Q3 2020 Booking Holdings Inc Earnings Call

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Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily.

That time your lines will again be placed on hold.

Again, ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time, you like will again be placed in hold thank you for your patience.

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His name is perhaps beliefs together within a companion financial and statistical supplement is available and the for investors section of booking holdings website, www that looking holdings dot com and now I'd like to introduce a booking holding for speakers for this afternoon, Glen Bogle and David Goldman.

Go ahead gentlemen.

Thank you.

And the visit home decor governments cool enjoying this afternoon.

David D.

Maybe impacted COVID-19 continues to weigh heavily on the results. We were pleased to see a sequential improvement in trends in our third quarter, which is R seasonally largest and by far most profitable court.

<unk>, which includes the impact cancellations were down 43% year over year in the third quarter, which was a marked improvement from the 87 per cent decrease we experienced in the second quarter.

Continued pressure on 80 yards in the quarter slightly all set by one point ethics benefit led gross bookings in revenue to decline by about four percentage points more than the night.

We recorded approximately $1 billion of adjusted EBITDA on the court, which wasn't improvement from the 376 million dollar loss, we reported in queue too, but this was 60% lower than in the third quarter last year.

As a result show we were operating significantly below pre covid levels.

We were encouraged bar an improvement versus in the second quarter, and we're pleased to see travelers and supply partners connecting to our platforms and if he emerged from the springs first wave of Corona virus infections delivering.

Delivering these results and what continues to be an extremely challenging and unpredictable environment is a credit to our team's relentless efforts to revive the best value of service sure traveller customers and supply partners yeah.

Pregnant booking trends in the third quarter versus the second quarter was almost entirely driven by domestic travel with a very modest improvement and international travel.

As we noted last cooler our domestic business is benefiting from government restrictions on international travel, which forces consumers, who Wanna travel they have to do it domestically.

We believe the improvements in triage, we've seen in this challenging environments demonstrate people's deep desire to find a way to travel with two three resolved benefiting from some pent up demand after the lockdowns in queue too.

Looking more closely at the shape of the core the year over year decline reported midnight was relatively consistent each month of cute great as the steady improvement in global trends that we saw sort of April through July find out in August and September.

October reported room nights declined by about 58% compared to October 2019, and over the last seven days through yesterday declined by about 70%.

We believe this worsening resolved is driven by increased virus infections and certain governments reimposing public health related restrictions.

Treatment, which will give people confidence that is safe to trap.

While we are encouraged by the news of progress being made on this front.

We understand that will take time to produce and distribute any vaccine on a global basis to achieve effectiveness I'm on.

Also encouraged to see some governments, such as Japan, and Thailand, taking concrete incentives to incentivize travel more.

More programs like these and increased co-operative action from governments around the world would help accelerate the travel recovery.

One of the progress we are seeing leaves me optimistic on the long term outlook for our industry I continue to recognize there will likely be years not quarters before the travel market returns to pre cobrand volumes.

In the meantime, we continue to execute against a series of plants navigate the company through these challenging times and lead the important groundwork that will set us up to emerge from the pandemic in a position of strength.

As we previously discussed we have assessed our total cost structure and developed plans to align it with expected market demand over the next few quarters in.

This work is complete at kayak open table, Agoda and Priceline and we started to see some of the associated $80 million of annual cost savings phased in during the third quarter.

We are making progress with our initiatives to reduce the workforce at booking dot com.

Up to approximately 25% within associate annualized savings estimated between 250 million to $300 million.

We have been restructured we've been taking restructuring actions booking dot com in various countries and in some countries, we have implemented voluntary leavers schemes.

We are continuing to work with our works councils employee representatives and other organizations finalize plans in other countries and.

It is our hope to make the vast majority of the announcements to employees about these personnel reductions by the end of Twentytwenty.

It's important to stress that these personnel restructuring decisions are difficult and we do not take them lightly.

Given the expected timeframe of recovery that we have discussed we believe that our restructuring plans other direct access for the company in order to right size the business.

In addition to our cost reduction actions, we remain focused on positioning the business to capture more travel demand as it develops joined recovery and over the long term.

Part of this effort is continue to build towards our long term vision of the connected trips seamless multi product offerings, which we believe will ultimately improve the customer experience on our platform and drive enhanced loyalty and frequency over time.

In addition.

We believe offering other travel products will provide opportunities to merchandising and customer acquisition to enhance the growth of our core accommodation business.

Booking dotcom as continue take important early steps to build a flight product and recently announced the launch of flights on booking dot com in the U.S., we see flights as a key component of the connected truck.

It isn't obvious opportunity for us to remove friction in the booking process for our customers.

