Q2 2023 Expedia Inc Earnings Call
Good day, everyone and welcome to the Expedia Group Q2, 2023 financial results teleconference.
My name is Colby and I'll be the operator for today's call.
If you change your mind. Please press star followed by the number two to cancel your request.
For opening remarks, I will turn the call over to SVP corporate development strategy and Investor Relations harsh at Bash. Please go ahead.
Welcome to Expedia group's second quarter 2023 earnings call I'm pleased to be joined on today's call by our CEO , Peter <unk> and our CFO Julie Whalen.
Reminder, our commentary today will include references to certain non-GAAP measures reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release, and unless otherwise stated and the defense to expenses exclude stock based compensation.
These statements are based on current expectations and assumptions, which are subject to risks and uncertainties that are difficult to predict.
Actual results could materially differ due to factors discussed during this call.
Our most recent forms 10-K, 10-Q and other filings with the SEC.
Except as required by law, we do not undertake any responsibility to update these forward looking statements.
Our earnings release, and SEC filings and a replay of today's call can be found on our Investor Relations website at IR got Expedia group Dot com and with that let me turn the call over to Peter.
Thanks, Sarah and good morning, and thank you all for joining us today.
Travel demand has remained robust and we were pleased to see our continued execution results solid performance for the second quarter as gratifying as those results are I'm, even more excited with the progress on our platform transformation journey, having just launched <unk> in the U S and continuing to be on schedule with our verbal migration.
We are particularly pleased that we were able to meet our second quarter financial goals, while electing to move some marketing spend from Q2 to Q3, where we believe it can better it can be better spent and supported the launch of <unk> in our accelerated growth in the back half of the year.
Industry trends have remained broadly consistent with the first quarter demand in North America, and Europe has remained stable with stronger growth in APAC and Latin America travelers worldwide continued to favor shorter stays in urban locations versus longer trips and sun and ski destinations.
U S domestic airfares have seeing some declines as capacity increases rental car rates continue to decline as inventories normalized compressed level of last year, resulting in more attractive prices for consumers and more transactions.
Overall, the data continues to show the travel remains a top priority for our consumers.
As I've explained before our B to C strategy is to build products features and customer propositions that attract and help us retain valuable customers and to move those customers into loyalty membership and app usage to amplify their value. These travelers drive higher profit per transaction and higher repeat rates ultimately leading to higher lifetime value.
In addition, as these customers have a higher propensity to come to us through direct channels. This helps us drive future leverage in sales and marketing.
Combination of all of these factors. These travelers have a much higher return on investment and ultimately drive more profitable and faster growth as they stack up over time.
As we continue to move from a purely transaction room night focus world to <unk>.
One in which we focus on customers in lifetime value, we've been able to build a bigger more valuable base of these high ROI travelers, our focus on acquiring and retaining our loyalty members and App users to drive. This strategy continues to show. Good results. This quarter active loyalty members continue to hit new highs and were up 15% year over year in our core brands.
And the percentage of bookings coming through our apps was up 300 basis points sequentially versus the first quarter.
As we rollout our strategy across all our brands in all our markets there remains significant opportunity to accelerate further.
A couple of weeks ago, we took another major step forward with the launch of <unk> in the U S. This is the most flexible travel rewards program in the industry with our core brands unified under one loyalty program offering our customers the ability to earn and use one key cash a simple common currency across our vast breadth of flights.
<unk> vacation rentals car rentals cruises and activities.
In addition to the breadth of this program. This marks the first time any.
Any major vacation rental marketplace will have loyalty, which is signet, which is a significant differentiator against our competition. It's early days, but as we have seen historically our loyalty members are much more productive and is now best in class programs spanning our biggest brands, we expect to drive many more customers into the program and substantially increased.
Our base of loyal travelers.
Overall, our <unk> business is finally nearing the end of its major changes and.
Piece by piece getting the benefit of new capabilities and greater agility that comes from a unified stack with one key off the door. Our last major tech lifted the verbal migration to our main platform. We have already moved 100% of our verbal U S web traffic to the platform and are on track to complete the migration during the fourth quarter <unk>.
As we've explained before we expect some modest headwinds to conversion as we transition, but ultimately the pay off is well worth it with better conversion increased feature velocity and ultimately better performance from verbal overall.
Our single Tech strategy is designed to give all of our brands the benefit of our entire suite of products features including our latest advancements in AI and machine learning to personalize and enhance the customer experience.
On the topic of AI earlier this year, we launched conversational trip planning powered by chat GPT and the Expedia iOS App and last month, we launched it on Expedia Android App.
And we have been learning from consumer interactions and are adding a number of new features to help consumers on their journey of discovery and.
