike bookings and justice ability to create a there's going to.
Said, a few times that connect the trip, where you're not just bookie with us and then going on the trip, but you really booking multi multi verticals interacting with us during the trip, we provide things like dynamic customer support et cetera, very different environment in the future, which is obviously powered by a big data machine learning et cetera. So we think these are important.
Signs that we're moving right direction.
Okay, and the funnel they hadn't really just to clarify the domestic makes you gave us Glenn 70% domestic how does that mean that you need to the thing than anything or how you're looking at country. Another.
What we're going to country domestic.
We do we sometimes look at our regional intra regional but if you're a if you're an Italian tourist and you went to France, that's not a domestic travel.
Got it thank you.
I'm looking at David It's just to confirm.
Actually I was just a question to cook.
[laughter] metric is domestic <unk>.
Got it was currently [laughter].
Okay.
And your next question comes online as.
Deepak Mathivanan with Barclays.
Great. David can you help us quantify the pressure on new bookings from a mix shift towards domestic 80 hours, obviously on a comparable basis on lowering their various markets, but are there any other variables either from consumer spending last are all you know staying you are nice that will keep the bookings growth.
Below the trends on the on no room nights and then what would what is that equal and you know darla bookings comparable metric for the down 35 in room nights during the month of July. Thank you.
I'm going ask you clarify the second part D back let me ask to the first part so yeah that obviously, many moving parts with a yaws a this quarter and as I mentioned for newly books room nights.
<unk> actually in total only off a couple of points just even know there's a mix shift always within that two domestic so we see a number of things going on what we see it in some case, obviously some people are subject Judy what would it be <unk> and international booking for domestic booking and those can potentially be higher $80 because historically engine.
Actual travel typically resulted in a high 80 on longest state and to extend the summer it's substituting into domestic that could be helping our ideas on a country by country basis, because in some of our core countries in Europe, we actually saw adiala up quite meaningfully in the quarter I'm. So the number of mix related things going on within the whole.
HDR environments, and as I said essentially flat to down a couple of points in in total.
In the core despite the fact that we know that like for like the off certainly HDR pressures in the marketplace Deepak I missed the second part of your question can you just a repeat of please.
Yeah, No I was just going to ask how should we think about you know the down 35 in room night of on an equal in dollar bookings basis is that.
You know to your point should we view that as badly close.
No no we fit well in terms of well know, there's still going to be an 80 off pressure on that so what weeks what what what we said was were down 35 in July and room nights on a new equal basis down 45 on a reported basis the cancellation rates running a little higher than they were last year and then a few points.
More than that down in terms of Ah Ah in terms of gross bookings on revenue.
Got it though that's very helpful. Great. Thank David Thanks.
Your next question comes online as.
Doug and not with JP Morgan.
Hi, This is the on for Doug. Thank you. Thank you for taking the questions first one let's talk about the profile of the people who are still troubling. For example was are considered it could be of it travelers higher LTV.
There are probably all that is happening or just before the core troubling because they have to it because its high enough to how important do you think this to gain shares early in the recovery and then secondly for David on the fixed cost side, given your comments about cost savings being more volume related should we expect these costs to come back with plug into turning and.
Do you think margins will look uniquely different bugging, who tend to pretty quickly levels.
What are your check.
Yeah, I'll take a person so essentially the provost I have not walk in any sort of customer segmentation recently in terms of the rate down so I can't speak specifically in terms of deep data on the on the profiles, but I wouldn't say that it would not surprised me.
And now next week they'll show not that different in terms of what it was pretty coded people still want to travel people still sometimes have to travel sometimes doing voluntarily basically they that is the shape because that's the changes where they're traveling how they're traveling. So for example, because people can as I mentioned you can't travel internationally from.
You asked Europe lets say what is happening those people are traveling domestically and we've seen that in terms of people very much a warning travel close to home at first because I wanted to be able to drive there because concerned about getting on a plane, but in terms of the actual different types of customers within it I don't think I've seen much greater except for one thing that I.
I think is very very critical to talk about that is business travel now we have always been a much more leisure oriented company and we all know from businesses that we work in that business travel has been significantly curtailed or stopped and what does that do well certain certain.
Properties are in supply chain for example high end user that are no longer able to get that high 80, our revenue and that of course is helping in terms of a distributor like us because we have leisure customers help fill those things now how long was going to so long term trend I think that this could be.