If you look at your vision of providing this frictionless customer experience, we brought together by a seamless payment network, which we continue to develop and extend to more of our supply partners.

We strongly believe that developing these payment capabilities has valuable benefits to both our bookers and supply partners, including potentially lower payment costs for suppliers also we will continue to work closely with our supply partners to help them respond to this environment and more effectively market their properties on our platform.

Hundred capture more travel demand as returns overtime.

Finally.

To address a matter that we are following closely now many of you may have questions about.

The European Commission is working on a new regulatory framework for digital economy, which among other things, but most designate some large online companies who operate across Europe as gatekeepers into established rules and regulations for these businesses the criteria for being a DP earth and the associated rules and regulations are.

In development, so the potential impact is difficult to estimate at this time.

They are being questioned the speculation that booking dot com needy one of the designate gatekeepers, which we firmly believe would be incorrect for a number of reasons. The principal reasons that the accommodations market in Europe is very open and very competitive consumers have multiple online and offline choices to book accommodations.

And accommodation providers have multiple online and offline channels to attract customers.

To put this into perspective, looking dot com booked about 7% of all potentially bookable accommodation room nights across all properties on our platform globally in 2019.

Across Europe that number was about 11%.

As I mentioned, the new European regulatory framework is under development and we will update you on developments during future calls.

In conclusion, we believe we are responding well to this pandemic crisis, we're providing great service to our customers and are working with our supply partners sure that together, we can get them as much business as possible during this difficult days.

I am incredibly sad that Weve had let go and are still in the process of Linco, So may dedicated and hardworking people.

But it is a necessary step and.

We expect to have some challenging quarters ahead of us as I've said before we believe it will take years for travel to fully recover however, I am confident in our teams ability to execute during these unprecedented times and continue to deliver value to our traveler customers and supply partners alike and to emerge from this crisis.

Yes on a strong footing.

I will now turn the call over to our CFO David Goldman.

Thank you Glenn and good afternoon.

I'll review, our operating results for the third quarter and provide some color on the trends we saw for the quarter and into October all growth rates relative to prior year 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.

Our last earnings call in August we discuss the trends that you saw throughout the second quarter and into July including the year over year decline in newly books room nights steadily improving from.

From about 85% in April through about 35% in July driven by increased levels of domestic travel as a reminder, newly book nights, Uli, but remarks exclude impacts cancellations.

As Glenn noted the steady improvements in global trends that we saw from April to July flatten now in August and September, resulting in our newly booked room nights declining about 37% for the full quarter.

Our Q3 reported room nights, which include the impact to cancellations decreased 43% for the quarter, which is worse than our newly built room night declined in the quarter on the cancellation rates remained above prior year levels.

This improvement in room night declines versus Q2 was helped by pent up demand from Lockdowns on other travel restrictions earlier in the year.

On a regional level, we saw North America continues to improve as we move throughout the third quarter. However, this improvement was offset by softening trends in Europe.

Recent declines in Asia were consistent throughout Q3.

Unfortunately, as we moved into September we saw Koby case counts climbing higher than in many European countries on governance, beginning to respond with imposition of travel restrictions. The identical patent continued throughout the month of October leading to a further slowdown in bookings in Europe.

True, but we also saw a slowdown in North America, while the room nights.

While the route by declines in Asia remain consistent with Q3.

As a result global newly built room nights for October were down about 50% year over year and report the room nights structure, we're down about 58%.

Over the last seven days through yesterday. These trends have further deteriorated renewable room nights declining about 58% year over year, our reported room nights declining about 70% year on year. This is the global average and in Europe. The decline rates are much higher.

The recent trends our mind that this is a fragile recovery and that we're now seeing a second dip in our business driven by coated.

We believe that the recent increase in koby cases in Europe, and the us coupled with cold weather and travel restrictions and new geographies will results likely results in the second dip being you shape and lasting until the early spring of 2021.

Domestic room night represent over 70% of all of our newly built room nights in both Q3 and in October up significantly versus 2019, which was about 45% after.

After growing year on year. This third quarter on newly book domestic room night reverted back for year over year decline in October.

Well good dot coms domestic alternative accommodation newly booked room nights also decreased year over year in October after increasing nicely in the third quarter.

October reported room night decline, which includes the impact of translation was worse than our newly booked room night decline in the month as the cancellation rates remained above prior year levels.

Although we saw continued improvement in the cancellation rate through the third quarter. This trend also reversed course in October.

Given the recent high Koby case counts and increased travel restrictions, we expect to see further pressure on translation rates for the remainder of the fourth quarter, especially considering the percentage or recent bookings being made with flexible cancellation policies that remains higher than the prior year.