Travelers can now start a new conversation by choosing from suggested prompts and soon they will be able to return to a conversation at any time and even response router conversation by simply choosing a suggested response all of which is designed to bring them one step closer to booking their desire trip.
Beyond the growth and progress we've seen with our brands, we continue to see tremendous momentum in our <unk> business, which grew revenue 32% year over year in the second quarter.
Our <unk> business has greater exposure outside the U S and is benefited by continued opening of markets around the world.
The engine for our <unk> business is fueled by the same technology supply and service that serve our own brands.
And as we have advanced in all areas over the last several years. This has only added to the velocity of our <unk> business we.
We believe we have the most successful and differentiated fee business in the travel world with a large addressable segments still available to penetrate further.
And our wins in the marketplace continue to demonstrate that point in the second quarter, we announced a new partnership with Mastercard, where our tech willpower Mastercard's Global network of issuers, so that their customers can spend their loyalty points on great travel experiences.
We also continue to expand our tech deliveries to our existing partners not only through our core travel products, but through our expanding offering of solutions. After recently commercializing our fraud prevention capability I am happy to announce that our revenue performance API is now in pilot with one of the largest hotel management companies.
As our tech continues to advance driven by our industry, leading AI capabilities and the acceleration of our single <unk> platform strategy. There is much more opportunity to gain wallet share with our existing partners and to scale further with new partners.
So overall im very pleased with the momentum we now have and are accelerating product improvements as we move towards the second half of 'twenty three and beyond.
Over the last few years, we have taken on many difficult challenges in order to transform not only our tech, but our entire strategy.
Thanks, Peter and Hello, everyone.
Our second quarter results with record revenue and EBITDA demonstrates that our strategic initiatives are working and that we have a significant opportunity for long term growth and profitability.
This ongoing strength in the business and enabled us to deliver another quarter of accelerated levels of share repurchases, resulting in approximately $1 2 billion repurchased year to date, our largest buyback today.
Before I jump into more of the details I wanted to remind you that going forward all financial comparisons will be on a year over year basis. It is also important to note that our second quarter 2023 growth rates as compared to 2021.
So saw an approximate 80 basis point headwind into the EBITDA margin now.
Now as far as our performance this quarter, let's begin with that gross booking trends total.
Total gross bookings of 27 3 billion were up 5% versus last year and in line with our mid single digit top line guide.
Both was driven by lodging gross bookings, which were up 7% and were the highest second quarter on record.
Strength continues to be driven by our hotel business, which achieved record gross bookings primarily from strength in our <unk> business as well as in brand Expedia, which saw 15% increase year over year.
This was partially offset by our <unk> business, which was impacted by the shift in consumer demand toward urban markets and shorter length of stays as well as the impact from the <unk> Tech platform platform migration that we mentioned on last quarter's earnings call.
However, given the size and strong growth of our hotel business. We were pleased that we are able to deliver record lodging bookings in total.
Moving to the key financial metrics in the P&L, starting with total revenue revenue of $3 4 billion was up 6% versus last year in line with our mid single digit top line guide and was the highest second quarter on record.
This was partially offset by softness we havent seeing in insurance and car to categories that have been impacted by some industry wide changes post pandemic free insurance, we are seeing lower attach rates as consumers appetite for insurance normalizes and the car we are continuing to see rates decline as supply has increased.
Total revenue margin increased 10 basis points to approximately 12, 3% versus last year, primarily due to an increased mix shift to lodging revenue, which has higher revenue margins.
Cost of sales was <unk> 3 million for the quarter, which is lower than last year by $13 million or 3% with approximately 110 basis points of leverage as a percentage of revenue versus the second quarter of 2022.
Driven by ongoing efficiencies across our customer support and other operations.
Our customer support operations continued to benefit from the various automation initiatives, we have implemented over the past couple of years and we will continue to find more efficiencies in such areas as the cloud and license in maintenance costs, when we finalize our migration to one platform and eliminate redundant systems accordingly.
Direct sales and marketing expense in the second quarter was $1 6 billion, which was up 2% versus the second quarter of 2020 channel.
The primary driver of this year over year increase was related to an increase in commissions in our <unk> business to support its strong growth of over 32%.
As we've noted in the past commissions paid to our <unk> partners fall into our direct sales and marketing line and overall, a more expensive as a percentage of revenue in our <unk> business.
But as they are generally paid on a state basis and to a contractually agreed upon percentage that returns are more guaranteed and immediate.
This increase in BW direct marketing costs was mostly offset by marketing efficiencies in our <unk> business. This quarter and resulted in marketing leverage as a percentage of gross bookings as compared to the second quarter of 2022.
These BDC marketing efficiencies resulted from the benefits, we're seeing from our continued investments in loyalty and App members as well as our decision to move some of our planned spend in the second quarter to the third quarter to tie it more closely with one key launch and to support our accelerated growth in the back half.