Well to us it maybe helped us in the long term.
As the shift from business to leisure <unk> continues for a long time, we will be in a better position with our supply partners, because we're able to provide them with what they need which is heads in beds.
And on the on the cost side of things. So yes, we said the majority of the personnel reductions will be in volume related functions always see that will those will overtime come back we look to continue to drive efficiency in many of those areas through all business over time through automation.
No. There is they don't necessarily have to come back a dollar for dollar bus volumes return they will come back in terms of our expectation for the longer term.
When we get to pre koby levels, which as we said there's not much but of course is about two years.
We expect the business to have very attractive margins when demand fully recovers all things being equal we expect to have a industry leading margins in the long term.
Obviously the business in the future look a little different than it did pre coded for example, we're building out new products like App, which will be dilutive to margin right. We'll also be important to our business on a strategy that the techie trip and selling more combinations. So they'll be puts and takes but we expect <unk> industry, leading margins longer term.
Great. Thank you Bill.
And your next question comes online, it's Steven Ju with credit Suisse.
Okay. Thank you so glenn because the nature of the personnel reductions going to be I guess evenly distributed across your focus regions or are you, putting any geographical exits the business as a whole and I guess it a roundabout way I'm trying to ask about your past to go after the China outbound opportunity.
Also I'm just following up on a trip you recently signed an agreement with a to you I believe to distribute their content. So you know where are you tend to integration process. Then how will this be presented thanks.
Yes, so two separate questions. So in terms of again, we're having our conversations with our important partners works Council employ organization said or and having a going through the sent booking dot com and the key thing. We mentioned is how a lot of this is volume related so where the volume is most of factors here circle.
End up having a higher weight did impact us that's the way, it's obviously going to.
Happen I don't think you can Ah, we certainly are not purposely coupled with a strategy change. We believe that's important for us to be able to provide travel services throughout the world as the leader in the World we want to maintain that in terms of our agreement with amusement I think that's why you're talking about to correct yes.
Right. So we think attractions is an important part of that connected trip theory in strategy that we've talked about and the faster we can get a different types of attractions up in running and available to our customers the better whether we do the connection ourselves where we go out we partner with somebody war.
Hi, somebody whatever it is we want to get that stuff up. So we can provide that value and music thats great partner data Hall proposition, we decide join up and we are now life.
In a certain number of cities and we are going to continue to build that out and I I believe that this is one of the things that will help really provide value. When somebody is traveling they use that app that David mentioned more people use the app and when you're in a location in your able just one touch be able.
To go to an attraction and Thats, a convenience and we'll be able to buy that value price differential thing that again will give us better advantage, but we're going to have the supply first of course.
Thank you.
Your next question comes online and Justin Post with Bank of America.
Great. Thanks for taking my question I apologize if it's already been asked but just thinking about hotel recovery and add the hotel industry as they try to get back on their feet personal how do you think about air capacity and a you know are the airline is gonna be even more dependent on leisure travel or is there going to be a little bit of less city out there and then.
Secondly, it as the hotels really go to market and and start filling their rooms thinks about maybe 21 or 22, what advantage as you know offering discounts or promotions on booking could they'll have versus maybe going to Google or your competitors. How are you thinking about really to I must say taken advantage, but but the really you know building.
Looking out as as a great places to go to find deals and help hotels fill inventory. Thank you.
Yeah. So two separate things so in the first thing about airlines and I was just talking about the potential long term change in business travel, which would of course impact the financial structures of a lot of airlines that make a lot of their profits with everybody is up front on the plane.
It's not there whats going to happen on the other hand, though we all know that places like Ryanair and extremely successful in southwest extremely assessing the long term with not having a very high very expensive first class are busy plus product.
Overall I believe that this could be a change in terms of leisure does become more important and that does again as I said tils favorable to us because we are more leisure oriented company.
Here's the hotels as I said idle same type of thing with some of our.
Our partners, who are more dependent on the business traveler and as they continue to even.
Come back recover it's going to for so this could be a little bit hard because they're not going against that very high 80, our business person and they will be looking for someone like us and you mentioned that going to Google Directory hotels are going to anything they can see any which way to get Matt its cost effective they will do.
Over the years, we have established something that actually is more cost effective it is an easier way and for most of the hotels around the world They cannot getting here our capabilities to bring them demand from around the world. They don't operate the number languages, we do they don't do the customer service in those languages.