We continue to monitor launch the other change in booking dotcoms customer booking behavior. In Q3, we continue to see an increase in the mix of customers booking alternative accommodations versus the prior year levels. However, as we progressed through the quarter and into October we saw this increase in the alternative accommodations share moderates.

Moving dot coms alternative accommodations represented approximately one third of all new bookings in the quarter.

The new demands environments.

For 2020, we expect the savings recognizing all personnel expense, while I'm related to these actions will be more than offset by charge you reported in the restructuring and the other exit costs line.

Monthly expenses Hanmi variable expense line decreased 48% year over yet of you saw a significant reduction in demand and the pay channels. In addition, we substantially reduced our brand marketing spend in response to the debased travel environments would expect our marketing expense will remain significantly below 2019 levels and the fourth quarter.

Sales and other expenses decreased 53%.

On the Netherlands, we're booking dot com continues to consult with works councils and employee Representatives Rick.

We currently estimate that the remaining restructuring charge relates to auctions of booking dot com, who will be approximately $100 million some of which we expect to record in the fourth quarter and the rest into early 2021.

This time and subject to consultation with the Touchworks Council employee Representatives and other organizations. We currently estimate that these collected cost reductions plus attrition booking dotcom could impact up to about 25% of the global workforce and could produce annualized run rate personnel savings between 250 and 300 million.

The remeasurement losses growing non-GAAP results.

Okay.

Grew nicely October declined year over year about 50% and 58% respectively on a higher rates in the last week.

Room night declined for the fourth quarter will likely vary from October results, especially considering the recent rise of Koby 19 cases on an imposition of travel restrictions on the impact that will have on the level of travel demand and cancellations in November and December.

We expect to revive declines in in November December will be worse than they were in October.

We expect gross bookings in the fourth quarter will decline year over year by several percentage points more than our reported room nights due to negative pressure on local currency Agios and we expect the revenue declines in the quarter will be several percentage points less than the decline in gross bookings primarily due to book to say timing.

Differences similar to what we saw during the first wave of the pandemic.

Given our expectation for further reductions in room night growth from October coupled with continued pressures, we expect that we very challenging to reach a positive adjusted EBITDA in the fourth quarter.

On a more positive note if we compare our internal outlook for the full year 2020, now with where we were we spoke to you in August. We're ahead on all major income statement and cash flow metrics.

Or where we're going and then all the day, but he wants to talk to you about what you want in terms of your today, so talking about the things were doing with flights.

We just started it for booking dot com in the state. So is very very very early but as I have always talked about this connected trip vision flights is a very important part many people start with flight. So we believe that it's gonna be an important way to get more customers into our final and see all the great offerings.

We have now payments is a very important part of our overall connected trip because once I hit you Wanna offer for example, a packages you discuss but we do want to offer at when we get to it you have to have the payment platform you gotta be able to do that because you can't combine two into one price if you're not willing and able to take all the money from.

Custom upfront and then distribute it to the different suppliers, that's the way to do it. So these things are very important to us and it's early but I am please to see is up and running and later on we'll be able to come back to you hopefully with some numbers and give you some in the future some idea of how it's doing.

Regarding alternative accommodations clearly important part of the business, we talked about it last quarter, how many people in the second quarter went for a <unk> alternate accommodations when you compare that to the 20th 19 numbers because for the reason that we talked about safety people wanted to feel that they weren't with a big crowd lots of the issue.

We talked about last time, that's important around the world and we've always talked about how important it is to offer up to our customers every single type of accommodation. They may want and we know my having more selection that improves the proposition to the consumer. So we can continue to do that and I've also talked about how particularly in certain geography, just like the U S.

We were not getting as much of the inventory as we should have and that we know is needed in certain types of alternative combinations, primarily the individual homes and we continue to build that out too because we know people want that one too so strategies to continue to build that out and make sure that we're offering the customer what they want when they want it.

And David I Dunno, if you want to give anything in terms of this question about a year to date.

Yeah, I can provide a little extra color Glenn Alex a response to the question I have just the best way to talk about it thinks it is the third call because the USA numbers are really.

Skewed pretty much about what's happened so far as your cute cute cute too. So just to remind you we have a six month library, let's emailed searches space. We mentioned that we saw a growth in Q3, and all domestic business and to get a little bit a little bit more context around that within the domestic business alter.

Ah combinations grew low double digits, whereas as the rest of the business with the cool business grew low single digit stuck can I give you a spread for how they did relative to each.

The in the third.

Or even changing what they say week to week day to day, and we see each day, there's a new pronounce would buy a new government. What we can say those when these restrictions I put it up we do get cancellations right away of course for people, who are planning to travel a certain regions and that obviously is going to impact R. As book room Nice certainly people.