While marketing will fluctuate quarter to quarter, we were pleased to see this marketing leverage.
Overhead expenses were $627 million, an increase of $77 million versus last year or 14%.
While we remain disciplined on our overall cost structure as we have said over the past year. We have continued to invest in talent across our product and technology teams to support our strategic initiatives and we're pleased we were able to more readily filled these positions given the surplus of top tier tech talent in the market.
We also saw higher salary expense associated with our annual compensation increases this year, which went into effect during the second quarter and was the primary driver of the overhead increase from the first quarter.
As we finish our technology work in the coming quarters, and look to redeploy resources and deprecate systems next year, we expect to realize cost efficiencies going forward.
Despite this overhead pressure, we were pleased to see that with another quarter of strong revenue and overall expense disciplines, including our decision to shift some marketing spend we delivered record second quarter EBITDA of $747 million, which was up 15% with an EBITDA margin of 22, 2% expanding approximately 190 basis points versus the second quarter of 2020.
Dale.
Our free cash flow remained strong at $3 8 billion year to date the year over year decline is primarily associated with changes in working capital from the timing of payments last year as the business emerge from omicron, we saw meaningful increases in some of the working capital drivers like payables, which has since normalized this year, we remain pleased with an ongoing robust cash flow.
On the balance sheet, we ended the quarter with strong liquidity of $8 8 billion driven by our unrestricted cash balance of $6 3 billion and our Undrawn revolving line of credit of $2 5 billion, which provides us with ample access to cash to operate the business.
From a debt perspective, our debt level remains at approximately $6 3 billion, but with our expanding EBITDA. Our gross leverage ratio has come down from the first quarter <unk>.
Six times, we have started to make progress towards our target gross leverage ratio of two times and expect to make continued progress in the coming quarters through EBITDA growth and potentially some debt repayment.
As far as capital allocation, given our streak of strong free cash flow levels in our stock price that we believe remains undervalued, we have been buying back our stock on an accelerated basis to maximize our return of capital to shareholders. As a result, we bought back approximately $1 2 billion year to date, our nearly 12 million shares our largest level of repurchases to date.
We continue to believe that our stock price remains undervalued and does not reflect our confidence in the expected long term performance of the business. Therefore, considering our ongoing strong liquidity and free cash flow, we expect to continue buying back our stock opportunistically throughout the remainder of 2023.
Looking ahead, we are reiterating our full year outlook of double digit topline growth with margin expansion as it relates to the third quarter, we expect year over year gross bookings growth to accelerate to high single digits. This acceleration is driven by brand Expedia and <unk>, partially offset by <unk>, which continues to face short term headwinds from its migration.
<unk>.
We expect EBITDA margins to stay relatively in line with last year, while we expect to see continued cost of sales leverage as previously mentioned, we will be investing in marketing to support the <unk> launch and to set us up for a strong back half.
Overall, we expect fourth quarter, we'll see a more meaningful acceleration, both topline and bottomline growth has variable finishes its migration to <unk> impact starts to kick in and the growing base of App members drives more production all of which gives us confidence to reiterate our full year outlook.
In closing we finished the front half of 2023 on a strong note with record second quarter revenue and EBITDA. We are pleased to see the continued momentum even while we continue to transform the business and navigate associated headwinds are accelerating product improvements give us confidence that we're on the right path and that there is a huge opportunity in front of us to drive.
Long term profitable growth and to maximize shareholder returns and with that I would now like to open the call for questions. Thank you.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
If you'd like to retract your question. Please press star followed by the number two we will pause just for a moment to compile the Q&A roster.
Your first question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open.
Thanks, so much for taking the questions two if I could.
In terms of forward bookings trends.
On the commentary broadly about this summer.
With the industries, obviously, you had some tailwind from elements of longer booking dynamics as we've come out of the pandemic are we seeing more normalized behavior with respect to forward bookings and was there anything to call out either in consumer behavioral geography, and look forward booking trends to choose one highlight and then in terms of thinking about the exit velocity for Grupo.
We feel we can quantify elements of what one key mix and easier comps might mean in terms of reacceleration of turbo exiting the year. Thanks, so much.
I would call a relative normalization of seasonal trends in booking trends. There is obviously some dynamics around what is opening or new more newly opened and what has been open for a while as we've seen for example, this year the summer with lots of travelers going to Europe , where maybe they didn't go last summer.
So opening up and more travelers going there of course parts of Asia like China are still don't have full air lift out of China. So there's still differences, but I think broadly in terms of the effective like.
Covid.
Last year, we had over the first quarter and then the second quarter was a huge quarter because things opened up after omicron, that's kind of normalized out and I think in terms of booking windows booking trends they are moving around a little bit, but by and large they're normalizing to what I would call generally pre pandemic patterns.