They don't have the sophisticated machine learning they don't have all the things like if I could lift so many that we do and we do it in a fraction of the costs that cause them to even tried to do that so it it financially.
Advantageous for them to work with us to get that demand and as more of the biggest flat demand platform in the world for travel there's no telling a won't discuss and we'll see I just don't want to do that no they're going to see into that and if there is a marginal benefit to go into another child, who use that to what I'm not I'm not concerned about oh.
Telx not coming to us even more so nowadays.
Thank you Glenn.
And your next question comes in light of Mark Mahaney with RBC.
Okay. Thanks, two questions. Please Glenn and I have you seen any impact from them a cut back in performance marketing spend by Expedia in the North American market does that have you seen interesting dynamics or is the overall just a dramatic decline in travel demand just making it impossible.
With that really call out and then I want to ask a long term question about I I think if you hadnt have had covered this year. They would have been more evidence that booking was building out kind of an operating system for launching worldwide. I think that was part of your strategy dual payments website development et cetera.
If I interpreted it right I think I did now can you talk about like to how far but how how how.
How much that's been pushed back because of this covert crisis and your thoughts on if we were able if we can possibly look out two or three years, how far you are towards building and operating system for a pheno for for lodging globally. Thank you.
Hi, Mark So I can't comment much about expedia or what they're doing it. So you know I'm sure you see what Google puts out in terms of numbers et cetera, who were pleased with what we're doing it's the same strategy that we've had we're looking to high quality traffic. We're trying to do it it's harder now for us it just in terms of.
The models, we use in the past obviously are not as valuable now because cancellations are still affected by government changes and it's a more difficult thing we're trying to do it the way. We've always done is not is not doing anything foolish, but I I really can't talk about Ics media strategy, what they're doing in terms of the op.
Operating system.
So we're not really building an operating system in terms of going out and trying to build a pms for hotels, that's not our idea what we want to do is provide you very integrated integrated benefit for the whole channels that makes it so they're getting great buy things that we're doing with them. So for example.
Mentioning the issue or building web sites for a hotels, that's been pulled back significantly that we're seeing some there's no longer being pushed forward what we aren't doing though is working with them as we build out our connected trip. For example, let's go with ground transportation working with them, perhaps in a way that they don't have away for.
Their customers to get there from the hotel well some we have away with our customers come to who come to US first the book, but we also worked with them. So if a customer booked with some other distributors.
[laughter] venture, we can still create something that would enable him to also be part of that to get that ground transportation and such so I think that's more of the orientation you talk about how much has been pushed back yes of course, if things have been pushed back and I.
I think that you know core get by the number of months that we have these kinds of situations with demand. So far down is the number of months that we've been pushed back but I did make that point about those asked about the workforce reduction this stuff, we're not stopping on investing we're still investing and we're still pushing forward to create disconnected trip because that will.
We are competitive advantage down the road.
Okay. Thanks, a lot.
And your next question comes your line is Daniel Palo with Goldman Sachs.
Great. Thanks for taking the questions to two if I may on the first wanted to come back to the direct bookings proportion. He said that it was.
Still above 50% I guess could you describe some of the puts and takes and reasons that number might not be moving higher for you. During this period, where suppliers and competitors might be more more constrained from a marketing perspective and from a skilled perspective.
[noise], so hypothesize walleye, it's not a higher number.
It's not going to try and do all say I'll say that we're pleased with way, where we are with our direct bookings we want to continue to increase it we've seen our app downloads to be increasing nicely, we would like we've seen that like that.
We're going to continue on all the steady pace that were on certainly we could have increased it perhaps if we were willing to spend a huge amount of money on brand marketing, but I've made the point about why that would not be the most efficient use of our money. It would drive up perhaps the direct bookings a little bit, but an incredible cost. So we always.
Make sure that we're getting the right. Thank for Bucks, so to speak and we're pleased with what the pace for going out.
I I just add the when things down the level of the all right now we were talking when things are down over 80% three we're talking about a mixed numbers now on much much reduced volume basis.
So I think we got to wait and see how this plays out we still comfortable were moving into right direction and as Glenn said, there may puts and takes when things are moving as rapidly as they all with Boeing levels as as they are.
Thanks. It that's really helpful. And then second one you know with the with the ships alternative combinations and the relative strength that you're seeing there in the business is there anything from modeling perspective, we should be looking out for their tailwinds to take rate or they're higher customer service and payments related cost sort of what are what are some of the things we should look out for there.