So I think Thats. The main thing in terms of Geo again Asia will open up more that will there will be more travel there we're seeing.
Pack and Latam growing faster because of those things opening more recently.
So that's certainly a trend but.
But again I think that normalizes once its been opened call it a year or so.
And then as far as <unk> goes.
Hard to quantify I mean, obviously.
Consumers switch from from verbose or vacation rentals generally to more hotel started happening in the back half of last year.
And earlier this year, so thats sort of a macro trend as.
As far so we'll be lapping some of that now as we get into the back half of the year.
But as far as our journey goes yes, <unk>, we think is a big opportunity for us with <unk>.
First on the verbal customers will have loyalty, it's a chance to get them involved in our whole universe of products. So we can bring them into to the other products. Obviously know expedia members hotels dot com members can use their points on verbose. So we think that becomes a very attractive reasons.
So we definitely think <unk> will drive a lot of cross shopping between the products.
Hard to quantify yet, but thats, our core belief in what we're trying to do with <unk>.
And then as far as the migration goes as we've talked about you're changing the product youre moving it across the last piece will be moving the app, which is very binary. So you do tend to do it at the end, that's still coming but but we're excited about what the product will be able to do we're excited about having all the products on one stack and being able to innovate.
Ross all of that together and as we've talked about for a long time that will eventually lead us to be able to sell much more easily verbal products across all brands across our b to b products et cetera. So.
We don't have a number for you, but I think broadly I think we're going to lap the.
Macro trends of shift from from vacation rental two hotels later this year.
Then the migration stuff will still be around for a few more months, but.
But we're excited about being tested and the opportunities that presents.
Great. Thank you.
Okay.
Your next question comes from the line of Lee Horowitz from Deutsche Bank. Your line is open.
Great. Thanks, two if I could so you talked about some of your marketing spend getting pushed from the second quarter to the third quarter in order to support the <unk> launch can you maybe help us better understand how this may have impacted bookings and nights in the second quarter royalty relative to your expectations and then maybe Relatedly can you talk a bit about how you think <unk> sure.
Pace throughout the second quarter and what your expectations are for sure as you move through the balance of the year you drive that accelerated growth across a number of your properties.
Hi, there this is Julie I'll take the first one.
Yes, I mean, obviously I'm sure there was some impact to the second quarter as a result of our decision to shift the marketing at the end of the day, our topline was hitting our expectations and obviously, what we had told the street.
About mid single digits, and so we thought the right choice of action was to take that spend and to get the best return to tie it nicely with our one key launch and also to set us up for the back half. So we made the decision to take that money and push it into the into the third quarter, but sure could we have spent.
Spent more than maybe gotten some incremental <unk> bookings in the second quarter share, but we thought this was a better path to take.
And then I think.
The sharepoint plays into that we feel like we've been.
Holding share.
Our core markets, we've been gaining in some of our.
Outside North American markets outside U S markets and a number of places so again as Julie said, that's all sort of plays and together, which is we're trying to of course drive the best return on our investments.
Thought there was better return when we have the extra hook of one key we felt like we were holding in places and we could have spent the money to drive some more bookings into Q2, but we felt like the return was better.
Waiting weeks several weeks many weeks to push it into the into July when we were when we were launching with <unk>. So.
It's a small movement in the scheme of things of course, it moves around margins, a little bit and it moves around yes. It moves some bookings from Q2 into Q3 and yes. It moves some EBITDA maybe into Q2 instead of Q3, but in the scheme of things.
We're trying to spend their money as efficiently as we can.
We launched <unk> as soon as we could basically and would have been nice to.
Obviously launch it sooner, but this is when we could get it out the door and we think that there.
Is better returns attached to that hook, and getting customers and getting them engaged and <unk> getting those return dynamics and direct dynamics, where we want them. So that's why.
In the scheme of things not huge dollars or anything, but we moved a little money and sure that cost us a little bit of <unk> and revenue.
In Q2, and will mean, a little bit of extra spend in Q3.
Helpful. Thank you.
Great. Thank you.
Think about the acceleration that youre looking for in the third quarter.
Do you see that as being focused in the U S. In D C given the.
The <unk> launch or is it or is it going to be more broad based.
I think it's.
It's a number of things so as I mentioned, Kevin we are seeing good growth as we've pushed back into some of our foreign markets, where we've where we saw opportunity and thats been going reasonably well in the scheme of things, obviously U S being so big for us to accelerate broadly we also need the U S to accelerate so thats a combination of a number of things which.
Which are yes, one key starting to kick in but Q3 is early days right <unk> loyalty program designed to Incent return.
Certainly attractive in terms of major first purchasing get valued but I don't think we're not expecting massive impact in Q3 from one case, we're just seeing good acceleration in the market. Obviously, the Q2 comps were tough because of last year.
And as Julie alluded to some of the strange insurance dynamics and other things normalize out in Q3 as we lap that in Q4. So the acceleration is really just a continuation of.
We see strong demand we've built this base of consumers.
But we continue to build on that are repeating more than having behaviors might go out more and that just keeps building and one key enhances it and.
And that's really the core of it but it's not just in the U S.
The growth is also outside the U S. But I will say a lot of the acceleration certainly is coming from B to C as opposed to more acceleration in beauty.
Great. Thank you and then could you just touch on the Capex expectations for the rest of the year and drivers there. Thanks.
Even in the last quarter than we had expected. This we are putting more into capitalized labor in order to.
<unk> hit our strategic initiatives. This year, obviously, there is a lot of transformation that we have still been pushing through this year I E <unk> launch and convertible migration and things like that and so literally. This is just a function of higher capitalized labor to complete out these projects and as we go forward, we don't expect it to be as much in these elevated levels as well we will start to get the return.
From these projects that we're putting in place.
Great. Thanks Julien.
Your next question comes from the line of Justin from post your line is open.
Your next question comes from the line of Mark Mahoney from Evercore ISI. Your line is open.
Let's see I wanted to ask two questions one.
The.
Travelport onto that Chad GPT experience that you have on the site what have you seen so far in terms of.
I think there is enormous potential here I, just don't know how long that takes and whether there's just a ton of tweaking that needs to happen in order to really get it right.
How do you feel like what have you seen so far in terms of engagement.
Kind of led to increased conversion rates and if not maybe it's just way too early but whats a reasonable expectation for when you could actually see that.
The other thing is on the one key and now that you're rolling it out can you set an expectation for when you think you'll know when you. When you think we will see kind of the impact that has just recently launched but is that something you would take one quarter or is it one full year before you really can tell how successful that's been in terms of deeper engagement.
And maybe are attracting newer users. Thank you.
Yeah, Thanks, Mark so on <unk>.
It's interesting at a ton of promise. It is early days, we've been studying it I won't say, it's moved the numbers in any way that you could see.
And the customers, who like to engage with it like to engage with lots of customers don't need it or don't choose to.
I think the future though lies much more.
Better integration, which will come as more of a large language models come out and we figure out how to embrace them with our own data right now that kind of lift separately.
Can do a bunch of discovery with the tool.
And then save things income investigate with us over time, there will be ways I think.
We're not sharing your personal data with Chad CPC, but where we can combine their capabilities with our data and use that to serve you better. So this is going to be an evolution of experience. That's what I mentioned, we've been learning we've been studying where customers get stuck what they can't seem to do some of them don't exactly know how to engage or start a conversation. So theres a lot of work.
Just by us, but by the industry around the large language models on prompts.
And other ways to get customers through its more easily and I think all of those pieces will add up to more impact, but the impact now.
It's basically the minimums that you wouldn't see it in the numbers.
As for <unk> I think that's more of a gradual build obviously theres a couple of different things Youre looking for there is the appeal of having a strong broad flexible best in class rewards program to attract customers and make them chose us over other people and then there is the back end part of the when do they come back.
Directly once you've got them in the <unk> program.
And hopefully once you've got them to download the app and now do they exhibit the behaviors of coming back so that second part it takes longer because as we all know people don't.
Some people don't travel all that often so it takes time for them to come back and book again et cetera, even though many book a lot.
And then the first piece, we should start to see as we we've.
Literally just launched at the <unk> you may have seen the ads. The campaigns are out there are starting to put the messaging into all our performance marketing in all our.
Streaming anything thats out there digitally et cetera into our out of home. So it will continue to build and Youll start to see it show up in all our marketing for all our brands.
We believe that is our hope that we'll continue to make intelligent consumers choose us because we'll be a better value with that gives them more back.
That part we should begin to see sooner and Thats why we think that will start to have a bigger impact into the back end of this year, but the longer range part of return and direct and driving those things that will take a little longer to play out in the numbers.
Okay. Thank you very much Peter.
You bet.
Your next question comes from the line from Justin Post from Bank of America. Your line is open.
Great. Thank you sorry about that drop off.
Could you talk about the customer and BDC customers. It seems like you've tried to improve that quality base and maybe the street doesn't doesn't see it in the numbers yet.
What gives you confidence there are higher repeat rates. You said you had some leverage in the quarter or was that timing or was there is there some real improvement youre seeing on the BDC side on marketing leverage and then one question on one key starting to see some discounts on the site. How do you think that allows you to better compete against against booking.
And who is funding those thanks a lot.
Okay.
Maybe I'll take those in reverse order.
The.