Yeah, Weve arms, we said a couple of things about the alternative accommodation business I was you know.
Historically, a they've had low operating margins, what we call the take rate difference, but because basically reasons. These mentioned there are typically more more touch points, we've been doing a lot of work to automate [noise].
So we are definitely be no working to close that gap and how being closing that gap and of course alternative offering.
Nice healthy probably more throughout 2019, so the awesome some mix shift or differences a there's not a massive gap between the two segments with the is difference maybe you can June June to touch points, but things we'd be working on so it's not a trend that we are particularly concerned about it doesn't in total make a big differences the operating margins.
Instead, we uniquely position so as demand fluctuates, but we believe that there's a push towards alternative is certainly happening when people feeling less safe about trouble when people feel more safe about travel potentially things might normalize that we're in a great position to continue to work on on all aspects of the accommodation market.
Place.
You know, there's one thing long term that we are we're thinking deeply about is because this.
This style of accommodation.
As a seems increased but I would imagine many people is not used it before and they have now found it to be it's not so bad like this so in long run there could be a lot more demand for this it's sort of let's say accelerated trend that can go after a long time, but what that means though that be a change in supply.
Hi side in the long term and you'll see many many people the accommodation business, perhaps who previously had not or just dipping their toe and creating this type of accommodation the alternative accommodation, we'll be putting investment capital into it and because more and more professionalize and and this is because more and more.
Fashion realize that will help lower the frictions lower those costs and I believe what David was just talking about the difference in to the operating margin in which have already seen close tremendously well close even more so.
Got it thanks, so much the detail.
And during last question comes the line of lean Horowitz with Evercore ISI.
Great. Thanks for taking the question just one I'm wondering if we can dig in a bit on the July trends across Europe.
David you talked about deterioration slash by telling in countries like Spain, or Belgium, but didn't mention any kind of some of the other regions in the area is it fair to think that the region as a whole continues to improve and then Glenn No you talked about the does the demand pull forward for alternative accommodations I guess is it fair to think did you.
You're you're looking at this is perhaps a sticky or trend a a structural shift that's that's being.
Perhaps you know pulled forward from covered or do you think it's mostly just to sign is attached. Thanks. So much.
Yeah, Let me answer that agreement by the room night growth question a trend question firstly so.
What we saw in July and Europe was continued improvements. So we saw continued improvement in June into an into July and inaccurate as I mentioned, we called out a couple of countries, where we are seeing things towards end of July slow down or go down a little bit but in aggregate July was.
Well newly room nights compared to June in Europe, whereas in the U.S. are the biggest improvement was in Judah then things actually based you flattened out in July in the U.S., So Europe, where things were so improving in the U.S. They flattened out with June July being about same.
Finally, I'd type I'm not sure I'd say.
Oh, yes, it's a step change I suppose, but it's just an extension of a long term trend.
And when you think about somebody other trends that have been happening that had been accelerated the idea of staycations, where people say, okay. I don't want to go to work on a Friday I'm going to pick a long weekend around around deal in place or something like that and now with so many people live learn that they can work remotely that increase in that.
Try to often take go none of the beach or get something like I'll turn the combination on the on the mountains whatever I see all those trends accelerating and that really helps that alternative accommodations, because if you're going to take a couple of days away from work, where you are working but you're not at work he wants something more than it does.
Well I can see hotel, probably you may want to separate room that you can do you work from all these things are coming together. So I think is something that is going to its accelerate already I think it's going to continue for long time, and we feel pretty good about the fact that we are.
Very well positioned and continue to grow out alternative accommodations at the same time for the people want that hotel they walk the resort somebody else changing the sheets, we got that too I think for me.
We're looking good for the future as travel comes back, which we know it will always has always will in the more we read about some of these vaccines, perhaps coming out in the not so distant future, we're pretty positive about the long term.
Great. Thank you both.
Yeah.
Thank you so.
I want to ischemia, some concluding remarks.
Just have to absolutely. Thank all of our employees again. These are working so hard since the beginning of this crisis, helping our partners, helping our customers and these incredibly difficult times doing it from home.
<unk> near term me be volatile, it's going to your volatile as I, just said I'm, so confident though about the long term value proposition that we're putting together.
Assay focused on the steps, we're taking the date to make sure we have a better company tomorrow. So please every please be safe Goodnight.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
[music].