Sort of a factual ones first so yes, one of the pieces with not that relevant for it necessarily to the investment community, but it is important for the consumer as we've expanded our member discounts as part of this <unk> launch so that where we used to have one level basically of member discounts.
We now have blue silver gold levels, and there are more discounts or higher tiered members and that is part of the value proposition that we give to our consumers. Those are funded by our supply partners, it's a way for them to get to better and better for higher value travelers.
And then that is an important added feature that we launched with them we will be expanding over time, so that is certainly.
Booking does has had has had tiered.
Discounting from some of their supply partners and that is a feature we have not had before so I think yes that is a it's good competitively I will say that we also think we have those discounts on more on more valuable hotels.
Cohorts perform we know those cohorts perform for lots of good and thoughtful reasons much better. So a member of course sees the member discounts gets the loyalty rewards and so forth and have member does even more typically it comes back more directly all good things so as we build up those pools and our blend.
Total consumers and total transact and consumers is blended towards these pools that have higher repeat rates higher LTV et cetera, We're essentially building and bank of more value that's left to play out in the future. So that's why we.
We do have confidence in what we're doing there obviously, we've done, particularly well as I talked about before and Expedia U S. Now we're doing it in more countries now.
Working on doing it with <unk> Com and then expanding that as more countries now we'll be able to do it in vivo as well. So there's a lot of that's why we say we have a lot of runway left here, but we can see it happening where we've had intense where we spent according to that where we've driven the product move more customers into membership into sign up into the app.
Every step in that journey it creates more value for us.
Great. Thank you.
Okay.
Your next question comes from the line of Lloyd Walmsley from UBS. Your line is open.
Thanks.
Any anything you can share in terms of just early feedback going back to one key on maybe cross shopping.
And then <unk>.
As in conversion rates at <unk> now that you have loyalty anything interesting there.
And then as part of that.
Anything in terms of cross currents from H com customers, given theyre getting diluted there as part of one key.
Would love some some help understanding that.
Sure.
I think to the first one is the short answer is it's too early I mean, we've converted more than $70 million don't have today's count, but over $70 million.
Consumers into the <unk> program. These are existing members and also new members that have joined in the last few weeks, we've had lots of new members join in vivo.
<unk> been able to activate some customer who may be using verbal and.
It may have been a customer of one of the other brands a long time ago, but now they are in the program, where they will see the benefit in the other brands. So we.
We've done a lot of sort of the core work of getting customers align getting their accounts right getting their accounts consolidated if they had reports in different places.
Which was complicated so we've made huge progress it's too early to say that.
Theres not enough signal yet to say what people are doing acting behaving differently and doing lots of different things and even in <unk>. There's a lot of crosscurrents with the migration happening at the same time is launching <unk> in a lot of our barbell customers, even though theyre drilling getting a great benefit there.
They are having to understand like wait a minute. There's a membership program what is it do I sign up to it. So there is the usual issues of launching something new and a product experience that people are accustomed to but we've seen a lot of great response.
A sign ups and.
I wouldn't say necessarily massively incremental in terms of the velocity, but just a lot of people engaging with it and signing up.
And then as far as <unk> goes.
We have there is a little bit of noise from our heaviest users about what does it mean for them, but I will say, we've taken care of them. We've made sure that the value. They had did not get diluted and our view of the new program is that they get much more value through flexibility they get value through the deeper discounts, we just talked about a number of discounts so.
While it might not be constructive exactly the same our heaviest users will get massive benefit and in our opinion more benefit than they can get anywhere else and travel. So it's not like we went from we love you won't give you all of this and now we're going to devalue year program and that gives you a we're actually carrying over their value and we're giving them huge incremental flexibility ways.
To spend their value on slides on verbal all kinds of things they couldn't do before and far more member discounts and other.
Hi, and benefits for our heaviest users gold.
Et cetera. So.
So theyre going to get a ton of value and they just have to make.
I think the industry has trained people to think they're going to lose out every time.
Loyalty program changes. This is not one of those circumstances I wont say theres not a single customer who won't find that they don't like this one as well as the last one but this is a great program with a lot of value for the heaviest users and I think they will all come to understand it and love it.
And appreciate the benefits what they got even though it might be slightly different than it was.
Okay.
Alright, thank you.
Thank you.
Your next question comes from the line of <unk> Khan from B Riley Securities. Your line is open.
Yes, hi, Thank you a.
Couple of questions.
I think I heard you say you might have gained share.
International markets in our Midland peaked.
What may be driving that any any kind of commentary there would be helpful. And then I have a follow up.
Yes, I think it's really just intent on our part.
As we reacted to Covid and we started rebuilding things.
And in a number of markets in the rest of the world, we back down spend a little bit and we got.
A little more conservative as we wanted to build our new mousetrap as it were and I think now that we have greater confidence and all the things I've talked about membership.
The value of App downloads and so forth, we've been driving back into a number of international markets, where we think they're good returns and we've been seeing nice returns now.
These are modest changes in the scheme of things Theres nothing dramatic happening, but we're just seeing.
No what I call low hanging fruit and opportunity for us to move back into some of these markets and.
In a smarter way so.
So again not a huge story there just that we feel good about generic in the U S.
Feel good about.
What we're seeing early signs as we pushed back into these international markets. So so on share we're feeling reasonably good.
With more understood.
Yes.
The follow up I had is around.
Diving and we are hearing some.
Some commentary from other players about.
Maybe some increased competition.
Maybe in Europe .
Just curious if youre seeing anything there and anything to say.
Today about <unk>.
<unk> format and the recently introduced property listings in the search.
Yeah.
On the last part you're talking about vacation rentals is that what youre talking about.
No.
But I think the.
To use the new format into the main search.
I don't think we've seen anything particularly.
Different in terms of inflation or not in the auctions and the auctions have been inflating over the last several years.
And.
And of course, they're highly competitive, particularly amongst the biggest of us.
But.
No I don't think we've seen anything thats.
Of any concerns et cetera over over what's happening in terms of pricing in those markets and of course, we are trying every day to find better opportunities higher long term return opportunities to invest our advertising dollars and app downloads or other kinds of.
Environments, So I say that encourage those behaviors.
As opposed to just just Google option. So I think we're probably not alone in that but that's been a core part of our strategy as we've tried to get away from simply trying to buy transactions and getting much more focused on what consumers, we by getting them into the right state in the App and so forth. So that's.
That's an ongoing journey for us, but thats the direction that journey will keep going on forever.
Got it thank you.
Thank you.
Your next question comes from the line of John <unk> from Jefferies. Your line is open.
Your next question comes from the line of Jed Kelly from Oppenheimer <unk> Co. Your line is open.
Okay great. Thanks, Thanks for taking my question just two if I may just one just on.
The airlines have recently called out weaker domestic trends is there anything where there is just softening underlying demand or is that the pattern shifts that you've kind of mentioned earlier.
And then just thinking about your back half brand spend can you just talk about the efficiencies you plan to get on being able to market. All your brands under one loyalty program versus marketing all separately and are you going to continue to market each of your key brands separately. Thanks.
Yes sure.
So I think as far as the Airlines go I mean, we have seen.
You've no doubt heard that pricing has softened a little bit in domestic air in North America.
There's a little bit more supply and yes, there has been high demand for international So I think it's been mostly a shifting of patterns. It's not total consumable dollars. Obviously in every industry not everybody participates the same way some are more domestically focused others have bigger international exposure, but in terms of <unk>.
Tumor demand I would say it's broadly.
Steady and good and that there hasnt been there.
There are places that fall in other places the rise, but but overall the consumer has been acting.
<unk> and strong so I don't think there's anything to see there other than moving moving geographical trends in consumer trends in terms of what they're looking for.
As far as the brand spend and again this isn't I don't want I Wouldnt get focus on the word brand spend as we conventionally think about it as spend against our <unk>.
Our business, which could be Martin brand spend it could be performance marketing it could be up it could be a lot of things when we say we wanted it to support the <unk> launch it's not in the sense of like we needed money to buy TV spots. It's in a sense. So we bought our money with the hook of one key out.
Out the door would be more efficient as we drove consumption be it through Google auctions or be it through digital advertising various guidance or TV. So that's what we were talking about.
As far as how we're going to spend we have a campaign out now that is very focused on <unk> as a concept and the three of them coming together, but our intent is for at least for now to keep marketing each brand.
Then they will all have a touch point to <unk> and make clear that they are.
Sibling brands are in part of one big umbrella loyalty program, but they will each have their own.
Brand identity in terms of what their consumer proposition is and how they deliver it to the consumer.
Thank you.
Okay.
Your next question comes from the line of John <unk> from Jefferies. Your line is open.
Great. Thanks for taking my question, sorry about the drop earlier.
Wanted to talk a little bit about the <unk> rollout can you help us understand what's changing from a loyalty perspective across each of the individual brands and how we should think about the sort of a collective impact take rate from these loyalty changes and perhaps some sort of other potential merge.
Diving changes related to the rollout.
And can.
Can you also help sort of talk a little bit more about the puts and takes of the acceleration in bookings growth.
Next quarter.
The advisors slowdown shifts in marketing spend.
And maybe some pull forward in the last quarter into <unk> from <unk>.
But I'm also curious if you've started to see an inflection point and some of the smaller brands, where they've gotten small enough to not have as material an impact on the overall business. Thanks.
Starting with one key.
Basically I think the simplest way to think about it is.
<unk> is closest and what it offers to what the Expedia program was the brand Expedia program was historically in that.
Your endpoints the points are worth money you can spend the money.
Some things have changed I mentioned the member discounts, we now have silver and gold member discounts. There is added benefits for those silver gold platinum members that they get but it's most similar so that's I would say the least the change in the sense that you could already use that currency across many products.
We couldnt really you couldn't use it and Bravo.
That was the one missing piece, so maybe the way to think about that as you've added <unk> to the pod and those consumers can now benefit when they want to ramp up with vacation rental.
Hotels Dot com.
Many of you are familiar had a very rich program for the Super user.
Book 10 rooms, you'd get a ninth free.
And that was a very valuable benefit for super user, but the vast majority of users didn't get a benefit because they never stayed enough nights. So we're trying to make that program much more attractive to all users while still keeping it very attractive to the super user for all the points I went into a moment ago as to why they would.
Finding incremental value there and again you can only use that on hotel product now you can use it on anything.
And that's a lot more flexible more vast and you can do a lot more with it and then of course <unk> had nothing now vertical will have rewards, which maybe doesn't have et cetera.
And youll be able to use it for your next verbose day, but you can also use it to go to a hotel or resort or take your family on a flight or whatever so.
So again it just gives all of our customers a lot more ways to use it for a lot of different occasions and for a lot different products and ultimately.
We're trying to build the base of loyal customers that use us for all of their travel needs that can go across whatever they need and.
Spend more with us buy more products from us etcetera. So.
That's the game we have all these brands all of these capabilities. We wanted the customers to benefit from all of that so the patterns. We're looking for is cross shopping.
More items per customer higher ltvs more direct.
More app direct et cetera. So that's why we think <unk> really helps drive.
As far as the puts and takes in the back half of bookings your point about the smaller brands as part of it yes. The smaller brands that we have de emphasized for some time now are getting smaller and that drag is getting lighter all the time.
We mentioned some of the things going on with insurance normalizing post Covid and a few strange effects. There that's normalizing in the back half of the year.
And lodging continues to grow driven <unk> continues to grow most through backs, but HQ. Both both brands are getting stronger in the back half after the tough comp and so you are basically getting the strong pulling more weight and getting bigger.
So the sort of noisy stuff, making less noise and and overall, we see good velocity in the business right now and we're seeing it continue and we feel good about all the product improvements I mean this has also been a journey of improving product improving conversion improving sign an improving app download like all of those.
Things are part of that journey, so everyday they are literally getting better and stacking up on themselves. So I think.
That's a long journey and there is no magic to why it's going to hit next Tuesday, but.
With verbose migration done with <unk> with a huge amount of resource for us out the door.
Things the velocity of other innovation gets faster and faster and that's that's what we're focused on.
Very helpful. Thank you.
Okay.
Our final question comes from the line of Deepak <unk> from Wolfe Research. Your line is open.
Great. Thanks for taking the question Julian can you help us with the full year guide on margin expansion, we're almost I mean into the peak travel season, and then you said that <unk> margins will be flat year on year, but any way you can frame us frame for us what the full year margins can reach two and then kind of related to that how should we think about the headwind from <unk>.
Cost growth.
Obviously, you have a little bit of duplicative cost right now with all the re platforming effort is there a timeline when we can expect this to.
Sadat Laker start to show leverage and maybe you can deploy them for other projects. Thanks, so much.
Sure on the margin side, the EBITDA side, obviously this quarter's leverage certainly helps on a full year. We did guide to next quarter being more in line with last year and that is as you mentioned the shift from the marketing spend that we have but for all the things that Peter just alluded to the strength of the business in the back half, particularly in the fourth quarter.
We expect to see strong margin expansion in the fourth quarter that will help us on here. So it's accelerating.
Top line, which will leverage the entire P&L, including marketing leverage in the fourth quarter that we think will drive that expansion.
From a headwinds from a fixed cost perspective, certainly we are going to be aggressive as we move out of this year and come out of the transformation phase two finding efficiencies across the P&L and as we've said we have got redone.
Redundant systems for very good reasons, why we're going through the migration. This time that will be starting to deprecate those systems and pulling costs out of the P&L and whether that's cloud cost licensing and maintenance repurposing.
Some of the product and Tech staff to now go on the offense and go after optimization and innovation instead of.
Migration Theres, a lot of opportunity to really dig through your costs and call that out as we move forward, but that's probably more of a 2024 going forward focus, but certainly with all of that optimization is while we should be able to leverage the P&L next year. So super excited about that.
Got it thank you very much.
The final question. So thank you all have a good Thursday I appreciate your time take care.
Yeah.
That concludes today's call you may now disconnect your lines have a nice day.
Yeah.
Yeah.
[music].
Okay.